Horiba plans growth in China

Tokyo: Horiba Ltd., the world’s biggest maker of devices that measure car emissions, wants to triple sales in China as the country tries to cut air pollution.

The company aims to raise sales in China to $139 million (Rs5,93,530 crore) by 2010, chief executive officer Atsushi Horiba said in an interview at Horiba’s Kyoto headquarters on 3 April. Carmakers use Horiba’s technology to make engines that produce less carbon dioxide and methane.

Horiba will open a third factory in China within five years as the country’s carmakers develop their own engines, instead of relying on overseas partners. China’s auto demand surged 25% last year, worsening air quality in a country that has six of the world’s 10 most-polluted cities, according to the World Bank.

“China will spend $182 billion to reduce environmental pollution," said Yukie Suzuki Suga, a Geneva-based analyst at Pictet & Cie Banquiers. “So Horiba will have a lot more business opportunities there."

Horiba’s gas emissions measuring systems are customized for carmakers including Toyota Motor Corp. and Honda Motor Co., who use them to test engines during development. The instruments measure the amount of carbon dioxide and other pollutants. The company controls 80% of the 400 billion yen global market for gas emissions measurement systems, according to Motoya Koutani, analyst in Tokyo at Nomura Securities Co.

Emissions Standards

Emissions standards in China lag behind those in Europe and North America. While the European Union mandated carmakers meet so-called “Euro IV" emissions standards in 2005, China and India still require the less-stringent Euro III standards.

The company’s profit has risen sevenfold since the year ended March, 2003 as carmakers invested in developing diesel engines and gasoline-electric hybrid systems, which emit less carbon dioxide.

“Given Horiba’s growth potential, we don’t think its P/E ratio is too high," said Makiko Zuercher-Hosaka, who co-manages $600 million including 120,000 shares of Horiba at Clariden Leu AG in Zurich.

Sales Growth

Horiba expects sales to grow as domestic demand increases and Chinese carmakers develop their own models instead of using cars and engines developed by foreign partners.

China’s government plans to combine the nation’s more than 100 automakers into a dozen groups under an industry policy adopted in June 2004. The large auto groups are required to develop their own brands and design their own cars and engines by the end of the current five-year period ending in 2010.

Shanghai Automotive Co., China’s largest carmaker, has developed its own brand of Roewe sedans to lessen its dependence on overseas partners Volkswagen AG and General Motors Corp. Nanjing Automobile Group Corp., China’s oldest carmaker, bought the rights to the MG brand and will start selling cars under the name later this year.

M&A Expertise

In addition to last year’s purchase of the Schenck business, Horiba expanded its medical diagnostic instruments segment with the purchase of two French companies, one in 1996 and the other in 2003. The business accounts for 19% of sales.

“Horiba is one of the very few Japanese companies that have been successful with overseas acquisitions," said Zuercher-Hosaka.

The company is considering more acquisitions and receives proposals from companies wishing to be acquired just about every week, said Horiba, who studied electrical and electronic engineering at the University of California at Irvine.

Horiba also makes mass flow controllers, which regulate the movement of gas and liquid in semiconductor production systems. Expanding through acquisitions in either medical diagnostic equipment or as a supplier to the semiconductor industry is “attractive for gathering local talent as well as for conducting joint research with local universities," Horiba said.

Semiconductor Business

“The semiconductor business may be a weakness for the second half of next year, because it’s a cyclical industry," Suga said.

Last year, the segment’s operating income grew 59%, following a 6% drop the year before.

In both supplying to the semiconductor industry and to carmakers, the company will focus on making products in the markets where they are sold, Horiba said.

“This is what led our emissions system to become the de facto global standard," he said.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!