Prasan Firodia, Managing Director, Force Motors
In just 11 months, the stock of automotive manufacturer Force Motors shot up 135 per cent beating the benchmark Sensex hands down.
The Pune-based 58-year-old firm that started with making three wheelers in Goregaon, one of Mumbai’s many suburbs, grabbed headlines last month when it became the only company in the world to supply engines to Mercedes-Benz and BMW, two of the world’s biggest luxury car makers.
A collective investment of Rs 300 crore saw the start of production of engines and axles for the two premier luxury car makers from two different production facilities. Force Motors set up a Rs 200-crore plant with a capacity to produce 20,000 engines and transmission annually for BMW in Chennai (close to the BMW assembly plant) which was inaugurated in June last year. This was followed with the opening of a similar plant for Mercedes-Benz in Chakan in May this year, close to where the German company assembles the C, E, S, CLA and GLA Class luxury cars.
The Chakan plant produces four- and six-cylinder petrol and diesel engines and chances are that if you have recently bought a Mercedes-Benz CLA200, it could be running on a Force Motors-built engine. The new Rs 100-crore plant has a current annual capacity of 20,000 engines and 20,000 front and rear axle, which can be enhanced according to requirements.
Similarly, the Chennai-based plant for BMW, which was built under the supervision of BMW engineers to meet its ‘global standards’, makes four- and six-cylinder engines for BMW cars sold in India. This was also the first engine assembly unit for BMW outside Germany. Force Motors will assemble four- and six-cylinder engines for seven BMW models: the 1-series, 3-series, 5-series, 7-series, X1, X3 and X5.
A demanding task
To be sure, Force Motors does not build the engines from scratch, but assembles them using parts imported from Germany. However, the assembly work is critical in nature and requires high levels of expertise and quality control.
Sourcing engines from Force Motors is nothing new for Mercedes-Benz, currently India’s biggest luxury car maker. The Firodia family-led company has been supplying engines to the German giant since 1997. To date, Force Motors has supplied around 60,000 engines and 50,000 axles to Mercedes-Benz.
The two companies share a long history which stretches beyond engines. Force Motors’ serious off-roader, the Gurkha, is built on a Mercedes-Benz G Class platform. Its mini bus, the Traveller, the highest revenue generator for the company, is based on the T1 Transporter developed by Mercedes-Benz.
Impressed by the advantages of Mercedes-Benz’s association with Force Motors, BMW too decided to jump in. The car maker wants to boost local sourcing in order to make its vehicles more affordable.
Thus, it has localised engines, gearboxes, dash boards and other items, and has a local content of 50 per cent overall. Moving forward, the Bavarian manufacturer could look at even full-fledged manufacturing operations to save further costs.
“The last step would be the paint and body. Making this in India makes sense when there is much more volume there, but it will come — sooner or later,” says BMW Group India’s former president Philipp von Sahr.
Financial year 2015-16 was a cheerful one for Force Motors. Income from operations was Rs 911 crore as against Rs 703 crore a year before, a growth of 28 per cent. Net profit grew a whopping 77 per cent to Rs 179.6 crore during the same year from Rs 101.4 crore.
“Our vehicle business did very well last year. Though we had several challenges like emission issues, regulatory and permit problems last year, we still managed good growth. Considering the current market situation, getting such growth is phenomenal,” says Prasan Firodia, managing director, Force Motors.
A growth segment
The supply of engine and axle contributes 30-35 per cent to Force Motors’ overall turnover, while the rest is contributed by its vehicles and tractor business verticals. Plans to increase the localisation drive by manufacturers and a general increase in demand for luxury cars could further boost Force Motors’ revenue from supplies to Mercedes and BMW.
“The company has a lot of potential to grow further. It is doing very well in all three verticals. It is supplying engines to the world’s biggest competitors in luxury cars, BMW and Mercedes-Benz. This shows reliability. Plus, its Tempo Traveller is a market leader in the segment. As the bus aggregator business is flourishing in India, this and the school bus, and IT/BPO transport business will help it boost sales,” says Daljeet Singh Kohli, head of research, India Nivesh.
Force Motors operates its businesses under three verticals: vehicle manufacturing, component manufacturing and tooling for other original equipment makers. Despite being successful in all three, the company has struggled to make its presence in the SUV market. Its first SUV, the Force One (promoted by Bollywood star Amitabh Bachchan), was launched in 2011, but failed to gain consumer acceptance. It managed to sell only 3,008 units since its launch (less than half of what the Hyundai Creta sells in a month). Finally, this year in March, the company decided to quit the segment.
“This was our first attempt at manufacturing an SUV. Traditionally, we are a commercial vehicle company. We never operated in this segment and did not have the right understanding of this segment,” Firodia explains.
Plans were also afoot to develop a premium van, based on the Mercedes-Benz Viano, also known as V-Class in some markets. This would have competed against the Nissan Evalia and the Tata Motors Aria. However, with the segment entering a downward spiral and losses incurred on the Force One, the company decided against venturing any further.