Wednesday, August 22, 2012

M&M: REVA ACQUISITION

Despite promises, Reva has been struggling over the past decade to strike gold when it comes to sales. But with M&M acquiring a controlling stake in the electric carmaker, much is expected to change in the near future. So has Anand Mahindra placed an electrifyingly winning bet? by Pawan Chabra

There is also another interesting talk doing the rounds amongst auto experts. When Reva entered the UK market, it did so sans dealers, sans showrooms, sans advertising and sans salesperson – in short, like a bull skydiving sans a parachute! And guess what it had in mind – to sell its products through the online route. However, with M&M coming into the picture, Reva will find due sense being knocked into its head, as it goes on to become a mainstream automaker, thanks to M&M’s widespread distribution network. Just a niche manufacturer, no more! As for M&M, the excitement is no less. Apart from getting aggressive with the upcoming launch of Reva NXR & NXG, M&M is now looking ahead to sell the electric car in US. But what about India? Is there really a market for electric cars?

Sounds harsh, but critics argue that with around 3,000 electric vehicles on the Indian roads, it’s not Reva alone that is struggling. Players like Honda have also tasted the salt, bitter to the tee. Even the much-hyped Civic hybrid gained such a lukewarm response in the Indian showrooms that the company was forced to empty its inventory at a massive discount of Rs.800,000 on the marked price. However, there are optimists who expect that 20% of cars sold in India by 2020, would be electricity-run. Considering this, the bet placed by M&M on Reva seems to be a winning one. Further, as far as synergies between the two are concerned, Mahindra’s past record and its love for alternative fuel engines (Scorpio Micro Hybrid, for instance), the two seem to be a well-matched. “As a result of Mahindra’s investment, the new company Mahindra Reva will be able to scale, innovate and accelerate for greater electric vehicle access to consumers,” explains Maini. In fact, an internal research on past Indian mergers by B&E’s research desk supports Manni’s claim. The study conducted over a period of a decade, reveals that whenever an Indian company has acquired a “controlling stake” in another Indian firm for over $10 million, the shareholders wealth on an average, has increased by over 135% within two years of the deal; that’s a buy for the M&M stock! With a running cost of Rs.0.40/km, Reva has a clear edge in a market like India. Even the Pulitzer Prize winning Thomas Friedman has praised Reva to no ends in an op-ed column in The New York Times early this year. And are we forgetting this – M&M has just laid its hands on the top-selling electric car in the world! So whether we see a new record-breaking hybrid model from M&M (like the Toyota Prius, the largest selling hybrid) or we see the deal falling flat on its face, expectations and critics are a part of any new deal package. Surely, Maini’s got his money and M&M has got the marked “environmental” touch now, and both Anand and Maini know that India will take time to warm up to the hybrid game, but Europe and Americas are waiting!


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