Utility vehicles and tractor maker Mahindra &Mahindra today said it is acquiring the business of Pune-based two-wheeler maker Kinetic Motors, in a Rs110 crore all-cash deal (subject to closing due diligence) in a new company in which Kinetic would hold a 20-per cent stake. M&M will hold the remianing majority stake.

Earlier Mahindra was thought to be considering between a 50-per cent and 70-per cent take acquisition in Kinetic Motors at between Rs75 crore and Rs120 crore.

M&M has been evaluating an entry into the low-cost entry level two-wheeler segment (See: M&M evaluating entry into two-wheeler segments), possibly with an eye on the rural markets in which it has a strong hold through its tractor unit, Mahindra Tractors, one of the top three global tractor manufacturers in the world

It is also the market leader in multi-utility vehicles in India and manufactures light commercial vehicles and three-wheelers and has a presence in the passenger car segment through a joint venture with Renault that makes the Logan small sedan.

M&M had also reportedly evinced an interest in Italian bike manufacturer MV Agusta, even while it was speculated to have been eyeing a friendly deal with Kinetic.

The Pune-based scooter-maker was reported to be desperately looking for a buyer for its languishing two-wheelers business. The deal will enable Mahindra to design and market a range of scooters, value-engineered and high-end motorcycles for the Indian and global markets "covering every segment of the industry".

"The acquisition of business assets of KMCL is a defining moment in the history of Mahindra as it will give us an opportunity to emerge as a full range player with a presence in almost every segment of the automobile industry," said Anand Mahindra, vice chairman and managing director, Mahindra Group.

Mahindra said, "Kinetic Motorsis a strategic fit with our overall two-wheeler strategy. The strong in-house design and development competencies provided by Mahindra Engineering Services (MES) and the recent acquisition of ltaly- based design house, Engines Engineering, coupled with KMCL's expertise will enable us to assume a significant position in the rapidly growing Indian and global two-wheeler market.  I am also delighted to announce that Anoop Mathur, president designate, two-wheeler sector, will spearhead this new venture." (See: Mahindra to acquire Italian engineering and design firm Engines Engineering)

Kinetic Motor Company was incorporated in 1984, and is a part of the Kinetic group of companies. The company has a state-of-the-art manufacturing facility at Koregaon Bhima near Pune, Ahmednagar and Pithampur, near Indore, Madhya Pradesh, and has a strong network of over 400 dealers and authorised service centers. Its popular two-wheeler models include Luna, Nova 135, Zing, Velocity, Boss, Aquila and Comet. In the 18 months ended March 31, 2007, the company reported a loss of Rs.0.78 billion on net sales of Rs.2.6 billion.

Kinetic Motor's managing director Sulajja Firodia Motwani will be a non-executive director in the new company. Motwani's brother is chairman of auto engineering company Kinetic Engineering. In April 2007 the two companies restructured their businesses, with Kinetic Engineering transferring its motorcycles manufacturing to the Sullaja Firodia Motwani-run scooter maker Kinetic Motors, to focus on auto component manufacturing.

Kinetic Engineering is a supplier to Tata Motors, Bombardier Recreational Products, Piaggio and Force Motors among others.

"Kinetic Motors is a company with a rich heritage spanning more than three decades," said Motwani. "Over the years, we have introduced several new concepts such as the Luna and India's first gearless scooter which have revolutionised the two-wheeler industry. Hence, we are delighted to associate with Mahindra, another pioneering automobile company with a rich legacy which will add long term value to the business and take it to greater heights.''

For Mahindra, two-wheelers are "an additional touch-point for consumers" at a relatively early stage of the 'personal transport' value chain and increase two- wheeler penetrations in semi-urban and rural areas as well. This will give an opportunity to place Mahindra in every household, given M&M's dominant presence in the rural and semi-urban segments and Mahindra Finance's extensive reach in these markets.

Mahindra  makes a  wide range of vehicles including MUVs, LCVs, passenger vehicles and three-wheelers and has over 20 models including new generation utility vehicles like the Scorpio and the Bolero.

It also has an export presence, largely in the US for tractors, and in South Africa for utility vehicles.

Over the years, Mahindra has been steadily growing in stature as an in international automotive major with a footprint in several counties across the world. The Mahindra group, through its subsidiaries and group companies, has a presence in trading, retail, logistics, automotive components, after-market, financial services, hospitality, infrastructure development, and information technology.

For the year ended 31 March 2008, M&M reported a net profit of Rs11.03 billion, up from Rs10.68 billion in the previous financial year, on net sales that rose to Rs108.05 billion, from Rs.96.03 billion in the perevious year.

India is the second largest producer of two-wheelers in world. The two-wheeler industry has grown from 3 million in 1997-98 to 8 million in the 2007-2008. Domestic sales, which comprise 93 per cent of total two-wheeler sales, have grown from 3 million to 7.2 million in the ame period registering a CAGR of 9.2 per cent.

Despite recent market turbulence and volume decline due to tight credit situation, fundamental demand drivers for two-­wheelers in the country remain strong.  With growing GDP, higher disposable household incomes and increased discretionary expenditure on personal transportation, outlook for the two-wheeler business in India' remains positive. Also, since only 5 per cent of households in the country own a two-wheeler, Mahindra sees a strong market in this segment. 

In another development Mahindra & Mahindra is reported to be merging with itself its subsidiary Punjab Tractors Ltd, in which it hiked its stake to 64.64 per cent last July through  20-per cent public offer, subject to statuory approvals and sanctions by the High Courts of Bombay and Punjab & Haryana.

Punjab tractors is the fifth-largest tractor manufacturer in India, with a strong presence in northern India. For the year ended March 31, 2008, PTL reported a net profit of Rs. 0.65 billion (Rs. 0.78 billion in the previous financial year) on net sales of Rs. 9.70 billion (Rs. 9.59 billion in 2006-07).