M&M may buy Kirloskar's stake in Swaraj Engines

The company plans to expand its diesel engine business.

Mahindra & Mahindra (M&M), India’s largest tractor maker, is planning to consolidate its stake in Swaraj Engines, as part of a plan to expand the disel engine business. M&M acquired a 33.2 per cent stake in Swaraj Engines and a 14 per cent stake in Swaraj Mazda through its acquisition of Punjab Tractors in 2007.

Swaraj Engines, 23 years old, provides diesel engines for Swaraj Tractors. The company was formed in technical collaboration with Kirloskar Oil Engines (KOE), which currently holds a 17.39 per cent stake in the company. M&M is in talks with KOE to buy out this stake.

“M&M has a bigger plan for the engine business and this acquisition would help the group leverage Swaraj Engines for that,” said an investment banker familiar with the development. “M&M has already had talks with Kirloskar Oil and the deal is most likely to happen soon.”

“As a policy we do not comment on market speculation,” said a M&M spokesperson. A mail sent to KOE did not get any response.

On Thursday’s stock price of Rs 310 a share, Swaraj Engines’ market capitalisation is Rs 385 crore and KOE’s stake in the company is valued at Rs 67 crore at this price. But an acquisition of the 17.39 per cent stake by M&M would trigger an open offer. Sebi’s guidelines makes it mandatory to give an open offer to buy an additional 20 per cent stake in case of acquisition of any 15 per cent stake in a company. At the current market price, a 37.39 per cent stake is valued at Rs 144 crore.

“The sale of stake by KOE would help it focus on its own business,” said another banker familiar with the talks.

M&M early this year sold its 14 per cent stake in light commercial vehicle maker Swaraj Mazda to Japanese co-promoter Sumitomo for Rs 40 crore. With this acquisition, Sumitomo’s stake increased to 53.5 per cent from 39.5 per cent earlier. The company sold the stake as it has a plan to develop commercial vehicles in a joint venture with US truck major International Truck & Engine Corporation.