Mumbai: Hansen Transmissions International NV, the world’s fifth largest gearbox maker owned by Pune-based Suzlon Energy Ltd, is in discussions with Shanthi Gears Ltd to buy a substantial stake in Shanthi Gears, India’s second largest industrial gearbox maker.
The Belgium-based firm, controlled by billionaire Tulsi Tanti, is looking at buying between 50% and 100% of chairman P. Subramanian and his family’s stakeholding in the four-decade-old Coimbatore-based company, at around a 30% premium to the market price, a banker familiar with the negotiations said.
Based on Wednesday’s stock price of Rs63 per share, Hansen would have to pay Rs67.75 crore at Rs81.90 per share, to purchase half of the 45% stake in Shanthi owned by the chairman and his family.
TALKS FOR A STRATEGIC STAKE (Graphic)
If the deal goes through, Hansen will have to make an open offer for additional 20% of Shanthi Gears in keeping with Indian laws.
Hansen Transmissions, which has a market capitalization of £2.03 billion (Rs16,585 crore), has sufficient cash in hand and will not require funds from outside, the banker said, asking not to be named.
A prospective investor in Suzlon Energy, who asked not to be named, claimed that last week Tanti had told him that Hansen is in talks with Shanthi Gears’ investment banker Ernst and Young to buy the company, which makes gearboxes for the sugar, textiles and cement industries.
“We do not comment on market speculation,” a Suzlon Energy spokesperson said in reply to an email questionnaire.
“We have mandated Ernst and Young to find a strategic partner to grow our business,” Shanthi Gears’ Subramanian told Mint over the telephone from Coimbatore.
Asked if he was looking at a complete exit, Subramanian, who started the firm in 1968, said: “Right now, we are looking at a strategic partner who can infuse critical technology.”
Shares of Shanti Gears jumped 6.48% to close at Rs67.40 on the Bombay Stock Exchange (BSE) on Thursday, on a day when the exchange’s benchmark index rose 0.29%. Suzlon Energy rose 0.19% to end at Rs241.90. Shanti Gears’ market cap, or market value is Rs550.66 crore, while Suzlon Energy’s is Rs36,241.46 crore.
Another banker, who helped Subramanian list the firm on BSE in 1986, said the Shanthi Gears chairman might cede controlling stake to Tanti and keep a minority share. “There cannot be an equal joint venture,” he said, who too asked not to be named.
Hansen Transmissions, which Tanti bought in an all-cash transaction for $565 million in March 2006, has orders booked till 2009 from Suzlon’s rivals for 3,600MW of wind turbine gearboxes and 3,000 units of industrial gearboxes a year.
As a result, Hansen won’t be able to supply gearboxes to Suzlon until the existing orders are cleared.
An alliance with Shanthi Gears will give Suzlon access to a low-cost manufacturing unit in India to make gearboxes to propel its rotor blades, which are primarily made at its Puducherry factory.
Shanthi Gears, which began diversifying into windmill gearboxes a year ago, will be able to source technology from the Belgian firm, which boasts an established research and development unit in Europe.
Shanthi Gears had a revenue of Rs244.10 crore and a net profit margin (the ratio of net profit to sales expressed as a percentage) of 18.19% in 2007-08, with an operating profit margin at 39%.
“The company is very conservative that it logs orders that can be executed in four months to mitigate risk arising out of rising raw material prices,” Prakash Kapadia and Sanjeev Rohna, research analysts at Mumbai-based brokerage Edelweiss Capital Ltd, had said in May soon after the company’s annual results. Shanthi Gears’ debt stands at Rs92.79 crore and its annual interest expense is Rs4.70 crore.
The company has been trying to source critical technology to make high-margin, larger wind turbine gearboxes to supply to firms that put up windmills, and Hansen Transmissions would be an ideal fit from this perspective, said an analyst, who didn’t want to be named as he is not authorized to speak with the media.
Subramanian said his firm’s gearboxes can power smaller windmills of up to 250KW. Hansen’s products can power larger turbines of up to 2.1MW.
Demand for wind energy has been rising steadily with many countries, including India and China, aggressively pushing for alternative energy to tide over their dependency on fossil fuels such as oil and coal.
Suzlon Energy, which controls 50% of the Indian windmill market, is keen to repeat its success in China. India, the fourth largest wind energy producer with 8,000MW after Germany, Spain and the US, has set a target of meeting 10% of the 78,000MW generating capacity it will add by 2012 from wind power.
Of the 10% target, nearly 95% will be installed by private sector companies in 555 stations in 20 states.
The Union government, under its National Renewable Energy Policy, allows 100% depreciation for windmill firms and a five-year tax holiday.