M&M-SML Isuzu deal strategically positive; execution remains key: Analysts

Mahindra & Mahindra’s (M&M’s) decision to acquire a majority stake in SML Isuzu could bring “strategic benefits” for the company, believe analysts. The deal, they say, will enable M&M to strengthen its commercial vehicles (CV) portfolio of  mainly trucks and buses, and expand market reach.

 

“We see this deal as a strategic positive for M&M as it may help it address gaps in its product portfolio with potential to unlock value through synergies in cost, network, manufacturing, platform, and supply sourcing via better economies of scale,” ICICI Securities said.

 

SML Isuzu is engaged in manufacturing and sale of light commercial vehicles (LCV) and medium/heavy commercial vehicles (MHCV) and has a product portfolio comprising buses, trucks and specific application vehicles. It is a market leader in the intermediate light commercial vehicle (ILCV) buses segment, with a 16 per cent market share. On the bourses, M&M shares have gained 1.4 per cent since the announcement of the deal on April 26. By comparison, the BSE Sensex, and the BSE Auto indices have added 1.3 per cent each.    Follow Stock Market LIVE Updates Today Here

 

M&M will acquire a 58.96 per cent equity stake in SML Isuzu Ltd by December 2025. Of this, M&M will buy 43.96 per cent from Sumitomo Corporation and 15 per cent from Isuzu Motors Limited for an aggregate consideration of ₹555 crore. There is an open offer for the acquisition of an additional 26 per cent of the equity stake for an aggregate consideration of ₹585 crore. The transaction values SML Isuzu, a listed company, at about 8x price-to-earnings (PE) on a trailing twelve-month (TTM) basis. 

Nuvama Institutional Equities believes the acquisition of this 85 per cent stake (59 per cent + 26 per cent) at ₹1,140 crore will be marginally earnings per share (EPS) -accretive for M&M. The brokerage has maintained its ‘buy’ rating on  the M&M stock with a share price target of ₹3,700, implying a 27.4 per cent upside in the M&M share from its last closing price on the BSE. 

Nuvama IE noted that the acquisition would double M&M’s market share in the >3.5 tonne CV segment to 6 per cent from the current 3 per cent. M&M is present in the MHCV segment as Mahindra Truck and Bus Division (MTBD). 

Further, the management aims to increase this market share to 10-12 per cent by FY31 and over 20 per cent by FY36. In the LCV buses segment, mea­nwhile, the combined entity’s share is projected to rise to 21 per cent (vs 16 per cent for SML Isuzu at present). 

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Analysts believe while SML Isuzu’s strong in-house capabilities, including alternate fuels (CNG, E-buses), would address white spaces for M&M, the latter’s supplier ecosystem would expedite SML Isuzu’s ongoing E-bus development. Not­ably, SML is in advanced stages of EV bus development for school/ executives and has a CNG portfolio, where MTBD was not present. 

“With SML’s acquisition, we believe M&M’s ‘right to win’ will improve significantly with complementary product portfolio, access to CNG/EV portfolio, in-house bus building capability, doubling of network (over 100 dealers and over 200 touchpoints), and synergy sourcing benefits given the scale,” said Nomura. 

Further, while the brokerage sees the targets of market share/Ebitda as “ambitious”, it believes achieving them can lead to significant value-unlocking if executed well. 

“This should reduce the Ebitda drag in M&M’s standalone business as well. We believe the SML acquisition valuation at 2.8x EV/Ebitda (9MFY25 annualised) is also attractive (peers at 12-13x, as per Bloomberg consensus),” Nomura said with a ‘buy’ rating on the stock and a share price target of ₹3,681.

 

That said, Emkay Global analysts pointed out that while the acquisition reflects M&M’s continued focus on value-accretive capital allocation, the financial impact remains limited, with around 2 per cent revenue and barely 1 per cent Ebitda/net profit addition on a pro forma basis. The brokerage, thus, retained its ‘Add’ rating with an unchanged target of ₹2,700.   

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