TechMa eyes 50% stake of VGE in Satyam JV

Written by Rachana Khanzode | Shweta Bhanot | Mumbai | Updated: May 21 2009, 05:50am hrs
Tech Mahindra, the new owner of the Satyam Computer Services, is now eyeing 50% shares of Venture Global Engineering Services (VGE) in Satyams joint venture (50:50) company Satyam Venture Engineering Services (SVES). SVES would continue to operate as a separate entity and Satyam would continue to be a shareholder, sources close to development told FE. The Rs 70 crore SVES is an automotive division of Satyam and provides high-end engineering solutions.

However, the ongoing case filed by Satyam against VGE over breach of the joint venture agreement and events of default, is expected to delay the process of takeover by Tech Mahindra. Satyam had earlier filed the case in the London Court of International Arbitration seeking among other things, to purchase VGEs 50% interest in SVES at the agreed upon book value price of the shares and was granted the same. However, VGE challenged the decision and appealed to the Andhra Pradesh High Court and the decision is still pending. Tech Mahindras dream will have to wait till the court disposes the case in Satyams favour. When contacted, Tech Mahindra officials said, Since the matter is sub judice, we are not in a position to comment about it.

An industry expert said, Mahindra & Mahindra (M&M) has a vision to get its hands on everything that goes into automotive manufacturing, from design to the whole product. M&M will be able to leverage automotive engineering expertise of SVES for its automotive business. He added that with these capabilities, M&M would be able to negotiate on costs with SVES, which may not be the case with other engineering service players in the market.

Another industry expert with domain knowledge in automotive added it will depend upon how the company plans to chalk out its synergy plans and pointed that since the work is contract based and clients look for securing the intellectual property right (IPR), one needs to watch out how much M&M can extract from the new buy out. The Indian automotive engineering services industry is expected to grow at a compounded annual growth rate of 32% by 2012-13. The industry has generated revenues to the tune of $500-600 million in 2007 and there is $2.2 billion potential outsourcing opportunity in the next two years, said Frost & Sullivan, South Asia and West Asia director (automotive and transportation) VG Ramakrishnan. However, he added there was a need at the industry association level to spin off automobile engineering services from IT sector, furnishing an example of Satyam Ventures, which is totally into automotive engineering services.

SVES offers design engineering, process engineering, reverse engineering, product data management, and knowledge-based engineering and software customisation. It estimates net savings to the customer to be around 45%, excluding other intangible benefits like lost opportunity costs, increased customer faith, reduced lead-times etc. The top 15 original equipment manufacturers and system providers taken together spent close to $60 billion on engineering, and research and development last year. Globally, the spent on research and development in the automotive sector spent is about $130-140 billion.

While industry experts see that the country has upper hand over other low-cost destinations when it comes to engineering services, they feel the need of the hour is to innovate and move up the value chain.