MM may buy Saab: But is the MA strategy working?

Moneycontrol Bureau

Homegrown automobile major Mahindra & Mahindra is close to striking a deal with the parent company (NEVS) of Swedish carmaker Saab, according to a recent Dow Jones report, which cited court documents submitted in the parent's bankruptcy case pointing to the Indian company.

If the deal comes through, M&M will become the fourth owner of Saab in as many years (GM, Spyker and current parent NEVS), not counting a near-complete deal when Spyker had to call off its sale to two Chinese automakers at the last moment.

Even as Saab -- best remembered as a automaker that made premium cars with names starting with the number 9 (9-3, 9-5 and so on) and which was said to inspire a small but loyal followers of "intellectuals" -- may have seen some of its brand appeal erode due to the turbulence over the past few years, it is obvious what Mahindra's strategy is here.

For one, it is NEVS's focus on electric vehicles that has likely caught the Indian automaker's attention. As can be seen from M&M's 2010 buyout of Bangalore electric carmaker Reva, it appears it is one area the company is extremely bullish on. Saab, with an electric prototype of its renowned 9-3 sedan ready, slots right into M&M's plan.

That said, it also Saab's former brand appeal, which may have also attracted M&M. A marketing study once labeled Saab's small but passionate group of owners as having traits it called 'Snaabery'; another expert said a typical Saab owner was 10 times as passionate about their vehicle as the average Volkswagen owner. (It must be remembered that M&M had also bid to acquire Saab when it was put up on the block in 2012.)

Chairman Anand Mahindra was quoted in a Financial Times interview about his focus on acquiring brands thus: "We need brands, because the one thing you cannot build, if you want to grow globally at least—something that can take a lifetime, and we are in a hurry—is brands."

However, Mahindra also needs to re-look at its aggressive M&A strategy.

In M&M's previous buys, Reva does not appear to have made significant strides at least on the sales side, though it must be added that the size of the electric car market itself is inhibiting.

Korean automaker Ssangyong, which the carmaker acquired in 2011, continues to bleed though the company is hoping a turnaround takes place after several models planned for launch over the next two years come to the market.

M&M bought out Kinetic in 2008 to gain a foothold into the two-wheeler market but Kinetic's refurbished scooters Stallio, Rodeo and Duro were not that successful. So much that the company decided to go back to the drawing board and recently launched the Gusto on an all-new non-Kinetic platform.

Recently, it also picked up a majority stake in French Peugeot's two wheeler company but it is too soon to judge the acquisition.

Previously, M&M had tried, and failed, to buy brands such as Aston Martin, Jaguar Land Rover, Ducati and Saab.

M&M stock price

On December 11, 2014, Mahindra and Mahindra closed at Rs 1265.65, up Rs 0.35, or 0.03 percent. The 52-week high of the share was Rs 1421.00 and the 52-week low was Rs 847.00.

The company's trailing 12-month (TTM) EPS was at Rs 58.92 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 21.48. The latest book value of the company is Rs 270.60 per share. At current value, the price-to-book value of the company is 4.68.