The SML Isuzu acquisition is strategically aimed at growing market share in the truck and bus segments, while also achieving greater cost efficiencies in the tractor segment, said Mahindra & Mahindra (M&M) on Monday.
The board of M&M on Saturday approved a proposal to acquire a 59% stake in SML Isuzu for a total outlay of Rs 555 crore. SML Isuzu, based in Punjab and India’s seventh-largest commercial vehicle manufacturer, saw its stock fall 10% on the BSE, hitting the lower circuit limit. In contrast, M&M shares rose by 2.29%, closing Rs 80.4 higher at Rs 2,942.6 per share.
SML Isuzu has a strong presence in the intermediate and light commercial bus segment, an area where M&M has been a smaller player. SML’s market share in the light bus segment is close to 16%. Along with M&M’s own portfolio, the share jumps to 21% after the acquisition.
Rajesh Jejurikar, executive director, M&M, said: “We have a 3% share of the overall trucks and buses segment. In FY19, it was close to 5%. Last two years, we have been trying to get back this share. Our aspiration is to get to a 10-12% share in FY31. A lot of this share gain will come from the LCV and ILCV segment.”
SML also has products in the medium and heavy commercial vehicle (MHCV) segment, where, according to the Society of Indian Automobile Manufacturers, its share stands at 2%.
“In the MHCV segment, where we do not have a presence in the bus segment, our share was 3% but is now at 2%. We want to increase it to 5% over the next 5 years,” Jejurikar added.
One of the areas of focus for M&M at SML Isuzu will be the electric transition undertaken by the company. A concept electric bus suitable to be operated as a school bus or for transporting company staff was showcased by SML at the Auto Expo held in January.
M&M is keen to use its expertise in the EV space for SML’s foray and expansion in the electric bus segment. “SML is at an advanced stage of building e-buses. We believe that with the expertise we have in the EV space, we can strengthen that proposition and cost,” Jejurikar added.
Besides EV components and technologies, M&M could extend the usage of its internal combustion engines to SML’s range, M&M executives added further. The Mumbai-based company sees lots of opportunities around cost, around platform synergies and aggregates, and around network and suppliers for this deal.
The tractor business unit of M&M, operating under the acquired brand of Swaraj, also stands to benefit from the deal as its requirement for sheet metal could be met from SML Isuzu’s factory.
SML Isuzu will continue to be operated as a separate listed company, and there are no plans to merge it with M&M. M&M also stated that there will be no need for any significant investment for capacity creation at SML, at least for the next two years. Its current capacity utilisation rate is 65-70%.
An open offer to acquire a 26% stake was made on Monday to shareholders of SML Isuzu at a price of Rs Rs 1,596.10 per share, aggregating to Rs 584 crore (assuming full acceptance of the offer).