SML Isuzu Shares Plunge 10% as M&M Announces 59% Stake Acquisition

On April 28, 2025, shares of SML Isuzu Limited, a prominent Indian commercial vehicle manufacturer, plummeted 10% to hit the lower circuit on the Bombay Stock Exchange (BSE) following a significant announcement by Mahindra & Mahindra Limited (M&M). M&M disclosed that it had entered into definitive agreements to acquire a 58.96% stake in SML Isuzu for ₹555 crore, a move aimed at bolstering its presence in the trucks and buses segment. The acquisition, priced at ₹650 per share, represents a steep 63% discount to SML Isuzu’s closing price of ₹1,773.40 on April 25, 2025. Additionally, M&M launched a mandatory open offer to acquire up to 26% of the public shareholding at ₹1,554.60 per share, as required by the Securities and Exchange Board of India (SEBI) Takeover Regulations. The sharp sell-off in SML Isuzu’s stock reflects investor concerns over the discounted acquisition price, lack of fresh capital infusion, and perceived dilution of the company’s intrinsic value. This article delves into the details of the acquisition, the market’s reaction, the strategic implications for both companies, and the broader context within India’s commercial vehicle industry.

SML Isuzu: A Legacy in Commercial Vehicles

SML Isuzu, incorporated in 1983 as Swaraj Vehicles Ltd., is a well-established player in India’s commercial vehicle (CV) sector, specialising in light commercial vehicles (LCVS) and medium commercial vehicles (MCVS). Headquartered in Chandigarh, the company manufactures trucks, buses, and special application vehicles, with a strong presence in the school bus segment. Its product portfolio, which generates 67% of revenue from passenger vehicles (buses) and 26% from cargo vehicles (trucks), caters to diverse sectors, including public transportation and logistics. In FY24, SML Isuzu reported operating revenue of ₹2,196 crore and an EBITDA of ₹179 crore, with a 16% market share in the intermediate light commercial vehicle (ILCV) bus segment. The company’s market capitalisation stood at ₹2,566 crore as of November 2024, according to Screener.

Historically, SML Isuzu has been backed by Japanese partners. Sumitomo Corporation, which held a 43.96% promoter stake, and Isuzu Motors Ltd., with a 15% public shareholder stake, have been key stakeholders since the company’s early days. A technical collaboration with Mazda Motor Corporation in the 1980s and a subsequent agreement with Isuzu Motors in 2004 shaped its engineering capabilities. However, recent financial performance has been under pressure, with net profit plunging 80.22% to ₹0.53 crore in Q3 FY25 (ending December 2024) and sales declining 14.07% YoY to ₹331.80 crore, as per Business Standard. These challenges likely prompted Sumitomo and Isuzu to exit, paving the way for M&M’s acquisition.

Mahindra & Mahindra: A Strategic Move to Expand in CVS

M&M, a leading Indian automotive conglomerate, is renowned for its SSUVS tractors and light commercial vehicles, commanding a dominant 52% market share in the sub-3.5-tonne LCV segment. However, its presence in the >3.5-tonne CV segment, which includes trucks and buses, has been limited, with only a 3% market share. The acquisition of SML Isuzu is a strategic step to address this gap and establish M&M as a full-range player in the CV market. The deal involves purchasing Sumitomo’s entire 43.96% stake (63.62 lakh shares) for ₹413.55 crore and Isuzu Motors’ 15% stake (21.70 lakh shares) for ₹141.10 crore, both at ₹650 per share, totalling ₹555 crore. Post-transaction, SML Isuzu will become a listed subsidiary of M&M, with the latter’s stake potentially rising to 85% if the open offer is fully subscribed.

M&M’s management, led by Group CEO Dr. Anish Shah, emphasised that the acquisition aligns with the company’s vision of achieving 5x growth in emerging businesses. “This acquisition is aligned with our capital allocation strategy for investing in high-potential growth areas which have a strong right to win and have demonstrated operational excellence,” Shah stated in a press release on Mahindra’s website. Rajesh Jejurikar, Executive Director and CEO of M&M’s Auto and Farm Sector, added, “SML brings a strong legacy, a loyal customer base, and a credible product portfolio that complements Mahindra’s existing offerings.” The acquisition is expected to double M&M’s market share in the >3.5T CV segment to 6% immediately, with ambitions to reach 10–12% by FY31 and over 20% by FY36.

The Acquisition Deal: Key Details

The acquisition, announced on April 26, 2025, involves several critical components:

1. Stake Purchase: M&M will acquire a 58.96% stake in SML Isuzu for ₹555 crore, comprising:
   • 43.96% from Sumitomo Corporation (63.62 lakh shares) for ₹413.55 crore.
   • 15% from Isuzu Motors (21.70 lakh shares) for ₹141.10 crore.
   • The purchase price of ₹650 per share represents a 63% discount to SML Isuzu’s closing price of ₹1,773.40 on April 25, 2025.
2. Mandatory Open Offer: As per SEBI’s Takeover Regulations, M&M will launch an open offer to acquire up to 26% of SML Isuzu’s public shareholding (37.62 lakh shares) at ₹1,554.60 per share, a 12% discount to the previous close of ₹1,766.70. The open offer, managed by Kotak Mahindra Capital Company, is expected to cost up to ₹585 crore if fully subscribed, bringing M&M’s total outlay to approximately ₹1,140 crore.
3. Regulatory Approvals: The deal is subject to approval from the Competition Commission of India (CCI) and other customary closing conditions, with completion expected by December 31, 2025. Khaitan & Co. is advising M&M on legal matters.
4. Post-Acquisition Structure: SML Isuzu will remain listed on the BSE and National Stock Exchange (NSE), with M&M assuming control as the new promoter. Sumitomo Corporation will step down as promoter, and M&M has no plans to delist the company.

The discounted acquisition price and open offer valuation have been contentious, contributing to the sharp decline in SML Isuzu’s stock price. Investors appear concerned that the ₹650 per share price signals a lower intrinsic value for the company, despite its recent market performance, which saw the stock surge 73% from a low of ₹1,128 on March 1, 2025.

Market Reaction: SML Isuzu’s 10% Plunge

On April 28, 2025, SML Isuzu’s shares opened at ₹1,701.95, down from the previous close of ₹1,766.70, and quickly hit the 10% lower circuit at ₹1,590.05, halting trading. The sell-off wiped out ₹265 crore in market capitalisation, reducing it to ₹2,301.06 crore, as reported by Business Today. Approximately 93,000 equity shares changed hands, with pending sell orders for 110,000 shares, indicating strong selling pressure.

The steep discount in the acquisition price was the primary driver of the decline. The ₹650 per share offered to Sumitomo and Isuzu Motors, compared to the stock’s market price of over ₹1,700, created a perception that M&M was undervaluing SML Isuzu. The open offer price of ₹1,554.60, while higher, still represented a 12–13% discount to the pre-announcement price, further dampening investor sentiment. Posts on X captured the market’s disappointment, with @Sharad9Dubey noting, “Mahindra to acquire stake at Rs.650/share (64% below CMP of Rs.1789),” and @BaijuBears expressing mixed sentiment, viewing the deal as “+ve for SML” but acknowledging the immediate downside.

Reasons Behind the Sell-Off

Several factors contributed to the sharp decline in SML Isuzu’s stock price:

1. Discounted Acquisition Price: The ₹650 per share acquisition price, a 63% discount to the market price, signalled a lower valuation than investors expected, undermining confidence in SML Isuzu’s standalone value.
2. Lack of Capital Infusion: Unlike acquisitions that involve fresh capital to fuel growth, this deal is a transfer of ownership, with no immediate plans for investment in SML Isuzu’s operations. Investors hoping for a capital boost to address the company’s recent financial struggles were disappointed.
3. Open Offer Pricing: The open offer price of ₹1,554.60, while higher than the acquisition price, was still below the market’s expectations, leading public shareholders to sell rather than tender their shares.
4. Recent Financial Weakness: SML Isuzu’s 80% profit drop in Q3 FY25 and 14% sales decline raised concerns about its growth prospects, making the discounted valuation more palatable to M&M but less appealing to existing shareholders.
5. Market Speculation and Correction: The stock had surged 61% in the week prior to March 24, 2025, driven by reports of M&M’s interest in acquiring Sumitomo’s stake at ₹1,400–₹1,500 per share. The lower final price of ₹650 likely triggered a correction among investors who had bought in anticipation of a higher valuation.

Strategic Implications for M&M

For M&M, the acquisition is a transformative step to strengthen its CV portfolio. Key benefits include:

• Market Share Expansion: Doubling its >3.5T CV market share from 3% to 6%, with a roadmap to 10–12% by FY31 and 20% by FY36.
• Operational Synergies: Consolidating platforms, unifying supplier and dealer networks, and optimising manufacturing capacity to enhance efficiency.
• Product Portfolio Enhancement: Leveraging SML Isuzu’s expertise in buses and trucks to complement M&M’s existing offerings.
• Market Reach: Expanding M&M’s presence in the ILCV bus segment, where SML Isuzu holds a 16% share, and tapping into its pan-India distribution network.

The acquisition aligns with M&M’s broader strategy of investing in high-growth areas, as articulated by Dr. Anish Shah. It follows earlier speculations of interest in SML Isuzu, with reports in March 2025 suggesting a valuation of ₹1,400–₹1,500 per share, as noted by CNBC TV18.

Implications for SML Isuzu

For SML Isuzu, the acquisition brings both opportunities and challenges:

1. Access to M&M’s Resources: As a listed subsidiary, SML Isuzu can benefit from M&M’s financial strength, technological expertise, and distribution network, potentially addressing its recent financial struggles.
2. Growth Potential: M&M’s ambitious market share targets suggest long-term investment in SML Isuzu’s product development and market expansion.
3. Valuation Concerns: The discounted acquisition price has raised questions about SML Isuzu’s intrinsic value, potentially impacting investor confidence in the near term.
4. Leadership Transition: The company’s board recently approved the appointment of Yasushi Nishikawa as Managing Director and CEO effective April 17, 2025, following Junya Yamanishi’s resignation. This transition, coupled with M&M’s control, could reshape SML Isuzu’s strategic direction.

Broader Industry Context

The acquisition reflects broader trends in India’s CV industry, which is witnessing consolidation and strategic realignments. The >3.5T CV segment is dominated by Tata Motors and Ashok Leyland, with M&M seeking to challenge their dominance. The sector is driven by infrastructure development, e-commerce growth, and logistics demand, but faces challenges like rising input costs and regulatory pressures. SML Isuzu’s 11,617 vehicle sales in 2024 made it the eighth-largest CV maker in India, according to Fortune India.

Speculation about SML Isuzu’s ownership has been rife. In June 2023, JBM Auto was reportedly in talks to acquire the company, and in March 2025, Ashok Leyland was linked to Sumitomo’s stake, though it denied the claims. M&M’s successful bid underscores its aggressive push into the CV space, intensifying competition.

Investor Sentiment and Analyst Views

Analysts like HSBC and Nomura remain optimistic about M&M’s growth, with Jefferies maintaining a “Buy” call and projecting over 50% upside, as reported by Moneycontrol.

For SML Isuzu, the discounted valuation has sparked concerns. The stock’s high price-to-book ratio of 7.77 and low return on equity of 4.4% over three years, as per Screener, suggest challenges in justifying its pre-acquisition valuation. Investors are advised to consult certified financial advisors, as noted by News18.

Conclusion

The 10% lower circuit in SML Isuzu’s shares on April 28, 2025, reflects investor disappointment with M&M’s acquisition of a 58.96% stake at a 63% discount to the market price. While the deal strengthens M&M’s position in the >3.5T CV segment, doubling its market share to 6% and setting ambitious targets for FY31 and FY36, it has raised questions about SML Isuzu’s valuation and growth prospects. The lack of fresh capital infusion and the discounted open offer price have fueled the sell-off, despite the long-term potential of synergies with M&M.

For SML Isuzu shareholders, the open offer at ₹1,554.60 presents an exit opportunity, though many appear to be selling in the market to capitalize on higher prices. For M&M, the acquisition marks a bold step toward becoming a formidable player in the CV industry, leveraging SML Isuzu’s legacy and market presence. As the deal awaits CCI approval and the open offer unfolds, the CV sector will closely watch how M&M integrates SML Isuzu to achieve its growth ambitions.