India - Mahindra & Mahindra Ltd (M&M) of Mumbai, India at the end of April announced that it has entered into an agreement to acquire 58.96% stake* (from two separate entities – see below) in bus and truck builder, SML Isuzu Ltd (SML) for INR 555 crore (USD 65.79 million) or the equivalent of INR 650 per share. M&M is also to launch a mandatory open offer for acquisition of up to 26% stake from eligible public shareholders of SML in accordance with the SEBI Takeover Regulations.

Mahindra & Mahindra stated that the proposed acquisition is a step towards establishing a strong presence in the greater than 3.5T CV segment, where M&M has a less than 3% market share in India today, as compared with a 52% market share in the less than 3.5T LCV segment. While M&M’s Trucks and Buses Division has made meaningful progress over the past few years, this acquisition is expected to double its combined market share the CV segment above 3.5 tons gvw to 6% and plans to increase this further to 10 -12% by FY 2031 and to 20%+ by FY 2036.

Incorporated in 1983, SML Isuzu is a listed company with well-recognized brands. It reported operating revenue of INR 2,196 crore (USD220 million) and an EBITDA of INR 179 crore  (USD21m) in FY24. M&M commenting on SML Isuzu said it has profitable operations, frugal manufacturing, and strong engineering capabilities. It added that SML offers significant potential to unlock value through synergies in cost, network, brand, manufacturing, talent, and product complementarities. M&M’s medium and heavy duty  commercial vehicle division,  M&M Truck & Bus business has developed strengths by tapping into technology, design and innovation, and sourcing from its auto business.

Dr. Anish Shah Group CEO and MD Mahindra Group

Dr Anish Shah, Group CEO & MD of the Mahindra Group, said:

The acquisition of SML Isuzu marks the beginning of a new chapter for both companies and a significant milestone in Mahindra Group’s vision of delivering 5X growth in its emerging businesses.

This acquisition is also a pivotal step towards Mahindra’s ambition to become a full range player in commercial vehicles by enhancing market coverage by doubling its sales and service network and by unlocking operating leverage through platform consolidation, unified supplier base and better plant utilisation.

These synergies will lead to the Mahindra commercial vehicle business to scale rapidly and deliver profitable growth.

Rajesh Jejurikar, Executive Director CEO Auto Farm Sector, Mahindra & Mahindra

Rajesh Jejurikar, Executive Director and CEO, Auto and Farm Sector, Mahindra & Mahindra Ltd, added:

SML brings a strong legacy, a loyal customer base, and a credible product portfolio that complements Mahindra’s existing offerings in the trucks and buses segment. This acquisition is a pivotal step toward our ambition to become a full-range, formidable player in commercial vehicles by enhancing market coverage, unlocking operating leverage through platform consolidation, a unified supplier and network base, and better plant utilization. Together, we are well-positioned to scale rapidly and drive profitable growth.

In an on-line recorded interview on BT TV with Rajesh Jejurikar, the executive director added that Mahindra planned to double its combined market share and that its aim was to double its revenues over the next five years. He added that the companies would remain working as separate legal entities, that SML Isuzu would remain publicly listed, and that any restructuring was not seen as an immediate priority.

He said both teams will work closely together as the company sees great opportunity for synergy - a strategy that is expected to enable both companies to grow together. A key challenge is how to leverage the two teams in terms of product, and product complementarity, and to leverage access to the different types of customers. The name SML will remain on its product portfolio because it has a strong affinity with customers. The Isuzu name is not on the product, it is only on the company name, and this will disappear in time. With its growth strategy, it does not envisage any job losses resulting from the takeover.

With around 150 dealerships at both companies this will be another key priority in deciding how best to ‘amalgamate’ them, so that individual dealers generate an increased business throughput. A segment of interest is the LCV Bus segment (staff bus transport and school bus) with SML having a 16% market share and Mahindra 5%, giving it a combined 21% market share, which is where it sees great growth opportunity.

Jejurikar remarked by saying that SML has been working on an electric bus model, which was displayed for the first time at the Bharat Mobility Show in January, and which is few quarters away from bringing it to market.

*As part of the transaction for 58.96% shareholding, M&M plans to acquire the entire stake of 43.96% held by Sumitomo Corporation, promoter of SML, and separately, also acquire 15% stake held by Isuzu Motors Ltd, public shareholder of SML, for an aggregate consideration of INR 555 crore. M&M would also launch a mandatory open offer for acquisition of up to 26% stake from eligible public shareholders of SML in accordance with the SEBI Takeover Regulations.

Note: The transaction, including the open offer, is subject to the approval of the Competition Commission of India and is expected to complete within 2025 in accordance with SEBI Takeover Regulations.