Mahindra & Mahindra is close to acquiring a majority stake in a Munich-based auto design outfit and an Indian gear manufacturing company. These deals will kick off Mahindra's much-publicised acquisition drive in the auto component business.
While declining to name the two companies, Hemant Luthra, president, Mahindra Systems and Automotive Technologies, a recently formed Mahindra wing, said, "We are close to sealing a deal with a German design company and also with a local gear company.
"Formalities such as RBI approval, etc are pending. It does not make any sense for us to acquire a company fully, especially in the engineering services space. We want to retain the existing management as these are an important resource for us like the client list of the outfit."
The German design company will be merged into Mahindra Engineering Services, a 400-people division set up about a year ago. Its client list includes global auto majors such as BMW, Audi, Volvo, etc. Besides the German company, M&M is also in discussions with a Detroit-based design company.
Luthra hopes that with the acquisition, MES, which is yet to make its presence felt globally, can shorten its sales cycle (now around 8-9 months) considerably.
The gear company has a turnover of around Rs 40-50 crore (Rs 400-500 million) and has a capacity of 1.5 million gears per year. M&M is currently conducting a due diligence of the target company. The acquisition will take Mahindra's total gear manufacturing business to Rs 150 crore (Rs 1.5 billion).
Mahindra's MSAT sector, formed earlier this month, includes its engineering services and R&D facilities, strategic sourcing business unit, Mahindra Ugine Steel, Siroplast, PSSL and its gear and axle manufacturing interests. It currently has a turnover of Rs 1,200 crore (Rs 12 billion).
So far, the sector has been servicing the needs of M&M's farm equipment and automotive sectors primarily, but Luthra is working towards reducing the dependence of the MSAT sector on M&M by 50 per cent in the next three years. The MSAT sector is eyeing a turnover of Rs 2000 crore (Rs 20 billion) in the next three years.