M&M shares: SML Isuzu stake acquisition EPS accretive; retain Buy, says Nuvama

M&M has announced its decision to acquire a significant stake in SML Isuzu, a move that is set to reshape its market presence in the commercial vehicle sector. The acquisition involves purchasing a 43.96% stake from Sumitomo Corp for INR4.14bn and a 15% stake from Isuzu for INR1.41bn, valuing SML Isuzu shares at INR650 each. An additional open offer for a 26% stake at INR1,554.60 per share is also planned, amounting to INR5.85bn. In total, this acquisition is valued at INR11.4bn.

M&M's acquisition aims to double its market share in the >3.5T commercial vehicle segment from 3% to 6%. The company's long-term strategy includes increasing its market share to 10–12% by FY31 and over 20% by FY36. This acquisition is expected to be marginally earnings per share (EPS) accretive, strengthening M&M's position in the commercial vehicle market.

Nuvama Institutional Equities believes that this acquisition of an 85% stake will be marginally EPS accretive. It retained a 'BUY' rating on M&M with a sum-of-the-parts-based target price of Rs 3,700. This is based on a 25x core P/E valuation and includes the value of subsidiaries and investments at INR824 per share.

The acquisition of SML Isuzu promises significant synergies, particularly in the realm of e-buses and alternative fuel technologies. SML Isuzu's ongoing work on e-buses is expected to complement M&M's high-quality in-house engine production, with a focus on school and staff electric buses.

Completion of the acquisition is subject to customary closing conditions, including approval from the Competition Commission of India (CCI). The transaction is anticipated to be finalised by December 2025. SML Isuzu's extensive network of over 100 sales touchpoints and 200 service centres will support the expanded operations.

We acknowledge that the acquisition of SML Isuzu aligns with M&M's strategic goals and market expansion plans. This move is anticipated to enhance M&M's competitiveness in the commercial vehicle sector, facilitating its growth objectives.