MUMBAI, Dec 23: First they graduated pedestrians into moped-riders and now their ambition is to upgrade the two-wheeler users into microcar owners. By mid-1998, the Firodias plan to roll out the 500 cc car out of Kinetic Engineering's plant.

The major USP is Rs 1.25 lakh price-tag for a four-wheeler with a capacity to carry 2 adults plus 2 children. Undoubtedly there does exist a class of town dwellers dreaming of a family car but cannot afford even the lower end price ie Rs 2.5 lakh for a Maruti 800. But, selling this dream at what cost? Rs 100 crore investment for an initial capacity to be raised from 10,000 in the first year to 50,000 by the fifth year!

Though some investment has already been made out of internal accruals, the major chunk will come through debt. A possible equity issue cannot be ruled out.

Kinetic Engineering is also toying with the idea of hiving off its car business into a seperate venture at a later stage.Can a company - whose asset base of Rs 145 crore stands highly depreciated to Rs 58 crore - support an investment of Rs 100 crore?

"The resource raising through substantial debt will cause a drain on the company whose financial strength is not enough to support the project," opines auto analyst Dinanath Dubashi of Birla Marlin Securities."I am quite sceptical about this car business mainly because in an unproven market, the company getting into debt could land it into financial problems," says an auto analyst with a reputed investment firm, adding that the company is not cash rich like Bajaj or Telco, who are still finding it difficult to go ahead with their car projects.

Kinetic Engineering's venture into an unrelated and untested market is making shareholders uncomfortable. According to the market sources, why should one buy a totally unknown product at Rs 1.25 lakh when a second-hand Maruti for the same price is a much safer proposition. Luna - the moped has been a runaway success and later Kinetic Engineering introduced other variants like Kinetic Pride FX, Kinetic K4-100 and Stepthrough in scooters/motorcycle segments. Since last year, the two-wheeler market has been facing recession with offtake stagnanting at last year's level. During April-October this year, motorcycle sales increased while sale of scooters and mopeds fell. Under these circumstances, Kinetic Engineering, whose share in the moped market is 30 per cent, has suffered since this product still dominates the company's product range. During the first half of 1997-98, therefore, the company reported flat results with sales rising marginally by 2.3 per cent to Rs 111.90 crore and net profit by 2.1 per cent to Rs 4.90 crore. The mopeds market has been growing very fast at 25 per cent in south as against 10 per cent in north and west. Besides southern market accounts for a whopping 60 per cent of the enitre moped sales. To penetrate this market, Kinetic engineering is investing Rs 5 crore in marketing, promotions, sale and dealers network in this region. "The strategy is fine but the success is doubtful" opines Dubashi. The south is a TVS Suzuki bastion which is difficult to penetrate. "In fact, it is the other way round. TVS could give Kinetic tough time defending its market share, should TVS plan such a strategy to strengthen its marketing in the north and the west," says an analyst. The investors' perception is amply evident in the company's stock price which is consistently on a downhill from a high of Rs 255 in January 97 to a low of Rs 105. Currently, it is trading at Rs 118 getting a very poor discount of 4.2.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.