Mahindra & Mahindra (M&M) sees a business upside in the troubled two-wheeler maker Peugeot Motocycles (PMTC) which has not only made it retain 20% voting rights in the French company but also explore regaining the equity it would offload to Germany’s Mutares SE & Co.
On Thursday, M&M announced that Mutares, a turnaround specialist, has submitted an irrevocable binding offer to acquire 50% equity and a controlling stake of 80% in PMTC. The deal is widely viewed as a desperate attempt to keep the loss-making PMTC afloat. M&M has been reviewing its position on its PMTC ownership since the past few quarters.
Asked if M&M could explore getting back the ownership of PMTC if its financial health improves, Anish Shah, MD and CEO, M&M, told FE: “We always felt that the business (PMTC) has the potential but at the same time it is a function of ‘can we really execute on the ground there and what are the actions required?’. So, if the business can live up to its full potential, then yes, we can regain a good part of that, but it is one step at a time at this point.”
Through the proposed deal M&M will hold a 50% shareholding through ‘Preferred Shares A’ and 19.99% of voting rights, while the balance 50% of shareholding and 80.01% of voting rights will be held by Purple Holding, a Mutares company.
“The 20% stake will be an investment for us and not a controlling stake. We feel the partner, who has come in, has tremendous set of skills to be able to take the business, turn it around and move forward. We like the Peugeot brand, we feel that the business could actually do a lot more,” Shah added.
During the earlier quarters M&M had put PMTC under Category A because it felt PMTC would get on the path to 18% return on equity in a reasonable time frame. But Covid-19 hurt the company’s chances of turning around the PMTC operations. The milestones M&M had outlined for Category A companies were not met by PMTC and so it went under a review process.
“As we did that review, we felt that we needed someone who can actually implement actions on the ground which also allows us to conserve our efforts and energies towards business that we are growing here in India and globally,” Shah added.
Bought in early 2015 by a subsidiary of M&M, Peugeot Motocycles has not generated profits even once in any of the financial years since the takeover. In July 2018, a ‘rightsizing plan’ was initiated at PMTC providing for the departure of 102 employees. The cumulative loss at PMTC since its takeover by M&M stands at more than Rs 1,800 crore.