Mahindra & Mahindra (M&M), India's largest tractor and utility vehicle maker, on Tuesday said it would buy the business assets of loss-making scooter maker Kinetic Motor Company for Rs 110 crore to gain an entry into the two-wheeler market.
M&M will buy the stake through a new joint venture in which it will hold 80 per cent and Kinetic the rest.
"There is strong evidence that two-wheelers are going to enjoy a renaissance," said Anand Mahindra, vice-chairman and managing director, Mahindra Group.
Mahindra said the group found it natural to "look at all aspects of the transportation business". To this end, the group also plans to make heavy commercial vehicles.
He added that the group plans to build its two-wheeler business on the back of its global sourcing expertise, experience in building differentiated brands and utilising the strength of Mahindra Finance.
Kinetic Motor Co, which used to have a tie-up with Honda, revolutionised the scooter market some years ago by introducing the gearless scooter. The company today has motorcycle and scooter products, its well-known brands being Kinetic 4s, Kinetic Blaze, Kinetic Nova and Kinetic Flyte.
Kinetic will use the money from the sale mainly to repay Rs 60 crore worth of long-term debt on its books (the company could not provide an estimate of the remaining debt).
The sale of Kinetic's operating assets will leave the company with real estate assets valued at Rs 30- 40 crore.
"We will look for a new operating business," said Sulajja Firodia Motwani, managing director, Kinetic Motor.
Kinetic Motor Company also has an option to sell its 20 per cent stake in the new joint venture after seven years.
"The alignment with M&M will help Kinetic compete with the big players in the two-wheeler business," said Ashim Bhuvania, vice-president (corporate finance) at Ambit, the investment bank that advised Kinetic Motor on the deal.
In a separate development, M&M announced that it would merge its subsidiary Punjab Tractors Ltd with itself. The group will offer one share for every three held in Punjab Tractors, in which it holds 63 per cent. The merger will take place in seven to nine months.