Japanese electronics giant Hitachi is in talks with Ahmedabad-based electronics components maker Hi-Rel Electronics for a business alliance that may include equity investment by Hitachi in the Indian firm, the Japanese company said on Wednesday. A small-sized electronics firms, Hi-Rel is majority owned by Helix Investments Advisors, an India-focused private equity firm.

According to Hitachi, the two firms have agreed to open discussions regarding a business alliance, including Hitachi’s investment in Hi-Rel and development of a new manufacturing facility. “The aim of this move is to bolster both companies’ power electronics businesses in India. The two companies will hold discussions with a view to entering into a final agreement around the end of September, 2011,” the company said.

Hitachi and Hi-Rel will commence discussions with the objective of expanding their power electronics businesses in India. This will be achieved by fusing the strengths of each company. Hitachi's medium-voltage and high-voltage control technologies, advanced manufacturing technologies and wealth of experience & expertise in systems integration in large-scale plants will be further boosted by Hi-Rel’s industrial-use UPS technologies, low-voltage and small & medium-sized control technologies, existing manufacturing facilities and nationwide sales & service network in India.

Although several power projects are in the pipeline across the country, demand for power is only expected to rise in the future. There is increased demand for inverter systems and UPS to ensure stable operations, conserving energy and handling power fluctuations at production and operation units. Increased investment is also predicted in the renewable energy sector to create a low-carbon society while achieving economic growth, which is expected to spur the market expansion for power electronics-related products for handling power fluctuations that are commonplace in solar, wind and other renewable forms of power generation.

This is also the reason why power electronics is seen as a major opportunity. Recently, Luminous, one of the large players in the business, has been acquired by Schneider for $310 million.

Hitachi identifies India as one of the 11 key regions where increased demand is expected and which is strengthening the power electronics business as one of the social innovation businesses. It has also supplied a large number of power electronics-related products to Japan and overseas. These products include medium-to-high-voltage inverter drive systems for rolling mills used in steel works and compressors used in petrochemical plants, as well as UPS and inverters for solar power generation and wind power generation systems.

Hi-Rel started with commercial production of low-voltage AC drives in September, 1984, and since then, has moved into industrial UPS systems, thus strengthening its presence in the power electronics space. For the year ended March, 2011, it had gross sales of Rs 111.5 crore.

Last year, Helix Investment Advisors had acquired a majority stake in Hi-Rel for $11 million (Rs 50 crore).See our earlier report

Helix provides growth capital to small and mid-sized companies in India and chases targets in education, branded consumer goods & services, and IT and IT-enabled outsourcing sectors. It seeks to invest $5-$15 million in its portfolio companies.

Last year, it had exited two of its early investments made in 2007 – Calorie Care and OSi. Besides Hi-Rel, Helix also has investments in companies like MT Educare, which runs a chain of K12 tutoring centres, and LearningMate Solutions, a provider of e-learning solutions with a presence in the USA, the UK and India.

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