Story by: Deven Lad
Greaves Cotton Ltd. has found success with new levers of growth. Ranked 13th in Fortune India’s Mid-sized Marvel section of ‘The Next 500’ list, the company continues to contribute strongly to the affordable and last-mile mobility ecosystem. On one hand, the company has tightened its grip through a refreshed positioning in the engine and engine products business with its BSVI range while on the other hand, the Original Equipment Manufacturer (OEM) is counting on its diversification into new businesses like emobility and cleantech solutions. Helping it withstand the headwinds, the new businesses include new engine applications, MB Spares and new mobility. Notably, it has helped the company add Rs.400 crore to the overall revenue since FY2017 (including growth delta). In effect, from contributing six per cent to the overall revenue in FY2017, new businesses have grown to contribute 21 per cent to the overall revenue in FY2020, at a near 4x growth rate.
Revenue for FY2020 from new mobility segments as a subset of the new businesses is pegged at Rs.145 crore compared to Rs.48 crore in FY2018. According to Nagesh Basavanhalli, Managing Director and Chief Executive Officer, Greaves Cotton Ltd., the company continues to accelerate its new business initiatives and scout for new levers of growth. Averred Basavanhalli, “We are offering uninterrupted journeys in the affordable mobility space where we play in the heart of the market in the price band of Rs.35,000 to Rs.80,000.” “We are optimistic of growth in the electric two-wheeler and e-rickshaw segment coupled with allied segments where we also see an uptick,” he said. The company in 2015-16 had decided to diversify the business to cleantech sectors and in the non-automotive domain. In the non-emobility segment, the company provides affordable mobility solutions, manufacturing four lakh plus engines annually. The company had crossed five million engines at the end of FY2019.
Shifting emobility levers
Building a strong EV portfolio under the Ampere Electric Pvt. Ltd. umbrella has the company command a 21 per cent market share amongst the organised players. The portfolio has been further strengthened by expansion, acquisition and the recent new electric scooter – ‘Ampere Magnus Pro’ launch. It joins the existing products: ZEAL and Reo Elite in the electric two-wheeler portfolio. In line with the 3R approach, through Ampere Vehicles, the company recently announced the acquisition of Noida based electric three-wheeler company Bestway Agencies Pvt. Ltd. (BAPL). Speaking of the acquisition, said Basavanhalli, the objective was to build on the company’s strengths. “We command a 70 per cent market share in engine, three-wheeler and the passenger-cargo segment that makes up the last-mile mobility. The idea is to cater to the customer needs for a complete ecosystem in this segment where the building products will cater to the duty cycle, service, spares including financial services through Greaves Finance.”
Greaves Cotton has acquired a 74 per cent stake in BAPL with an objective to accelerate the development of cleantech solutions especially aimed at offering affordable last-mile mobility. BAPL sells e-rickshaws under the ‘Ele’ brand, claimed to be amongst the top three brands in the organised markets of East India besides its stronghold in Eastern Uttar Pradesh. The latter also sells parts of electric three-wheelers and has a presence in 16 states operating with 125 dealers including a manufacturing unit in Greater Noida. With a claimed strong B2C presence in the mass market passenger segment, BAPL is known to have ventured into the cargo carrier and B2B commercial mobility segment with custom-built applications. The BAPL development, manufacture, distribution and sale of electric vehicles, includes e-rickshaws and e-loaders but does not limit to it. Among potential new launches from Greaves Cotton are the Lithium-ion E-Rickshaw and E-Loader.
Ampere Magnus Pro is a high speed, top of the line product with a lot of technology left to be launched on the Ampere side.
With the new acquisition, the company is hoping to address a wider range of customer segments. The first phase of the acquisition (74 per cent) was scheduled to be completed by July 30, 2020, and subject to closing conditions. For the first phase of the acquisition, an upfront cash consideration of rupees seven crores (includes share purchase consideration, and non-compete and non-solicit fees, payment being subject to completion of pre and post-closing obligations). The second phase of acquisition (26 per cent) is aimed at by August 2021, subject to various conditions agreed between the two entities.
Lithium-ion E-Rick
Financial snapshot
Net operational revenue for the fourth quarter ended March 2020 (Q42020) stood at Rs.359.58 crore compared to Rs.494.67 for the previous quarter (Q32020). The net profit stood at Rs.10.03 crore for Q42020 compared to Rs.54.05 for Q32020. For FY2020, total revenue stood at Rs.1821.11 crore with the net profit amounting to Rs.147.51 crore down from Rs.169.30 crore in FY2019. The company has grown at a Compounded Average Growth Rate (CAGR) of four per cent for the period FY2017-20. For FY2020, Ampere’s net revenue is pegged at Rs.89.8 crore with a Profit After Tax (PAT) at (-) 20.4 crore attributed largely to higher expenses compared to the previous financial year.
Covid-19 material impact and China trade
According to Basavanhalli, the Covid-19 pandemic has slowed down the entire industry and Greaves Cotton is not immune to it either. “The pandemic has directly affected both the demand and supply side creating a severe impact on the overall economy.” Citing liquidity pressures, he acknowledged the downward pressure on the sector as a whole. He added that the company had re-evaluated and accelerated select plans to bounce back. “Our business practices and strong Enterprise Risk Management (ERM) framework has helped in dealing with such an unprecedented crisis. Our approach has been to respond and not react to critical situations,” he expressed. Further commenting on it, he added, “We’re watching both the demand side and supply side and taking required measures internally.”
The company is known to have utilised the opportunity to prepare its responses to the post Covid-19 reality where the focus remains primarily on ensuring readiness to jumpstart operations by implementing social distancing at factories with cautious optimism. The Company is claimed to have prepared a well-chalked out plan to deal with the crisis situation and put in place a comprehensive action roadmap across its various functions. There is pent up demand across gensets, engines and farm equipment, he stated. Speaking on the China trade barriers, admitted Basavanhalli, China had majorly attained volume efficiencies owing to economies of scale. To create an alternate supply chain, the company is looking to accelerate its localisation levels by developing and designing new supply side frameworks. As of current, the company is heavily dependent on China with lack of alternatives for the immediate near term.
Aftersales organisation and digitisation
Deploying a 3R Approach, the company has turned agile to be able to ‘Respond’ to challenges and opportunities with a quick turnaround time; ‘Redouble’ efforts to meet quick business objectives and ‘Reimagine’ positioning to fuel its future growth strategy. The measures include cashflow management, manufacturing and supply chain stabilisation, working capital management, cost management, enhancing supply chain flexibility, accelerating channel expansion and customer acquisition besides reimagining partnerships and alliance among other strategic initiatives pertaining to not just the near but the long term. The company continues to aim to sustain a dominance in after sales and service market. The company aiming for a stronger aftermarket play has a network of upto 6300 retail outlets, 10,000 mechanics backed by a mechanic loyalty program. Deemed as the fastest growing electric two-wheeler brand, Ampere alone boasts of 385 outlets to cater to an estimated pool of 20,000 customers.
Business outlook
Greaves Cotton according to Basavanhalli is progressing well on its strategic objectives. Be it shifting from diesel to cleantech solutions in a bid to turn technologically agnostic or the foray into non-automotive sectors. From focussing solely on Business-to-Business (B2B) to strengthening its Business-to-Client (B2C) exposure largely credited to the Ampere market share growth, addition to the pool of aftermarket retailers and the share of new businesses. On the sectoral growth of electric two-wheelers, the company continues to remain optimistic on the growth prospects. Basavanhalli attributed the optimism to the projections of a price improvement given the delta between petrol and diesel in India. He also attributed it to the sector addressing range anxiety with the average travel range on a single charge settling at 60-75 kilometres and expected to increase going forward. Speaking on the automotive sector on the whole, the company maintains a cautious outlook, he signed-off. ACI
Upfront
Nagesh Basavanhalli, Managing Director and Chief Executive Officer, Greaves Cotton Ltd.
Q. How much does the emobility business contribute to the overall revenue? Did you anticipate the kind of growth you’ve registered with this new business?
A. As seen from the last annual report, new mobility businesses are now contributing to more than 15 percent of our revenue. As you are aware, we are in the affordable mobility space offering uninterrupted journeys. I think in terms of growth, it will come from the electric two-wheeler and erickshaw segment backed by allied segments. We’ve reported a 21 per cent market share in the new mobility business attributed to Ampere Electric. We believe at the Rs.35,000-80,000 price bracket, we are well poised catering to the heart of the market.
Q. Your major clients in the EV space and any 100 percent key clients ?
A. We do have OE clients like Big basket of Innovative Retail Concepts Private Ltd., the bikesharing startup Bounce and we continue to add more.
Q. You’ve been a strong player in the three-wheeler combustion engines. Are you confident of replicating that success with the BAPL acquisition?
A. Greaves has been a strong player in the affordable, last-mile mobility segment. When you look at the 70 per cent market share in the engine, three-wheeler and the passenger-cargo segment it compounds to be the entire segment in India. Together with Ampere in the two-wheeler space and Bestway Agencies Pvt. Ltd. (BAPL) opening new fronts in the electric three-wheeler segment we stand a good chance of being one of the organised players who can cater to affordable last-mile mobility and offer the entire ecosystem. It all adds up with building products for the duty cycle, service, spares and finance.
Q. Has the Covid pandemic dampened your outlook on the emobility segment?
A. We definitely look at it as a short term impact on the sentiments. In the longer-term, we believe, the sector will revive driven by the end consumer’s preferences for personal mobility. For some of our vehicles, retail has gone up by 60 per cent. The same trend is extending to B2B customers like Big basket and other e-commerce players looking to add to their last-mile delivery fleet. We are definitely in it for the long haul and are looking at Covid as a near term disruption.
Q. What measures are you taking to ensure sustainable growth and return on investment for the parent company and subsidiaries?
A. We’re closely watching both the demand side and supply side and taking all the measures to sustain a business like cashflow management, manufacturing and supply chain stabilisation, working capital management, cost management, enhancing supply chain flexibility, accelerating channel expansion and customer acquisition besides reimagining partnerships and alliance among other strategic initiatives pertaining to not just the near but the long term.
Q. You have also diversified into battery manufacturing. Tell us about the localisation levels and any technical JVs to leverage the entire lifecycle?
A. We’ve said this as part of the localisation commitment to the Government of India. This exercise was on pre-Covid and we are only further accelerating the drive. The China dependent supply chain will be substituted with in-house initiatives and or with our strategic partners. We will not foray into the battery cells. Our focus will remain on battery management systems, motors, and controllers to name a few.
Q. How are you tackling the supply chain bottlenecks with the backdrop of Chinese import congestion?
A. China scaled up volume efficiencies because of economies of scale. So I think what we’re trying to do is accelerate our own localisation drive. Over a period of a time, we believe that we will be able to manage this short term hitch. We’re all still dependent on China because a lot of the supply chain origins there.
Q. How have learnings from your prototype E3 been leveraged? Any commercial derivatives of it for the near to medium term?
A. It has derived a lot of positive consumer responses. Now, as you can imagine, we have our hands full with the product strategy plans to launch three products under Ampere, and commercialise Best Agency’s rickshaw. We will come back on it when we are ready.
Q. To sum up on e-mobility, what are the growth and challenge areas in the near to medium term?
A. We just launched the Ampere Magnus Pro, a high speed, top of the line product with a lot of technology left to be launched on the Ampere side. So we will continue to develop more consumer features, thanks to our 60,000 plus customer pool nurtured over the last 12 years. So you can continue to expect retail outlets and dealership chains to expand. There is a need to heighten awareness but we are growing every quarter. With economies of scale that should be taken care of in due course of time.
Q. A word on the emobility sectoral growth on the whole?
A. I expect the electric two-wheeler segment to grow. We expect the growth momentum seen in the past to continue. It will be driven by price falls and the delta between petrol and diesel in the country. The economy continues to stay strong and with more and more people getting comfortable with the range anxiety clocking on an average 70 kilometres on a single charge.
Q. You had demonstrated the new dealership and workshop experience some years back. How much of that has been implemented on the ground and does it need alterations in line with the contactless approach?
A. That’s a good point. All of our dealers including Ampere have taken all the precautions. We are looking at the product and service training, virtual meets and a standardised experience that needs to be passed on at the end of the day. We believe, our dealers are ready. Like I said, we want to use picture tools to guide them several initiatives have been taken in terms of adopting the best practices for the inside and outside of the company. We will continue to support them on high priority.
Q. Has digitisation and organisation become a top priority for your aftermarket presence in a sector still largely unorganised?
A. I think clearly like you said the sentiments will take a couple of months to probably improve, but it is getting better. We have seen an improvement in June. But yes, until then absolutely, digitisation of communication and making sure that we are watching everybody’s safety will be on top of the list. We are conducting business in the most responsible manner.
