Mumbai: Auto parts maker Steel Strips Wheels , which is in talks to raise about $16 million through a stake sale to two foreign investors this fiscal, expects to close at least one deal in six months, managing director Dheeraj Garg said on Tuesday.
Garg had said earlier in January that the firm was in talks with a strategic investor to sell 6.5-7.5% and the deal was likely to close by the month-end.
However, a deal could not be concluded as the market had been volatile since the begining of the year, Garg told Reuters over the telephone.
“There is a change in the market scenario but talks have not fallen off.”
Steel Strips shares rose almost 17% on Tuesday, to a day high of Rs 294.95, but are still down more than 40% from the record high of Rs 468 seen in October last year.
Garg expects the deal to still go through at more than Rs 595 a share, a 136% premium to Monday’s closing price.
“The valuations remain the same and there is not going to be a change in that,” he said.
Steel Strips Wheels is present across different geographies such as Brazil, Argentina, UK, Germany and Thailand, and counts international players including French PSA Peugeot Citroen, Renault , and Germany’s BMW as its clients.
Last year, the company sold stake to South Korea’s GS Global Corp at Rs 595 apiece, when its shares were hovering at a peak of Rs 468. It had also sold stake to Japan’s Sumitomo Metal .
Chandigarh-based Steel Strips will use the funds to expand capacity at its Jamshedpur and Chennai plants.
Shares of Steel Strips Wheels have lost about a quarter of their value so far in 2011, underperforming the broader BSE index that shed 10%. Analysts see a more modest upside in the stock on a likely slowdown in the auto sector.
“The upside for this stock seems to be between around 25% for the time being. The auto industry may face a slowdown so a substantial increase in the stock price seems difficult,” Kishore Ostwal, chairman of CNI Research, said.
Car sales in India are moderating as surging interest rates, fuel prices and vehicle costs crimp demand.
India’s largest automaker Maruti Suzuki posted its slowest growth rate in more than two years in May, while Ashok Leyland , India’s second largest commercial vehicle maker, posted a 12% drop in sales in May.
The local industry body expects the growth to slacken by more than half after it grew a record 30% in FY11.
In all, the company, whose product range comprises wheels for passenger cars, multi-utility vehicles, tractors, trucks and two-wheelers, expects to raise around Rs 123 crore through a mix of share sale and loans in FY12.
Riding on exports
Garg said he expects orders for 14 million wheels in the current fiscal year. The company is also likely to announce a repeat export order in the next one week.
Riding on strong export demand, the firm expects to post a 55% growth in net sales to Rs 1015crore in FY12 while net profit is likely to rise to Rs 40crore.
In FY11, it posted a net profit of Rs 29.8 crore on net sales of 6.56 billion.
“Our exports will more than double this year in terms of sheer volume. We have got the Jamshedpur plant in full swing this year, which was not the case last year,” he said. The Jamshedpur unit had become operational in July last year.
The fast growing auto ancillary sector contributes some 2.3% to India’s gross domestic product (GDP) and is expected to clock sales of $30 billion in 2010/11.
The industry’s apex body, the Automotive Component Manufacturers Association, expects turnover to touch $110 billion by 2020.