Home / Companies / Mahindra to buy 35% stake in Finnish firm Sampo Rosenlew

Mumbai: Mahindra and Mahindra Ltd (M&M) will buy a 35% stake in Finland’s Sampo Rosenlew Oy, a maker of combine harvesters, for €18 million ( 135 crore).

The deal is part of a larger strategy to reduce dependence on tractors, strengthen farm equipment business and enter newer markets, Mahindra officials said on Thursday.

The two companies will jointly focus on the combine harvester business in Asia, Africa and Eurasian Economic Union countries.

The deal is expected to close by 30 June.

Pawan Goenka, executive director of M&M, said the partnership is part of Mahindra’s strategy to build a full product line of farm equipment that goes beyond tractors and with this, it will compete globally in both advanced and developing markets.

“We are re-aligning our strategy to make it more farm equipment machinery and global-focussed," said Rajesh Jejurikar, president and chief executive officer of farm equipment business at Mahindra.

This is the second deal that Mahindra has inked in the segment in less than a year. In May, Mahindra bought 33% in Japan’s Mitsubishi Agricultural Machinery Co. Ltd for 3 billion yen ($25 million) with the objective of jointly developing products such as tractors and farm equipment. Besides Japan, Mitsubishi Agricultural is present in several Southeast Asian countries and the US, and had a revenue of $408 million in 2015.

Rosenlew had a revenue of €93 million in 2014-15 and was a cash-positive and profitable firm.

It sells its machines in more than 50 countries and exports approximately 90% of its products. Its main markets are Europe, CIS countries and North Africa.

Both the acquisitions, pointed out Jejurikar, are critical pieces in the overall strategy of “globalizing the farm mechanisation business."

Even as the company exports tractors to several countries and has an on-ground presence in three to four markets, the business largely remains India-focussed. The deal will help Mahindra tap into the opportunity in the farm equipment segment which is worth $94 billion globally—much bigger than tractors, said Jejurikar.

He did not rule out more such deals in the space. But it will largely be in the rice transplanter and grain harvester space.

At a later stage, Mahindra with Rosenlew’s assistance, will make the combine harvesters locally for the Indian market. It will also tap into the Finnish firm’s channels to sell tractors in markets where Mahindra doesn’t have a presence.

The tractor market leader in India is trying to reduce risks to its business at a time when tractor sales volume have seen a steep drop following two successive failed monsoons.

“There is a lot of focus on our mechanization business," Goenka said earlier this month, pointing out that the farm mechanization/equipment business unit might end the fiscal year with a small revenue of 250 crore, but has the potential to grow as the firm embarks on both the organic and inorganic route to add more heft to it

Even though value accretion from the acquisition will take some time, “it’s a step in the right direction and will help the firm get into new markets like Africa, which are in the early stages of mechanization," said Nitesh Sharma, an analyst at Phillip Capital India Pvt. Ltd.

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