India Resurgence Fund (IndiaRF), promoted by Piramal Enterprises Limited and Bain Capital Credit, along with its affiliates announced investment of up to Rs 615 crore ($83 million) in formerly New Vernon Capital-backed automotive firm Setco Group.
“As part of the transaction, Setco Automotive Ltd will transfer its clutch business into a subsidiary, Setco Auto Systems Private Ltd (SASPL), into which IndiaRF will invest through a senior debt facility and 35% equity stake in SASPL,” IndiaRF said in a statement.
The investment proceeds will be used for growth capital and providing working capital to enable the businesses to grow on the back of anticipated recovery in the commercial vehicles market, meet the demand in the replacement market and re-finance / repay debt facilities, it added.
The transaction is likely the third investment for IndiaRF after Pancea Biotec stake acquisition committed in 2019.
“Our partnership will drive a two-fold strategy to restructure the balance sheet of the company as we also work closely with the promoters and management team to drive rapid revenue growth and sustainable improvement in profitability.
IndiaRF continues to remain focused on providing long-term strategic solutions that enable an effective turnaround to profitability for high quality companies,” Shantanu Nalavadi, managing director of IndiaRF, said.
Wadia Ghandy and Co. were the exclusive advisors to Setco Group on this transaction.
Mumbai-based Setco Group is an automotive component company focused on manufacturing and marketing of clutches for commercial vehicles for original equipment manufacturers (OEMs) including catering to aftermarket for OEM brands and the independent aftermarket.
In 2005, New Vernon Private Equity, part of New Jersey-based investment firm New Vernon Capital, had invested Rs 15 crore in Setco in December 2005 to acquire a 14.17% stake.
Over the next few years, the PE player kept selling that stake.
Registered in Gujarat in 1982, SASPL claims to command the largest share of medium and heavy commercial vehicles clutch business in India.
On Tuesday, it announced slump sale of its clutch business.
SASPL has recently diversified into the tractor market and has started supplies to some of the tractor OEMs with few more in the pipeline.
Setco Group is also backward integrated, manufacturing castings through its plant housed in a wholly-owned subsidiary, Lava Cast Pvt Ltd.
Two years ago, Setco Automotive acquired Spanish partner Lingotes Especiales SA’s stake in Lava Cast.
“IndiaRF’s investment will bring in significant strategic operational improvement in both SASPL and Lava Cast,” Harish Sheth, chairman and managing director, Setco Automotive, said.
Publicly-listed Setco Automotive reported a wider net loss of Rs 22 crore on a higher total income of Rs 57.5 crore in the quarter ended June 2021 as compared to a loss of Rs 15.5 crore on a total income of Rs 35 crore in quarter ending June 2020.
IndiaRF, the $1 billion corpus fund, is a joint venture fund of Piramal Enterprises and the credit affiliate of PE firm Bain Capital that aims to invest capital in debt and equity by making distress-to-control investments and special situations across sectors, other than real estate, in the Indian market.
In November 2018, India Resurgence Fund had invested about $156 million, via debt and equity instruments, in Archean Chemical.
Six months later, it decided to invest up to $144 million (Rs 992 crore) in New Delhi-based Panacea Biotec Ltd.
Before that, the fund made a joint bid with Dalmia Bharat Ltd for Binani Cement Ltd.
Binani Cement was finally acquired by UltraTech Cement Ltd.
IndiaRF had also shown interest in acquiring debt-ridden Religare Finvest, which has not made much headway over the past year.
In 2005, New Vernon Private Equity Ltd. invests $3.26 mn in Setco Clutch Ltd.