M&M is undervalued, EV bet gets it right, says Anish Shah –

Mahindra & Mahindra (M&M) is eyeing a leadership position in the electric vehicle sport-utility segment, emboldened by a global investor’s interest in its newly set-up EV subsidiary. The maker of Scorpio and Thar plans to invest over ₹10,000 crore in its EV business, which raised $250 million from British International Investment (BII) on Thursday at a valuation of $9.1 billion. Anish Shah, managing director of M&M, told Ketan Thakkar and Ashutosh Shyam in an interview that the investment is an “endorsement” of the fact that it was “on the path to EV leadership”. Edited excerpts:

What explains such a healthy valuation even before selling your first EV?

The valuation is actually based on a very concrete set of numbers – on sales of SUVs and overall electric as a penetration of that sale (in future), the revenues and margins from that. So, this is not a startup valuation, it is based on the success that has been already seen in our Bolero Neo, XUV 700, Thar and Scorpio N brands that are likely to continue in future and the additional all-electric models. It is a very reasonable valuation; the investors have looked into it with a very fine toothcomb. This valuation is essentially the future of Mahindra’s automotive business.

The EV business valuation seems at a premium to your conventional fuel-driven legacy enterprises…

My view is that Mahindra & Mahindra is currently undervalued. You have started seeing better movement as some of the new launches have started delivering. For long, we have felt that we were undervalued and there is a reason for that, which is what we have been addressing. We have addressed capital allocation and future growth, and have started seeing valuation come back in. The EV company’s valuation factors in the success of new launches and moving on to electric on a greater scale. It is a function of how the industry is going to evolve in the coming years. Electric is going to become mainstream and if you look at 20-30% penetration of our portfolio and back-calculate the numbers, it shows that M&M SUV growth is going to be very good. This is, in a way, a forward-looking valuation. I would not give a number. I would just look at the historic valuation of where M&M has been in the past. We have a fair amount of room before we can get back to them. There is still a lot more that we can do that will take us beyond historic multiples as well; as we deliver that, you will see the result.

Your valuation of the EV business mirrors that of …

It is a sheer coincidence. Our valuation is a little bit higher. It is based more on volumes and the revenues and profits; that is what really drove the valuation.

In the last six months, the valuations for tech companies and startups have crashed and the cost of capital has gone up. How were you able to secure such an attractive valuation?

I agree it is a tougher PE market now, the cost of capital has gone up, and we don’t have products right now, but we have the building blocks in place. We have a stronger story. We have a marquee investor who is putting in money, they have done a lot of diligence to say that ‘yes, you have a good plan, a good set of products’. Their investment is an endorsement of the fact that we are on a path to EV leadership.