TechM to mull merger of Mahindra Engineering with self today

Experts say merger will strengthen TechM's manufacturing vertical

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The board of Tech Mahindra will consider merger of group company, Mahindra Engineering, with the information technology (IT) services company today, according to a regulatory filing on the BSE.

The merger, if it comes through, is seen positive for Tech Mahindra, as it will strengthen the manufacturing vertical of the Mumbai-based company.

“The amalgamation will further strengthen the manufacturing vertical of TechM which had earlier seen a boost after the acquisition of Satyam,” brokerage firm Prabhudas Lilladher said in a note.

Tech Mahindra has strengthened its manufacturing vertical significantly when its parent, Mahindra Group, acquired the beleaguered firm Satyam Computer Systems in 2009 and merged it with the Mumbai-based company over the following years.

Mahindra Engineering, which is a subsidiary of Mahindra & Mahindra, is an engineering services provider for the automotive, aerospace and manufacturing verticals. The Pune-based company was founded in 2004, has over 1,350 employees and has offices across US, Italy, Germany, UK and China. The company provides engineering services in all domains of mobility, such as automotive, off-highway equipment, aerospace and marine. It has over 40 clients globally. Some of its marquee clients include Honda, Renault-Nissan, Bentley, McLaren, GM, Navistar and Mercedes Benz and Volvo Construction Equipment. Its clients in the aerospace include National Aerospace Laboratories, Hindustan Aeronautics and Seabird Aviation.

In FY12, Mahindra Engineering had revenue of around $33 million and EBITDA margin of 27%. The compounded annual growth rate of the company between FY11 and FY13 has been around 22%. Additionally, according to industry sources, Mahindra Engineering has zero debt.

“The company (Tech Mahindra) may utilise its treasury share of 24 million or net cash of Rs 32.4 billion for the amalgamation,” Prabhudas Lilladher said. “The company will require special resolution with approval of three-fourth of shareholders, along with approval of High Court.”