Global PE firms scout for deals in India’s auto components sector

Cars on Howrah Bridge. Photo: Rohit Arora/unsplash

Top private equity (PE) firms such as Temasek, Blackstone, Goldman Sachs, Samara Capital and Baring Private Equity Asia are actively exploring investment opportunities in India’s auto parts manufacturing sector, three people aware of the developments said. The firms are confident about the long-term potential of India’s auto parts industry to cater to the local markets and overseas. Hence, they want to capitalize on the low market valuations of most of these auto parts vendors due to covid-related uncertainties to buy minority or controlling stakes. The firms are scouting for makers of parts for internal combustion engine vehicles, and electric mobility.

According to the first person mentioned above, the PE firms have approached some companies based in the automotive hubs of Chennai and Pune in the past few months.

Most auto component manufacturers are under financial stress due to a precipitous drop in vehicle sales since FY19, aggravated by the lockdown since March-end. This has left promoters with a dire need of funds to ramp up production and invest for the future but weak demand and depressed valuations have limited their options. Banks and other financial institutions are also wary of extending credit due to fear of loans turning bad. Some promoters are concerned about taking on fresh debt, making PE investments a more viable option.

According to a survey of the top 300 auto parts makers by ratings agency Crisil, combined revenues of the sector are likely to drop 16% this fiscal due to the coronavirus-induced economic slowdown. Ebitda or earnings before interest, taxes, depreciation and amortization of these companies is expected to drop 30-35% in FY21.

The second person cited above said promoters of auto component companies are also looking for opportunities outside India, especially in electric mobility, and the presence of a global PE investor on board is likely to help in arranging capital and other aspects of managing operations overseas.

“PE firms always look at the long-term potential and India is the only market expected to grow in the next decade as markets like China and US had already slowed before the pandemic. Most PE firms have also realized that current valuations make these companies quite lucrative and promoters also need capital. We expect consolidation in the component industry in the next two years,” said the second person, declining to be named.

This article was first published on livemint.com.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.