M&M, JSW in talks with Skoda Auto for potential partnership

Despite its long presence in India, Skoda Volkswagen has struggled to grow its market share.

Mahindra & Mahindra Ltd and JSW Group, two of India’s largest conglomerates, are in talks to buy a substantial stake in Skoda Auto Volkswagen India Pvt. Ltd, people familiar with the matter said.

Skoda Auto has been in discussions with M&M and JSW for some time, and if a deal materializes, one of the two Indian groups could pick up a 15-20 percent stake in Skoda Auto Volkswagen India, with an option to increase the stake over time, the people said on the condition of anonymity.

While Skoda Auto Volkswagen India’s valuation isn’t known yet, in FY23, the company reported a profit of Rs 309 crore, the highest in five years. Industry executives said the deal may happen at valuations similar to sectoral trends, about 20-24 times the one-year forward price-to-earnings.

Skoda Volkswagen Group’s plan to sell a stake in its India unit is said to follow decisions to leverage the strengths of local partnerships.

A few weeks back, Klaus Zellmer, global CEO of Skoda Auto (which is leading Volkswagen group’s India investments and strategy), was reported as saying that the group is in talks with a domestic manufacturing partner in India, which would allow access to engineering, sales, and procurement competence.

A Škoda Auto Volkswagen India spokesperson said: “We generally do not comment on market speculations or ongoing discussions. 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.”

“India is crucial to the growth strategy of Škoda Auto. It also gives us a competitive advantage for our international expansion strategy. Our development and manufacturing base in Pune is a springboard into ASEAN and the Middle East. The capabilities we have to build in India, for India, and related export capacity are helping us achieve new international sales beyond Europe,” a Czechia-based spokesperson for Skoda Auto said.

Emails to spokespeople for M&M and JSW seeking comments remained unanswered till the time of publishing the article.

Despite its long presence in India, Skoda Volkswagen has struggled to grow its market share. It also hasn’t had much success in localizing its manufacturing. Aligning with either of the two Indian groups could solve these operational issues, making the business more profitable and sustainable in the long run. Currently, Skoda Volkswagen has about a 2% market share in India, with monthly vehicle sales of approximately 2,500 units. To begin with, Skoda may tie up with a local partner to manufacture electric vehicles.

For Skoda, partnering with M&M offers ready access to an established distribution network and the potential to expand its local manufacturing, including procurement of components. In turn, M&M gains access to German technology and entry into the sedan market, expanding beyond SUVs.

As for JSW, which already has a tie-up with China’s MG Motor, the structure of a possible JV with Skoda is unclear. A potential JV with Skoda may operate as a separate entity, parallel to the one with MG. Also, given JSW’s focus on electric vehicles through its MG Motor India unit, how Skoda’s fossil fuel-based engines will fit the group’s plans remains to be seen.