Mumbai: Mahindra & Mahindra (M&M) will be ranked among the top three global tractor players, if it bags the bid for Valtra, the Finnish tractor manufacturer.

The Indian company has reportedly put in a $350 million (Rs 17 billion) bid for Valtra. If this bid is accepted, M&M will have a significant presence in European, Latin America and the US markets, in addition to its leadership in India.

M&M, with annual tractor sales of 65,000 units, is India''s largest tractor manufacturer and is now looking for a larger share of the global tractor market. Valtra is the largest Nordic tractor manufacturer and is also a significant player in the Latin American markets. Production facilities are located in Finland and Brazil. The company sold 18,000 tractors last year and generated $762 million as revenue.

A research report issued by leading foreign institutional investor broking firm CLSA says: "The two companies have several apparent synergies. While Valtra is strong in Europe and Latin America, M&M is strong in India and the US. Also Valtra produces 52-260 HP tractors, while M&M are in the 31-50 HP segment."

Valtra has plants in Finland and Brazil, and has recently started component outsourcing from India. If M&M gets control this can be significantly enhanced and this will improve Valtra''s margins, says the CLSA report.

It also said that bid valuations are reasonable. At a bid price of $350 million, M&M has valued Valtra at 0.4x sales, in line with major auto company valuations. While, detailed financials of Valtra are unavailable, the report estimates the bid value of Valtra at 7x EV/Ebitda.

This bid is the largest potential international acquisition by an Indian company. M&M is likely to use a different structure for this transaction and is unlikely to take any debt directly on its books. "But the cost of debt in a ''ring-fenced'' structure is significantly higher than M&M''s current debt cost and we expect, in due course, it will have to consider taking on the liability to lower the debt cost," the report said.

With the $350-million bid, M&M''s leveraging will also rise. But, the domestic company can reasonably sustain these gearing levels, considering its current cash generation, which stands at Rs 4 billion.

Also, the company''s domestic auto business has entered into an upcycle, domestic tractors business is bottoming out and major capex (for setting up new utility vehicle platform) has already been undertaken.