Tata Motors may have worked wonders for Jaguar Land Rover, utility vehicle major Mahindra & Mahindra’s reported bid for another iconic British car-maker, Aston Martin of the James Bond fame, elicited the thumbs down from Indian investors.
Paring 32.15 points, the M&M stock closed at Rs. 922 on Bombay Stock Exchange after touching a 52-week high at Rs. 960.95 within minutes of opening trade on Monday. It was one of the major losers on BSE, even as the benchmark Sensex ended the day with marginal gains at 18,537.
“It is clear that investors are a bit skeptical,” said an analyst who tracks the stock. “If M&M go ahead to win the deal, it will not be positive in the medium term for the stock.”
Broking house Edelweiss Capital expressed similar concern. “We view M&M’s bid for Aston Martin cautiously, given our view that it may need significant investments in the business and the lack of utility vehicles in its range of vehicles denies any strategic fit with Mahindra and Mahindra’s existing portfolio,” it said.
Meanwhile M&M has termed reports about the deal as “speculative”. Investment Dar Co, the current owner of Aston Martin, also denied that it received competing bids, according to BBC.
The Edelweiss report says that Aston Martin, while being an icon, has been on the wane due to its lack of investment in technology and it continues to use the same platform since 2007. Aston Martin still sources engines from its former parent Ford’s plant in Germany.
“We believe the brand may require significant research and development investments over the next few years. To give a perspective, while BMW’s annual spend on research and development (R&D) is $1.3 billion and that of Jaguar Land Rover is $1 billion (Rs. 5,540 crore),” the Edelweiss report said.
Aston Martin’s car sales were flat at 4,200 in 2011. Given its revenue of £507 million (Rs. 4,501 crore), it appears difficult for Aston Martin to invest heavily in R&D operations. Its earning before interest, depreciation and amortisation last year was 18% down at £76 million (Rs. 6,74.7 crore).
According to reports, the Italian PE firm Investindustrial put up a bid of £200-£250 million (Rs. 1781 crore to Rs. 2,226 crore) for a 40% stake. M&M is believed to have made a counter bid offering higher an amount.