Markets
Mahindra’s EV play revs up interest
Summary
A meaningful ramp-up in charging infrastructure will remain key to the success of electric vehicles
Mahindra and Mahindra Ltd (M&M)’s announcement of incorporating a whollyowned subsidiary, EVCo, in agreement with British International Investment (BII), is a stepping stone on its electric vehicle (EV) journey.
However, data on metrics such as EVCo’s revenue and margin targets are not available yet and investors will do well to track this. The company will shed more light on such information and also elaborate on its technology and platform strategy in the electric sport utility vehicle (SUV) segment on 15 August, it said in an analyst meet on Friday. This will be followed by M&M unveiling the electric XUV 400 in September.
EVCo will focus only on electric four-wheeler passenger vehicles. The identified assets of M&M’s four-wheeler passenger EV business will be transferred to EVCo. The company has separate plans for expanding its presence in the electric three-wheeler segment.
BII and M&M will invest ₹1,925 crore or $250 million each in EVCo. BII’s investment is just 1.4% of M&M’s market capitalisation. After the capital infusion, BII will hold a 2.75-4.76% stake in the subsidiary. Depending on the stake held by BII, this implies a valuation of ₹40,400- 70,070 crore. This gives meaningful value to M&M’s EV business, which has otherwise been ascribed little value, according to analysts at Jefferies India.
“Such global investments will help M&M to smoothly transition to EVs. Any concern on the substantial funding needed for its EV business is likely to alleviate as future investments seem to be under control," said Aniket Mhatre, institutional research analyst, HDFC Securities.
Over FY24-27, capital infusion is expected to be around ₹8,000 crore or $1 billion. Against this backdrop, M&M expects the proportion of EVs in the SUV portfolio to reach 20-30% by FY27. At the upper end, this means 2,00,000 units per year.
“Net value accretion to M&M shareholders will depend on its ability to leverage the electrification trend and expand its market share in the SUV segment. At present, we are not valuing the EV business separately as it doesn’t have any material presence in the electric passenger vehicle segment," said Motilal Oswal Financial Services analysts in a report on 7 July.
Further, a meaningful ramp-up in charging infrastructure will remain key to the success of EVs.
Meanwhile, the M&M stock touched a 52-week high of ₹1,194.90 apiece on Friday after the announcement. So far in 2022, the shares have appreciated 46%, making it the top gainer in the Nifty Auto index. Hence, near-term upsides may be capped.
