Transcript
Mahindra War RoomFuture of Mobility
TEAM SMCG
STRATEGIC MANAGEMENT CONSULTING GROUP
DEVESH MENDIRATTA |NITISH MAHAJAN |RAJAT JAIN |SYED HASAN AIJAZ
Motive
Mahindra Rise
Reinvent Mobility
Create a new
Business Vertical
Utilise Strategic Growth
Opportunity
Service Markets and
Grow
What we want to be- a Nation BuilderChallenge conventional thinkingThink disruptivelyDrive positive change
Environmental concernsOil economicsChanging consumer needs Advanced technologies
Explore all modes of Mobility - RailLeverage group’s synergies Create future marketsInvest in the long term Mahindra Rolling Stock Limited
JV with a technological partnerHigh technology with frugal economicsDeliver stakeholder value
High infrastructure growth marketsMetro, high speed rail and freightCater to millennial demandsCommercial and socioeconomic sustainability
Future Of MobilityNewer, Superior,
Evolving
Executive Summary
Rationale
Mission: To become the leading Indian manufacturer and exporter of Metro trains in India and world
over
Rolling Stock: The logical ‘fit’ in the 5Cs of Mobility
Company : A new vertical to build high quality and high performance
trains
Related Diversification: Address the only missing link of the Automotive
Ecosystem
The Business
Strategic Partnership with Kawasaki Heavy Industries Rolling
Stock Company as the technological and manufacturing
partner
Establish plant at Chakan and commence operations within 2
years
In Phase 1, establish capacity for Metro train systems.
In Phase 2, establish capacity for High Speed Rail system
The Growth
Target rapidly growing Indian Metro-train market
Manufacturing hub to service the natural export market
Establish competency to fulfil High Speed Rail and Dedicated Freight
Corridor ecosystem
Create a ₹2,500 Crore+ company (by turnover) within 4 years
Mahindra Group has an existing eco system of complementary automotive capabilities. The company can leverage its synergies and incorporate them with a proven foreign technology to achieve a competitive advantage and gain a sustainable market share
Strategy to Create a new Rolling Stock Vertical
Agenda
Mahindra Rise
Future of Mobility
Market Identification
Proposed Business Model
Feasibility Study
Implementation Strategy
Tying the ends together
Mahindra Rise
MAHINDRA BUILDS THREE THINGS: PRODUCTS, SERVICES, AND POSSIBILITIES
Accepting No Limits
• We accept no limits, and ask the same of everyone else. In return, we work relentlessly to provide the tools, information, and inspiration for us to push past limitations and comfort zones
Alternative Thinking
• Alternative thinking means solving problems in ways no one thought of before, by using fewer resources and entering markets thought to be unreachable
Driving Positive Change
• We want you to rise. And not just you. Your family. Your neighbourhood. Your whole community. This is why we come to work every day
The Alphabet of the language the Group Speaks
Mahindra Rise
Tweet by Mr Anand Mahindra 8.29 PM Oct 22
It is this DNA that motivates us to propose
what we are going to
The Journey…that has been
…that is ahead
Future of MobilityHow do we foresee the future Forerunners in the race for Mobility
Better infrastructur
e
More comfortable
Greater Urbanisatio
n
Faster transport
Bigger and denser cities
Electricity over fossil
fuels
Seamless communicat
ion
Zero Downtime
Electric CarsForCleaner, greener and technologically advancedLow to zero operating and maintenance costsZero dependence on oil economics
AgainstHigher one time costs to individualsBatteries to be replaced every 3 years- Not greenUnavailability of battery charging infrastructureFeasible only for advanced countries- erratic electricity supply
Public TransportForFaster mobility- savings in travel time for passengers Freedom from individual capexAffordable and a far more convenient alternative to drivingForms natural focal points for communitiesRelieves congestion- also reduces number of road accidentsZero dependence on oil economicsChanges in land use patternIncreased employent
AgainstHigh investment of the governmentsPolicy interventions requiredLand bank
5 Cs of Mobility
• Environment Friendly • Renewable resources• Regenerative
Clean
• Uses technology to be efficient• Optimises as per terrain and conditionsClever
• Connected to the users• Connected to each otherConnected
• Seamless connectivity• Easy to park and ride• No use of fuelling and refuelling
Convenient
• Zero Fuel charges• Utilising solar power• Zero oil changes
Cost Effective
5 Cs of Mobility
4 3
3
4
3
4
3
1
2
111
17The marks awarded are as per our judgment
Mission
To become the leading Indian manufacturer and exporter of Metro trains in India and world over
Metro GrowthDelhi
• 193 km network operating 2002. Trains from Bombardier and Hyundai.
Mumbai
• Planned 147 km network. Expected 2014. Chinese CSR-CNR trains ordered
Chennai
• 45.1 km network under construction. 42 train sets ordered from Alstom
Bangalore
• 7.5 km operational. 114 km network planned. BEML and Hyundai ordered for 150 trains
Gurgaon
• 5.1 km network under construction. Turnkey contract awarded to Siemens
Jaipur
• 32.5 km network under construction. 10 trains ordered from BEML
Hyderabad
• 71 km network under construction by L&T. 57 train order to Hyundai Rotem
Others
• Pune, Lucknow, Kochi, Ludhiana, Indore, Ahemdabad-Gandhinagar, Chandigarh, Kanpur, Nagpur and Patna are under advance stage of planning
Proposals of cities with population greater than 2 million under review by Urban Development Ministry
19 cities have been shortlisted by the Ministry for review for Government funding under PPP model.
Source: Metrobits.org;IndianExpress.org:HMR:JaipurMetro
Competition Analysis
Bombardier Transportation• Canada headquartered Germany based• Largest subway rolling stock manufacturer globally• Wholly owned plant at Savli, Gujarat• Propulsions manufacturing at Maneja• Investment valued at 33 million euros • 800 people employed producing 32 metro cars per month• Supplied over 600 MOVIA cars to DMRC.• Has exported 95 train shells to Australia from this plant.• IRIS certified plant for technology standards
Alstom• One of the largest supplier of subway rolling stock globally• 168 coach order from Chennai Metro worth 243 million euro.• Euro 30 million invested in manufacturing facility in Chennai• Engineering hub at Bangalore• Has bid for over a billion euro contracts in India so far• 200 people employed so far• Interested to build electric locomotives• Just built the new Riyadh metro, a 4.38B euro project.
Siemens India• Part of Siemens AG, a global technology major present in India for over 20
years.• ₹.12,000 crore of investments in India.• Greenfield manufacturing at Aurangabad• ₹. 200 crore investment employing around 1000 people.• 800 bogies per year capacity, designed as per European norms.• Won Turnkey contract for Gurgaon metro.• Outsourced bogie manufacturing to CNR-CSR• First factory outside US-Europe to address railway growth in India.
Hyundai Rotem• Major supplier to DMRC and Hyderabad Metro• Wholly owned plant at Hosur.• Suffered image loss in Ukraine when trains failed to perform• Limited global experience primarily in East Asia• Tie up with BEML for Indian business.• Part of Hyundai Group, India’s largest exporter of cars.
Source: AmTrak: The Hindu: Times Of India: Jeffries Research
Competition Analysis
The world advanced rolling stock market is dominated by Bombardier, Alstom, Siemens and Kawasaki. The former three have invested in building plants in India
Kawasaki the only global player not yet present in India
The other players in the Indian market are minor players and have not invested in capability building in India, preferring to manufacture through a JV or export
The three global players have invested solo into the Indian market, building wholly owned manufacturing plants
Major orders have only been received by only 4 players. They are responsible for nearly all of the worlds installed subway systems
Big players like CAF, Nippon, Thales are also present in the market, looking to export from their foreign plants
Source: AmTrak: The Hindu: Times Of India: Jeffries Research
Dedicated Freight Corridor• Dedicated Freight Corporation of India Ltd incorporated in
2006. SPV under control of IR to undertake planning, financial resource and construction
DFCIL
• L&T and Sojitz Corporation have signed EPC contract for 626km in West DFC. Supreme Court clears DFC on Sep 1, 2013.
Implementation
• Indian Railways to improve customer orientation and establish industrial corridors and logistic parks. Generate higher revenue. High capacity and high speed
Purpose
• Total length of 3300 km in West DFC and East DFC corridors. High Density Corridors carrying 52% of passenger and 58% of freight
Phase 1
• Dadri to Mumbai, passing through Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. Connects JNPT Port to Industrial hub.
Western DFC 1500 km
• Ludhiana, Punjab to Dankuni in West Bengal, passing through Haryana, Uttar Pradesh and Bihar. Connects entire Gangetic Plain to Eastern ports
Eastern DFC 1800 km
• Japan International Co-operation Agency (JICA) technological and financial support. The main Agency financing Metro projects.
Funding
• Lead partner to be Japanese along with consortium of Indian companies to execute the jobs. Stated preference for Japanese products
Conditions
• 200 electric locomotives of 9000 HP each from Japanese vendor in Phase 1. Turnkey contract also possible.
• Kawasaki manufactures such locomotives for Japan railwayOrder Size
• Railway Board Chairman assures that DFC will be implemented by 2017( West) and 2018 (east). Government identified DFC as ‘Top Priority’.
Policy
As per our conversation with a high ranking Railway Board Official, the PMO has suggested multiple Indo-Japanese JV’s to implement DFC’s, now on a high priority.
Source: Indian Railway: Economic Times: Nippon times
High Speed Railway
• High Speed Rail Corporation of India set up in August 2012• Building first HSRC between Mumbai to Ahmedabad• Reduce travel time from 8 hours to 2 hours
HSRC
• Fastest train in India • Peak capacity of 150 km/h• Average speed of 130 km/h
Shatabdi
• Indo-Japan agreement in 2013 to study feasibility of HSR in India
• Preference for Shikansen trains to fight off TGV/Valero and the Chinese
• Chinese vendors not preferred
Political
• Kawasaki is the major manufacturer of these bullet trains• 2400 km network in Japan transporting over 350 million
annually• Maximum speed of 320 km per hour with superior ride quality
Shinkansen
• 500 km line costing up to $10 billion• Technological reviews and costing to finish by 2014• French SNCF already invested in surveys and initial studies
Implementation
• Suited for India’s large population and medium distances• Competition against LCC fliers as air fares rise continuously• $1 billion worth yen-based soft loans already sanctioned by
JapanEconomics
As per our conversation with a high ranking Railway Board Official, the PMO has suggested multiple Indo-Japanese JV’s to implement DFC’s, now on a high priority
Source: Economic Times: NDTV.org: The Hindu
Frauscher India, an Austrian Signaling firm has committed towards investing ₹ 75 cr over 4 years in a manufacturing plant in Mysore. They have agreed to partner with HSR to build an ecosystem as per our discussion with them
Markets: Exports
Philippines• Huge infra
sector investments announced
• Only Metro in Manila
Indonesia• Huge infra
sector investments announced
• Only Metro in Jakarta
Taiwan• Huge infra
sector investments announced
• Only Metro in Taipei City
Malaysia• Huge infra
sector investments announced
• Only Metro in KualaLampur
Bangladesh• New subway
system announced for Dhaka
• DPR commissioned for Chittagong
Central Asia• New oil and gas money• Infrastructure identified
as priority investment
Thailand• Huge infra
sector investments announced
• Only Metro in Bangkok
Middle East• Riyadh Metro
developed recently • Other oil rich
nations invited initial bids for turnkey projects
Australia• Received 95
trains from Bombardier India
India• Huge infra
sector investments announced
• 19 metro systems on anvil of operations
Africa• Japanese and
Indian aid investments across Africa
• The next wave of infrastructure development
South Korea• Existing Business
Relation in automotive with Ssangyong
Mahindra Core Competencies
Leadership• A passionate leadership
keen to explore new businesses
Financial and Management• Adequate muscle and
experience to take on big projects
Reputation• One of the country’s most
respected business houses
Engineering• Frugal Engineering
experience earlier
Mahindra Group : Support Capabilities
AutomotiveMahindra Vehicles Manufacturing Limited• Manufacturing HCV and LCV expertise
Mahindra Navistar Engines Pvt Ltd•HCV Engine Manufacturing
Mahindra Graphic Research Design•Design Services
SsangYong Auto Parts Manufacturing•HCV Auto Components
We assume Mahindra has
similar synergies and will be
successful in utilizing them to create quality at
competitive prices.
Industrial Equipmen
t
Mahindra Conveyor Systems Pvt ltd•Bulk Handling Systems
The Tata Group, India’s biggest industrial
conglomerate has a successful history of achieving synergies
between its numerous group companies to create sustainable business ventures,
often disrupting existing market
dynamics.
Related Diversification Ballast Business• Good understanding• Independent subsidiary• Little business value• Increases revenue
Heartland Business• Group can add considerable value• Business complements Group capabilities• Significant synergies with Group tacit
knowledge• Core of Future strategy
Alien Business• Clear Misfits• Little opportunity to add value• Awkward fit• Exit/stay away is best strategy
Value Trap Business• Deceptively attractive• More Harm than Good• Change in Parent necessary• To be stayed away from
Parenting Matrix : Portfolio Display
Fit
of
the N
ew
Busi
ness
Perf
orm
ance
Related limited diversification
Undiversifiedexpansion
Unrelated diversified
High
High
Diversification
Rolling Stock + Mahindra Automotive
Efficient operations due to very limited diversification
Mahindra
Automotive
Feel of the New Business
TrainsThe only missing link of the Automotive Ecosystem
Missing Link ?Design and Manufacture Technology
A proven and known technological leader
A partner with Engineering as Core value
A partner not already in the local market
A partner who is bullish about India
A partner with favorable political situation
A partner with world wide positive reputation
Evaluation of Partner
•Players international exposure and ability to JV with Mahindra in a new market
International Operations
•Considering the complexities of the Indian Market, a prior experience with India shall add to the fitness of the player
Experienced with India
•In case a player already has a similar JV it would be reluctant to go for a JV with Mahindra
Current JVs/ Partnership
•A firm known for its engineering capabilitiesTechnical Expertise
•Where primary aim is to partner with a player to capture the rolling stock markets in Rapid transport, a focus on high speed trains should be considered by Mahindra
Long Term Synergy
•Country of the players and bullishness about India contribute towards assessing the suitability of the player
Environmental Factors
Partnering Options
1) Nippon Sharyo (Japan)
2) AnsaldoBreda (Italy)/Talgo (Spain)
3) Bombardier (Germany)
4) Kawasaki (Japan)
5) Siemens (Germany)
6) Alstom (France)
The Potential PartnersJapan-based manufacturer since 1936
Consolidated subsidiary of Japan RailwayNotable projects in 8 countries, including
Japanese ShinkansenNo previous experience with India
No other investments in India
Spanish manufacturer of high speed and inter city rail since 1942
Primary sales in Spain and PortugalNo previous experience with India
No other investments in IndiaHas a signed supply contract in India
Berlin headquartered rolling stock divisionOne of the largest global rolling stock companiesMajor supplier to DMRC and other Metro systems
Wholly owned Integrated plant in Gujarat Proven international credentials
Japan-based one of the largest global manufacturer
Subway, high power locomotive and high speed trains
Turnkey solutions provider in New York Metro, the worlds largest
Invested 2500 crore in hydraulic equipment factory
Considerable quality reputation in India
Germany-Austria based manufacturer of Valero trains
One of the largest global rolling stock companiesComplete range of electrical and mechanical
componentsMajor supplier to Gurgaon and other Metro
systemsWholly owned Integrated plant in Maharashtra
Paris based manufacturer of TGV trainsLargest global rolling stock companies
Complete range of electrical and mechanical components
Major supplier to Chennai and other Metro systems
Wholly owned Integrated plant in Tamil Nadu
The Comparison
Factor (weight)
Nippon Sharyo
AnsaldoBreda / Talgo
Bombardier
Kawasaki
Siemens
Alstom
International Exposure(10) 8 6 8 8 9 9
Experience with India(5) 3 3 7 8 9 7Current Jvs/
Partnership(8)
5 5 4 8 4 4
Technical Expertise (10) 7 7 8 8 8 9
Long Term Synergy(8) 5 5 8 8 7 8
Environmental Factors(10) 9 5 7 9 7 7
Weighted Total 335 275 361 418 373 381
The marks awarded are as per our judgment
The Perfect Marriage
Why Kawasaki
•Has prior experience of Indian markets in Automobile•The Japanese connection – Enjoys Goodwill•No existing JV in Rolling Stock in India•Open avenues for Mahindra to venture High Speed/Bullet trains•Else•Kawasaki might enter with another player say Tata/Birla/Reliance•Delay might cause more crowded players and missing out on demand boom
Why Mahindra
•One of the biggest transport player in India•Expert in 'Frugal Engineering' which could provide competitive advantage•Good Market Knowledge and relationships ties•Opportunity of extensive synergies•Else•Mahindra might enter with another player say Nippon Sharyo/Alstom•Might miss out on the booming Indian market having major projects in pipeline
Enter Mahindra Kawasaki Rolling Stock Limited
The Outcome
• Vision: To become the preferred global Rolling Stock supplier in different transport system
• Mission: To produce high quality metro rolling stock at competitive prices• A 50-50 Joint Venture between the partnering firms• Kawasaki becoming the first foreign player in the industry to come with an Indian
partner• Kawasaki bringing in its technological prowess mixing it up with Mahindra’s
'Frugal Engineering' expertise to bring competitive Rolling Stock supply to the market
• Hence becoming a supplier of high quality competitively priced rolling stocks to meet both national and international needs
Metro Market Scenario Planning
Scenario 1 • 7-8 player Oligopoly
Market: Few major players decide to enter the rolling stock industry like Alstom, Bombardeir, Seimens, Mahindra JV, Mitsubishi, BMEL, Hyundai-Rotem, etc
• Divided Market Share of about 15-20%
• Eg : The Indian Consumer Goods Market
Scenario 2 • 5 player Consolidated Market:
Mahindra pips other new players in entering the market to join the existing 3 player and a new player say Hyundai-Rotem
• Consolidated Market share of about 20-25% considering Kawasaki brings in competitive technical prowess to the JV
• Eg : The Indian Tractor Market
Scenario 3 • 10-15 player crowded
Market: Considering the Metro boom, multiple player enter the market including Chinese players which also bring in the price wars
• Unsure Market share as winning tenders becomes difficult
• Eg: The Indian Mobile Market
Demand Forecasting
Total track length of new tracks: 532Km
Total Track length of initial phases of projects: 249Km
Total trains running on the tracks: (249/189) x 236 = 311 trains
% Consideration for new Project: 0.8 = 248 Trains
Completion Factor of planned Projects: 0.7= 173.6 trains
Hence Estimated demand in the year 2016(assuming Rolling Stock ordered 18-20 months in advanced) from new Projects: 174 trains
S. No
ProjectEstimated Operation
Date
Total Track(km)
*
Track length of
first Phase (km)*
1 Surat 2018 100 19
2 Pune 2018 82 30
3 Patna 2017 54 50
4 Nagpur 2017 40 25
5 Ludhiana 2018 28 16
6 Lucknow 2018 36 36
7 Kanpur 2017 84 27
8 Indore 2019 33 10
9 Chandigarh 2018 37 16
10 Bhopal 2018 38.5 20
Assumption: We assume that number of trains per kilometer running on an existing metro is a good metric to forecast number of metro trains required on a new track
Delhi Metro Current Track Length: 189KmCurrent Trains running: 40(4 bogie), 97 (6 bogie), 25(8 bogie) equivalent to 236(4 bogie) trains
* ProjectedSource: DMRC Website, Individual Metro Project Website
The Plant
The plant has to be set up in Chakan to utilise the
capabilities of the existing Mahindra companies in the
vicinity
Plant investment @₹150 crore and a capacity of 25-30
trains a year
Subsequent investment of another ₹100crore and
subsequently increase the capacity to 50-55 trains a
year
The plant to have the capacity and capability to produce high performance bogies for locomotives and
metros
Source: Google Maps
Financial Model : Assumptions
Investment Cost: •₹ 150 crore in Phase 1 •₹ 100 crore in Phase 2•Plant setup at Chakan, Maharashtra•Bombardier India plant at Savli cost ₹. 200 crore to set up•Siemens India invested ₹. 200 crore in Aurangabad facility
Capacity of Plant•30 Metro trains / Year•Excess capacity installed, production to increase as per demand•In phase 2, develop capability to manufacture High Speed Rail and High Performance rail systems
Operating Margin (10 %)•We do not know Cost of Goods Sold of a Metro train•We assume operating margin as average of all listed Mahindra Group companies •OPM to be 6% in Year 1, then increasing to 8% in Year 2 and 10% in Year 3•OPM to rise from Year 1 to Year 3 as we gain tacit knowledge and markets’ confidence
WACC (8.5%)•Existing Bank Rate is 8%•We assume Corporate debt, to create a 70:30 Debt-Equity company structure.•In view of Mahindra balance sheet, we assume debt rate as bank rate-100 basis points at 7 %•We assume equity returns at 12%
Breakeven Analysis
2016 2017 2018 20190
10
20
30
40
50
60
Capacity VS Production
Capacity Production
Growth: 20%
2016 2017 2018 20190.00
20.00
40.00
60.00
80.00
100.00
120.00
PAT ₹crore
BreakEvenAnalysis
CAGR – 37.28%Excluding Time value of Money we can break even in 4 years
2016 2017 2018 2019Investment 150 100 Capacity 30 50 50 50Production 25 30 36 44Operating Profit Margin 6% 8% 10% 12%Operating Margin 48.00 76.80 115.20 168.96Interest 4.08 6.53 9.79 14.36PBT 43.92 70.27 105.41 154.60 TotalPAT 29.43 47.08 70.62 103.58 250.71
Wacc 8.5%
Selling Price 32Cr
Growth Rate 20%
CAGR: 37.28%
Implementation Plan
• XX
Feasibility analysis
Initiate talks: Kawasaki
Terms of the JV
Technology share
Identify Synergies:Group
MCE consultancy with DMRC
IT Infra synthesis with Mahindra Satyam
Supply Chain Creation
Plant Construction - Chakan
Bidding tenders
Synergy with Subsidiary
Production for Metro Trains
Commence commercial operations
Expand Capacity
Production for High Speed Trains
Friday, December 27, 2013 Monday, May 11, 2015 Thursday, September 22, 2016
Duration
Phase 1 Phase 2
The duration mentioned are based on our judgement
Tying the ends together
Case:
Rationale
India has seen various industries booming at point of time and few players rode the wave on such occasions:
Telecom Boom: Bharti Airtel, Idea Dairy Revolution: Amul Information Technology: Infosys and TCS Power: Adani Group and Reliance Road infrastructure: GMR, GVK
We suggest to Mahindra to become the pioneer Indian player in the Public Transport boom envisioned in the coming time.
With an existing competency in transport and possible synergies provided by its subsidiaries, the Public Transport is the golden opportunity
Don’t miss the train !
Plethora of rolling stock manufacturers for rapid transport exist. Players have moved ahead and capitalized on the High Speed Rail as well Bombardier, Alstom and Siemens have already setup plants in India and are
capturing the Indian Market and also supplying to foreign demand
Late entrant in the market
Abundant late entrant success stories available like Atari in video games worldwide Samsung in mobile phones worldwide LG in consumer electronics in India Dell in Indian PC market
Mahindra would not be bringing in just another product in the existing category, but provide a similar/better at competitive prices using the synergies with Kawasaki
The Rolling Stock Industry is yet to experience the Indian 'Frugal Engineering' at which Mahindra is an expert.
CASE:
RATIONALE
The essence of strategy is to know what to do and at what time…
Anonymous
This Market Opportunity needs to be addressed right NOW
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