Mahantesh Sabarad, senior vice president, Fortune Equity Brokers, says that the valuation is a concern because the deal is not cheap. It is between 2-3 times in terms of EV/sales. Secondly, despite putting in money Mahindra may not have an operational control over Aston Martin.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Why is the market unhappy with Mahindra-Aston Martin deal?
A: Valuation is a concern because the deal is not cheap. It is between 2-3 times in terms of EV/sales. Secondly, despite putting in money Mahindra may not have an operational control over Aston Martin. Just by owning 50 percent controlling stake, but 40 percent equity stake may not offer it an operational control. Probably, this is weighing down upon the market. Positively, Mahindra is not overstretching its balance sheet for the deal. The debt-equity ratio is comfortable. Mahindra can raise additional ratio to fund this deal.
Q: According to the media if the deal goes through where would the financials of M&M stand at, for FY14 in terms of revenue, profitability or EPS?
A: If I look at the deal and assume that they will be able to get 40 percent share in the company, I hope FY14 to be EPS accretive, EPS accretive mean it will be less than Re 1 in terms of the accretion to the EPS from the current about Rs 75 EPS that we would focus on a consolidated basis for M&M. Not a great EPS accretion, but it does raise the revenue top-line quite a bit and I would look at marginally EPS accretive.