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  1. Tech Mahindra shares fall over 3% on Pininfarina deal, should you invest?

Tech Mahindra shares fall over 3% on Pininfarina deal, should you invest?

Tech Mahindra share price fell over 3 per cent intra-day on Tuesday after the IT major and M&M announced that they have jointly entered into an agreement with Pincar Srl, to purchase a controlling stake in Pininfarina SpA

By: | New Delhi | Updated: December 15, 2015 4:30 PM
Tech Mahindra, Sensex, Nifty

At 1.42 pm, the share price of Tech Mahindra was trading 3 per cent down at Rs 526.65. (Photo: Reuters)

Tech Mahindra share price fell over 3 per cent intra-day on Tuesday after the IT major and Mahindra and Mahindra announced that they have jointly entered into an agreement with Pincar S.r.l., to purchase a controlling stake in Pininfarina S.p.A., an iconic Italian brand in automotive and industrial design.

At 1.42 pm, the share price of Tech Mahindra was trading 3 per cent down at Rs 526.65. The scrip opened at Rs 550.50 and had touched a high and low of Rs 550.50 and Rs 524.35, respectively, in trade so far. The share price of the company later closed 4.18 per cent down at Rs 520.00.

On the other hand Mahindra & Mahindra shares were trading 1.05 per cent up at Rs 13,00.50 during the same time. The scrip settled 0.21 per cent down at Rs 1284.30 .

As part of the agreement, Tech Mahindra and M&M shall purchase 76.06 per cent of Pininfarina shares from the current controlling shareholder Pincar S.r.l. at a price of euro 1.1 per share. This investment by Tech Mahindra and M&M shall be done via a joint venture company, whose ownership shall be held 60 per cent by Tech Mahindra and 40 per cent by M&M.

According to Reuters, Pininfarina had net debt of $48 mln as on September 2015, hence the enterprise value (EV) of the business is over $106 million.
In a BSE filing, M&M said, “Pininfarina’s legendary brand status will allow Tech Mahindra powerful access to relationships the iconic designer has nurtured with the best in the world over its 85-year history, including with Ferrari, Alfa Romeo, Maserati and Peugeot. This will mean an opportunity for Tech Mahindra to influence product conceptualisation and design & styling through Europe’s best-in-class design house.”

Mahindra will also inject 20 million euros into the designer through a rights issue, and will provide a guarantee worth up to 114.5 million euros to its lenders, creditors and lessors, the company said.

According to Edelweiss, the acquisition is a smaller one compared to past acquisitions like LCC and Pininfarina’s low margins will not materially impact Tech Mahindra numbers. But, given that LCC integration is still underway, investors will be curious to know more details about the current acquisition, rationale for the same and its possible impact on Tech Mahindra’s financials. The stock currently trades at 13.9x FY17E EPS.

The brokerage house has a ‘Buy’ rating on Tech Mahindra shares with a target price of Rs 630.
(With inputs from Reuters)

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