For a town of merely 15,600 people, located on the border of the Netherlands in the Lower Rhine area in Germany, the $100-million automotive sealing manufacturer GDX Automotive was a major employer at Grefrath with as many as 1,200 people on its pay roll in 2006.

Things changed dramatically in the following years as GDX (along with its Czech subsidiaries) was merged with the PE controlled Metzeler Automotive Profile Systems empire in 2007.

Within a year, the merged entity of Henniges Automotive (Germany) turned insolvent and went into receivership leading to heavy job cuts as well as loss of orders from its major clients like VW, Daimler, BMW and many others.

Henniges was not an exception. The automotive sector all over Europe was hit by the economic crisis.

To make matters worse the fierce competition from low cost Asian economies led by China, made turnaround of auto-ancillaries difficult in high cost economies such as Germany where labour unions force employers shell out as much as €9 (Rs 567 at Rs 63 a Euro) for unskilled labour and €20-30 (Rs 1,260-1,890) for skilled workers on an hourly basis.

Revival

Naturally, in December 2009, when India's Ruia Group acquired 59.9 per cent controlling stake in the Grefrath manufacturing and R&D facility of Henniges from the Dusseldorf-based administrator through an asset deal, the company – now renamed as Draftex Automotive GmbH – was a shadow of its past.

According to Mr Juergen Hein, Managing Director of Draftex, the company made a tentative start targeting sales revenue of €43 million in 2010 with merely 401 employees on the roll.

To Grefrath's surprise, Draftex ended the year with a revenue of €48 million. Nearly 70 per cent of the revenue was contributed by VW, BMW and Daimler (the makers of Mercedes-Benz). Daimler and VW have also outsourced Draftex for carrying out R&D on their behalf.

With more orders (especially from Daimler, VW and BMW) in hand, Draftex has been re-employing its former workers in increasing numbers. As of February 2011, the manpower has gone up by 35 per cent to 539.

Ruia to up stake

A former director of GDX and holding 15 per cent stake in Draftex, Mr Hein was particularly happy that the company could repay 60 per cent of the €9.4-million loan to the administrator. Draftex is now gearing to repay the remaining €3.4 million before October.

According to the agreed terms, the repayment will allow the existing promoters to acquire the remaining 25.1 per cent stake from the administrator.

However, it is believed that the Ruia group plans to acquire the entire shareholding of the administrator and raise its controlling stake to 85 per cent “much before October”.

Unfinished agenda

What had actually gone in favour of Draftex is the Ruia group's association with leading automakers in Europe.

Ruia acquired the UK operations (now renamed as Schlegel Automotive) of sealing maker Metzeler in 2008. Naturally it was easier for them to convince VW or BMW to place more orders with Draftex as well. The policy is believed to have helped Draftex to improve EBITA (Earnings before interest tax and amortisation expenses) in 2010.

However, the challenges for the company do not end there.

According to Mr Hein, as the European auto-makers are trying to be more cost competitive, there is pressure on margins of the ancillary suppliers.

Also, the demands for sealing component of some customers (like Audi) are on a steady decline. Available projections suggest that the sales of Draftex will reach €73 million in 2014, which is 12 per cent lower than the sales of 2008 when it became sick.

“We are looking to the Ruia group to enhance the scope of business,” Mr Hein said.

The visit to Grefrath was sponsored by the Ruia Group

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