Due to the rising vehicular pollution in Indian cities, both Central as well as State Governments have started promoting development of alternate fuel cars. With dwindling sales of diesel cars and ecosystem of electrical vehicles, still a few years away, Automobile OEMs are now focusing on CNG technology. Long considered a source of incremental taxi sales, CNG cars have been catching the attention of car users over the past 4-5 years. Such cars are typically hampered by lack of power but manufacturers say that with improvements in technology etc, they can also be marketed to value-conscious first time buyers.

BRC Gas Equipment Ltd, Italy is one of the leading global players in the field of CNG technology. Looking at the growth potential, it entered into Indian market in 2009 in collaboration with an Ahmedabad based Co BRC Ltd and started a Joint Venture Co named RBRC.

RBRC soon built up a good track record as CNG solution provider to Maruti Suzuki India Ltd (MSIL) and General Motors (GM), supplying the complete CNG kits. While selling to these OEMs, the margins are low, but with growing volumes and low warranty cost as well as brand enhancement, RBRC profitability has grown at an average of 19% over the last 5 years.

RBRC also has a small share in After-Market where petrol car owners get their car fitted with CNG kits and 10% of RBRC kits are sold to this market. The aftermarket fitment happens through kits sold by RBRC appointed Dealers to customers in small workshops where fitment quality and safety is a matter of concern. Despite presence of a number of players, profits from aftermarket are higher than sales to OEMs. The market share of RBRC in aftermarket has however stagnated at around 11% for the past 3 years.

In 2015, looking at the sharp increase in CNG car demand in India, Maruti discontinued its tie up with RBRC and started sourcing CNG kit components from all over the world directly, giving it a significant decrease in buying cost. This had an adverse impact on RBRC and its turnover declined sharply from Rs 122 cr in 2016-17 to Rs 30 cr in 2017-18, forcing it to urgently rework its business strategy. Unfortunately, none of the other Auto OEMs showed interest in RBRC kits and thus RBRC was left to focus entirely on aftermarket sales.

Question:

Bring out the challenges that are likely to be faced by RBRC from changing its business strategy of sales to aftermarket from OEMs earlier.