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Auto Ancillaries’ shopping time

[/vc_column_text][vc_separator css=”.vc_custom_1647339034936{margin-bottom: 30px !important;}”][vc_column_text css=”.vc_custom_1677143928559{margin-bottom: 15px !important;}”]The auto-ancillary space is getting hot and all for the right reasons. The space has seen a slew of deals one after the other and experts believe that this was long impending. Bigger firms that are sitting on cash piles and have captured a sizeable markets are acquiring smaller firms that are better suited to meet the changing demand trends.

Beginning with Minda Corporation Ltd, on Friday, it acquired a 15.70% stake in rival Pricol Ltd for 4 billion rupees ($48.3 million). The open market transaction took place at an average price of 208.9820 rupees per share, Minda corp said in an exchange filing. “This is merely a financial investment without providing the company any special rights in Pricol Ltd other than the rights as a shareholder,” Minda said. Ahead of Minda’s announcement on Friday, Pricol said it “has no information” on media reports of the said deal and the parent has “absolutely no intent in undertaking any secondary sale of promoter’s stake.” Pricol promoter also clarified that FIIs, who collectively hold 16% in Pricol, have conveyed their vote of confidence in the current promoter group and have no intention of diluting.

An acquisition would help Minda consolidate its position in the instrument cluster division, gaining from a strong portfolio of products. Minda has identified instrument cluster as one of its strategic pillars of growth and has been increasing its focus. The segment contributes around 10% of its revenue, as of now. Pricol is the leader in instrument clusters with a market share of more than 50% in two-wheelers and 75–80% in commercial vehicles, according to DART Research. It is also a major supplier of telematics—or wireless flow of information from and to the vehicle—in the off-roader and tractor segments.

Talking about Pricol Ltd., this firm has improved margins tremendously over the past years, is debt-free and catering to a high-demand category.

[/vc_column_text][vc_single_image image=”72799″ img_size=”large” alignment=”center” css=”.vc_custom_1677144346280{margin-top: 20px !important;margin-bottom: 20px !important;}”][vc_column_text css=”.vc_custom_1677144332069{margin-bottom: 15px !important;}”]Next, let’s talk about Samvardhana Motherson International. The company announced the acquisition of a 100 per cent stake of SAS Autosystemtechnik GmbH (SAS) at an enterprise value (EV) of €540 million (Rs 4,800 crore). The acquisition of a German cockpit module integrator would bring the auto component maker close to the manufacturing facilities of the world’s leading automakers, according to Vivek Chaand Sehgal, chairperson of Samvardhana Motherson International Ltd. SAS Autosystemtechnik, the company acquired from French company Faurecia, has 24 facilities that are located inside various carmakers’ manufacturing plants. The company will assemble the whole thing at the location and supply just-in-time and just-in-sequence, Sehgal said.

The company’s Chief Financial Officer, Kunal Malani, said the acquisition gives additional annual revenue visibility of at least 1 billion euros on an average, based on the current order book of 3 billion euros for the next three years. Brokerages believe that the acquisition is rather inexpensive and could increase Revenue and EBITDA of SAMIL by 15-20% in the coming quarters.

Last month, Samvardhana Motherson International Ltd said it will acquire a 51% stake in Saddles International Automotive and Aviation Interiors Pvt Ltd for an enterprise value of ₹207 crore. Saddles International Automotive and Aviation Interiors Pvt Ltd. is engaged in the business of manufacturing premium upholstery for applications such as passenger vehicles seat covers, covers for gear knobs and wrapping solutions for door trims.

The most recent news coms from Lumax Auto Tehnologies who has signed an agreement to acquire a majority stake in IAC International Automotive India from the International Automotive Components Group at an equity valuation of Rs 587 crore. As part of this deal, 75 per cent of the stake will be bought through SPV (acquisition vehicle) at Rs 440 crore, which will be paid in cash funded by debt and internal accruals, and IAC will continue to hold 25 per cent stake in it.

This strategic partnership will help the company expand its existing business in four-wheeler automotive plastics and offer customers with a wider product range. The IAC Group is a strategic supplier of powertrain-agnostic automotive interior and exterior systems and components to leading automotive OEMs across the world and operates 45 manufacturing facilities across 17 countries, according to the release.

Similarly, Uno Minda is planning to invest ₹175 crore in expanding the capacity of airbags, which is under a joint venture with TG Minda India Ltd. The new capex is in addition to the company’s ongoing multi-year capex programme involving ₹1,664 crore.

There are various reasons for these acquisitions. To stay relevant, companies are acquiring others with pertinent technologies. And bigger companies are going for inorganic growth opportunities because future trends are clearly emerging. Industry experts have made use of the acronym LACE. L stands for lightweight, A stands for active safety, C stands for connected vehicle technology and E stands for electrification. Automakers are heavily focusing on these four aspects and companies working in the said space are very attractively placed.

There is another significant reason for this buying spree in auto ancillary companies. Due to the PLI scheme announced by the government, a lot of localization is taking space in the auto component manufacturing segment. Assembly lines will now need to be set up for a lot of products that were earlier imported. That will open up a lot of opportunities. Additionally, pandemic has stressed many companies across the world and these essentially good companies, that have advanced technology, are available at an attractive price.[/vc_column_text][vc_zigzag][vc_column_text]

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