Chennai: Tube Investments of India Ltd, a maker of bicycles and automotive parts that acquired a 44.12% stake in gearbox maker Shanthi Gears Ltd last month, posted a 23% fall in net profit on a standalone basis due to an increase in material and power costs along with a depreciating rupee.

“The margins were under pressure in all segments due to increased material cost, inflation in power and fuel cost, and rupee depreciation,” said L. Ramkumar, managing director, in a statement.

The company posted a first-quarter profit of Rs 38.4 crore versus last year’s Rs 50.02 crore. Revenue rose 5% to Rs 909.59 crore from Rs 868.59 crore.

“In a tough business environment, they’ve done reasonably well. The operating profit has fallen 15% year-on-year due to the increase in other expenses. Now that the fall that has happened in terms of costs, it will improve in the further quarters,” says Vinayak Kanvinde, portfolio manager at Right Horizons Financial Services.

Other expenses, which include power and raw material costs among others, grew 17% to Rs 189.68 crore in the same quarter.

On 13 July, the board of Tube Investments approved the purchase of 36 million shares in India’s second largest industrial gearbox maker, Shanthi Gears for Rs 292 crore. This stake in Shanthi Gears is likely to help Tube Investments enter the energy and infrastructure space as Shanthi Gears manufactures a range of standardized and customised gears for the steel, textiles, cement, infrastructure, power and wind energy sectors.

The Chennai-based Tube Investments—part of the $4.4 billion Murugappa Group—also plans to make an open offer to acquire an additional 21.24 million shares, or an extra 26% stake, in the four-decade-old gearbox maker at the same price.

Shanthi Gears posted a 49% drop in first quarter profit as demand for its products slowed but Kanvinde says Shanthi Gears makes for a strategic fit. “Tube Investments will be able to push Shanthi Gears’ capacity utilization from 30-40% to 80-90% in FY13. We expect FY14 to be earnings accretive for Tube Investments with this acquisition,” said Kanvinde.

Consolidated net profit rose 14% to Rs 84.77 crore from Rs 74.30 crore, while revenue rose 20% to Rs 1,728.64 crore from Rs 1,432.72 crore. This includes that of Cholamandalam Investment and Finance Co. Ltd.