Building on synergies

Usha Somayaji
13 August 1999

For nearly a decade and a half, the Firodias' Kinetic group felt constrained by its agreement with the Honda Motor Company of Japan, its partner in scooter maker Kinetic Honda Motor Ltd. After a by-now-familiar process in which the Indian and foreign partners jockeyed for dominant position, the Kinetic group acquired Honda's shares in the joint venture for a sum of rs 45 crore. This happened in end 1998.

The first task before the Kinetic group was to streamline its production units – mopeds from the Ahmednagar plant, scooters from the Pithampur plant near Indore, and motorcycles from the Koregaon Bhima plant near Pune. But much mor ehad to be done to derive the most from the synergies that existed between group and recent acquisition.

The buyout has helped combine synergies in the two companies, especially in marketing and finance.

Marketing and finance
Says Sulajja Firodia Motwani, joint managing director, Kinetic Engineering Ltd, "We had about 200 dealers for Kinetic Honda, and about 300 for Kinetic Engineering. The Kinetic Honda dealers were primarily in large cities, while Kinetic Engineering dealers had their presence mainly in smaller towns. These have been brought together, to sell the whole range of Kinetic two-wheelers, so we have a presence in both cities and smaller towns. And the customer has a wider choice."

The acquisition has helped with finance. "Finance is becoming very important for the sale of two-wheelers. Everybody is buying on instalments. Even in small towns people want to know what scheme is available. There are many big companies that provide finance, but only in the big cities. It was a critical part of our strategy to have a private label finance," Ms Firodia Motwani.

Kinetic had three joint venture finance companies, Twentieth Century Kinetic Finance (with Twentieth Century), operating in the west and south, Integrated Kinetic Finance Ltd. (with the Integrated group) in the south, and Kinetic Capital Trust in the north. "These companies had substantial expertise in systems and the business of financing. But they were partly financing our products, partly financing other consumer durables. So we were not getting the full benefit."