M&M wants its footprint in the entire mobility solutions business with a focus on making its fleet all electric, where return on investment is still low. Industry experts, however, say this will prove to be a challenge for the utility and tractor maker.
Pravin Shah, who was earlier president of automotive at M&M, will take over as chief executive of Meru. The taxi operator’s existing investors, PE fund True North and the company’s promoters Neeraj Gupta and Farhat Gupta, will exit.
M&M said on Friday it had taken its holding to 100% in the company from the existing 43%, and the jury is still out on what prompted the hurried deal.
Industry veterans say the move gives M&M the strategic intent to grow its presence in the shared mobility space with operational flexibility.
Meru needed funds to scale up.
The cab operator was reportedly in talks with Japanese car leasing firm Orix Auto Infrastructure Services for a possible stake sale to raise about Rs 350-Rs 400 crore, but the discussions had fallen through.
Meru’s co-founder Neeraj Gupta may have been uncomfortable with M&M’s thrust on electric vehicles, say experts.
“The return on investment from EVs takes more years than traditional internal combustion engine vehicles, and clearly, Mahindra wants a winning strategy faster than industry,” said a source.
Meru’s expansion plan included creating infrastructure to operate a fleet of over 300 EVs across India, with the eventual goal of increasing it to 10,000 EVs.
EVs are the future, and their cost of operation is low, but the return on investment takes time as the infrastructure needs to be built up.
Meru was losing out to competition and started offering niche services, which included cabs to corporates. Its revenues had fallen to Rs 156 crore in FY2019 from Rs 277 crore in FY2017.
“Automobile firms today realize that selling cars is not the only way to sustain growth and need to be in the entire spectrum of mobility solutions to give the consumer a preferred choice which will define success,” says VG Ramakrishnan, managing director of Avanteum Advisors.
M&M’s decision to rope in Shah into the auto business after he had relinquished his post four years ago was contrary to the company’s focus on grooming younger leaders, experts say.
M&M’s business in the EV (particularly in the personal mobility segment) and shared mobility segments have not seen much traction.
In 2016, it struck a deal with ANI Technologies – which operates Ola — to finance vehicles for more than 40,000 of its drivers by 2018, but the project failed to take off as it was not economically viable.
Uber and Ola were set up with the business model of shared mobility, but Meru owned its fleet and wasn’t asset light.
“It’s no longer a game of a taxi business”, said a senior executive at a shared mobility company.
Every automaker needs to be a mobility solutions provider as that is the future.
“Auto Original Equipment Manufacturers (OEMs) have never really understood the shared mobility game,” says Vinay Piparsania, former executive director at Ford India and an industry observer.
“Instead of going in on their own, OEMs are acquiring companies in the shared mobility space to get readymade technology platforms. In this case, Mahindra will be able to jumpstart into the business as they have operational synergies, lacking too many entrenched players in the space,” Piparsania added.
Its will be a tough game for Meru as its customer base has mostly migrated to Ola and Uber, said Ramakrishnan of Avanteum Advisors.
It will make sense for Meru to play in the high-end, niche or the B2B space and stay away from the mass segment, he added.
Sources say Meru will continue as a separate brand till it achieves scale, and will likely be merged with Mahindra Logistics for operational efficiencies.
M&M has plans to make the mobility business – which includes Meru, Alyte and Glyd – a $1 billion offering over the next 3-4 years.
The group is already an investor in self-drive car rental platform ZoomCar India and has integrated Meru EVGO and Mahindra’s electric vehicle platform Glyd for city and outstation travel.
M&M’s decision to part ways with Meru’s Gupta is surprising as he would have brought industry expertise to the business, an analyst said.
“An entrepreneur will never fit into a large corporate and will stay maximum for 18-24 months, which is considered a transition period,” Ramakrishnan said.