Mahindra to buy 51% in Peugeot scooter unit

The deal will provide M&M with Peugeot's ready technology, as well as reach in western markets

Mahindra & Mahindra Ltd , India's largest utility vehicle maker, said on Tuesday its two-wheeler unit has made a binding offer to acquire a 51% stake in PSA Peugeot Citroen's scooters business.

The deal will involve infusion of 15 million euros ($18.93 million) into Peugeot Motorcycles to finance projects, Mahindra said in a statement issued to the National Stock Exchange. The company did not give more information about the transaction.

The deal will provide M&M with Peugeot's ready technology, as well as reach in western markets. Though M&M has been making scooters since 2008, its presence in this segment is negligible.

After it shut an engine plant two years ago, Peugeot's scooter business had become a "drag and burden on the group", according to chief executive Carlos Tavares, who took charge of the company in March. Since the past few months, Peugeot has been exploring various options to address this issue.

M&M has seen some success with economy motorcycle Centuro, launched last year. After starting with technology borrowed from the now defunct Kinetic Motors, M&M has been tapping technology used in its sports utility vehicles for its two-wheelers.

However, the two-wheeler business has been a drag on the group, posting a loss of Rs 459 crore last financial year and an accumulated loss of Rs 1,250 crore, according to disclosures in the company's annual report. After six product launches and investment of about Rs 500 crore, the two-wheeler business was declared "potentially sick". This followed its accumulated losses peaking to Rs 790 crore at the end of March 2013.

In 2013-14, the company's two-wheeler sales rose 93% to 202,759 units; the Centuro accounted for 73 per cent of these sales. Mahindra Two Wheelers retails five scooter models and two motorcycles. It plans to launch a new scooter in a few weeks.

Peugeot's scooter business, which has posted losses through a decade, sold 79,000 vehicles last year, a rise of 8.2%. The unit employs about 500 people in France and 300 at a joint venture in China.