Mahindra & Mahindra - Peugeot Buy: A Step in Right Direction, But Concerns Persist :: Edelweiss PDF link

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Mahindra & Mahindra (M&M) hosted a conference call to discuss the rationale behind acquisition of 51% stake in Peugeot Motocycles (PMTC) for EUR28mn (INR2.2bn). Key acquisition rationale were: (1) limited product development investment as PMTC’s engine platforms are robust, requiring minor adaptation; (2) PMTC’s reasonable brand equity in European markets; (3) opportunity to expand market reach as PMTC has been traditionally a European play; and (4) enhancing M&M’s 2-wheeler (2W) capability as well as widening bouquet of offering, especially in international markets like Africa/Latin America. We believe the acquisition is a logical step which will support M&M’s otherwise fledgling 2W business and help it gain scale. However, we believe that it will take long for the company to make a mark in the Indian market. We wait to see how the international business takes off post the acquisition. In our view, it will take around 2 years for benefits to reflect.

PMTC: Sharpening focus on crucial growth drivers

PMTC had been severely impacted due to significant decline in the European 2W industry (from 1.67mn units to only 0.6mn units over past decade) and its limited focus to expand beyond Europe. This led to sharp drop in revenue to EUR99mn in 2013 (EUR130mn earlier). Going ahead, M&M’s key focus areas will be: (1) leveraging the premium Peugeot brand outside European markets (exports to 60 countries); (2) augmenting global network; (3) adapting existing technology to create new products; and (4) deriving synergistic benefits in procurement and distribution model for foreign markets. Opportunity for 2W in India remains immense and with rising share of scooters, M&M could enter India at a later stage.

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