Major auto component players have entered into joint ventures and acquisition spree over the last few days. This is a good sign for the industry which didnot see such announcements in the last three years.
For instance, Minda Corporation has acquired 15.70 per cent stake in rival Pricol for ₹400 crore, and Lumax Auto Technologies has signed a strategic agreement to acquire majority stake in IAC Group’s India business at equity valuation of ₹587 crore in the last one week. Industry veterans and analysts see this is as a sign that the automotive market is coming back strong after the Covid restrictions.
“The market has come back strongly and there is a confidence that it will continue. Secondly, there is a lot of technology infusion happening, so companies are actively looking to integrate them into their portfolio. There is a lot of transformation happening and to stay relevant, companies are acquiring others with the relevant technologies,” Vinnie Mehta, Director General, Automotive Components Manufacturers Association of India (ACMA) told businessline.
He said that what brings this confidence is the fact that the industry is going to grow for sometime and therefore, they would like to continue to make such investments.
Following the tide
The Minda stake buy in Pricol is pure investment, which the company also reiterated, and according to analysts several other companies in the sector are also looking at such investments because of the better cash flow now.
The same is the case in the Lumax-IAC deal. The companies had said that IAC will continue to hold 25 per cent stake, and 75 per cent of the stake will be bought through SPV (acquisition vehicle) at ₹440 crore, which will be paid in cash funded by debt and internal accruals.
“With our group’s existing expertise in automotive lighting and plastics, it provides the opportunity to combine competitive strengths across automotive lighting, plastics and interiors to provide complete solutions to our customers,” Deepak Jain, Chairman of Lumax had said.
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.
“With ‘China plus one’ strategy, there might be some muted sentiments in Europe or the US, but we do not see our export books coming down. The order book is going big because of the ever-growing domestic demand too,” said a Delhi-based industry watcher.