Aston Martin buy could make Mahindra the new auto Bond

Aston Martin

In June, M&M had said that it had earmarked R2,500 crore for acquisitions and investment in group companies. "The money will be used for acquisitions and equity investment in group companies," M&M's president of the automotive and farm equipment division, Pawan Goenka said.

"But, having said that, if we see that there is an interesting acquisition target which exceeds this budget, I'm sure we can raise the funds for that."

Some analysts, however, view the purchase as an 'unrelated diversification'. "The would require a lot of investment to meet Aston Martin's growth plans and this is a totally unrelated diversification of the company with very little synergies," said an analyst with a foreign brokerage firm on condition of anonymity.

Added a note from Edelweiss Securities, "Benefits of technology transfer from a luxury car maker to the Indian tractor and utility vehicle maker is questionable."

However, pessimists on this deal may get allayed following compatriot automaker Tata Motors' recent example where it was successfully able to turn around JLR's operations after acquiring the company in 2007. JLR posted a $487 million profit in second quarter of FY13, up 77% over last year. The news on M&M failed to impress the stock markets. M&M share prices fell 3.37% at the BSE to close at Rs.922.

While some analysts have called the bid expensive, investors are largely believed to be worried on reports that say that M&M may not retain operational control.

"M&M is comfortably placed to finance the deal, but the main worry among investors was a lack of clarity on the deal. Also, there was news about the finance ministry receiving a proposal for higher tax on diesel cars ó that will hurt M&M the most," an analyst from a top broking house said.

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