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India’s second-largest automobile manufacturer, Mahindra and Mahindra (M&M), is reportedly in advanced discussions to acquire a 50 percent stake in Škoda Auto Volkswagen’s operations in India. Sources indicate that a deal could be finalized within the next few weeks, potentially valuing the German automaker at around $1 billion for the stake sale.
Details of the Deal
While the specifics of the agreement, including the corporate structure of the transaction, are still being negotiated, it is understood that the deal may involve a combination of shares and cash as consideration for Škoda Auto. This partnership is expected to enhance the operational capabilities of both M&M and Škoda Auto, particularly benefiting M&M’s passenger vehicle segment.
Both M&M and Škoda Auto have significant manufacturing facilities located in Chakan, Pune. M&M currently has the capacity to produce 840,000 vehicles annually, while Škoda Auto can manufacture 180,000 units. The acquisition is anticipated to optimize the utilization of their manufacturing plants, enabling both companies to better harness their existing capabilities.
In addition to improved manufacturing efficiency, M&M is expected to gain access to Škoda Auto’s range of hatchbacks and sedans—a segment where M&M has historically struggled. “If Škoda decides to sell a larger stake in its Indian unit in the future, M&M will have the first right of refusal,” noted a source familiar with the negotiations.
Potential for Co-Branding
Discussions between the two companies also include the possibility of co-branding and co-badging products on Škoda Auto’s platform. While these talks have not yet reached a conclusion, they are not seen as major obstacles to the deal.
An email sent to M&M seeking comments regarding the acquisition remained unanswered at the time of publication.
Strategic Importance for Škoda Auto
Škoda Auto has faced challenges in the competitive Indian automotive market, with its net profit plunging 69 percent year-on-year to ₹96 crore in FY24, driven by declining domestic volumes and rising material costs. In light of these difficulties, the company is actively exploring new business opportunities to strengthen its position in India.
Earlier this year, Škoda Auto Volkswagen signed a supply agreement with M&M for components of Volkswagen’s MEB platform, aligning with Mahindra’s purpose-built electric vehicle initiatives. A spokesperson for Škoda Auto Volkswagen stated, “To fully explore the country’s growth potential, we are always considering new business opportunities and evaluating various options to ensure the best possible solution to implement our strategy in the highly dynamic Indian market.”
Background of the Negotiations
In July, reports emerged that Škoda Auto was in talks with both M&M and JSW for a potential partnership. However, discussions with both companies stalled due to differing valuations. It appears that M&M’s more favorable offer, including a cash component, may have shifted the negotiations in their favor. Klaus Zellmer, the global CEO of Škoda Auto, previously indicated that the company was seeking a domestic manufacturing partner in India to leverage local engineering, sales, and procurement capabilities.
As Mahindra and Škoda Auto continue to navigate the complexities of the deal, the potential acquisition could mark a significant development in the Indian automotive landscape, reshaping the competitive dynamics in the market.
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