Motilal Oswal PE has invested $8.5 million (Rs 40 crore) in Minda Industries, a publicly-listed auto ancillary company that makes switches for two and three-wheelers. The investment has been made out of India Business Excellence Fund, a $125 million fund floated by the Motilal Oswal Group, to provide growth equity to small and medium enterprises.

Minda Industries is raising the amount from the Motilal Group PE by issuing Cumulative Compulsorily Convertible Preference Shares (CCCPS).

The preferential allotment of 1.83 lakh 3% CCCPS, having a face value of Rs 2,187 each on exercise of right of conversion, will give India Business Excellence Fund I ten equity shares of the company at a price of Rs 218.7 each, a discount of 23% to the current market price.

The promoters of the company are also subscribing to 35 lakh 3% CCCPS. Although the pricing and conversion ratio of these CCCPS is unclear as of now, it is likely to be converted in the ratio of around 1:1 into equity assuming that promoters would like to hold on to their stake which is around 70% at present.

As per VCCircle estimates, India Business Excellence Fund I could end up owning around 11.5% in Minda Industries’ post equity dilution. The promoters’ stake will come down marginally to around 69% despite the fresh allotment.

The company is setting up a new unit to manufacture lights for the new Volkwagen’s Polo in Pune. What could have driven private equity play in Minda Industries is the latter’s preferred supplier status to major automobile original equipment manufacturers and also its growing order book and clientele, according to a source.

Auto ancillary units are expected to be high on the radar of private equity players given the fact that India is growing as a global component sourcing hub. Media reports indicate that Volvo, the world's second biggest truck maker, will increase component sourcing from India by five times to $5 billion by 2015 and Honda will also increase sourcing of parts from India for its new car.

Minda Industries’ is a mid-sized auto component maker with annual revenue of around Rs 500 crore. For the quarter ended September 2009, it reported net sales of Rs 136 crore with net profit of Rs 5.27 crore. It commands a market cap of around Rs 300 crore. The Minda scrip was trading at Rs 283, up by Rs.4.15 or 1.49% on the BSE in Tuesday morning trade. Minda Industries also makes batteries, CNG and LPG kits, and horns for the auto industry.

Motilal Oswal Group closed its $125-million (25% more than initial target) fund-raising under India Business Excellence Fund (IBEF) in January 2008, a week before the market crash. It targets investments in small and medium-sized companies within deal values ranging $5-15 million and looks for liquidity period of 3-5 years.

Since inception in January 2007, it has invested in nine companies till now including Time Technoplast, IMP Powers, RT Outsourcing Services, Effort BPO, Parag Milk & Milk Products, Power Mech Projects and Resurgere Mines & Minerals India.

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