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M&M goes for value unlocking through equity raise in electric–passenger vehicle arm
What's Buzzing
Mahindra & Mahindra (M&M) has announced formation of a new subsidiary for undertaking business activity in the domain of electric passenger vehicle segment. It also announced fresh investment by itself and British International Investments (BII, an UK government entity) to the turn of Rs 1,925 crore each (spread over two tranches). Investment by BII would be in form on compulsory convertible preference shares.
Context
BII will hold 2.75-4.76% stake in the new entity post its investment with M&M retaining the rest, thereby valuing new EV entity at ~Rs 40,400-70,070 crore depending upon the stake held by BII. The total capital requirement for the EV entity is envisaged to be ~Rs 8,000 crore (US$1 billion) in FY24-27 for the planned product portfolio.
Our Perspective
We believe the present equity raise for electric PV arm is a step in the right direction and would enable the new entity to focus specifically on EVs and be self-sustainable in its capex needs. It is envisaged to significantly leverage the broader manufacturing capabilities along with the ecosystem of suppliers, dealers and financiers of M&M. The funds raised in the new EV company will be utilised primarily to create and market a world-class electric SUV portfolio with advanced technologies. M&M expects 20-30% of its SUVs being electric by 2027. It expects to reach an annual run-rate of ~2 lakh electric PV sales volume by FY27, aided by four newly developed BEVs’ (born electric) & XUV 400. Key monitorables, going forward, would be the event on August 15,2022 wherein M&M would be sharing its vision that includes product, technology and platform strategy on the born electric domain, followed by a reveal of the electric XUV 400 in September 2022. The present equity raise in the EV arm has a potential to add value for shareholders of M&M in the range of Rs 225-400/share in our opinion.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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