Mumbai: Mahindra and Mahindra Ltd (M&M) has agreed to buy a 55% stake in ride-hailing firm Meru Cabs, expanding the automaker’s presence in the growing market for shared mobility.
M&M will pay up to ₹103 crore for acquiring the stake which will be done through an issue of new shares. In a stock exchange filing on Saturday, M&M also said that it has an option to buy the remaining 45% stake in Meru from existing investors for up to ₹98 crore.
M&M said it will make the first tranche of investment in Meru Travel Solutions Pvt. Ltd by the end of October. “After investment of the first tranche in Meru, the company will have the right to appoint a majority of the directors on the board of Meru and as such will control the composition of the board of directors of Meru," it said.
Once the deal is closed, Meru and its subsidiaries including Meru Mobility Tech Pvt. Ltd, V Link Automotive Services Pvt. Ltd and V Link Fleet Solutions Pvt. Ltd will become units of M&M. The Mumbai-based automaker is already an investor in self-drive car rental platform ZoomCar India Pvt. Ltd.
Private equity firm True North, which holds about 80% in Meru, will see its stake reduce to 35%, managing partner Vishal Nevatia said. True North first invested in Meru in 2007, when it was called V Link Group, and used to provide fleet management solutions to media houses and corporate clients.
“Mahindra’s investment will help Meru plan for a new course of growth. It is the only cab aggregator in India which is cash-positive and profitable. Mahindra also wants to tap into the sharing and rental mobility space with Meru, because automobile firms today realize that selling cars is not the only way to sustain growth," Nevatia said over the phone. True North has invested about $80 million in Meru since 2007, and will look to exit in the next two to three years, he added.
Meru has two main businesses—cab-hailing and radio taxi services in Mumbai, Bengaluru and Delhi, and transportation solutions to leading companies in various sectors such as call centres, banks and airlines via its subsidiary V Link Fleet Solutions Pvt. Ltd.
For the year ended 31 March 2019, Meru’s holding entity’s revenue fell for the second straight year. Its revenues have fallen from ₹277 crore in FY17 to ₹190 crore in FY18 to ₹156 crore in FY19, according to the filing.
Nevatia attributed the falling revenues to drivers leaving Meru in the last two years for app cab operators such as Ola and Uber, which were burning cash and offering better incentives.
“However, we see these drivers coming back to Meru’s platform because Ola and Uber are rationalizing costs, and expect growth to return," Nevatia said.
Mahindra’s investment in Meru also indicates the growing interest of traditional car-makers in ride-hailing startups.
In March this year, Hyundai Motor Co. and Kia Motors led a $300-million investment in Ola, while South-East Asian rival Grab raised funds from Toyota and Hyundai last year.
Mahindra’s investment also stems from its previous relationship with True North. In 2007, M&M and the PE firm acquired DGP Hinoday, an auto parts maker. Later, M&M merged all its auto parts entities into Mahindra CIE and listed it on the stock exchanges.
True North sold its entire stake in the listed entity in early 2015.