Mahindra and Mahindra (M&M) is eyeing a 21 per cent share in the light commercial vehicle (LCV) bus segment, along with quicker entry into electric and CNG-powered buses, riding on its acquisition of a controlling stake in SML Isuzu.

M&M announced on Saturday that it had entered into an agreement to acquire 58.96 per cent in SML Isuzu for Rs 555 crore at Rs 650 per share. Following this, M&M will launch a mandatory open offer to acquire up to an additional 26 per cent stake from public shareholders at Rs 1,554.6 per share, up to Rs 585 crore. This is a 12 per cent discount to the scrip’s previous close of Rs 1,766.7. The market gave a thumbs-up to the deal, with M&M stock trading higher and SML Isuzu stock hitting a 10 per cent lower circuit. 

Speaking to reporters in Mumbai, Rajesh Jejurikar, executive director and chief executive officer (auto and farm sector) at M&M, said that SML Isuzu is developing an electric bus and also has a presence in the CNG space. Thanks to this acquisition, M&M would gain access to these areas where it currently does not have a presence. SML Isuzu had showcased the electric vehicle in January’s Bharat Mobility Global Expo — the Hiroi.ev — and had indicated that it would look at rolling it out in the April-June quarter of this year. The company's Hiroi.ev bus platform has been designed for intra- and inter-city transportation. M&M wants to focus on the intra-city bus segment for the moment.

The Centre is planning to procure 14,028 electric buses for states in multiple tranches. The procurement is part of the heavy industries ministry’s plan to spend around 40 per cent of the Rs 10,900 crore PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme for electric public transport. The ministry had allocated Rs 4,391 crore to buy 14,028 e-buses for states at a subsidised price by the end of 2025-26.

While M&M did not wish to comment on timelines for the launch as the deal is underway, Vinod Sahay, president aerospace and defence, truck buses and construction equipment, Mahindra Group, said that the e-bus project is definitely one of the main focus areas for M&M. Moreover, SML Isuzu also has a strong CNG range, something M&M is keen to develop.

Apart from fresh product ranges, the sales and service footprint will also double. At the moment, each of the dealerships would not start selling both brands, and this decision would be taken cautiously depending on market dynamics. The service networks will, however, be shared. The combined dealer outlets would be around 220, while service touch points would be over 400.

SML Isuzu currently enjoys a 16 per cent share of the LCV bus segment, and the combined entity will have a 21 per cent share of the market, catapulting it to the third spot in this sub-segment.

Moreover, in the medium-heavy commercial vehicle (MHCV) segment, where M&M now has a 2 per cent share, it is targeting a 5 per cent share in the next five years. In the over 3.5-tonne commercial vehicle market, M&M currently ranks fifth with a 3 per cent share. M&M has a 52 per cent share in the sub-3.5T LCV market. With this transaction, M&M expects to double its market share in the over 3.5T segment to 6 per cent initially and further targets 10–12 per cent by FY31 and over 20 per cent by FY36.

Jejurikar clarified that MHCV buses are not the area of focus. “We are not looking at that in the short run,” he said.

M&M does not see the capital expenditure for its trucks and bus division increasing as a result of this acquisition. Jejurikar said that they have adequately provided for multiple product initiatives.

“The SML Isuzu-M&M combined business will generate a reasonable amount of cash, and we feel it is self-sufficient for the investments that are needed. We had planned certain investments in our trucks and buses business, which we have shared as part of the overall auto investment,” he said.

The SML Isuzu plant, which has a capacity of around 35,000 units a year, also does not need any immediate investment. Sahay said that at present, the plant is running at about 65 per cent capacity utilisation.

M&M does not have any immediate plans to legally merge the two entities. Each company will continue to run as a separate legal entity, even as operational processes like sourcing, service networks and platform sharing will be aligned to drive efficiencies.

Source : Business Standard