Mahindra War Room 2014 AFS Powertrain Business Caselet

Broadvision Perspectives Client Confidential Page 1 of 3

MAHINDRA AUTOMOTIVE & FARM SECTORS
POWERTRAINS BUSINESS CASELET

Mahindra Automotive & Farm Equipment Sectors (AFS) comprise businesses ranging
from Automotive (including Cars, UVs, Trucks and Buses), Agri-business (including
Seeds and Applitrac equipments), Construction Equipment, Powertrains (Engines,
Transmissions & Gensets) to Tractors. This caselet pertains to the Powertrains
Business, which is housed under the Truck & Powertrain division of the Automotive &
Farm Sectors.

BUSINESS BACKGROUND

Currently Mahindra makes engines and transmissions including few of latest technology
for their captive use , they have recently decided to unlock this value by selling these to
other vehicle manufacturers Globaly. This also brings Mahindras strength of supply
chain and frugal cost structure on table for potential customers.

Taking this forward and making this further larger domain Mahindra recently merged the
INR. 1000 crore Powerol Gensets business, with a new division called Mahindra
Powertrain. This division aspires to develop world class powertrain solutions for various
light vehicles, commercial vehicles, power generator, agricultural & construction
equipment sectors across the globe, catering to captive as well as non-captive
requirement of OEMs across geographies.

Mahindra has set up world class R&D facility at Chennai called Mahindra Research
Valley, where 1500 engineers work to upgrade engines and transmission using the
latest technology. The Advanced Engine Development Center offers unique strength to
deliver the variety of products in minimum lead time. State-of-the-art chassis, dyno,
vehicle testing and noise-testing labs add to the product development capability for all
auto development OEMs. With stringent emission norms, Mahindra engines qualify to
Euro-4 norms and capable of meeting Euro-5 norms. With 11 modern manufacturing
plants across India at multiple locations and a strong vendor base in vicinities, Mahindra
has the ability to realize scale in the highly competitive global market.


LIVE CHALLENGE: POWERTRAINS BUSINESS STRATEGY

Mahindra has wide range of engines starting from 0.6 Ltrs to 7.2 Ltr of diesel as well as
gasoline engines along with powertrain up to 400 N-m range. Mahindra Powertrains
aspires to play in Engines ranging from 6-cylinder rear-wheel drive, Euro4 & Euro5
compliant engines upto 200 KVA (Currently Mahindra sources higher KVA; more than
200KVA; engines from companies like Greaves and Perkins and sales them for specific
customers in India). Mahindra Powertrains capabilities range from design, development
and manufacture of powertrains suitable for various automotive as well as non-
automotive applications. Currently, there are over 100 variants of engines on SUVs,
tractors, gensets, etc with a capacity to produce more than 1,000,000 powertrains.
Since the Powerol division has been merged into this division, the major revenue
Mahindra War Room 2014 AFS Powertrain Business Caselet
Broadvision Perspectives Client Confidential Page 2 of 3

source today is the captive business as well as the Powerol business. Mahindra
Powertrain division aspires to realize revenues from multiple segments such as exports
of powertrain, gensets, defense, Marine, repowering opportunities, etc., also providing
immense opportunity to utilize existing capacity optimally.

Globally, Cummins is a well-established engine brand, leading in engine technology
with forward and backward value chain across the globe. Cummins spread its presence
through joint ventures with major Auto OEMs and licensing arrangements. Cummins
offers Genset with 3 exclusive OEMs in India ranging from 15 kVA to 2000kVA with
domestic manufacturing facility at Pune and Jamshedpur. The Commercial vehicle
segment is a stronghold of Cummins in the diesel engine industry. In the Powertrain
industry, Fiat Powertrains are the global benchmark. Fiat is an example of an OEM who
created a separate entity using their Powertrain technology, to eventually excel in
supplying engines and transmissions across the globe. In India, Fiat supplies engines to
Maruti, Tata and other leading Auto OEMs for passenger car., highlighting the potential
for Mahindra to grow in the Powertrains business.

Based on the above, develop an overall strategy and value proposition for the
whole business of selling Engines & Powertrains, for Mahindra Powertrain to
evolve into a market leader with INR. 10,000 crores of revenues by 2020, through
the following potential opportunities:

1. Developing New Markets for Existing Products: Currently, Mahindra Powertrains
has over 18 kinds of engines and 25 kinds of transmissions, for which potential markets
are all countries whose emission norms are behind those of India. How should
Mahindra Powertrains go about tapping this opportunity? Which would be the priority
markets? What should be the entry strategy for those markets, including the market, the
segment, the mode of entry, business model, associated risks etc.?

2. Developing New Products for New Markets: For other markets where emission
norms are ahead of India, Mahindra Powertrain can design engines for, say, supplying
to companies such as BMW. While some Automotive companies, such as Ford for
example, have a captive engine and transmission manufacturing unit, Mahindra
Powertrains target automotive customers will be those who do not have a captive unit.
What would be the entry barriers, and how should Mahindra Powertrains attract and
retain the non-captive automotive market, while competing with the likes of Cummins
and Suzuki who have a longer track record in this area? The Powertrains business is
truly global, with many potential locations where engines and transmissions can be
manufactured, and also supplied to. For example, Turkey is a major market for
manufacture of Powertrains, as supply to Africa, Europe and Asia can be easily done
through the sea route. Which are the manufacturing locations and user countries that
Mahindra Powertrains should target?

3. Alliances, Mergers & Acquisitions: Mahindra Powertrains is open to alliances with
companies that need engines and transmissions in the future, and share a common
interest for markets in a 3rd geography other than India or their home country. Who are
these potential alliance partners, and how should Mahindra Powertrains go about
collaborating with them to tap the opportunity? Mahindra Powertrains is also open to
Mahindra War Room 2014 AFS Powertrain Business Caselet
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acquisition of small but struggling companies with good capabilities or value - do any
such companies exist, and if so, please provide a detailed M&A strategy for the same.

4. Services & Spares Revenue: Companies such as Cummins earn 30% of their
revenue from services and spares, after the sales of engines. How can Mahindra
Powertrains realize a robust revenue stream from services and spare parts.

5. Defence Business Opportunity: Marine and Defence applications also exist for
Mahindra Powertrains range of engines - how should this opportunity be addressed?
Ensure that your strategy also addresses issues such as how Mahindra Powertrains
should move from vehicle manufacturing to part selling and if they should integrate
backward or forward or both.

6. Developing or alliance for engine in Higher KVA ( 250 KVA to 1250 KVA)for
Indian and Global market: Currently this market is being dominated by Cummins in
India and Cummins and CAT globally . This is high revenue and profit segment but
dominated by two or three players globally and calls for technology and understanding
of bigger engines.