Kinetic Engineering (KEL) and Kinetic Motor Company (KMCL), both companies belonging to the Firodia Group of Industries, are set to merge. The merger ratio proposed is 4 shares of KEL to be issued for every 31 shares of KMCL. After the merger, the promoters? stake in KEL would stand at 52.85%, from 57.49 % currently. The effective date for the merger is January 1, 2012.

The board of directors of both the companies approved a scheme of merger for the merger of KMCL with KEL under sections 391, 394 and 101 of the Companies Act at a board meeting held in Pune on Friday. The board of KEL has also approved the appointment of Sulajja Firodia Motwani as vice-chairperson of KEL. The board of KEL has also passed a proposal to seek approval from the Reserve Bank of India for the extension of $18 million of FCCBs issued by KEL by one year, extending the date of conversion/redemption from February 2013 to February 2014.

?The amalgamation is a strategic move and what it does is create corporate rationalisation and synergies and create more value for shareholders,? Motwani said.

Though KEL?s automotive component business had slowed down and the two-wheeler business too had not done well, she said this move was positive. There was a need to take a longer view of the business and both these businesses would do well in two to three years time, Motwani said. She expects the merged entity to have a turnover of R500 crore in four years.

KEL, which supplies automotive systems to several players in the country, posted flat revenues because of low sales of the Tata Nano and foreign exchange losses. The company hopes to counterbalance this with new programmes such as Mahindra Navistar trucks. Besides, if Nano sales picked up, the KEL numbers would improve, Motwani said. KEL is expected to end the year with a turnover of R125 crore, while next year it could be around R180 crore to R200 crore.

About the FCCBs, Motwani said they (investors) would benefit with the merger but there would be no change in the conversion price. It would take some time for the value creation post-merger hence they have requested for the extension.

The Kinetic Group has been in a restructuring mode in recent years. The group?s manufacturing and engineering entity KEL was restructured and positioned to become a focused player in the automotive systems and components business with a focus on powertrain; while the two-wheeler business in KMCL was hived off to a new alliance company with Mahindra and Mahindra Group.

KMCL transferred its operating assets relating to two-wheeler business from KMCL to Mahindra Two Wheeler (MTWL) in November 2008, for cash and for a 20% strategic stake in MTWL.

Arun Firodia, chairman of KEL, said the amalgamation would enhance the shareholders value and allow focused course of action for the group.

?Kinetic Engineering has made good progress over the last 2-3 years in establishing itself as a strong player in the automotive systems industry with a key specialisation in powertrain. We have an enviable order book from strong players like Tata, Mahindra & Mahindra, Piaggo, MNAL (Mahindra Navistar), among others,? he said.

It will also bring about enhanced financial strength and flexibility to the group and enable us to expand our businesses, Firodia said.