“This is one segment where we were at 3% market share,” Shah told CNBC-TV18, referring to the greater than 3.5-tonne category. He is confident this share will rise to 10-12% in the next five years.
“In light and intermediate, we have got a lot of strengths that play to what we do elsewhere, and that is where SML Isuzu also has a number of strengths, and that combination is a powerful one.” He pointed out that synergies across manufacturing, product sourcing, and talent would be critical to driving growth.
He also expects electric vehicles (EVs) in the commercial vehicle segment to hit the market soon. Referring to SML Isuzu’s EV pipeline, Shah said, “From my understanding, it is going to be in the near future, not too far off,” adding that the rollout could happen “probably in less than a year.”
M&M on April 26 announced the acquisition of a 59% stake in SML Isuzu for ₹555 crore. The company intends to keep SML Isuzu as a listed entity.
The current market capitalisation stands at ₹3,60,896.94 crore.
These are edited excerpts of the interview.
Q: Let us start with valuations. A big difference between what you offer the sellers and what the minority shareholders get. It is ₹650 per share versus ₹1,554 per share. Take me through how you arrived at the ₹650 per share valuation.
A: I would just say that it is a fair valuation for all concerned, and for us, we have always followed a very structured process in terms of focusing on certain businesses, investing where it makes sense, and it made sense for us to invest at this value because we feel that from here we can grow the business and deliver returns for our shareholders, which is a very important aspect in how we look at this. Therefore, we saw a blended value. That is what we are finally investing in, and on that basis, we feel that it is a fair and appealing deal which has a very good strategic fit as well.
Q: I will talk about the strategic fit in just a second, but let us just get through the nuts and bolts of this. By when do you anticipate all the approvals to come in? And of course, you also do not need to make an open offer. By when do you hope to close the deal?
A: So typically, 60 to 90 days is the process, and we hope to be able to stay within that time frame and close it.
Q: You have said that you intend to keep this a listed entity, but is that the plan as far as the foreseeable future is concerned, or is that the medium-term to long-term plan as well? Do you envisage a future of this being a separate listed entity?
A: That is the plan right now. I am not sure whether that will change or why it will change, but we feel that it is important for this to stay as a listed entity and be able to compete in its segment effectively.
Q: Let us now talk about the synergies, and let us address this at the back end to start with, and then I will get to the front end. At the back end, what do you believe the synergies can be? Both in terms of the capacities that you have and how you intend to make use of those. What is the plan on the back end?
A: Scale matters, and there are synergies across the entire spectrum. To start with the back end, it is looking at, first, the product complementarities and the investment made in developing new products. It is about procurement, the manufacturing strengths that come in, and this is where M&M’s manufacturing strengths will play a huge role as we look at building a stronger stake in this segment.
But before that, let me even take a step back and talk about why this makes sense overall. If you think about different segments we play in, we are in a strong leadership position in almost all the segments we play in today. SUVs—we have gone from a 12% to a 23% market share. And we don’t play in all the SUV segments as yet; despite that, we are at 23% market share. In tractors, we have gone from 38–39% to 43–44% now. In electric three-wheelers, which is a space where we had a small business in Internal Combustion Engine (ICE) three-wheelers at a 7–8% share, we are now at a 43% share in an ultra-competitive market, and we are the number one player in that segment as well. In light commercial vehicles (LCV), we are at 51.9%, up from the low to mid-40s a few years ago.
So we are playing in a very significant way in multiple segments. This is one segment where we were at 3% market share, and there are different parts of the segment because when we look at greater than 3.5-tonne commercial vehicles, you have got a light and intermediate commercial vehicle segment, and then the Medium & Heavy Commercial Vehicles (MHCV) after that.
Also Read | SML Isuzu shares fall 10% after M&M announces acquisition, open offer at discount to CMP
In light and intermediate, we have got a lot of strengths that play to what we do elsewhere, and that is where SML Isuzu also has a number of strengths, and that combination is a powerful one. So as we think about that scale—and therefore coming back to your question—at the back end, from a manufacturing, product sourcing standpoint, and the talent, of course, there are significant positives for us.
Q: I will come to the talent in just a second. But, as the growth aspiration, especially leveraging on the back-end synergies that you spoke to us about—10-12% market share from the current 3.5% market share—you feel confident of being able to get to that by the fiscal year 2029-30 (FY30)?
A: We feel confident we can get there, and we have a target of 20%+ for the next five years; therefore, we want to put this business on a very significant path for growth.
Q: What does this now mean as far as the front end is concerned, in terms of dealerships, franchisees etc.?
A: There again, we see a number of synergies, but we will leverage what we have in the business today because we are in a growth mode. This is not an acquisition about cost rationalisation. This is an acquisition to help us broaden the footprint, to go bigger on growth, and that is where the dealership footprint that exists in SML Isuzu will be a very meaningful one for us. In addition to that, how we sell to the customers, the service we can provide, the ability we will have to be able to meet their needs across a much wider footprint—all of that is a positive for both businesses, and that is where scale comes in a bigger way.
Q: When you talk about growth, you gave us some indication of the kind of levers that you intend to deploy to drive growth. What could be potentially some of the others? You have made it very clear that this is not about cost rationalisation but about your aspiration to grow in this space. What will be the growth drivers for you here?
A: It starts with products, and that is the advantage we have in Mahindra trucks and buses as well. It is a very good set of products, and that is similarly what we see in SML Isuzu.
The second aspect is the ability to deliver those products at a compelling price for our customers, and that is where our manufacturing sourcing strengths come into play.
The third is the ability for customers to be able to look at what they get from this, save costs, be able to address any challenges very quickly, and have a wide footprint to be able to get service and parts and everything else that they require. And as we look at all of these three aspects, if they are done well, that allows us to play in a much bigger way in the segment.
Q: Speaking of playing in a bigger way in this segment, this is a fairly competitive space as well. But since you are talking about forecasting for the future now, is an ICE future the only future that you are looking at, or is an electric vehicle (EV) future also part of the plan as far as the segment is concerned?
A: ICE and EV, and SML Isuzu also has a very strong pipeline for electric vehicles. They have showcased some of that at Bharat Mobility, and that, combined with our strengths in EV, will allow us to put forth a compelling set of products.
Q: How soon can we expect the EV side of this portfolio to be out in the market?
A: I don’t have a timeline on that, but from my understanding, it is going to be in the near future, not too far off.
Q: Near future would mean a year, two years, or longer?
A: My sense is probably in less than a year. But as I said, we have to do more work to fully understand it. And once we fully understand it, then we can come to a timeframe.
Q: So, in terms of next steps now, are there likely to be any changes on the people front as well? Are we likely to see any restructuring on the people side as well?
A: We have a lot of respect for the management team at SML Isuzu, for the business, for their employees, and for dealers. It is a very well-run business. That is a big plus. And therefore, as we think about growth, we are going to leverage the talents and skill sets. So we will work together to see what makes sense overall for every leader and for every employee. But we are going in with a mindset where we have a high degree of respect for them, we feel that they can do a lot, and they can help us build this business and take it to where we want to take it.
Q: Just stepping out of this particular acquisition to what is happening as far as the marketplace is concerned, I am sure you have seen the comments that RC Bhargava has made at Maruti Suzuki on what is happening as far as the low-end market is concerned, where the pain continues to exist. What is the sense that you get? About spending capacity at this point in time, and how that is likely to drive consumption or not aid consumption as much as it ought to?
A: A lot is defined by the products that we have as well. And we have seen, and continue to see, a good demand for our products. More on that, I will hold off till our earnings call, which will be exactly a week from today. But on balance, we have seen a good market. We have stayed with the commitments we have made, year-to-date, at least. And as you have seen, our numbers for volume for both SUVs and tractors, month over month, have been fairly healthy. The volumes that we have declared publicly.
Q: On the EV launches that you did, and that, of course, was a big pivotal moment as far as the journey is concerned. What is the update? What is the status check? What can you share with us on how that has panned out so far?
A: Our customers love the car. I love the car. It is just so much fun to drive. The power, the technology in the vehicle is just truly amazing. And I cannot drive another car after this right now. And that is the feedback we are getting from customers. We have had customers who see the car and literally – even friends of mine who have just seen it and said, “Okay, so when will I get the car?”
Also Read | Pawan Goenka takes home his first Mahindra XEV 9e; Anand Mahindra recalls R&D struggles
Q: What is the growth curve as far as electric mobility and electric cars in specific are concerned? And I will also ask you this in the context of what we are seeing happen globally. We have seen a sort of tempering as far as electric mobility is concerned. What is the sense that you get here, and in a future where, perhaps in a not-so-distant future, we are going to see more competition in the form of Tesla and Elon Musk entering the Indian market?
A: A lot depends on the product. If the product is a wow and delivered at a reasonable price range, the customer is going to want the product.
The next question will be on charging. And our vehicles today offer a 500 to 550-kilometre real-life range; certified is 682 and 656 for the two vehicles we will launch. So we have taken that anxiety away. I charge once a week, and most people in cities will need to charge once a week only, unless you are going out of town.
Charging on highways is not there yet, but that will come up very quickly. That is something the government is very focused on and is driving as well. So once all of that happens, and EV offers a much better value proposition, in many ways, than an ICE, there will be specific ICE products that customers will want, and that will continue. So we don’t see ICE going away completely, but we see EV taking a significant stake in the overall share.
Q: What is the current market share, and what is the aspirational market share as far as the EV segment in the car space is for India?
A: Currently, it is 1-1.5%, which is very low. With the products we have, we feel that we will get to 30% EV penetration in the next three to five years.
Q: A large part of your tenure so far has been about consolidation. It has been about making sure that you fix what needs to be fixed, and then focusing on the growth gems that you want to take forward. Do you now feel ready and comfortable to take on more? More M&A is likely, just the way that you have done this particular deal?
A: We will continue to be very structured in our approach. Our first year was focused on capital allocation, then we pivoted to growth after that, and we pushed all our businesses to think big, to be able to deliver a lot more. And that is what we have done across our businesses, including our growth gems. Starting last year, we said we would again pivot to delivering scale, and that is a faster growth trajectory, which is again something we have been able to demonstrate across businesses, and that is the phase we are in right now. But we will look at each business, make sure it can deliver what it promises, and if it does, we will put more power behind it, more capital behind it, and enable it to grow.
Q: So you talked about some of the tailwinds that you are focusing on, but if I could ask you about the headwinds, currently, it is a very volatile global environment. It is an uncertain global environment, with the way the tariffs are playing out. But specifically, from your point of view, what are you concerned about today? What is worrying you in terms of potential headwinds?
A: The world is a very uncertain place, a lot more than we had ever imagined it would be. I remember we talked about black swan events that happened, sort of once in a lifetime. Now they probably happen every month. So our approach is to be agile and to be able to respond to things as they happen.
Having gone through COVID, it has made us much stronger. The semiconductor crisis was a very significant one for the auto business. And therefore, what worries me is what I don’t know in terms of what is going to happen tomorrow, but what we know we have got plans in place for, and therefore we want to stay very agile, to be able to respond to things as they happen, and pivot where we need to.
Q: Exports were a big part of your plan for growing the business as well, and that has been a fairly small percentage driving your revenue so far. Does that change? Or are you approaching the export business differently in light of the current state of flux?
A: So, it has been a little slower than we would have liked, largely because of the success we saw domestically, because of the kind of demand we got for the products we launched, we just could not deliver in time, and sometimes that is a good problem to have.
Now, we are focusing on exports more, but to specific markets. We want to try to get to a 15% market share in certain markets before we go to the next set. So, it is a fairly ambitious set of plans, but again, one that has been done in a structured and disciplined manner, where we are picking certain markets, trying to get to a certain market share there, and then move elsewhere.
Also Read | Mahindra & Mahindra incorporates subsidiary ‘Mahindra Advanced Technologies’ for security solutions
Q: So, where are you closer to being able to get to that 15% market share in the markets that you have already forayed into?
A: In South Africa, Australia, and Chile. These are three markets also that have very little domestic manufacturing, and that is one where we have played in over time, we have had distributors set up a brand that exists as well. And the products that we are launching there now are seeing a lot of very good demand. So, we should be able to get within 10% in one of the markets already, in a segment we play in, and at 5% in another market. And therefore, we are on our path.
Q: Digressing away from auto for just a second because one of the other potential growth areas, especially, again, in light of all the developments that are taking place globally, as well as locally, is Mahindra Defence. What is the playbook looking like at this point in time, given the many factors that you have to contend with?
A: So, we play only in the transportation and security areas of defence. So, armoured vehicles are ones that we have been supplying to the army for many years, and continue to be at the cutting edge of technology there. That is where our trucks and buses business helps as well, because there are synergies across both. We are doing a lot in terms of security systems, in terms of counter-UAWs, in terms of surveillance mechanisms and surveillance underwater systems, and so on. So, it is a big area, and we feel that in transportation and security alone, there is a lot that can be done. We do not want to play in the ammunition-related areas of defence, and we are therefore staying away from that.
Q: Back to the deal. And you said, this is going to be a win-win as far as shareholders are concerned. So, outside of the expansion, what is it going to mean in terms of the margin profile changing as well, given the many synergies you already spoke of?
A: So, our focus is on growth right now.
Q: Will that also entail significant investments?
A: We feel that the investments that we planned for in our trucks and buses business should be sufficient. We may come back and take a look at it. There may be some changes, but I don’t expect a whole lot, and SML Isuzu is generating a fair amount of cash as well, so that will help in their investment plans. Margins will improve over time, but our primary focus right now, in the short to medium term, will be on growth, and as we drive that growth, we will see continued improvement in margins.
Watch the interview in the accompanying video
Catch all the latest updates from the stock market here