Mahindra and Mahindra Scouts for Investors for its EV Business

The stock of Mahindra & Mahindra is not known to shows spikes in volatility and has been a steady performer over time. However, in the last 3 months, the stock of M&M is up 18.04%. The latest quarter results were good and in the October auto sales numbers, Tata Motors and M&M were the only 2 large players to show positive growth in dispatch volumes.

What really triggered off a spate of interest in M&M is some key announcements in its latest AGM and the layout of a 5 year plan for the company. Among the two major steps, the first is to substantially expand its farm machinery franchise up to the level of its tractors business while the second is to look for ways to monetize its EV business at a later date.

A quick word on the farm machinery business of M&M first. Mahindra plans to grow its farm machinery business 10-fold by 2027 to touch revenues of Rs.5,000 crore. The idea is to bring the same traction in farm machinery as in tractors.

M&M currently has a 40% share in tractors and just 10% in farm  machinery. One of its commitments in the latest AGM is to expand the farm machinery share also to 40%. Globally, share of farm machinery is twice that of tractors.

Now for the more important electrical vehicles space. M&M plans to invest close to Rs.3,000 crore by the end of fiscal year 2024. The idea is to once again regain leadership in EVs, which it has since ceded to the Tatas, despite M&M pioneering EVs in India.

The bigger game will be on valuations and M&M will look to monetize its EV property at some point in the future, but first it will have to create the right ecosystem to generate value.

Tata Motors had recently raised $1 billion from global marquee investors including TPG, which valued the EV business of Tata Motors alone at $9.1 billion. Even players like TVS Motors, Ashok Leyland and Bajaj are heavily investing into green vehicles, while in the case of Tata Motors the rollout has already started quite aggressively.

Even in the global markets, it is EVs that drive valuations. For example, Elon Musk’s Tesla has given returns of 1,600% in the last 2 years and has a market cap that is more than the entire global auto industry combined. M&M believes that a strong EV franchise can also be accretive for group valuations.

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