Mahindra & Mahindra (M&M) is eyeing a leadership position in the electric vehicle sport utility segment, emboldened by a global investor’s interest in its newly set-up EV subsidiary. The maker of Scorpio and Thar plans to invest over Rs 10,000 crore in its EV business, which raised $250 million from British International Investment (BII) on Thursday at a valuation of $9.1 billion. Anish Shah, managing director of M&M, told ET’s Ketan Thakkar and Ashutosh R Shyam in an interview that the investment is an “endorsement” of the fact that it was “on the path to EV leadership.” Edited Excerpts:
What explains such a healthy valuation even before selling your first EV?
The valuation is actually based on a very concrete set of numbers – on sales of SUVs and overall electric as a penetration of that sales (in future), the revenues and margins from that. So, this is not a startup valuation, it is based on success that has been already seen in our Bolero Neo, XUV 700, Thar and Scorpio N brands that are likely to continue in future and the additional all-electric models. It is a very reasonable valuation; the investors have looked into it with a very fine tooth comb. This valuation is essentially the future of Mahindra’s automotive business.
The EV business valuation seems at a premium to your conventional fuel-driven legacy enterprises…
My view is that Mahindra & Mahindra is currently undervalued. You have started seeing better movement as some of the new launches have started delivering. For long, we have felt that we were undervalued and there is a reason for that, which is what we have been addressing. We have addressed capital allocation and future growth, and have started seeing valuation come back in. The EV company’s valuation factors in the success of new launches and moving on to electric on a greater scale. Those are the factors behind its valuation. It is a function of how the industry is going to evolve in the coming years. Electric is going to become mainstream and if you look at 20-30% penetration of our portfolio and back calculate the numbers, it shows that M&M SUV growth is going to be very good. This is, in a way, a forward-looking valuation. I would not give a number. I would just look at the historic valuation of where M&M has been in the past. We have a fair amount of room before we can get back to them. There is still a lot more that we can do that will take us beyond historic multiples as well; as we deliver that, you will see the result.
Your valuation of the EV business mirrors that of Tata Motors…
It is a sheer coincidence. Our valuation is a little bit higher. It is based more on volumes and the revenues and profits; that is what really drove the valuation.
In the last six months, the valuation for tech companies and startups have crashed and the cost of capital has gone up. How were you able to secure such an attractive valuation?
I agree it is a tougher PE market now, the cost of capital has gone up, we don’t have products right now, but we have the building blocks in place. We have a stronger story. We have a marquee investor who is putting in money, they have done a lot of diligence to say that ‘yes, you have a good plan, a good set of products’. Their investment is an endorsement of the fact that we are on a path to EV leadership. It shows the strength of our current portfolio, that also translates into what will happen in EV, and the strength of what we are going to bring in EVs.
How is the EV gameplan evolving?
We are eyeing leadership in the EV SUV space. We think our EVs will deliver as well as some of the other recently launched products. About 20-30% of our total sales will be EVs, that will help us achieve that position. As for segments, our first biggest focus is on the passenger four-wheeler, which is our core in many ways. So are LCVs and three-wheelers. All three have different customer segments and hence they are all managed differently so that each segment has the right product and right mindset for customers. We will have a range of products which have a meaningful presence in each of the segments. We will look at investors coming in, not only for money but also the ability to partner marquee investors and establish certain valuations going forward for each of these segments.
Is this the beginning of a new journey for value unlocking since you have enough cash reserves to fund your expansion?
It is absolutely a value unlocking action. It is part of the journey that we have been speaking about. First, we delivered value unlocking through capital allocation action, then from the growth actions. As we grow businesses, we can create certain benchmarks of value and unlock them for our shareholders, that is really the plan.
Is a local listing possible for the EV subsidiary?
(This is ) too far ahead in the future to speak about. That can be a logical path ahead, but first the thing is to deliver the 20-30% penetration and establish a leadership position in the SUV EV space. At that point, we will evaluate options; IPO is one option, but there are many options as well. We will see how we can unlock maximum value for our shareholders then.
Rajesh Jejurikar, ED, Auto and Farm Sectors, Mahindra & Mahindra, elaborates the new strategy, its business scope, and whether a similar approach could be taken in the future for the commercial vehicle business too, in this interview with ETAuto.
The new strategic move by the SUV major will see 5 products by FY 26, and will leverage the existing sourcing, and distribution ecosystem of M&M.