‘Tech Mahindra will move up the value chain with Pininfarina acquisition’

Tech Mahindra will use its acquisition of Italian marquee brand Pininfarina to expand its engineering capabilities fourfold.

“Tech Mahindra alone was addressing about $2.5 billion worth of the automotive, outsourcing and engineering market,” the company’s Global Head of Integrated Engineering Services, Karthikeyan Natarajan, told BusinessLine .

“By joining hands with Pininfarina, we’ll be able to address $8-10 billion worth of market. This is the total addressable market, which is growing at 8-15 per cent.” Tech Mahindra on Monday announced that it will acquire Pininfarina through a joint venture with Mahindra & Mahindra.

Natarajan said the acquisition will help Tech Mahindra move up the value chain in product engineering, enabling it to bid for larger deals.

“So far we were a level down in the value chain. This (acquisition) will help us move up the value chain in terms of doing the design, styling and engineering. We’ll be able to carve out larger work packages than saying we’ll only be able to do engineering.”

Pininfarina has about 650 engineers globally, of which about 350 are based in Germany and 250 in Italy. It also has a few engineers in China and the US.

“Post acquisition, we will expand faster in China, where companies are looking for these kinds of skills. Similarly, we will expand into new markets — from Russia, North America and other geographies — which are looking for design and engineering skills,” Natarajan said.

Known for designing luxury cars such as Ferrari, Alfa Romeo and Maserati, Pininfarina also designs a wide variety of products, from coffee machines to watches to aircraft interiors, Natarajan said.

Explaining why the company is a better fit for Tech Mahindra than parent Mahindra & Mahindra, he said: “About 60 to 70 percent of Pininfarina’s work for its European customers is purely for engineering services. They also have a design studio and styling on top of it.

“The reason why Tech Mahindra wanted to acquire it was because the businesses have a lot of synergies.”

Analysts have given a mixed reaction to the acquisition. “We expect the acquisition of Pininfarina to open up more cross-selling opportunities for TECHM and help expand its portfolio of services. We await more details on the financials, management strategy on turnaround of this business, and timeline for completion of acquisition, before integrating it in our estimates. Maintain ‘BUY’,” said Edelweiss Securities in a research note.

Kotak Institutional Securities, on the other hand, was less upbeat. “This acquisition would provide engineering design capabilities and access to a few European automakers. We would have liked it if TM had put its cash to acquire capabilities in the digital or financial services domain, instead. This acquisition, although small, combined with recent foray into payments bank, is not an optimum utilisation of cash in our view,” the brokerage wrote in a note.