Mahindra to buy 33% stake in Mitsubishi Agri Machinery

Mumbai: Mahindra and Mahindra Ltd (M&M) on Thursday said it will buy 33% stake in Japan’s Mitsubishi Agricultural Machinery Co. Ltd for three billion yen ($25 million).

In a stock exchange notice, M&M said the two companies will jointly develop products such as tractors and farm equipment.

M&M will acquire the stake through a fresh issue of common shares and non-voting or Class A shares, the company said, adding the deal will be closed by 1 October.

“This will enable strategic growth avenues for Mitsubishi Agricultural Machinery through Mahindra USA, China and other international markets, thereby speeding up the international expansion. It will also provide a platform for both the companies to leverage technology and product development synergies,” said Rajesh Jejurikar, president and chief executive (farm equipment and two-wheeler division) M&M.

Mitsubishi Agriculture, which is a subsidiary of Mitsubishi Heavy Industries Ltd, makes tractors, harvesters and transplanters.

Besides Japan, it is present in several South-East Asian countries and the US, and had a turnover of $408 million in 2015.

M&M is India’s leading farm equipment and tractor maker.

An analyst at a domestic brokerage said that considering the small investment by Mahindra, the deal is unlikely to have any material impact on company’s financials. The analyst declined to be identified.

Mitsubishi has been associated with Mahindra since 2003. It has been supplying tractors to Mahindra USA—the company’s subsidiary in the US. It also has a technical alliance with M&M for the rice planters.

The equity deal between the firms will compliment the product portfolio of both the firms and help Mahindra in making deeper inroads into China and enter newer ones such as the Asean (Association of Southeast Asian Nations) countries, said Pawan Goenka, executive director at Mahindra and Mahindra Ltd.

M&M is world’s largest tractor maker by volumes. As part of the agreement, Mahindra will also make tractors and farm equipment with Mitsubishi for the Indian market.

The companies are currently working on a lightweight, small tractor for India. The model will be ready for launch after a year and a half, said Goenka.

M&M has signed the agreement with Mitsubishi at a time when tractor firms in India are faced with the decade’s worst slowdown. Tractor sales in India, the world’s largest market after China, declined by 13.05% to 550,963 units in fiscal 2014-15 as against 633,656 in fiscal 2013-14 —the sharpest fall since 2003, according to industry lobby Tractor Manufacturer Association (TMA)—as unseasonal rain, poor yield and lower realization from crops dented farmers’ disposable income. Mahindra’s tractor sales during 2014-15 contracted 14% to 220,157 units.

Goenka expects sales to revive only in the second half of this year when the monsoon sets in and last year’s high base gets corrected.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.