My Best Pick 2016

Daljeet Singh Kohli

Daljeet Singh Kohli of IndiaNivesh says Force Motors has more room to grow as luxury car demand takes off

Soumik Kar

It was in August 2014 that Force Motors made headlines when the Bajaj group sold around three fourth of its stake (16%) in the Firodias-owned company. But in the interview following the news, the more interesting comment came from the chairman (Abhay Firodia) that, in addition to hiking the family’s stake by 9%, the company was planning to incur a capex of ₹1,000 crore in three years mostly from internal accruals. This was surprising given that the-then market cap of the company was close to ₹1,000 crore and the only notable pile on its books was the ₹200 crore that it received from its stake sale in MAN Force Trucks JV in 2012.

Around the same time, the company mentioned that it will be seeking approval for a manufacturing facility at Chengalpattu in Tamil Nadu to assemble engines and other components for one more OEM. Though the company refrained from disclosing the OEM’s name, I was certain that it was none other than BMW India as the German carmaker had its plant at the same location. Incidentally, Force Motors has been assembling and testing engines for Mercedes for the past 18 years at the same unit. What was astonishing about the announcement is that BMW and Mercedes are aggressive competitors in what is largely a three-player race (Audi being the third) in the Indian luxury car market. BMW’s association with Force Motors definitely meant that the company had some technical capabilities and also offered the assurance of keeping proprietary information safe, which big players expect from any vendor. More importantly, with this tie-up, Force Motors is the only company in the world to assemble engines for both BMW and Mercedes.

Now the next obvious question is why BMW and Mercedes are not assembling the engines themselves and instead giving the contract to Force Motors? The answer to that goes back to 2000, when luxury carmakers were directly importing cars in India and paying a hefty 125% custom duty. As a first step towards localisation, foreign manufacturers started importing cars as semi-knocked down (SKD) units with a pre-assembled engine, gearbox and transmission mechanism, following a cut in custom duty to lower double digits. To promote local manufacturing further, th

unsub

You don’t want to be left behind. Do you?

Our work is exclusively for discerning readers. To read our edgy stories and access our archives, you’ve to subscribe