Deepak Singhania, MD, LML

“We will have entry-level bikes in August. We are looking at 10 per cent market share in the motorcycle market. We are also planning to have a JV assembly plant in Latin America.”

Deepak Singhania, MD, LML, set up Lohia Machines Private Limited with a very nominal capital in 1975. The enterprise was engaged in the manufacturing of machinery for the synthetic fibre and textile industry, which was at that time an upcoming area of growth.

Singhania entered into collaboration with several renowned West European companies in this field, including ARCT and La Telemecanique Electrique of France, Lezzini-Mario and Meccanotassile of Italy and Heberlein of Switzerland. Starting with a nominal turnover of $ 100,000 in the first year, Lohia Machines went on to become a market leader controlling over 80 per cent of the market share in India.

He saw a substantial opportunity in the two-wheeler business in which in the early eighties no new entrants were permitted. He, however, persuaded the government to allow him to set up a plant for two wheelers and was successful in obtaining a licence. This effort created the two-wheeler operations of Lohia Machines, which had by then grown to become a public company, LML Limited. A technical collaboration was signed with Piaggio & C S.p.A of Italy for the manufacture of scooters and mopeds. Piaggio, however, exited from the company in 1999.

Singhania had his schooling and university education in Kanpur, graduating in Economics, English and Political Science. Singhania shares with Malini Menon of exchange4media on how the Kanpur-based promoter family is now entering the market with a professional management team that would drive growth.

Q. Does it mean that the promoter family will take a backseat?

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The promoter family will still be engaged. The professional team will be involved in driving the future strategy and day-to-day management of LML. We have realised that we need the work done quickly and most companies have accepted the fact that you require a well-qualified professional team to drive growth.

Q. What are the new product initiatives from LML’s stable?

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LML will have launches across the entire segment of the two-wheeler market, excluding mopeds. Currently, we are offering lifestyle vehicles with our brands Beamer and Graptor in 150 cc. In commuter segment, we have Freedom Prima 125cc and Topper 110cc other than the two-stroke gear scooters. We are planning to make foray in the entry-level segment by August. This segment is very important because it is contributing 38 per cent of the total motorcycle market and it’s a key segment to enter the rural sector, which is very critical. We have decided to focus on a wider spectrum of consumer base and have initiated an aggressive programme for the launch of new vehicles this year. Beginning from next financial year, we are introducing new generation four stroke scooters—both gearless and geared.

Q. What is the industry scenario in the two-wheeler market?

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Previously, geared scooters dominated almost 70 per cent of the market. Now, it is reduced to just 5 per cent of the market. It is now motorcycles, which is dominating the 78 per cent of the total two-wheeler market. The twelve per cent market has evolved for gearless scooters especially the four-stroke range during the last 2-3 years. Mopeds comprise 5 per cent of the market. In the motorcycle market there are three broad classifications of the segment. We have deluxe segment, which is contributing around 52 per cent of the market. The entry-level is at 38 per cent and lifestyle, which is at 10 per cent.

Q. The company has been through a bad patch. What measures have you taken to overcome this?

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We completed our financial restructuring by March 2005 and LML is free from financial restraints for the first time in four years. We are starting a new professional management team, which will be headed by a CEO. With the financial restructuring completed just a few weeks ago, we closed the most difficult chapter in the history of the company. This restructuring involved various inter-related transactions. We needed financial stability and have achieved it to enable the company to run a very aggressive business strategy.

Q. What is your export plan?

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LML has been exporting vehicles to around 35 countries, largely scooters and to some destinations motorcycles. Out of these 35 countries our focus will be on 12 countries for motorcycles. Europe will be one of the destinations for gearless scooters. We expect to achieve around 10 per cent of our business from exports.

Q. What is LML’s future plan?

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We will have entry-level bikes in August. We are looking at 10 per cent market share in the motorcycle market. In scooters, the two stroke geared scooters has fallen from 130,000 units per month to 9,800 units per month. We see that the demand has plateaued in this segment. So, LML plans to retain a share of 20 per cent in this segment. However, we would be introducing next year new generation scooters and we expect to gain 10 per cent market share during that time. We are also planning to have a JV assembly plant in Latin America.

Q. What strategic direction is the company planning to take?

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We are in the process of inducting a new CEO. A K Chada has already joined us at the Chief Operating Officer. A new professional management team would be spearheading this process of change. We are materially de-layering the management in terms of hierarchy level, simplifying the structure and thereby reducing the structural costs. There are certain changes in the personnel that are taking place because of the type of programme we plan to introduce. We are energising all levels of operations starting from production to the end and this process will be substantially completed by June.

Q. Which area would you be focusing in terms of engineering goods?

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Our current production reflects a historic focus on geared scooters. This is how we started 20 years ago as a four-stroke scooter company. We have a capacity of 4,50,000 units per annum for scooters and have a nominal capacity of 200,000 for motorcycles. This will be expanded to 400,000 units by 2005 and the expansion will continue and culminate by 2007 where we would have increased the capacity through four-stroke vehicles, which includes motorcycles and new generation scooters, to 7,20,000 per annum. In terms of R&D, we will continue to provide cutting-edge technology and provide consumers, which are different and satisfying consumer needs. We would also focus on value engineering for the reduction of costs. This would lead to reduction in cost, certain improvement in the margins because of the increasing in volume of production itself. We expect that we will improve our margins by 7-8 per cent.

Q. What has been LML’s core marketing strategy?

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Our marketing philosophy has been the same from scooter times, which has been to provide very high quality, stylish and innovative products for consumers who wish to stand out in the mass market. This engineering is without making any compromises on the core fundamental needs of the consumer, which is of fuel efficiency, driveability and safety. Obviously consumers in India, like anywhere else in the world want a good deal, but they also want it at a good cost. We will be competitive in our pricing and differentiated in our imaging and positioning. There would be a constant upgradation of our product line up and the company follows the highly effective “Hub & Spoke” distribution system.

Q. How are you planning to expand your dealership network?

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We have currently 340 primary dealers. Our scooters until now were primarily catering to the urban market. Now, we plan to expand this to semi-urban and rural markets too, through sub-dealers, which would bring the number up to 829. We are targeting an expansion of this network by 30 per cent through 440 outlets and we will essentially be penetrating to Gujarat, Maharashtra and South where the partnership is weak. We will be strengthening our secondary and tertiary network to 350 outlets and thee geographic focus will be on semi-urban and rural markets. We will also commission 920 new service points to service vehicles in the semi-urban and rural market. Our focus will continue to be CRM because that has been our strength and we would like to maintain our relations with the customers.

Q. Can you share more details on the restructuring that is taking place?

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The company was carrying a lot of debt from the scooter times aggregating to Rs 310 crore. Now, this has been settled. Approximately Rs 118 crore by way of issue of non-convertible preference capital, Rs 8 crore by equity share, which was issued at Rs 49.30, Rs 108 crore which was rescheduled for payment over 8 years carrying an interest rate of 6.5 per cent, Rs 12 crore by pay outs and write outs for Rs 64 crore. The fund mobilisation has been of Rs 228 crore including the equity and warrants to the extent of Rs 110 crore, which has already been mobilised. During this year we would mobilise Rs 38 crore according to the needs of capital investment and another Rs 80 would be fresh working capital. These investments would come in by means of blue chip international investors.

Q. What is going to be your growth plan?

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The growth side of the company will commence with an entry-level bike in August 2005, followed by a cutting edge focus on CRM (Customer Relationship Management) and increase in penetration through enhanced focus on dealer and service network. We have the resources now to carry forward our investments in capacity and range expansion to 7,20,000 vehicles per annum and have also initiated a very effective value engineering programme for reducing cost for vehicles as well as operating costs. We are at the same time recognising the fact that India would emerge as a very important domain for export of vehicles. We are taking many initiatives on this end. Also, consumer driven insights, which have got us a long way till now, will continue to remain LML’s backbone.