Financial Case-study of Mahindra Electric - FY-2022 || Losses Shrink to 34%

Electric vehicles are the future, there is no doubt about it. Indian car maker Mahindra is one core player who has been testing the EV waters from the past decade, since its acquisition of Reva, a Bengaluru based EV startup. The company anticipates to have 20-30% of its future portfolio to be electric vehicles by 2027.

To achieve that, Mahindra & Mahindra has recently created a new EV subsidiary called Ev Co and has already raised about $250 million from an investor British International Investment (BII), UK, with a valuation at $9.1 billion. This investment in the new entity EV Co seems to have been working well, as the goodwill it brings in seems to have fallen well on the back of Mahindra Electric which has disclosed a commendable financial performance in the FY 2021-22. 

Operation revenue of Mahindra Electric grew to 2.17x, totaling to Rs 443.88 crore in FY22, from Rs 204.41 crore previously in FY21. The data evaluated here is derived from the company’s annual financial statement with the Registrar of Companies (RoC). During Covid, the sales of electric vehicles were a major source of revenue constituting 67% of the operating revenue which shot up 2.8X to Rs 296.8 crore in FY22 from Rs 106.39 crore in previous fiscal year (FY21). 

Mahindra Electric’s portfolio consists of six vehicles including two cars: eVerito and E20Plus along with e-rickshaw, e-auto (for both segments passenger and freight).

Product development and design fees were another major sources of revenue which increased 21.8% to Rs 83 crore in FY22. Sale of kits and spares parts contributed Rs 63 crore for Mahindra electric in FY22.

On the expenses side, cost of materials were the largest cost center for the Mahindra Electric forming 50% of the overall cost which increased 2.7X to Rs 256.5 crore in FY22 from Rs 93.8 crore in preceding fiscal year (FY21).

With a growth of 25%, employee benefits expenses are another major cost center at Rs 77.7 crore in FY22. Legal, professional fees and Warranty claim charges spiked  19% and 150% to Rs 23.7 crore and Rs 20.74 crore respectively. We understand that warranty claim charges are mostly due to battery replacements within warranty period.

Mahindra Electric also spent Rs 18.3 crore and Rs 14.74 crore in advertising, promotion and cost of transportation which pushed the overall cost to Rs 517.7 crore in FY22 from Rs 319.8 crore in FY21. With a tight control on expenses, Mahindra Electric has also managed to shrink losses by 34% which stood at Rs  70.5 crore in FY22 as compared to Rs 103.1 crore in FY21. 

The impact of improvement in unit economics also resulted in better ROCE and EBITDA margin. On a unit level, Mahindra Electric spent Rs 1.17 to earn a single unit of operating revenue in FY22.

Mahindra’s improving financials come at a time when some of its largest competitors, namely Maruti Suzuki and Tata Motors earlier, have announced, and expanded their EV plans respectively. The headstart it has in EVs is an opportunity it will not want to cede too easily, as this offers Mahindra the best opportunity for market share gains going ahead, especially now that its core brand is well entrenched among consumers .