Auto major Mahindra & Mahindra is entering the shared mobility space and is acquiring a 55% stake in Meru Cabs for Rs 201.5 crore, according to a stock exchange filing by the company on Sunday. The acquisition will be completed in multiple tranches, and the first tranche will be in October.
The company said that it is keen to grow its presence in shared mobility space and by acquisition of stake in Meru, it will also enter the corporate shared mobility space, which is an area of strategic interest to it.
In the filing, Mahindra said that they would be investing an amount not exceeding Rs 201.5 crore in Meru. Of this, Rs 103.5 crore would be primary investment for equity by a fresh issue of shares for a stake upto 55%.
Following the investment, Mahindra will have the right to appoint a majority of the Directors on the Board of Meru and control its composition. The company announced that after the investment of the first tranche in Meru, Meru will become a subsidiary of Mahindra, and so will three subsidiary companies — Meru Mobility Tech Private Limited, V-Link Automotive Services Private Limited and V-Link Fleet Solutions Private Limited.
Mahindra would have the right to acquire existing shares from Meru for an amount not over Rs 98 crore, the company said.
Meru, a shared mobility company has been providing radio taxis in Mumbai, Delhi, Bangalore and Hyderabad since 2007. Meru lost a chunk of its market share to Ola and Uber on their entry, and at one point, its market share dwindled to barely 1%. In 2017, Meru filed four complaints against Ola and Uber with the Competition Commission of India (CCI), alleging that Uber and Ola are burning vast sums of investor funds to distort the market and are abusing their dominance in four cities.
Till 2018, the company was operating government regulated fares but in March 2018, it launched a marketplace model with dynamic pricing. For the year ended March 31, 2019, Meru reported a consolidated revenue of Rs 156.6 crore.
According to Siddharth Pahwa, an industry expert and the former CEO of Meru, Ola and Uber’s increasing costs gives scope for other players to enter the marker. ”Ola and Uber have lost the plot to a great extent. Their average price per km is running close to Rs 20-23, which allows a lot of other players to come into the industry and run this business successfully. There are already signs of small aggregators who have started nibbling into the shares of Ola and Uber,” he said.
Stating that this way it was a good move by a car manufacturer to enter the shared mobility space, he said, “Especially with Mahindra’s strategy of electric vehicles, they would be able to make a significant impact in the industry if they are able to get their pricing and their demand and supply network right. Meru is still a brand is still a well-known, trusted brand in the Indian market and it has got a decent contracts with airports which will help them get good business,” he added.
However, he added, that despite car sales slumping over the last few quarters, shared mobility will not overtake the car ownership space.
This move comes soon after Mahindra Electric and Meru announced a joint electric vehicle (EV) pilot project in Hyderabad.
Mahindra and Mahindra reported a 26% decline in domestic sales in August on a year-on-year basis. The company sold a total 33,564 units of vehicles during the month in the country, against 45,373 units during the same period last year. "The company's auto sector overall sales (domestic and exports) stood at 36,085 vehicles in August 2019, compared to 48,324 vehicles during August 2018," the company said in a statement. Exports of the company last month fell 15% to 2,521 units, it said.
With inputs from Shilpa Ranipeta