PE firms set to drive consolidation in India's auto components industry2 min read . Updated: 06 Mar 2019, 12:10 AM IST
- While Blackstone Group is actively looking for assets under its Comstar platform, Warburg Pincus is exploring similar deals
- There's an increased willingness to sell among family-owned auto component firms due to succession and investment issues
Mumbai: A wave of consolidation may soon sweep India’s fragmented auto components industry as top private equity (PE) firms are buying and aggregating mid-sized parts makers to tap the lucrative global market. While Blackstone Group, the world’s largest private equity firm, is actively looking for assets under its Comstar platform, some of its peers, including Warburg Pincus, are exploring similar deals.
Blackstone bought Chennai-based auto parts maker Comstar Automotive Technologies Pvt. Ltd last April at a valuation of nearly ₹1,000 crore. It acquired the stake from PE firm Argyle Street Management and the Chandaria family. Comstar makes starter motors, starter motor kits and alternators for automotive applications. The company was set up in 1999 as a unit of Visteon Corp., then a unit of Ford India.
Soon after the Comstar deal, Blackstone took a significant stake in Sona BLW Precision Forgings in a deal valued at $300 million that allowed JM Financial to exit. “In auto components, we are doing this buy and build strategy," said Amit Dixit, Blackstone’s senior managing director and head of private equity in India. “Comstar already has $60 million Ebitda and this is just the beginning; the auto component sector in India is so fragmented that we foresee much of the deal flow through this platform."
Ebitda stands for earnings before interest, taxes, depreciation and amortization.
“Amongst family-owned component suppliers, we see an increased willingness to sell either due to succession issues or an unwillingness on the part of the family to invest further. In the absence of credible global strategic buyers, private equity funds have stepped in and are increasingly looking to take controlling stakes in such companies," said Preet Singh, managing director at Lincoln International, a US-based financial advisory firm. “This will pave the way for an eventual consolidation as the buyout funds make these businesses more palatable for global strategic buyers."
Last April, homegrown PE fund Kedaara Capital acquired Sunbeam Auto Ltd for close to ₹650 crore. Sunbeam was owned by the Munjal family and produces aluminium die casting parts. “It is just not capital that the private equity funds are bringing in. In addition to attracting talent, it is also allowing many of these promoters to really extend their vision," said Manish Kejriwal, managing partner at Kedaara.
“There was one company that we had bought, which was primarily a local Indian play. We took its expertise in a certain product category and entered North America. That wouldn’t have been possible without PE," Kejriwal added.
“There are several reasons why many promoters of auto component manufacturing companies are willing to sell a controlling stake," said Mahesh Singhi, founder and managing director of Mumbai-based transaction advisory firm Singhi Advisors. “If you look at the sector, there aren’t too many large players and bulk of the industry comprises medium and smaller companies, many of whom are finding it hard to scale up due to shortage of funds and access to newer markets."