Wednesday, 8 October 2014

Mahindra steps up two wheeler pace with Rs 217 crore Peugeot buy

  • Anand Mahindra
Mahindra Two Wheelers Ltd, part of the $16.5 billion Mahindra Group, is set to acquire 51% stake in French manufacturer - Peugeot Motorcycles (part of the euro 54 billion French auto major PSA Group), as the home-grown manufacturer looks to strengthen its two wheeler business while increasing its global presence.
This is the second major acquisition by Mahindra after acquiring Kinetic Motors in 2008, which eventually saw its entry into the two wheeler space.
Mahindra will invest an overall capital of Rs 217 crore (euro 28 million), of which euro 13 million will be spent on secondary sale of shares from Peugeot, and euro 15 million on fresh issuance of shares to Mahindra, the company said while talking to the media.
The two companies will take at least 3 months to close the deal, depending on the approvals, the company said.
Based in France – Peugeot is known for its four-wheelers and two-wheelers businesses. However, the two wheeler business unit is currently undergoing a turnaround, under its 'Back in the Race' strategic plan.
Currently, Peugeot Motorcycles, one of the oldest two-wheeler companies in the world, manufactures premium scooter with 7 engine capacities, ranging from 50-400 cc vehicles.
With the acquisition of a majority stake in Peugeot Motorcycles, Mahindra Two-Wheelers will get an access to the French company's styling and technology, apart from a strong presence in the European markets.
"They (Peugeot) have a technology centre with a strong ability to do styling and engine development and vehicle development with testing and everything. 20% of their total manpower is engaged in Research & Development (R&D)," said Pawan Goenka, executive director, Mahindra & Mahindra.
On the other hand, equity infusion from Mahindra will help Peugeot become a debt-free company and also give an access to markets like India and other emerging markets.
On the Indian market, the company said that there is a plan to bring in Peugeot scooters in India. However, specific products and timeline are yet to be decided.
"Most of the growth in India is coming from scooters. We think there is an opportunity and we create a premium scooter segment in the country. We will work on the go-to-market strategy, over the next 6 months. The brand and channel will be very different from what we have. We will have exclusive premium channel," said Rajesh Jejurikar, chief executive of Mahindra Two Wheelers.
The company said that, post the acquisition, the two companies will work as separate entities and the existing management and CEOs at Peugeot will continue to run the show for the company.
Clarifying on the positioning, the company said that Peugeot will continue to be positioned as the premium scooter brand, while Mahindra Two-Wheelers will be focused on the mass volume category.
Talking about the opportunities and synergies, Goenka said, "We believe we could efficiently explore the international markets, outside our home markets (Europe and India), more effectively together than we can do it independently."
According to the analysts, Mahindra Two Wheelers' investment will not have a major impact on its financials, given the valuation of the deal. "It is a right step towards strengthening Mahindra's two wheeler unit, but at the same time, it will be challenging because the brand (Peugeot) is weak and the products are not doing well. Hence they will have to look at a fresh start," said an analyst who is not authorised to be quoted.
According to Mahindra, most of the restructuring within Peugeot will happen before the closure of the deal, as Mahindra will not undertake any restructuring for two years.
Mahindra marked its entry into the two wheeler segment by acquiring Kinetic in 2008, but has not been able to grow its volumes despite a steady growth in the segment. With more indigenous products, the company is now looking to boost its volumes in the domestic as well as the international markets.