The foray of utility and tractor manufacturer Mahindra & Mahindra into the two-wheeler market will provide a fillip to its brand image in the rural market, feels the company. According to M&M, the rural market holds large opportunities of growth for auto players.
The group's foray into the segment dates back to the start of 2004 when M&M Group Chairman Keshub Mahindra said the company had started testing some two-wheeler models and was looking at a commercial launch.
Vice-Chairman Anand Mahindra said: "The company's foray into the bottom segment of the pyramid will create tremendous brand awareness in an entire section of the population and open a whole new population in the urban market. These customers will start with our two-wheelers and then graduate to bigger M&M vehicles."
Products of Mahindra Kinetic Scooters and Motorcycles (MKSMPL), the company formed after M&M bought the assets of Pune-based scooter maker Kinetic Motors for Rs 110 crore, will rely heavily on Mahindra's brand name. It will also rely on group company Mahindra Finance for growth.
However, S Ramnath, analyst, IDFC SSKI, views the acquisition as an experimental process rather than a serious effort to tap the two-wheeler demand in an already crowded market.
"This may well be an intelligent strategic decision by the M&M management as the initial investment is very marginal (Rs 110 crore) for a company that has a capex well in excess of Rs 2,000 crore (Rs 20 billion). The return on equity may thus bear good returns after a period of two to three years.
"Just as M&M invested about Rs 75-100 crore (Rs 750 million - Rs 1 billion) as capex for starting the three-wheeler business, which today has grown multi-fold and is yielding handsome returns, the two-wheeler venture may turn profitable for it in a few years considering M&M's expertise in the manufacturing segment," the analyst said.