Sumitomo to invest $84 mn in Indian auto component JV Motherson Sumi

Japan's Sumitomo Wiring Systems Ltd will invest as much as Rs 562.5 crore ($84 million) in its Indian auto components joint venture Motherson Sumi Systems Ltd, either through a preferential allotment of equity shares or through foreign currency convertible bonds (FCCB).

The proposed issue was approved by Motherson Sumi's board on Wednesday, as per a stock market disclosure.

If the firm indeed goes ahead with the equity issue, the Japanese partner's stake in India's largest auto component maker would push above the 26% mark, as per VCCircle estimates. Sumitomo held 25.29% stake in Motherson Sumi as of June 30, 2016.

However, it's equity holding may get diluted as Motherson Sumi is simultaneously considering a qualified institutional placement to raise as much as Rs 3,000 crore ($450 million).

At the current share price, Sumitomo's holding would shrink to 24.7% while the Indian promoter's holding shall shrink to 37.37%, with the total promoter holding coming down to 62% from 65.6% currently.

The company said the proposed fundraising is to raise long term resources with an aim to triple group revenues to $18 billion by 2020.

Supported with an aggressive inorganic growth plan Motherson Sumi has emerged as the largest auto component maker in India, having grown its revenues at a CAGR of 40% over the last ten years. For the year ended March 31, 2016, it had revenues of Rs 38,677 crore ($5.8 billion) with a net profit of Rs 1,273.7 crore.

The company has as many as 145 manufacturing plants globally and 17 additional units are under construction. Although the listed firm has mostly used internal accruals and debt to expand, its Indian holding company had unsuccessfully sought to go public four years ago.

The initial public offering (IPO) of Samvardhana Motherson Finance Ltd, the holding company of the Indian promoters of Motherson Sumi failed to attract investors. It had withdrawn its IPO to raise Rs 1,665 crore ($300 million then) through the public issue, which included a fresh issue of Rs 1,344 crore and an offer for share sale worth Rs 321 crore by the promoter group. It has previously brought on board four anchor investors including the Singapore's sovereign fund GIC.

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