The Hindu Business Line : M&M evaluating majority stake in Kinetic Motors

Pune, May 23 Though a US-based private equity fund has already completed the due diligence at Kinetic Motor Company (KMC) and evaluated it in the region of Rs 125 crore, a source close to the development says that it is Mahindra and Mahindra (M&M) which is currently assessing the deal to acquire a majority stake, which has the preferred suitor status.

The reason, the source says, is that the promoter Firodia family is not looking at mere fund infusion, but wants to exit from active management of the two-wheeler business, and retain involvement only at the board level.

The entry of a strategic partner with financial muscle will help them keep the brand alive and also “release bandwidth” to allow them to concentrate on their other businesses.

One of the options that the Firodias had hoped for was that its minority partner Taiwan-based Sanyang Industry Company Ltd (SYM), which today holds 11.1 per cent stake, would make further investments in KMC.

However, SYM has recently invested nearly $50 million in setting up a car manufacturing unit in Vietnam, and was willing to invest a maximum of $10 million more here.

Following due diligence, the PE fund cobbled an offer that involved investment of $20 million by them, SYM to bring in $10 million and the promoters requiring to raise another $10 million (Rs 40 crore).

According to the source, the promoters, who currently have already pumped in around Rs 50 crore in the last two years, are reluctant to make any further investments as they believe it could yield better returns elsewhere.

This makes M&M the preferred suitor as it can bring in the necessary working capital, clear around Rs 60 crore of long-term debt and also invest year-on-year in development and marketing of products which include SYM’s second scooter that is ready for launch, and a second model from Italjet SpA that has been developed.

KMC’s current installed capacity at its Pithampur two-wheeler facility is 2.5 lakh units that can be ramped up to 4 lakh, if required. The present production is around 80,000 units annually. Should the M&M deal go through, SYM will remain as a technical partner.

Apart from Kinetic Engineering which manufactures power trains and transmissions, other group companies include Jaya Hind Taigene, a 50:50 joint venture with the Taiwanese company that makes auto components such as motors and starters, and a 50:50 JV with Ducati that makes electrical components.