The second-largest automobile company in India, Mahindra and Mahindra (M&M), may acquire a 50% stake in Skoda Auto Volkswagen's Indian business. According to Money Control, talks between the two are in the final stages of the deal, which is likely to be signed in the coming weeks. Skoda Auto Volkswagen is a German auto giant.
According to sources, the valuation of this Indian business with Mahindra has been fixed at 1 billion dollars. These transactions may involve both cash and equity. However, the details of this agreement have not been revealed yet.
The deal could be significant for both Mahindra & Mahindra and Skoda as the agreement will help both companies better utilise their existing production capacity. Both Mahindra & Mahindra and Skoda have major manufacturing plants at Chakan in Pune. Mahindra & Mahindra has an annual production capacity of 8.4 lakh cars, while Skoda Auto can produce 1.8 lakh cars annually. The acquisition will allow both companies to maximise the utilisation of their respective plants.
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Additionally, the acquisition will give Mahindra & Mahindra an entry into Skoda Auto's hatchback and sedan models, a segment where Mahindra has not had much success so far. The deal could be especially important in the production of electric vehicles, as the two companies already have an agreement for an electric car platform.
The two companies are also discussing whether Mahindra & Mahindra will use Skoda Auto's platform to launch co-branding and co-labelling products through this acquisition. While this discussion has yet to come to fruition, it won't be a huge deal breaker at this point.
Skoda Auto has been struggling in the Indian market for the past few years. In FY2024, the company's net profit fell by 69 percent to just Rs 96 crore. Low domestic sales and increased raw materials costs were the main reasons behind this, which has forced Skoda Auto to find a partner in the Indian market.