Analyst Corner: ‘Buy’ on M&M with a target price of Rs 1,274

British International Investment (BII) has entered into an agreement with M&M for investing up to Rs 1,925 crore in the latter’s new four-wheeler arm, at a valuation of up to $9.1 billion (base valuations of $5.9 billion). M&M will also invest a similar amount in the EV company.

The investment will be in the form of compulsory convertible instruments, resulting in an ownership of 2.75-4.76% for BII in this EV venture. BII will have the right to appoint one nominee director on the board of the company, pre-emptive rights to participate in future funding rounds, affirmative voting and minority protection rights, transfer-related rights and exit options, among others. This investment will happen in two tranches – the first tranche of Rs 1,200 crore by June 30, 2023, and the second tranche of Rs 725 crore, which will be subject to the completion of certain milestones in FY24.

The company will focus on passenger EVs. The identified assets of M&M’s passenger EV business are proposed to be transferred to a new EV company to be incorporated as a wholly owned subsidiary.

The total capital infusion in the EV company is envisaged at ~Rs 8,000 crore over FY24-27 for the planned product portfolio. M&M and BII will work jointly to bring other like-minded investors to match the funding requirement in a phased manner.

The funds will be utilised primarily to create and market a world-class electric SUV portfolio with advanced technologies. M& M will share its vision for EVs, which includes its comprehensive product technology and platform strategy, on August 15, followed by a reveal of the electric XUV400 in September. The management expects 20-30% of its SUVs to be electric by the calendar year 2027.

We have ‘buy’ rating on M&M with a target price of Rs 1,274.

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