To talk about the big acquisition and the news of the morning which in a sense has got everyone excited in the auto space, which is Mahindra has acquired majority stake in SML Isuzu. I've got the man of the moment which is Rajesh Jejurikar from Mahindra and Mahindra. So let's first understand the thought process and where this acquisition would actually take the non-SUV and the non-so-called farm automotive business of Mahindra. Fantastic to have you back on ET Now. Thank you for joining us. Mahindra and Mahindra of late has been thinking in terms of scale, skill, size and you've demonstrated in every business of yours. With this acquisition, how will things change because you will not become number one, you will not become number two. The aspiration for Mahindra and Mahindra has to be one or two in whatever businesses they do.
Yeah. So firstly, stepping back to what you said, there are several segments or categories in which we've become very strong and are number one. SUVs is one on revenue market share, tractors, last mile mobility on electric three-wheelers, and of course LCV less than three and a half ton, we have more than 50% market share. The one segment in the auto space in which we play where we've really not done so well has been the commercial vehicle more than three and a half ton segment. There our market share so far has been only 3%. It actually peaked till 2019, had gone up to close to 5%. There are several factors which is the transition to BS6, the shortages on components that we were going through which we had to prioritize then, for example fuel injection pumps and so on, which led to a decline in that category to a level at which we are now and we've improved a little bit over the last year and a half or two. This is the next area of focus for us.
Now it's a huge segment by way of overall value segment. Profit pool is very good in the segment as well. When you look at the, you know, they're all listed companies. So we know the numbers of, you know, the kind of profit pool that exists. The size of the market is 130,000 crores plus. This acquisition gives us a strong enough presence to start building on. So from a 3% market share we go to close to 6% market share. From a 2,500-3,000 crore revenue we go to 5,000 crore plus revenue. So when you look at the absolute size of the pie even at 6% it's 5,000 crore plus which is not a small size of revenue. We've said by FY31 we will aim to be 10 to 12% market share which means 10,000 crores plus. So 10,000 crores plus in a four to five year is a reasonable ambition and then from there on we look to, you know, build on and I think it's premature to say that we can aim to be number one at this stage. There are strong players, you know, very well entrenched but doesn't mean that you can't be. You know, few years back people said that in SUVs you have no chance but you know we've gone on with time with right products and multiple actions to go on to be doing very well and hopefully in this segment too. This is the only segment we haven't done well in and this is our next area because we believe that the size of the market allows a scale up.
But this is nowhere an early indicator like a Canadian coal mine that the car business or the farm equipment business is peaking out because companies think of diversification when they know that they're reaching or nearing the peak in the core businesses.
Yeah, well this is core in a way, right? Because when we, if you look at LCV less than three and a half ton is a very important part of our core which is where we have pickups and a 50% market share. When you look at SML Isuzu as a potential or target company that we are acquiring, their strength is not in the medium and heavy commercial vehicle segment. It is in the LCV and the ILCV segment. In fact, when you look at LCV buses, their market share there is 16%. Mahindra's market share in the LCV buses is 5%. So combined market share of 21% gives us a strong, strong position there. The bus segment, and this is not the intra-city but the inter-city which is schools, staffing, tourism is an opportunity for growth and having a presence of combined market share of over 20% there gives us an ability to think of becoming number one in a sub-segment over a period of time.
SML has an electric bus ready. We had not done any work on electric bus and electric buses it will be a very fast growing segment as well. So I don't think this is an indication of the fact that other parts of our business won't grow. It's just that what's the new avenue for growth not just for the auto business but even as a group and a 5,000 crore business which can go in the next 3 to 5 years to 10,000 crores plus is not something which is insignificant.
So this business which potentially go from 5,000 to 10,000 crores, 2, 3, 4, 5, that is the duration what we're discussing, will that happen in Mahindra and Mahindra or will that happen in, you know, SML Isuzu the listed entity?
So this is, right now at least, SML Isuzu as a separate listed entity will stay listed. The trucks and buses business of M&M stays within M&M. We will look at how we fully synergize operations and, you know, resources, talent, platforms to get the growth and scale. So, you know, we will have to in our mindset even though they are in two separate legal entities think about it as one.
Okay. Now in terms of the whole approach what you will have with this new acquisition, what happens if the open offer does not go through? I mean for somebody who owns the stock you would say look the Mahindra group has kicked in, Rajesh, I heard him on now he's given big plans of where the business would grow and synergies would kick in, what sense does it make me to tender my shares at the current open offer price if the open offer fails and what will you do then?
That's actually absolutely okay. I wouldn't use the term fail at all because every element of the strategy given that we have a majority shareholding now, every element of our strategy will, we don't need 75% shareholding to accomplish what we're setting out to do. So the objective is not to increase stake and then delist it irrespective of the open offer goes through or does not go through, how much you get back in the open offer.
You will keep this entity listed.
Yes, absolutely. And hence it's irrelevant from our standpoint whether the open offer is fully subscribed or not. It does not change our plans. The need to go in for a 26% open offer stake is as per SEBI regulation and that's the reason we need to go through it. If it's fully subscribed we are provided from an approval to acquire all of that. If it doesn't, it doesn't change our plans at all.
But why would you like to keep it listed? I mean more disclosures, you know, more board meetings, more analyst interviews, more television interviews.
I guess we've got into the habit and don't want to miss out on the fun of doing all of that. But I think there is, the process of anyway delisting something is also not that simple in the Indian context. So, you know, it's a listed entity. It has its own standing, its own brand and, you know, it's fine and why put in more capital at this stage.
Anyway, no, I appreciate the fact that I'm asking a follow-up question because this is a price sensitive question. What you're telling me and we'll archive this one that the Mahindra group and Rajesh is confirming that SML Isuzu will remain a separate listed entity. What happens down the line, we don't know. But as of today there are no plans to delist it.
Yes, I'm confirming. We are archiving this data. Yes, absolutely.
Wonderful. Now let's understand the market dynamics. Has your hunger for acquisition just about started again because you could have easily built a platform where you could have taken your existing, you know, LCV business from 5,000 to 10,000 crores. You've demonstrated the ability in your SUV business and other businesses. The fact that you're acquiring does that mean that you are now thinking of buying growth?
I think Nikunj the answer to that question is a calibrated one which is are all the boxes getting ticked appropriately to do an acquisition. Cultural fit, strength of the company, strength of the brand, what does it add back, the fact that it is a profitable business, the fact that it has very frugal operations and we have a very good comparison point because of our presence in Swaraj tractors. Swaraj tractors in a way and SML are mirrored companies. They were all part of Punjab Tractors Limited at one point of time. So when we see SML operation, we can kind of mirror what we saw in Swaraj, frugally run, very, you know, high level of simplicity down to the basics, high level on product and focus of product and technology. So we see all of that right. So the question is what do we see in a company and when we see all the right things then of course we will want to look at an organic acquisition. I think in this segment it was necessary because it's not an easy segment in which you can grow organically without having a critical mass and that was the learning that we've had. So, you know, combining the two together we believe 5,000 crores plus 6% market share gives us critical mass, makes it the number four trucks and buses which then is a position from which we can play.
Would you be eventually rolling out the platform for bigger, you know, tonnage trucks? Is this beginning of Mahindra and Mahindra's entry into CV and the bus market?
We are not looking at CVs in the MHCV space. I mean buses in the MHCV space. Of course, we have a wide range of high tonnage products on the trucks, you know, truck movement and goods movement space within Mahindra. We will not push SML into that space either because their strength is LCV, ILCV. We'll build the portfolio from there. The Mahindra brand will have realistic ambitions on market share gain in the HCV and MHCV segment because that is a very competitive space. We're currently at about 3% share. For us to go from 3 to 5 we think is a good aspiration. The real growth we believe will come out of the LCV and ILCV segment and that is closer to our less than three and a half ton from a mindset and type of target group compared to what the big fleets are.
Mahindra and Mahindra also gives us a guidance and a forward-looking guidance which is on return ratios, return on equity, return on capital. Because of this acquisition, will your guidance now for FY26 change? Would you have to rework your numbers? Because obviously this will come at a cost, synergies will take some time. Initially you'll have to invest a lot more. That means return on equity, return on capital will change.
The return on equity number is Anish has reinforced several times and I know Nikunj it's a question you ask him often. No, after this acquisition. Yeah. I know he is always a weighted return. So the mindset or the thinking that Anish has been advocating is we have to invest in growth businesses because investors also want growth from us, right? And if we just look at ROE and then try and increase our ROE indefinitely then there'll be no growth and that is going to be counterproductive to investor point of view as well. So there will be businesses which we invest in which will be growth drivers which in the short run may not have the same ROE benchmark but over a period of time they need to get there and that's how this will be as well. Now in the overall scheme of the returns that we're making in both the auto and the tractor business where when you see the ROCs they're well beyond 35-40%. This in the scheme of that within the auto business will round off honestly.
