Indian auto parts maker Motherson Sumi Systems said on Wednesday it would buy a majority stake in German Peguform Group, but the euphoria gave way to worries about margins that dragged its shares down after the initial rise.
Auto ancillary firms in India typically look outside their home turf for buying opportunities as high expectations from founders of smaller Indian companies have thwarted many potential deals.
Motherson would buy the debt-free Peguform whose revenue is expected to rise about 17 per cent to 1.6 billion euros in calendar 2011, Vivek Chaand Sehgal, vice chairman of the Indian firm said. The company did not disclose the deal value.
By comparison, Motherson Sumi had posted net sales of $1.8 billion in FY11, but the group’s revenue is expected to grow almost five-fold to $10 billion by end-March 2015, from $2.2 billion in 2009/10, Sehgal had told Reuters in May.
“Motherson does not have the capacity to serve the size of the global market. It brings a lot of knowhow and technology,” Sehgal said on Wednesday about Peguform buy.
Peguform makes and distributes bumper systems, plastic components for vehicle exteriors, cockpits, dashboards and vehicle interior trims.
Motherson Sumi makes a range of auto parts from rear-view mirrors to wiring harness and high-tension cords, serves Volkswagen, Ford, General Motors, Hyundai Motor and Maruti Suzuki among others. Volkswagen contributes about two thirds to Peguform’s revenue.
The deal is expected to close in 2-3 months and will be funded through debt tied up from Indian lenders, Sehgal added.
The firm had in May this year said it was pursuing overseas acquisitions and joint ventures in the auto ancillary space and was conducting due diligences across the globe.
Motherson Sumi, which has earmarked a capex of about 5 billion rupees ($112 million) in 2011/12, expects to commission four plants in India and one each in South Africa and Hungary in 2011. Its unit SMR will commission a mirror plant each in Brazil and Thailand by end-2012.
The acquisition of 80 per cent in Peguform would be made through a special purpose vehicle in which Motherson Sumi Systems will hold 51 per cent and group firm Samvardhana Motherson Finance would hold 49 per cent stake.
Motherson would buy the stake in Peguform from Cross Industries, who would retain 20 per cent holding.
Motherson Sumi shares had rallied more than 7 per cent in the morning session, but shed all gains after the announcement of the European buy to be down as much as 7 per cent. It ended 3.53 per cent lower at 230.85 rupees in a Mumbai market that rose 1 per cent.
From / Gulf Today