- 28 Apr 2025
- ICICIdirect Research
MAHINDRA & MAHINDRA HAS INFORMED THAT ITS BOARD HAS APPROVED ACQUIRING SUMITOMO CORPORATION 44% STAKE IN SML ISUZU
News: In an exchange filing, Mahindra & Mahindra has informed that its board has approved acquiring Sumitomo Corporation’s 44% stake in SML Isuzu at a price of ₹ 650/share (63% discount to the CMP) along with Isuzu Motors 15% stake at the same price of ₹ 650/share. Consequent to this primary transaction it proposes to come out with an open offer for 26% stake at a price of ₹ 1,555/share (12% discount to CMP). SML Isuzu reported sales of ₹ 1,627 crore for 9MFY25 (up 7%), while profits soared 23% to ₹ 68 crore. For FY24, the company reported revenue of ₹ 2,196 crore, EBITDA of ₹ 179 crore (EBITDA margins: 8%) with net profits of ₹ 108 crore, its highest ever.
View: SML Isuzu is an auto OEM operating in the commercial vehicle space (largely buses). It produced ~14,500 units in FY25 with domestic sales pegged at ~13,500 units (flat YoY). Its market share in FY25 is pegged at 1.4% in overall CV domain, 6.7% in M&HCV buses segment and 9.4% in LCV-Passenger Carriers. Price paid by M&M for the promoter’s stake (59%) at ₹ 650/share is ₹ 555 crore is at a significant discount to the current market price (SML Isuzu last traded at ₹ 1,773/share) and is steal deal for M&M. Total acquisition price of SML Isuzu for M&M is worked out as ~₹ 1,750 crore (Enterprise Value) which is at a very lucrative valuations from M&M standpoint i.e. ~0.8x P/S, ~8x EV/EBITDA and ~12x P/E on TTM basis. Acquiring SML Isuzu could prove to be a strategic fit for M&M given its absence in the buses segment. M&M sees this acquisition as a step towards establishing a strong presence in the >3.5T CV segment, where it has a 3% market share today. This acquisition will double its market share to 6%, with a plan to increase this to 10 - 12% by FY31 and 20%+ by FY36. We have a positive view on M&M.
Impact: Positive