Two-wheeler manufacturer LML is confident of turning around after reporting losses for two straight years. The company recently launched its 110 cc bike, Freedom, in Uttar Pradesh and is gearing up for an all-nation launch. LML is very optimistic about Freedom and is pinning its hopes of riding out of the red in the second half of this fiscal on this new product.
Certainly, LML, India's second-largest scooter manufacturer, has been a little late in reacting to market trends: it entered the booming motorcycle segment only a year back with its Adreno FX and Energy FX models. That late entry is what many believe took its toll on the company, burdening it with accumulated losses of Rs 80 crore. Deepak Singhania, managing director, LML, tells us about his hopes for Freedom and the company's future plans.
Is the high growth rate in the motorcycles segment sustainable? Do you expect more players to enter the market?
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The rate of growth in motorcycles will continue, since this category today constitutes the bulk of the market and fulfils the basic need to commute. It may be possible for new players to enter but the key question always remains the ability to make the right product in right volumes for the Indian market. Here, the barriers to growth are high tax rates and the absence of even a minimal number of roads, looking at the size of the Indian population. Even then, we expect a good growth rate in the motorcycle segment and the two-wheeler segment should reach seven million vehicles by 2005.
What is the unique selling proposition (USP) of the Freedom, considering that there are so many competitors like Hero Honda and TVS? What is your sales target for the fiscal?
Freedom is a vehicle of current generation technology and offers unparalleled benefits to consumers in fuel consumption, pick up, stability, and also offers contemporary styling, braking, safety, etc. All this, at an extremely aggressive pricing. We believe Freedom will redefine the mass motorcycle market and re-position the competition. The USP of Freedom is the product itself.
Freedom is expected to be available all-India by end-September and we expect to sell approximately 25,000 bikes per month by March 2003. The sales target, by itself, means nothing unless there are reasons by which they become achievable. The feedback before and after its launch in Uttar Pradesh gives us confidence that we will not only reach our numbers but will also push competition very hard.
What new products are you planning to launch in the near future? How will they be positioned?
We plan to launch a 125 cc bike and a 100 cc entry-level motorcycle towards the end of this year. By December 2003, we are also planning to launch four-stroke gearless scooters. The 125 cc bike will be a lifestyle bike and the 100 cc motorcycle will be a commuter bike at the entry level.
How do you see the future of the scooter segment? Are you planning to launch new products in this category? How different are operating profit margins in the scooter and motorcycle segment?
The market for geared scooters is currently around nine per cent and we expect that, by 2005, it will go down. Though in volume terms, there will remain a demand for such products because of the existence of this type of vehicles since the past 50 years. We do not foresee any growth in the scooter segment because the emotive connect and benefits offered by motorcycles to the male-dominated two-wheeler market cannot be replicated. However, we plan to launch four-stroke gearless scooters by the end of 2003. Operating margins are dependent on various factors, including but not limited to costs, pricing and other direct and indirect expenses. Therefore it is difficult to quantify margins in a category or a product.
What makes you confident about recording a profit this fiscal?
LML has gone through very difficult years because of the catastrophic collapse of the geared scooter market and an inadequate presence in the motorcycle market. That was because we did not have either the capacity or the product for the mass commuter segment. The performance in the first and second quarter of the current fiscal will be even worse. The benefit of higher volumes from Freedom will begin to translate only from now onwards and will be seen in full effect during the second half of the current fiscal. The confidence of effecting a turnaround flows from the simple fact that we have an "A" class product, superior in every possible manner and which stands eyeball to eyeball with the competition.
To achieve higher productivity, you planned to restructure debt as well as your plant. What is the status on both? What kind of margin improvement do you expect this fiscal?
The debt was incurred to enhance the capacity of scooters, but due to an irreversible decline in this category, there was very low capacity utilisation. It required us to reschedule debt; volumes coming from motorcycle business will now be able to service the same. The company has, also in the rescheduling proposal, due to this extraordinary reason, sought a reduction in the rate of interest since earlier debts had been taken on when rates were very high, and need to be realigned with the present low interest regime. Greater capacity creation and utilisation in motorcycles coupled with a reduction in interest rates will allow the company to service its debts in a structured manner and return to profitability as soon as possible.
You have accumulated losses of Rs 80 crore. How long will it take to wipe them out?
Our profits will wipe out losses and the turnaround will start from the second half.
You are setting up plants for making two-wheelers in Egypt and South America. Why do you want to manufacture abroad?
Our plan for setting up facilities in overseas market is to make our product competitive enough to break past tariff barriers. In both cases, our stakes in these ventures will be only that of a minority partner and our target is to achieve 10 per cent of our business from exports by 2005.