Future of Mobility

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