Auto parts maker Motherson Sumi Systems on Wednesday said it plans to buy a majority stake in Germany's Peguform Group from Cross Industries, but shares fell on concerns the new business would yield lower margins.
The deal is expected to close in 2-3 months and will be funded through debt tied up with Indian lenders, Vivek Chaand Sehgal, vice chairman, Motherson, told reporters on Wednesday, without disclosing the deal value.
"There are concerns that the company they are acquiring has lower margins of only around 5%," a Mumbai-based auto analyst, who declined to be named, said.
Motherson Sumi itself has a much higher EBITDA margin at about 11.5%, the analyst added.
Motherson Sumi, whose shares were up more than 7% before the announcement, reversed gains and were down more than 2% at Rs 234.25 at 12:16 pm.
Peguform makes and distributes bumper systems, plastic components for vehicle exteriors, cockpits, dashboards and vehicle interior trims. Cross Industries would retain 20% holding in Peguform.
Peguform was expected to post revenue of $2.25 billion in 2011, Sehgal said. The Indian firm had posted net sales of $1.8 billion in FY11.
The acquisition of 80% in Peguform would be made through a special purpose vehicle in which Motherson Sumi Systems will hold 51% and group firm Samvardhana Motherson Finance would hold 49% stake.
