Auto component players get into pole position

Updated: Jun 28 2006, 05:30am hrs
The auto component sector has been at the forefront of India Incs acquisition spree over the last three years. As the domestic automotive sector grew at a 30% plus compounded annual growth rate, exports started booming and outsourcing orders poured in, the industry realised an increasing need to expand abroad.

Companies like Bharat Forge, Sundaram Fasteners and Amtek Auto had acquired three or more companies in the past three years, while others like Sona Koyo Steering and UCAL Fuel Systems have picked up stakes in foreign players too.

The reasons for acquiring businesses abroad are many. For one, it gives the Indian player easier access to foreign original equipment makers (OEMs). Having a front office near the OEMs manufacturing site helps in faster and easier acquisition of consumers.

Buying a foreign company is not only a means of acquiring physical assets abroad, but also the client base, order books and brands of the target.

The low-cost advantage that India enjoys is often exploited to the fullest with some companies transferring physical assets like machinery back to India. The parts are then made in India and sold under the brands of the foreign company. Another important reason for the aggressive buying spree is access to technology.

Typically, OEMs in the West work with their vendors from the concept and design stage of a vehicle. This expertise in design and development is a soft asset in which Indian companies are interested. Apart from helping them to provide better service to their foreign customers, it also helped them in giving better offers to domestic OEMs.

While the appetite for acquisitions remained unsatiated with every other manufacturer eyeing or doing a due diligence of foreign part makers, there has been a slight slowdown this fiscal due to the rising valuations of foreign companies.