BUY OR SELL- Mahindra’s Ssangyong buy : a good decision?

* Mahindra to benefit in long run from Ssangyong deal

* Deal opens up Europe market for emission-compliant
products

* Will need to make investments in Ssangyong

* Forays into various segments could be drain on cash flow
(For more Reuters BUY or SELL stories click [BUYSELL/])

By Janaki Krishnan & Ami Shah

MUMBAI, Aug 19 (BestGrowthStock) – Indian utility vehicles maker
Mahindra & Mahindra (MAHM.BO: ) could benefit in the long run
from its pending acquisition of Ssangyong (003620.KS: ) but
investors are wary about the investments it will need to make
in the Korean automaker and its recent foray into commercial
trucks.

Over the last 18 months, Mahindra has been on a
diversification spree through acquisitions and joint ventures,
entering the heavy, medium and small trucks segment where Tata
Motors (TAMO.BO: )is the leader and into the two-wheeler market
with ambitions of making scooters and motorcycles.

Its shares have risen 14.5 percent so far this year,
compared with a 5.5 percent rise in the main index (.BSESN: ) and
a 31 percent rise in Tata.

TOO MUCH TOO FAST?

Analysts feel multiple moves at the same time would be a
drain on Mahindra’s cash flows and the stock could enter a
phase of underperformance in the next 18-24 months.

“More than Ssangyong, its foray into the heavy commercial
vehicles sector is an immediate overhang on the stock,” said
Jatin Chawla, sector analyst at India Infoline, which has a
buy’ on the stock.

Mahindra will also have to spend on Logan, the car it is
now selling after buying out Renault’s (RENA.PA: ) stake in a
joint venture and new 2-wheelers, which is now a loss-making
business.

Analysts are also concerned it would take two to three
years for Mahindra to benefit from the Ssangyong acquisition,
which would require substantial investment for product
development.

With about 70 percent of Ssangyong’s sales to Europe,
currency fluctuations also pose a substantial risk.

“For now, I would stay away from the stock until I have
more clarity. It looks expensive as of now,” said Rakesh Rawal,
head of private wealth management at Anand Rathi. Rawal manages
around $1 billion of wealth for his clients.

EUROPE WITHIN REACH

Still, some remain optimistic. With Ssangyong, Mahindra
would be inheriting a debt-free company, whose products are at
least two development cycles ahead of Mahindra’s.

“The acquisition is definitely a strategic fit for
Mahindra. It does not clash with its existing bouquet of
products,” said Shishir Bajpai, senior vice-president of
equities business at IIFL Wealth Management.

Ssangyong’s SUV’s are already Euro V compliant and will be
Euro VI compliant soon, while India is still now meeting Euro
IV emission standards. A ready market opens up for Mahindra in
Europe, Russia, South America, Middle East, Africa and Asia,
where Ssangyong exports.

“Ssangyong buy makes a lot of sense for them. It is their
step towards establishing a global footprint,” said Bajpai,
adding he was positive on Mahindra & Mahindra.

Analysts said it would take a while for all its new
products to get stabilised and start generating positive cash
flows, but businesses such as heavy trucks, which are high
margin, would boost profitability.

“Mahindra has ventured in many areas and their track
record so far shows they have been right with their decisions
and timing,” Arun Kejriwal, director with research firm KRIS.
“Their core business – utility vehicles and tractors are doing
very well. So, if other ventures take time to deliver, it is
not a worry,” Kejriwal said adding he has a positive view on
the stock. (Editing by Jui Chakravorty and Valerie Lee)

BUY OR SELL- Mahindra’s Ssangyong buy : a good decision?