Shares of IT firm Tech Mahindra tumbled over 4 per cent, while those of Mahindra and Mahindra gained over 1 per cent after Mahindra group announced it will acquire Italian automotive and industrial design firm Pininfarina for an overall outgo of over 50 million Euros (nearly Rs 370 crore).
The stock of Tech Mahindra settled the day 4.18 per cent lower at Rs 520.00 on the Bombay Stock Exchange, while M&M shares ended flat after gaining 1.32 per cent to Rs 1304.00 in intraday trade.
Brokerage firm Edelweiss Securities believes the acquisition is a smaller one compared to past acquisitions like LCC.
"The acquisition is a smaller one compared to past acquisitions like LCC and Pininfarina's low margins will not materially impact Tech Mahindra's numbers. But, given that LCC integration is still underway, investors will be curious to know more details about the current acquisition, rationale for the same and its possible impact on company's financials," said the brokerage in a research report.
"The stock currently trades at 13.9 times FY17E EPS. We maintain 'buy' on the stock with a target price of Rs 630," added brokerage.
Broking firm Angel Broking believes the deal with Pininfarina will not impact Mahindra & Mahindra's finances much.
"The deal is unlikely to impact M&M financially given the small size and cash rich balance sheet of M&M (M&M has cash in excess of Rs 2,000 crores). However, the deal would help M&M in long run as it would enhance the designing capabilities of the firm," said brokerage in a research note.
The brokerage currently has Accumulate rating on M&M stock.
The acquisition is being carried out through a special purpose vehicle (SPV) and two group firms Tech Mahindra and Mahindra & Mahindra (M&M) will own 60 per cent and 40 per cent, respectively, in the Turin-based firm.
"As part of the agreement, Tech Mahindra and M&M will purchase 76.06 per cent of Pininfarina shares from the current controlling shareholders Pincar srL at a price of Euro 1.1 per share," Mahindra & Mahindra said in a BSE filing.
The company said the cost of acquiring 76.06 per cent in Pininfarina by the SPV will be Euro 25.3 million, which would be funded by Tech Mahindra and M&M in the ratio of 60:40.
This will be followed by an open offer for the remaining 23.94 per cent stake of Pininfarina at the same purchase price paid for the shares held by Pincar, it added.