Mahindra & Mahindra (M&M) stated on Monday that the SML Isuzu acquisition is strategically intended to increase market share in the truck and bus segments while simultaneously attaining higher cost reductions in the tractor segment.
The plan to purchase a 59% share in SML Isuzu for a total of Rs 555 crore was accepted by the M&M board on Saturday. The shares of SML Isuzu, the seventh-largest commercial vehicle manufacturer in India with its headquarters in Punjab, dropped 10% on the BSE and reached the lower circuit limit.
M&M has been a minor player in the intermediate and light commercial bus market, where SML Isuzu is well-represented. SML holds a nearly 16% market share in the light bus industry. Following the transaction, the share rose to 21%, along with M&M’s portfolio. The Society of Indian Automobile Manufacturers estimates that SML’s market share in the medium and heavy commercial vehicle (MHCV) class is 2%.
The electric transformation that SML Isuzu is undertaking will be one of M&M’s areas of focus. SML demonstrated a concept electric bus at the January Auto Expo that may be used as a school bus or to transport company employees.
M&M’s tractor business segment, which operates under the Swaraj brand it bought, stands to gain from the agreement as well because SML Isuzu’s facility may supply the sheet metal it needs.
There are no intentions to combine SML Isuzu with M&M; it will remain a distinct listed business. Additionally, M&M said that, for the next two years at least, no large investment will be required to build capacity at SML. It is currently using between 65 and 70 percent of its capacity.
On Monday, SML Isuzu shareholders were presented with an open offer to purchase a 26 percent stake at Rs 1,596.10 per share, or Rs 584 crore (if the offer is accepted in full).
