MC Exclusive | M&M may pick up 50% stake in Škoda Auto’s India business

M&M

India’s second largest automobile company Mahindra and Mahindra may acquire a 50 percent stake in Škoda Auto Volkswagen’s India operations. The two sides are at an advanced stage of discussion and a deal is likely in a few weeks, according to sources.

It is learnt that the German auto major is expected to be valued at $1 billion for the purpose of the stake sale. Even as the finer contours of the deal, including the corporate structure for the transaction, are still in the works, it is understood that it may entail a mix of shares and cash as consideration to Škoda Auto.

Possible synergies

The transaction is expected to help both M&M and Škoda Auto harness their existing manufacturing capabilities in a better way and is particularly seen as value accretive for M&M’s passenger vehicles business.

M&M and Škoda Auto both have their key manufacturing facilities in Chakan, Pune. While M&M has a capacity of rolling out 840,000 cars a year, Škoda Auto can produce 180,000 units. The acquisition will help the two car makers utilise their plants more optimally.

The Chakan plants may also be used for manufacturing electric vehicles, where both car makers have a pact for supply of components. On February 16, M&M made an announcement about signing a supply agreement with Volkswagen Group for components of Volkswagen’s modular electric vehicles platform.

The acquisition is also expected to provide M&M access to Škoda Auto’s range of hatchbacks and sedans; a segment where the sports utility vehicles major hasn’t found much success in the past.

“In case Škoda decides to sell more stake in its Indian unit, M&M will have the first right of refusal,” informed another highly placed source, refusing to be named.

The two sides are discussing whether M&M will utilise this acquisition to co-brand and co-badge products on the Škoda Auto platform. “These talks have not fructified yet, though they may not be major deal-breakers at this juncture,” said a person aware of the matter.

Email sent to M&M seeking comment remained unanswered till publishing this article.

“Škoda Auto is leading the India operations on behalf of the Volkswagen Group and its brands. To fully explore the country’s growth potential, we are always considering new business opportunities and are evaluating various options to ensure the best possible solution to implement our strategy in the highly dynamic Indian market. Earlier this year, Volkswagen Group and Mahindra signed a supply agreement on components of Volkswagen’s MEB for Mahindra’s purpose-built electric platform, taking a step further on a joint vision for e-mobility collaboration. Volkswagen Group and Mahindra continue to explore multiple opportunities to expand the collaboration potential,” said a spokesperson for Škoda Auto Volkswagen.

Rationale behind the deal

Škoda Auto has struggled to make an impact in the highly competitive Indian car market in the last few years. In FY24, Škoda Auto Volkswagen saw its net profit slump 69 percent on-year to Rs 96 crore in the face of lower domestic volumes and higher material costs.

On July 15, Moneycontrol reported that Škoda Auto was in talks with M&M and JSW for a potential partnership. While talks with both M&M and JSW hit a wall due to differences in valuations, a better offer on the  table, including a part cash payout from M&M, might have tilted the scale in favour of the SUV major. Later in July, Klaus Zellmer, global CEO of Škoda Auto, was quoted as saying that the company was in talks with a domestic manufacturing partner in India, which would allow access to engineering, sales, and procurement competence.