M&M benchmarks to Tata. Does a token fund raise in the EV business.

After Tata Motors doing it last year, M&M going for external fund raise in the EV business was widely expected.

The Company has now announced raising Rs 1,925 crore from British International Investment Plc (BII) for the same.

• BII (formerly CDC Group plc) is the Development Finance Institution of the UK Government and invests between £1.5 and £2 billion every year to support the UK Government’s Clean Green Initiative.
• Fund raise is happening in a newly incorporated fully owned EV subsidiary of M&M that will solely focus upon 4 wheeler passenger EV business.
• M&M is estimated to have invested Rs 400 crore in this business till March 31, 2022. Related assets that are currently sitting in M&M’s books will be transferred to the new subsidiary at a consideration (to be decided).
• Along with BII, M&M will also put in the matching amount of Rs 1,925 crore. Amounts are expected to be invested in two tranches
  • 1st tranche of Rs 1,200 crore each –  latest by June 30, 2023
  • 2nd tranche of Rs 725 crore each – subject to FY 24 based milestones
• BII’s investment is via Compulsorily Convertible Preference Shares (CCPS). It would entitle them a stake between 2.75% to 4.76% implying a valuation between Rs 40,440 crore to Rs 70,070 crore.
• The total capital infusion for this business is envisaged to be approximately Rs. 8,000 crores between FY 24 and FY 27 for the planned product portfolio. M&M and BII plant to work jointly to bring other like-minded investors to fund the balance amounts in a phased manner.

Is it exciting and makes M&M stock attractive?

Solely based on this development – NO

• Fund raise is small compared with the implied valuations. To me, it’s more towards setting up a valuation benchmark. Implied maximum valuation of Rs 70,070 crore is eerily similar to Tata’s EV business valuation of $9.1 bn – though Tata’s fund raise was double of this and they have existing EV running (and hence proven) cars. M&M is still in the process of launching it’s 1st EV car.
  • The Company is scheduled to present it’s EV product, technology, and platform strategy at a UK event on 15 August 2022, followed by a reveal of the electric XUV 400 in September 2022. It expects 20% – 30% of Mahindra SUVs being electric by 2027.

The development however is in the right direction and I keenly await further information about this business from M&M.

Till then I am happy with what M&M is doing in it’s traditional proven businesses of fuel guzzling SUVs, tractors and the commercial vehicles.

Thar, XUV 700, Scorpio N – all are super exciting and successful launches, keeping me sufficiently interested in the stock.