Why does the volatge drop is huge once a load is connected to a generator?
Torque applied is maintain at constant for both scenario. But during
  the load condition there is a significant drop in rotation speed.


If input torque is held constant then you are fashioning a constant current generator and not a constant voltage generator. Input mechanical speed would need to be held constant to produce a "near-enough" constant output voltage.

Mechanical power in = \$2\pi n T\$ where n is speed (rev/sec) and T is torque. You have kept T constant but allowed n to fall therefore the mechanical power into the generator has fallen just when you wanted power to increase!