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Small auto part firms take the big leap
By agencies
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Friday, 03 June 2005, 19:30 IST
CHENNAI: A combination of cultural issues and a business friendly environment seem to have given smaller Indian auto component companies an edge over their Chinese competitors as the move to acquire companies in the developed markets gets under way.
Recently, Ucal Fuel Systems and El Forge-both having turnover well below $ 75 million kicked off processes to acquire companies in the U.S. and UK, respectively.
Such deals show that Indian companies have spotted opportunities to access well-regarded names in the auto industry through acquisitions, and also ease the pressure on the acquired firms by manufacturing some of their products in India.
K V Ramachandran, managing director, El Forge, feels that smaller companies in the developed western markets find the cultural barriers while dealing with Chinese firms too difficult to overcome. Because of this, Indian companies are better placed than their Chinese counterparts in striking deals with companies in developed western markets, he says.
El Forge, which is in the middle of acquiring the UK based Shakespeare Forgings, will let the existing management continue. With a turnover of about $21 million, El Forge will increase its turnover by a third in one stroke when it completes the Shakespeare Forgings acquisition.
Ucal will more than double its $62 million sales once its acquisition of the $72 million Amtec Precision Products is complete. In this case too, Amtecs existing management is expected to continue.
The Automotive Component Manufacturers Association (ACMA) in India estimates that the average industry wage rate here is $6 a day, while it is $20 an hour in developed markets.
According to ACMAs classification, just 16 of the 402 companies in its list have a turnover over $50 million. Despite the preponderance of small companies in the $9 billion industry, a friendlier business climate has made it easier for a growing number to look for acquisitions overseas.