Mahindra & Mahindra (M&M; 'AAA'/Stable) proposed acquisition of a 51% stake in France-based Peugeot Motorcycles will not impact the former's ratings, India Ratings & Research (Ind-Ra) says. This is considering the small size of the acquisition and the relatively small contribution of two wheelers to its consolidated revenue (around 1.2%). However, we believe over the long term, M&M could benefit by way of improved revenue and profitability from the takeover, which would far outweigh the investments made.
Even though M&M's product profile will expand post the acquisition, Ind-Ra does not expect its domestic two-wheeler market share (around 1.5%) to rise significantly in the next three years considering the intense competition in that segment from well-entrenched Indian and Japanese companies. However, M&M will be able to leverage the Peugeot brand to gain access to new export markets as well as capitalise on the increasing acceptance of Indian two wheelers in markets such as Latin America and South East Asia.
M&M is also likely to realise cost benefits on the back of consolidated sourcing. The company is likely to strategise entering the global two-wheeler market through two brands-Peugeot for premium scooters and Mahindra for mass market scooters and motorcycles. Domestically too, M&M is likely to benefit from the premium positioning of the Peugeot brand going by the brand equity enjoyed by other European scooter brands in India such as Piaggio-Vespa scooters.
Peugeot Motorcycles has strong R&D prowess in two wheelers with a wide range of models and a full-fledged technology centre in France. Up-gradation of M&M's product line using this technology is another potential benefit.
M&M's EUR28 million investment (around Rs 2,170 million) for the acquisition is low compared with its consolidated FY14 revenue (Rs 740 billion). The transaction is likely to be completed post consultation with the Works Council in France and is subject to anti-trust law.
Shares of the company declined Rs 43.15, or 3.16%, to trade at Rs 1,324.35. The total volume of shares traded was 30,152 at the BSE (2.36 p.m., Friday).
