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  • 19 Sep 2022
  • ICICIdirect Research

M&M SELLS STAKE IN RENEWABLE ENERGY COMPANY TO PENSION FUND

M&M - 2976 Change: 46.95 (1.60 %)

News:

 M&M, through its wholly owned subsidiary, has agreed to sell a 30% stake in this subsidiary operating in the renewable energy domain, Mahindra Susten Pvt Ltd (MSPL) to Ontario Teachers' Pension Plan (OTPP) for a consideration of Rs 711 crore with agreement to further sell 10% stake to any other investor or OTPP associate by May 2023 at an agreed valuation at that time. Both parties, thereafter, would consider forming an Infrastructure Investment Trust (InvIT) and transfer some of the operating assets of MSPL. Mahindra Group and OTPP have further agreed to invest Rs 4,550 crore to grow MSPL’s future portfolio. In addition, there would be contributions by each party to the InvIT.

View:

 With the stake sale, M&M is looking at unlocking value at its renewable energy arm (MSPL), which is currently fetching an equity valuation of Rs 2,370 crore. MSPL reported revenues of Rs 595 crore with networth pegged at ~Rs 1,000 crore as of FY22. The implied valuation of the stake sale is pegged at ~1.2x P/BV and ~4x P/S. M&M would receive Rs 1,300 crore from the transaction (Rs 711 crore from 30% stake sale and Rs 575 crore as repayment of its loan extended to MSPL in response to partial sale of units of proposed InvIT). MSPL is both an EPC contractor involved in setting up of renewable energy plants (solar) and also has operational assets in renewable energy domain (~360 MW). M&M intends to use the proceeds of stake sale plus another Rs 1,750 crore to grow the portfolio of MSPL over a seven year period while OTPP has agreed to deploy additional funds amounting to Rs 3,550 crore in the same venture over the next seven years. In our view, through this transaction, M&M has secured part of its own funding requirement and sourced a credible player to further invest in this space.

Impact:

Neutral.