The Coimbatore-based automotive instruments and precision engineering company Pricol Ltd has proposed to transfer its Denso Technology Instrument Cluster undertaking to a wholly-owned subsidiary, Pricol Components Ltd, on a slump sale basis.

The move is expected to pave the way for the formation of a joint venture with an international auto instruments manufacturing company that has a strong relationship with Japanese vehicle manufacturers as the Indian automobile industry is heavily tilted towards Japanese models.

This is the second instance of Pricol transferring some of its business activities on a slump sale basis in the past few months to a subsidiary.

On March 18 this year, Pricol Ltd had entered into a slump sale agreement with Pricol Pune Ltd, a wholly-owned subsidiary, to transfer the business, assets and liabilities related to its instrument cluster business of Plant V located at Pirangut near Pune. (Subsequently, on March 26, Pricol Pune issued an equal number of equity shares as held by Pricol Ltd to Johnson Controls Enterprise Ltd, UK (a wholly-owned subsidiary of Johnson Controls Inc.) so that it became a 50:50 joint venture company of Pricol Ltd and Johnson Controls Enterprise Ltd.

Denso Technology Instrument Cluster Undertaking services companies manufacturing four-wheeler personal passenger vehicles at its locations in Coimbatore and Gurgaon.

Pricol manufactures an array of auto parts including instrument clusters, speedo cables, sensors, accessories and sub-assembly components, oil pumps, idle speed control valve assembly and vehicle security systems. Its clients cover the entire gamut from the auto space to two-wheelers and HCVs, and a major portion of its business comes from the instruments segment.

In an explanatory note to the shareholders, Pricol Chairman Vijay Mohan said the instruments segment was "moving towards electronics, integrated with information flow within the vehicle and having advanced and attractive displays". This necessitated a "close association with global players in vehicle instrument manufacturing".

He noted that the market share of Japanese automobile companies in the country was expected to remain substantially higher than 50 per cent. If Pricol was to hold on and increase its share of business with Japanese manufacturers in the country, it should have a ‘close partnership with a Global Vehicle Instrument manufacturing company in close association with Japanese vehicle manufacturers’.

He reasoned that transferring Denso Technology instrument business undertaking for Japanese cars produced in India to a wholly-owned subsidiary (WOS), and subsequently forming a joint venture (JV) with a global vehicle instrument supplier ‘would be in the interest of the company’s growth’.

This step would also pave the way for the launch of new products by the JV to be supplied to Japanese carmakers in the country.

Explaining the financial aspects of the transfer, he said the "sale of the personal passenger vehicle instrument business" during 2012-13 to three entities — Maruti Suzuki India Ltd, Toyota Kirloskar Motor Private Ltd and Magyar Suzuki Corporation, Hungary, from the company’s undertaking at Coimbatore and Gurgaon, was projected at Rs 70 crore. The net book value of the undertaking to be transferred was estimated to be around Rs 5 crore. The transfer value of the business undertaking would be nearly Rs 50 crore.

The effective date for the above transactions would be March 2013. This was in line with the transfer of undertaking and formation of joint venture earlier in 2012.

The shareholder’s nod has been sought through postal ballot and the outcome would be announced on October 10.

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