Mumbai: The Cummins Group, one of the world’s largest manufacturers of engines and power generation products, is in talks to acquire a controlling stake in Kirloskar Oil Engines Ltd in a deal valued at over $500 million through one of its Indian subsidiaries, two people aware of talks between the companies said.
Mint reported on 5 December that the Kirloskar group was in talks to exit its diesel generator set business. Ambit Capital is advising Kirloskar on the deal, the people cited above said, speaking on condition of anonymity.
Kirloskar Oil Engines, among the Pune-based group’s leading businesses, makes diesel generators ranging in power output from 5kVA to 3,000kVA. The Kirloskar group, founded in 1888 by Laxman Rao Kirloskar, currently clocks over $3.5 billion a year in revenue.
Emails sent to Kirloskar group, Cummins India and Ambit Capital remained unanswered till press time on Monday.
“There have been initial rounds of discussions with several potential buyers, including a few global private equity funds, but talks with Cummins are progressing well," one of the people cited earlier said, adding that “the acquisition is a natural fit for Cummins which is largely present in the segment and will consolidate its market position".
Part of the $19.2 billion Cummins Inc., Cummins in India has eight legal entities with a combined turnover of Rs10,880 crore in 2016. The seven entities are Cummins India Ltd, Cummins Generator Technologies India Pvt. Ltd, Cummins Technologies India Pvt. Ltd, Fleetguard Filters Pvt. Ltd, Tata Cummins Pvt. Ltd, Valvoline Cummins Pvt. Ltd, Cummins Sales and Service Pvt. Ltd and Cummins Research and Technology India Pvt. Ltd.
If a deal materializes, it will be the second time in recent years that the Kirloskar group will offload its stake in a group entity to Cummins. In 2013, Kirloskar Oil Engines sold its stake in diesel engine manufacturer Kirloskar Cummins Ltd (KCL), originally set up as a joint venture between the erstwhile Cummins Engine Co. Inc. and Kirloskar Oil Engines in 1962. However, the two companies decided to part ways in 2013, with Cummins India acquiring majority stake in Kirloskar Cummins.
Incorporated in 1946, Kirloskar Oil Engines manufactures and services diesel engines (primarily in the 2.5 to 740 horsepower range) and diesel generator sets. The company has manufacturing units in Pune, Kagal and Nashik (all in Maharashtra) and Rajkot (Gujarat) and caters to the agriculture, power generation, industrial and construction machinery sectors.
Kirloskar Oil Engines reported profit after tax of Rs173 crore on net revenue of Rs2,674 crore in fiscal 2017, against a profit after tax of Rs165 crore on net revenue of Rs2464 crore a year earlier, show corporate filings by the company. Revenue for fiscal 2017 grew 8.5% over the previous fiscal, supported by growth across business segments. The company had a surplus of about Rs1,006 crore as on 31 March 2017.
In the domestic market, apart from unorganized players, Kirloskar Oil Engines competes with branded manufacturers such as Cummins India, Ashok Leyland Ltd and Mahindra and Mahindra Ltd in the medium-range diesel engine segment.