Mahindra Two Wheelers Ltd (MTWL), the two-wheeler arm of the 16.5 billion dollar/Rs 101,326 crore Mahindra Group, has picked up a 51 percent stake in Peugeot Motocycles (PMTC) – the two-wheeler arm of the 54 billion euro (Rs 420,498 crore) PSA Group of France. 

This confirms Autocar Professional’s news-breaking story of yesterday evening.

The stake sale in Peugeot Motocycles is part of the PSA Group's financial revival plan. Under the terms of the agreement, Mahindra & Mahindra will get three Board positions and Peugeot two. Frédéric Fabre will continue to be the CEO and there will be no change in the workforce numbering around 500 in France for at least two years. Incidentially, Frédéric Fabre was the head of Peugeot's India project which was aborted due to the PSA Group's deep financial crisis in Europe.     

MTWL spent an overall 28 million Euro (Rs 218 crore) for the deal. It includes an infusion of Euro 15 million (Rs 117 crore) to finance global expansion of PMTC (also known as Peugeot Scooters).

Peugeot Scooters, which sold 79,000 units in 2013, is the fifth largest scooter maker in Europe. It has a 15 percent market share in its home market of France, and 9.3 percent in Europe. Along with the product portfolio, the acquired assets include a technology centre with capabilities in styling, engine development, vehicle development and testing.

Dr Pawan Goenka, ED, Mahindra & Mahindra, says that the technology centre has a team of over 100 people. Peugeot has one manufacturing plant each in France and China, where it has a joint venture.   

MTWL is plotting a new growth strategy following the acquisition of Peugeot Scooters, which predominantly operates in the European markets (70-75 percent sales volume in Europe). “We believe there’s an opportunity to leverage the global volume with a two-brand strategy, where we will position Peugeot as a premium brand and Mahindra as a mass market brand. There’s tremendous scope outside of the brands’ home markets of France and India. With a two-brand strategy, we can explore the markets much more effectively, than we could do independently,” says Dr Goenka.

Seventy-five percent of the global two-wheeler market exists outside of Europe and India. There will be “big thrust” of the company to leverage this potential. Both PMTC and MTWL are of a similar size. Goenka listed down four areas that Mahindra will now focus on to build business – brand building, global expansion, investing in product portfolio and synergy leveraging.

These steps will be crucial for reviving Peugeot Scooters’ fortunes and help turnaround Mahindra’s currently loss-making two-wheeler business. For Peugeot, which sold 200,000 units in a year a decade ago, 79,000 units is “sub-scale” even by the premium segment standard.

In order to tap the global potential, Mahindra and Peugeot may share distribution channel and production facilities in some markets. For instance, the Peugeot brand is set to enter the Vietnam market, where it is likely to have an assembly facility. The facility or the distribution channel there could then also be shared by Mahindra. These advantages will be leveraged in addition to the obvious synergy in sourcing components and save costs. 

India is also a potential market for Peugeot Scooters, says MTWL. The brand will be introduced in India, subject to a positive response from the market study. The 50-400cc Peugeot range costs anywhere between 1,000 to 9,000 Euro (Rs 77,870-Rs 700,830). There are 13 models in Peugeot Motocycles' portfolio. 

With the growing market for premium and luxury products, there could be a scope for the brand. Italian two-wheeler maker Piaggio has created a market for premium scooters with its Vespa brand. Peugeot could contribute to its expansion. “Like in the motorcycle segment, where premium segment has been created, we think there’s an opportunity for us to do that in the scooter segment,” says Rajesh Jejurikar, chief executive – farm equipment sector and two-wheelers, M&M. Jejurikar also mentioned that the Peugeot brand and the channel will have very little overlap with Mahindra to maintain its exclusivity.

Photograph: Dr Pawan Goenka, ED, Mahindra & Mahindra and Rajesh Jejurikar, chief executive – farm equipment sector and two-wheelers, M&M, at the media announcement today in Mumbai.