With India on its way to becoming the third-largest automotive market, the automobile components industry has seen a spurt in private equity (PE)/venture capital (VC) deals. And, global PE giants have accounted for quite a few of these.
This year, PE major Actis, an active investor in the Indian automobiles space, invested about Rs 350 crore in Aurangabad-based Endurance Technologies. The deal paved the way for the exit of investor Standard Chartered Private Equity (SCPE).
Earlier, Actis had invested in companies such as Punjab Tractors, Sandhar Auto Components and Avtec. J M Trivedi, head (South Asia), Actis, said, “In the medium to long terms, the automobile components sector holds potential, as here, growth is driven by the demand for vehicles. This, in turn, is fuelled by the rising per capita income.”
According to the Society of Indian Automobile Manufacturers, production of passenger vehicles in India in 2020-21 is estimated at 9.7 million units, a compounded annual growth rate of 13 per cent.
Ramakrishnan, head (investment banking), Spark Capital Advisors, said, “More international automobile majors are interested in India to utilise the low-cost advantage to source automobile components. The entry of MNCs (multinational companies) that eye a bigger slice of the Indian vehicle business also spurts deal activities in the components space.” Spark was the advisor for the SCPE-Craftsman Auto deal last year.
Leading automobile component makers are busy raising PE capital to fund global, as well as local, expansion plans. The Rs 3,000-crore Varroc Group, which is into machined forgings and automobile electrical commodities, is in talks with PE investors to raise funds. Varroc’s customers include Ducati, Yamaha, Bajaj, Honda, Tata, Mahindra, Fiat, Skoda and Audi. This year, the company carried out two buyouts — in the US and Italy.
A Varroc spokesperson said, “We are looking at PEs to fund future growth and the discussions are in a nascent stage.” According to sources, the company plans to raise Rs 250-300 crore by diluting minority stake. With the proposed fund, Varroc plans to expand in the polymer and metallic businesses.
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Pune-based RSB Transmissions India is also in talks with PE investors. RSB manufactures propeller shafts, axles, transmission component and gear systems. S K Behera, managing director, RSB Transmissions, did not respond to queries.
| TOP DEALS IN AUTO COMPONENT FIRMS From 2007 to 2012 YTD | |||
| Year | Target | Buyer | Deal value ($mn) |
| 2011 | Classic Stripes | Navis Capital | 100.00 |
| 2011 | Endurance Technologies | Actis LLP | 71.00 |
| 2008 | Amtek Auto | ChrysCapital | 49.06 |
| 2007 | RSB Transmissions | Tara India Fund III* | 38.34 |
| 2007 | Amtek India | Warburg Pincus | 37.69 |
| 2012 | Craftsman Automation | Stanchart PE | 15.35 |
| *includes Evolvence India Life Sciences Fund Source: VCCEdge | |||
Mayank Rastogi, partner (PE), Ernst & Young, said, “India is emerging as a centre of excellence and an export hub for major OEMs (original equipment manufacturers) and component manufacturers. Technology orientation and ownership, design and engineering capabilities and the ability to manufacture complex and precision products are some of the key parameters investors are looking at, while evaluating these businesses.”
Last year, the automobile components industry recorded 10 deals worth $222 million, compared with four deals worth $54 million in 2010. So far this year, five deals worth $45 million were recorded.