Mahindra to buy controlling stake in Peugeot scooter unit

Photo taken on November 28, 2013 shows Peugeot Metropolis motorcycles parked in a at the factory of the French car and motorcycle maker PSA Peugeot Citroen in Mandeure, eastern France. AFP PHOTO / SEBASTIEN BOZON

By James Crabtree and Avantika Chilkoti

India’s third largest carmaker by sales,  Mahindra & Mahindra, on Tuesday said it had signed a binding agreement to buy 51 per cent of Peugeot Motorcycles, the French car manufacturer’s motorcycle unit.

Mahindra said the deal involved a €15m cash injection as well as a €13m shares purchase in the unit, which is also known as Peugeot Scooters and generated revenues of €99m last year.

The sale is part of a wider turnround plan at Peugeot, Europe’s second-largest carmaker by sales, which in July reported a return to profit in its results for the first half of 2014.

Mahindra described Peugeot’s motorcycle division as “the oldest motorised two-wheeler manufacturer in the world”, and “a key player in urban mobility in Europe for 116 years”.

Shares in the Indian carmaker, which is part of the bigger Mahindra conglomerate, closed down more than 2 per cent in Mumbai.

The stake purchase in Peugeot Motorcycles is the latest in a series of attempts by Mahindra – best known for making inexpensive sport utility vehicles – to acquire global auto brands.

The Mumbai-based group bought South Korea’s Ssangyong Motor in 2010, and has previously launched unsuccessful attempts to purchase Saab of Sweden and Aston Martin of Britain.

Mahindra said it would now “aggressively expand” Peugeot’s scooter presence in developing economies including Vietnam and India, while attempting to arrest a sales slump in Europe.

Pawan Goenka, head of automotive at Mahindra, said its scooter division – which launched in 2008 and recorded a post-tax loss $75m in 2013-14 – would push forward with plans for international expansion, including in African markets, aided by technology and design knowhow from Peugeot.

He added the company would now follow a “two-brand game” targeting Peugeot’s scooters at higher-end customers while focusing Mahindra’s range at entry-level consumers.

July 2014: PSA Peugeot Citroën has reported its first profit in three years, boosting the credibility of chief executive Carlos Tavares’s turnround plan

Mr Goenka denied that Tuesday’s deal was a prelude to any wider agreement with Peugeot’s main carmaking business, whose financial difficulties led it to suspend plans to build a factory in India.

While Mahindra’s Harvard-educated founder Anand Mahindra has often stated his enthusiasm for acquiring premier foreign brands, analysts said the Peugeot deal also stemmed from a desire to buy technology.

“[Mahindra] have found it hard to do the R&D for scooters themselves, the products they have developed haven’t exactly set the market alight,” said Paul Blokland of Segment Y Automotive Intelligence, an India-based research group.

India overtook China to become the world’s largest motorcycle market by sales in 2012, according to ICRA, an Indian credit rating and research group, with an estimated 16m units expected to be sold this year.

The market has grown steadily in recent years – despite a contraction in car sales in 2012 and 2013 – driven by demand from lower income households in rural India, where motorbikes are popular for short trips.