Why Aftab Auto shut down its motorcycle unit

Infographic: TBS

Aftab Automobiles Limited, the assembler of Benelli, Keeway, and Indian Mahindra two wheelers, and also Hino buses, has announced the closure of its motorcycle unit.

The publicly listed company did not mention any reason in its stock exchange filing on Thursday.

Aftab Auto's Company Secretary Md Mostafizur Rahman told The Business Standard (TBS), "The two-wheeler unit was not making money and that was why the board of directors decided to close its operations."

"Not a surprise that the struggling two-wheeler business has been closed down," said motorcycle market observer Shuvro Sen, founder and chief executive officer of the country's largest two-wheeler portal, BikeBD.

Aftab Automobiles started out in 1967 to assemble the Toyota Land Cruiser. It entered the motorcycle market in 2013-14 following a local assembling and distributorship agreement with Indian Automobile giant Mahindra & Mahindra Ltd, that expanded into two-wheelers in the late 2000s.

Aftab Auto was utilising up to around three-fourths of its single-shift assembling capacity of 10,000 units a year at its Chattogram plant, thanks to the scooter model Mahindra Gusto, and motorcycle models Centuro, Arro, and Pantero that were trying to compete in the affordable segments.

Production and sales of Mahindra models were inching up. However, they were far from a meaningful presence in the country's fast growing two-wheeler market that registered an annual sale of around 2 lakh units till 2016, and took off to approach 6 lakh units in 2021, after the manufacturing localisation wave started in 2017.

Shuvro Sen said, when picked by Aftab Auto, Mahindra was not a wrong brand at all as the Indian principal had big winning stories in tractor and four-wheeler segments.

But, Mahindra ultimately failed to receive sufficient response from Indian motorcycle buyers as the commuter segments have long been dominated by long-proven brands like Hero, Honda, Bajaj, TVS, and others. In a decade of two-wheeler presence, Mahindra opted out of commuter segments and focused on the revival of the historic premium brand Jawa that makes bigger bikes.

Then at the end of 2018, Aftab Auto entered into an assembling and distributorship agreement with China's Zhejiang Qianjiang Motorcycle Group Co, for the Italian brand Benelli, and Chinese brand Keeway.

Then came the pandemic that made Chinese imports slightly more expensive and Aftab Auto again failed to keep pace with the local two-wheeler market as its assembling drastically came down to merely around 2,000 units in recent years.

Shuvro Sen, like most motorcycle enthusiasts, believes neither of the brands were that bad to fail here in the market.

"The problem was Aftab Auto's weak management" he said, citing the company's failure in providing spare parts to users of Benelli or Keeway bikes in the country.

Bikash Biswas, a Keeway 150 cc rider in the capital, has been repeatedly going to the company service centre at Tejgaon for the last two months to replace the worn out rear brake master cylinder, as the parts come from China and there is no alternative source in the country. The service centre manager has asked him to wait till January 2023 for the essential parts.

The highly leveraged company's declining sales and cash flow in recent years are reflected in its quality of after sales services, said the customer.

The company and its subsidiary, Navana Batteries, posted Tk481 crore in revenues for fiscal year 2017-18, which came down to less than Tk45 crore in the first nine months of 2021-22.

In July to March of FY22, it incurred a loss of Tk6.85 crore.

Aftab Auto directors, the Navana Group, was the first to seek bailout funds from the government during the pandemic.

However, closing the motorcycle operations freed up Tk27.8 crore of the company's fixed assets that were adjusted in current assets.     

At the end of the fiscal year, the company posted Tk0.01 in earnings per share, against its loss per share of Tk1.94 a year ago.

Aftab Auto shares, with a face value of Tk10 each and a net asset value per share of Tk54.88, closed 10.94% higher at Tk28.4 on Thursday, at the Dhaka Stock Exchange.