Mahindra Susten-Ontario Teachers’ deal opens up a wealth of opportunities
Analysts think it is an affirmation of PE interest in green energy; could be a precursor to the company going public, with Adani Green Energy being the largest in terms of value.
- Sep 20, 2022,
- Updated Sep 20, 2022 11:45 AM IST
The $19 billion Mahindra Group has a presence across several sectors. An interesting development has been the decision of Ontario Teachers’ Pension Plan Board to pick up a 30 per cent stake in the unlisted Mahindra Susten, a renewable energy company for $300 million (Rs 2,371 crore), with a plan to also set up an infrastructure investment trust (InvIT) to be formed in FY24.
According to Mahindra Susten’s website, it offers a range of solar engineering solutions from PV (photovoltaic) systems design, solar inverters all the way to implementation. In the recent past, the company has made a foray into international market by providing solar panels and solar inverters, both for home and commercial use.
In terms of structure, the company is a part of Mahindra Partners, the $1 billion private equity division of the Mahindra Group. In addition to Susten, Mahindra Partners has a portfolio of companies across sectors such as retail, steel, logistics, vocational education, consulting, media, luxury and speed boat manufacturing, and conveyor systems. The stated ambition is to make Susten a $1 billion company.
A note put out by India Ratings last June speaks of an “expectation in the improvement of Susten’s profitability from FY22, likely to be driven by the improved performance of its solar engineering procurement and construction (EPC) business, following a subdued performance during FY21.” On the back of the pandemic, Susten saw its revenue dropping – it was at Rs 2,619 crore in FY19 and dropped to Rs 952.3 crore in FY21, while EBITDA levels from Rs 93.5 crore to Rs 58.2 crore.
“However, we expect Susten to improve its scale of operations in the near-to-medium term aided by its current order book and its endeavour of continuously bidding for more orders, adds the note. The deal between Susten and Ontario Teachers’ will also explore the sale of an additional 9.9 per cent stake in the former by 31 May 2023.
Kranthi Bathini, equity strategist at WealthMills Securities, points out that the overall macro business environment in India is viewed as a positive by global investors. “That has led to India-centric private equity (PE) funds putting in large sums of money,” he says.
To him, the combination of PE and green energy, in particular, will continue to be the story for a while. “A large business house like Reliance has made many acquisitions in the recent past in green energy and, at some point, will raise money as well. Green or renewable is the flavour of the season.” The most prominent listed company in this space is Adani Green Energy with a market capitalisation of over Rs 3.8 lakh crore at this time.
According to market tracker, Ambareesh Baliga, the unlocking of value will continue in the Mahindra Group. “There are a lot of businesses, which will reach a critical stage at some point and that will lead to it. To that extent, it is inevitable that the group will move on it,” he explains. The other things, says Baliga, is that a public offering from the group has not taken place for a long time. “The market has a lot of appetite for a high-quality issue from a large group like Mahindra and it will be easily lapped up.”
The $19 billion Mahindra Group has a presence across several sectors. An interesting development has been the decision of Ontario Teachers’ Pension Plan Board to pick up a 30 per cent stake in the unlisted Mahindra Susten, a renewable energy company for $300 million (Rs 2,371 crore), with a plan to also set up an infrastructure investment trust (InvIT) to be formed in FY24.
According to Mahindra Susten’s website, it offers a range of solar engineering solutions from PV (photovoltaic) systems design, solar inverters all the way to implementation. In the recent past, the company has made a foray into international market by providing solar panels and solar inverters, both for home and commercial use.
In terms of structure, the company is a part of Mahindra Partners, the $1 billion private equity division of the Mahindra Group. In addition to Susten, Mahindra Partners has a portfolio of companies across sectors such as retail, steel, logistics, vocational education, consulting, media, luxury and speed boat manufacturing, and conveyor systems. The stated ambition is to make Susten a $1 billion company.
A note put out by India Ratings last June speaks of an “expectation in the improvement of Susten’s profitability from FY22, likely to be driven by the improved performance of its solar engineering procurement and construction (EPC) business, following a subdued performance during FY21.” On the back of the pandemic, Susten saw its revenue dropping – it was at Rs 2,619 crore in FY19 and dropped to Rs 952.3 crore in FY21, while EBITDA levels from Rs 93.5 crore to Rs 58.2 crore.
“However, we expect Susten to improve its scale of operations in the near-to-medium term aided by its current order book and its endeavour of continuously bidding for more orders, adds the note. The deal between Susten and Ontario Teachers’ will also explore the sale of an additional 9.9 per cent stake in the former by 31 May 2023.
Kranthi Bathini, equity strategist at WealthMills Securities, points out that the overall macro business environment in India is viewed as a positive by global investors. “That has led to India-centric private equity (PE) funds putting in large sums of money,” he says.
To him, the combination of PE and green energy, in particular, will continue to be the story for a while. “A large business house like Reliance has made many acquisitions in the recent past in green energy and, at some point, will raise money as well. Green or renewable is the flavour of the season.” The most prominent listed company in this space is Adani Green Energy with a market capitalisation of over Rs 3.8 lakh crore at this time.
According to market tracker, Ambareesh Baliga, the unlocking of value will continue in the Mahindra Group. “There are a lot of businesses, which will reach a critical stage at some point and that will lead to it. To that extent, it is inevitable that the group will move on it,” he explains. The other things, says Baliga, is that a public offering from the group has not taken place for a long time. “The market has a lot of appetite for a high-quality issue from a large group like Mahindra and it will be easily lapped up.”