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Indian auto component firms eying distressed assets

ET reported that a top level management team from Delhi based auto component supplier, Krishna Maruti is readying to meet up with France based Thyssen and Munich based BMW to explore the possibility of acquiring their distressed assets.

The move marks a growing trend of second rung Indian auto component majors looking at picking up distressed assets of international automakers and ancillary makers. The focus primarily is to access low cost global manufacturing capabilities and also strengthen domestic capacities in a market, which is swiftly getting globalised.

Officials close to the development said companies such as Federal Moghul, Rane, JBM Group, Krishna Maruti and Sriram Pistons are closely looking at sparingly used assets which are now available at 20% to 30% cheaper valuations.

Post the global meltdown, a host of fund-starved global component makers in the US and European markets are looking to sell their assets to interested buyers, especially the emerging markets such as India. Growth rates in the global markets are currently limping at single digits, while the Indian component market is growing at a more upbeat 15% to 20% on the back of robust car sales in the country.

Till recently, Indian component majors such as Amtek, Sona, Mahindras and Bharat Forge acquired companies in the US and Europe to expand their customer base, global footprint and access latest technology. Now even smaller companies are getting ambitious and looking at strengthening their capacities and looking at global opportunities. Mr Abdul Majeed auto practice leader of PwC said that “Mindsets are changing. With global component companies looking to liquidate the asset and create cashflows, back home, the domestic component companies are getting these assets cheaper.”

Some of the global component majors looking to sell distressed assets are Dana, Metalsa and Thyssen Group and the global automakers include General Motors, Chrysler, Fiat and BMW. Some of the companies are also buying the ‘used or reconditioned’ assets from their foreign partners, who are scaling down capacity.

With a growth rate of 8% to 10% in two wheelers and cars in the past few months, domestic component majors are being forced to revive investments and increase capacity, which were put on hold during the recession.

Mr Ashok K Taneja MD and CEO of Shriram Pistons and Rings said that “We are buying a variety of equipments. These are relatively new, sparingly used equipment, which can be immediately installed, commissioned and operated in India. We are acquiring it at prices 10 to 20% lower than the original value.”

Mr Nishant Arya ED of JBM Group further added that “We are looking at acquiring distressed assets and open to acquiring component companies that are on the block, too. While the former helps in expanding capacities in the domestic market, the latter helps in getting technology and a global footprint.”

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