Mahindra & Mahindra shares fell more than 1 per cent on Thursday after Ssnagyong Motors named it as the preferred bidder. Ssangyong, which holds just 2 per cent of the Korean market, has been under the court-led restructuring and faces a debt pile of about $634 million.
“It is not making economic sense and that is why the stock has reacted negatively,” said Rakesh Rawal, head of private wealth management at Anand Rathi, who manages $1 billion of funds for his clients.
Mahindra, which manufactures sport utility vehicles such as Scorpio and Xylo, intends to become a global player with the acquisition of Ssangyong Motors. Its bid for Ssangyong came in at $400 million.
“The acquisition could be slightly negative for Mahindra in the near term because Ssangyong is a small player and scalability is limited. So Mahindra will have to make some investments,” said Surjit Arora, auto analyst with brokerage Prabhudas Lilladher.
“I am guessing it would take two to three years for Mahindra to turn around the company. That is when we expect the benefits to kick in,” he added.
At 9:45 am, Mahindra shares were down 0.58 per cent at Rs 624, after hitting a low of Rs 619 while the main index was down 0.55 per cent.
Mahindra, along with South Korea’s Renault-Nissan alliance and India’s Ruia Group, is one of the bidders to buy cash-strapped Ssangyong. Ssangyoung said the final acquisition price would be decided in October, after due diligence, and the deal would be closed in November.