Mahindra dilutes sizeable stake in the renewable business. Financially not a significant event.

M&M is diluting 30% stake in it’s renewable business to Ontario Teachers’ Pension Plan Board (Ontario), a global major investor with net assets ~ Canadian$ 242.5 bn.

Key points to note –

  • Stake dilution is of a step down wholly owned subsidiary of M&M, Mahindra Susten Private Limited (MSPL)
    • MSPL is Mahindra Group’s renewable energy platform. It has operational solar power plants of 1.54 GW in India. Besides it is also into the EPC business.
    • The revenues of MSPL for the year ended March 31, 2022 was Rs. 595.48 Cr
    • MSPL is the wholly owned subsidiary of Mahindra Holdings Limited (MHL). MHL in turn is the wholly owned subsidiary of M&M.
  • Deal terms include the following:
    • Sale of 30% of MSPL to Ontario for a cash consideration of Rs 711 Cr at an equity valuation of Rs 2,371 Cr
    • Sale of an additional 9.99% MSPL to Ontario or any other investor by May 31, 2023; and
    • Formation of an Infrastructure Investment Trust (InvIT) with MSPL and Ontario as Sponsors, which will own the aforesaid existing operational assets of 1.54 GW
      • Mahindra Group will effectively own approximately 35% of the units of InvIT and the balance 65% would be held by Ontario and the other investors.
    • Subsequent to formation of InvIT, shareholder loans of Rs 575 cr advanced by Mahindra Group to MSTL will be repaid.
    • Mahindra Group and Ontario have agreed to invest an amount of around Rs. 4,550 Cr to grow MSPL’s future portfolio. In addition, there would be contributions by each party to the InvIT.

For me – the transaction does seem to be in the right direction. However, given the overall financial numbers involved relative to M&M’s size, nothing changes for me wrt to it’s stock analysis.

I continue to remain focused on M&M’s core business.

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