There are wonderful people out there who helped me by answering queries on Facebook. Additionally Youtube videos and digital conversion blogs in marklin-users.net helped a lot as I was shit scary in handling this 45 USD decoder
This is what I did:
- remove the analog locomotive's electro mechanical reversal unit
- Carefully desolder the 3 wires coming out of the motor
- Screw (it is a nut:)) the decoder plastic case to the reversal unit
- Slide in the decoder with all the wires intact
- Check if the loco is with a headlight\bulb that has one wire grounded to chasis\loco body or it is a bulb with two wires
- Refer to the wiring diagram given in the instruction manual and cut out the extra wires.
- In my case as I was not using the telex and smoke functionalities, I kept ~8cm of these wires, cut the excess wire, insulated the ends and coiled them to save some space
- Now is the time to slide in the heat shrink tubes. I managed with insulation tape
- Solder the wires as per the wiring diagram.
- Inside electric locos, you would see a small switch with electric contacts that let you to switch power either from from pantographs or pickup shoe. Please keep this connection intact for future use
- The brown wire from the decoder needs to be soldered to the chassis. As per one of the suggestions received on our FB group, I made a small wire loop and screwed it tightly to the motor housing:) But there are elegant ways of doing this
- Keep the locomotive on the track and switch on the power supply
- If the locomotive gets recognized as mLD FSM on MS2 you just did it!
- Wait, check if the headlight is in sync with the direction of travel. If it is not, as the experts suggested, swap the yellow and grey wires
- After ensuring that all the functions work, fix the locomotive body back in place
- As highlighted by Marklin already, the low speed unregulated behavior of the motor still exits
- The headlights flicker post conversion, but are manageable

Here is video of loco in action: