PE Investments In Auto Sector Dip

New Delhi: The Indian auto industry is not as hot a proposition as it was last year, going by the sharp drop in private equity deals in the sector.

The present calendar year has seen just 6 PE deals involving a total amount of $111 million. This compares to 24 in 2006 (Jan- Dec) worth $450 million. However, mergers & acquisitions continued to be buoyant, with the first 10 months registering 27 deals with a combined value of $700 million, exceeding last year’s score of 23 at $517 million, according to Grant Thornton data.

The PE deals stitched in the first 10 months this year include the following: JM Financial India Funds which picked up stake in International Tractors Ltd (ITL) for $27.78 million and in Sona Group for $26.67 million; CLSA Capital that invested $16.13 million in Sanghvi Movers for a 10.9 per cent stake; IL&FS Investment and Evolvence Capital, which invested $35.90 million in RSB Group, and Ares Investments’ 10.22 per cent stake in Rane Holdings for an undisclosed amount.

“The last two quarters’ results have been subdued. Many PE firms are shying away from investing in auto as compared to sectors like infrastructure and mining where returns are much higher. Also, several domestic companies have acquired overseas firms at high valuations which has not translated into performance,” said Santosh Singhi, Director-Finance, Amtek Auto. He, however, added that companies would continue to take the M&A route as opportunities would be there for the coming few years before a lot of business moves to countries such as India, China and Thailand.

Hemant Luthra, President, Mahindra Systems & Automotive Technologies, cited other reasons for the sector losing its sheen, including rupee appreciation.

"PE firms seem to be concerned about the component industry's export competitiveness lessening. Also, many of the players like to invest in companies of a certain scale and there are not many companies who can absorb that much amount and others have not been able to show the ability to scale up," he said.

The surge in the M&A deal size this year was led by Mahindra's majority stake in Punjab Tractors for $222 million and Crosslinks' acquisition of Daewoo Motors' Indian plant for $170 million. This stood ahead of the largest investment last year, which was $133 million by Hinduja Group's in Ashok Leyland, Mahindra's acquisition of 67.90 per cent stake in Jeco holding AG for $125 million, and Apollo Tyres' acquisition of Dunlop Tyres International for $64.44 million.