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Raghuvir Srinivasan

Chennai , Dec. 11

FROM being in the wilderness barely two years ago to striking out abroad now acquiring operating units, a major transformation appears to be under way in the auto component industry. No less than four major impending overseas acquisitions have been announced in the last two months, including two by relatively low-profile companies - Amtek Auto and G. G. Automotive Gears.

Towards the end of October, Amtek Auto said that it was in talks to acquire a UK company for Rs 170 crore. This was followed by Bharat Forge's announcement of acquisition of a large German forging company, Carl Dan Peddinghaus GmbH, which recorded sales of 116 million euros (approx. Rs 630 crore) and supplies to the likes of Volkswagen, BMW, DaimlerChrysler and Audi.

A day after Bharat Forge's announcement, Sundram Fasteners disclosed its own impending acquisition of Dana Spicer Europe Ltd's precision forge unit in the UK that supplies to prestigious players such as Scania and Volvo.

The latest to join this wave is G. G. Automotive Gears, which reported a turnover of Rs 25 crore and net profit of Rs 2.5 crore in the first-half ended September 30.

This company has disclosed that it is in negotiations to acquire a $114-million (approx. Rs 520 crore) 80-year-old US company that manufactures high precision custom gears and planetary gears.

What's behind this sudden move to strike out abroad? There are basically three driving factors according to Mr Suresh Krishna, Chairman and Managing Director, Sundram Fasteners. First, having established a reasonable domestic presence, big Indian component makers are now looking for an international presence.

Second, having improved their productivity, quality and reliability, Indian companies feel more confident of going out abroad.

Finally, aiding this are the investment friendly policies of the government that has made a hassle-free environment possible for overseas acquisitions. "RBI regulations are more pragmatic now," Mr Krishna said.

The Automotive Component Manufacturers' Association President, Mr. K. V. Shetty is of the view this is only a natural process. He told Business Line: "Opportunities are there for companies now and they are taking it. Suddenly, confidence is back in a big way."

According to him, the domestic market growth over the last one-year has been a major factor in improving sentiment amongst manufacturers.

What will be the benefits from these overseas acquisitions? In Mr Krishna's opinion, this will open up the original equipment (OE) market abroad for Indian acquirers. "Through the overseas company we acquire customers." The Indian company can hope to supply these customers other products not produced by the overseas company. He is of the view that the acquisition will be a "beachhead" for the Indian company.

An overseas manufacturing presence confers respectability on the company while seeking to tap the OE market abroad. "Once you have an international presence, you have arrived," declared Mr Krishna.

A common factor running through the companies that have announced acquisitions now is their presence in relatively low-technology products such as forgings, gears and powdered metal components. While these are the categories where Indian companies have the efficiencies to compete abroad, this is only the beginning, according to experts. Gradually, Indian companies will scale up the technology curve, though it may be several years down the line.

However, sounding a note of caution is Mr K. Mahesh, Chairman and Managing Director, Sundaram Brake Linings. In his opinion, the Indian auto component industry has some way to go yet in terms of best manufacturing practices, quality consciousness and strict adherence to delivery schedules. He said that Indian companies have to concentrate on these aspects seriously to succeed in the global market.

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