Mahindra & Mahindra - Navistar sells stake in JV to M&M - ICICIdirect

Mahindra & Mahindra (M&M) has acquired Navistar's 49% stake in Mahindra Navistar Automotives Ltd (MNAL) and Mahindra Navistar Engines Pvt Ltd (MNEPL) after Navistar's decision to pull out of the loss making JVs. MNAL and MNEPL are now 100% owned subsidiaries of M&M. The total outgo for M&M would be Rs.175 crore of which 2/3rd will be paid now and the rest after five years. There are no plans to merge the two entities in standalone books but losses would now be 100% shown in the consolidated books. Navistar pulled out of the JV as it sought to exit its underperforming businesses as part of its turnaround plan.

M&M will retain the technology developed jointly by the JV and continue to make royalty payment to Navistar as earlier. M&M will continue to provide engineering services to Navistar. Navistar will also remain the preferred partner for the export business of erstwhile MNAL. According to the management commentary, the board has given the team three years to turn around the loss making businesses. M&M will infuse ~Rs.300 crore for capex and new product development over the next two or three years. As per the management, the truck business will need a monthly run-rate of ~800 as against 200-300 currently to break-even. We believe with a turnaround in industrial activity in the country and rate cycle reversal, M&M can reach the desired run-rate in due course. We have valued M&M on an SOTP basis and recommend HOLD with a target price of Rs.980.

Source : Equity Bulls

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