Omax ropes in KPMG for foreign buyouts

The auto component manufacturer Omax Auto has appointed consulting firm KPMG to scout for acquisition targets abroad.

According to the company executives, the ideal target would have a turnover in the band of $40-60 million (Rs 170-260 crore) and cost about $20 million (Rs 85 crore) to acquire.

"We have already visited the US a couple of times (for acquisition purpose). But there is no definite timeframe by when we will conclude a deal," said Naresh Tandon, executive director (finance), Omax Auto.

The move to buy a peer company aboard is part of its plans to cross the Rs 1,000 crore-mark turnover by 2008. The Omax group's turnover for the fiscal ended March 31, 2005 was around Rs 675 crore, of which around Rs 600 crore came from Omax Auto, the group's flagship company.

The Omax Auto board had, at the recently concluded shareholders' meeting, obtained the approval to double the company's borrowings limit to Rs 300 crore from the present Rs 150 crore.

"Given the current debt-equity ratio, we can comfortably add Rs 60-70 crore more of debt to our capital," said Tandon.

Further, there is a cash accrual of around Rs 30-40 crore annually from our operations,"

He further said there are no immediate plans to increase the company's equity capital, which stands at Rs 21.38 crore as on today.

According to Tandon, expansion in the Omax group would involve broadening of its product portfolio to cover four-wheelers and also target the export market - a shift from its current focus on two- wheelers.

He said the borrowings limit has been increased to access the export market, which demands a larger base of working capital.

Auto component makers in the country are increasingly taking to the acquisition route so as to expand the scope of operations globally.

This trend is not just restricted to large tier-I suppliers like Bharat Forge Ltd and Sundram Fasteners, but it is also seen in the case of companies like Amex Auto, Sona Group and Omax Auto.

Apart from building capacities close to large global automobile manufacturers like Ford and General Motors, which is true in many cases, these deals also allow the transfer of business to a low-cost country like India, thereby increasing profit margins.

For the year ended March 31, 2005, Omax Auto reported gross sales of Rs 608.3 crore and a net profit of Rs 20.28 crore.