Elephant Capital part exits Mahindra Forgings with over 50% haircut

AIM-listed and India-focused private equity firm Elephant Capital has part exited its six-year-old investment in Mahindra Forgings Ltd by participating in a tender offer by Spanish auto parts supplier CIE Automotive, which is picking a stake in the components business of Mahindras as part of a global deal.

The PE firm sold almost two-thirds of its 2.45 per cent stake aggregating 1.74 million shares in Mahindra Forgings for Rs 14.13 crore (approximately £ 1.42 million or $2.3 million) in cash. The offer price was Rs 81 per share, which represented a premium of 21.2 per cent to the closing mid-market price per Mahindra Forgings share of Rs 66.85 on June 15, 2013 (the day preceding the date of the first announcement regarding the proposed offer).

Elephant Capital had picked the stake for £4.81 million during 2007-09. This means the firm part exited by selling the shares at over 50 per cent loss. As against the cost of purchase of £3.1 million for these shares it booked a loss of £1.71 million.

Its residual holding is 0.93 million shares, representing a shareholding of approximately 1 per cent in Mahindra Forgings. This is currently valued at Rs 4.5 crore or £0.45 million. This implies it is sitting on unrealised loss of around 74 per cent on the remaining holding.

Elephant Capital, formerly Promethean India Plc, raised £50 million in early 2007 through a public float at the AIM market in London. The firm said in 2011 that it would not make any fresh investments and return money to shareholders.

The PE firm had said last year that it will start exiting its public market portfolio, which includes building materials company Nitco Tiles and auto component firm Mahindra Forgings. In August, 2010, Elephant exited public-listed IT education firm NIIT Ltd with an IRR of over 23 per cent.

In January this year, the firm exited from its two-and-a-half-year-old investment in clinical research firm ClinTec International at over 60 per cent loss.

Last year, Elephant Capital also exited its investment in EIH Ltd, which owns and manages Oberoi Hotels, at a loss.

The part exit by Elephant Capital, which counts amongst its backers Gaurav Burman of Dabur Group, comes at a time when Mahindras are forming a global alliance with Spanish auto parts supplier CIE Automotive SA in a collaboration with annual revenues of around $3 billion and operations in North America, South America, Europe and Asia.

The businesses will be held through listed businesses in Spain, Brazil and India.

As per the deal, the Mahindra Group is bringing all components businesses (both listed and unlisted) housed under its Systech Automotive Component unit, under the existing listed firm Mahindra Forgings.

This means bringing together three listed companies (Mahindra Forgings, Mahindra Ugine Steel and Mahindra Composites) and two unlisted outfits (Mahindra Hinoday Industries and Mahindra Gears) under a single firm. This entity will then be renamed as Mahindra CIE, in which CIE Automotive will hold a majority stake.

In a nutshell, the deal involves CIE paying around $117 million to M&M to buy stake in various components businesses, which will be brought under Mahindra CIE, and M&M picking up a small stake in CIE for $128 million to create a global components group.

Also Read: M&M selling majority stake in components business to Spain’s CIE; to pick up 13.5% in CIE for $128M

(Edited by Joby Puthuparampil Johnson)

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