M&M can beat global competitors at much lower cost of development: MD & CEO

In a Q&A, Anish Shah says the valuation for the upcoming EV subsidiary is fair and the company will be rewarded adequately by investors soon

For a yet-to-be incorporated company that has no products in the market yet, the $9.1 billion valuation at which British International Investment funding has agreed to invest has surprised many. But Anish Shah, Managing Director and CEO, Mahindra Group is supremely confident the company will be able to establish the valuation. Shah tells Shally Seth Mohile that the valuation for the upcoming wholly-owned EV subsidiary is fair and the company will be rewarded adequately by investors soon. Shah is confident that M&M’s ability to develop products at a fraction of costs compared to global automakers will hold it in good stead. Edited excerpts:

In the absence of any EVs currently and a valuation too good to be true, M&M’s investors do not seem to be very enthused with the deal...

British International Investment (BII) is a marquee investor and has done a lot of due diligence before arriving at this valuation. They have seen the strength of our current portfolio of (internal combustion engine powered models) and the EVs we're working on, which we haven’t shown to the world yet and will show on August 15.

Their assessment of those upcoming models is that they are likely to be market leaders, which is an endorsement of what we believe in. We feel it’s a very fair valuation and one that reflects what we can do in the EV space.

Our focus right now is on execution. It’s on making a promise and delivering on the same. We've been delivering on capital allocation and the EV growth story, and are confident that the market will reward us as we go along.

How much funding will you be looking to raise from the second investor?

BII as a development institution wants to see more capital coming into the business. Hence we will work together with them to get more investors.

The amount that we raise would be a function of the valuation someone is willing to give. We have already earmarked funding for the business to the extent that if we get more funding, it reduces our capex. For us the amount is not important but who comes in. It’s about whether they believe in the story and will add value and partner with us going forward.

We expect EV penetration to be faster than our anticipation, which is why we are going with a full range of electric products.

What benefits do you expect to accrue from the asset-light model of the upcoming EV arm?

The benefits as we see them, are establishing the valuation for what we think is going to be an exciting business and the ability to unlock more value for our shareholders by bringing in one investor now and another one in the next 16-18 months. So that is what we see as the path to value creation.

Will you be looking for a similar deal for the last mile e-mobility business where you have a leadership position?

We are looking at unlocking across all our businesses right now, so that is likely to move faster, potentially bringing investors in. Commercial vehicles will take longer and at this point passenger vehicles are the focus for electric. At some point we will do that.

Are you in talks with some PE investors for the same?

We are generally in talks with investors for all our businesses. It depends on when someone wants to move fast. This particular transaction (BII) happened really fast—it took two months. We weren’t out there telling people to come and invest in us. We were waiting to develop our products and launch them. They saw our products and really liked them, and asked if they could come in as investors.

How do you expect to retain a competitive edge given the inflationary trend—high battery and input cost increase and competition from global automakers?  

You have got all the global players in India with their best models. We've just launched five blockbuster models at a fraction of their costs. It’s not easy to do so in a market where you have all the global platforms in play. Our engineering capabilities give us great confidence. We are confident of beating global competitors at a much lower cost of development. That is why we aren’t much bothered about the cash burn or competition.

We have a certain capex plan for the business and are confident it would translate into volume and market share.