Wadia Group firm Bombay Burmah Trading Corporation Ltd (BBTCL) is in the final stage of talks to sell its precision springs business (housed under a division called BCL Springs) to its overseas technology partner NHK Spring Co. Ltd of Japan for approximately Rs 200 crore, at least three people with direct knowledge of the transaction told VCCircle.
The auto component unit was set up as a separate company in 1985, in technical collaboration with NHK Spring Co. Ltd of Japan, to manufacture cold coiled precision springs. It commenced commercial production in 1987 and over time, expanded its installed capacity from 1,000 mt to 10,000 mt and from one manufacturing facility to two manufacturing units – in order to cater to the growing demands of the Indian automotive components market. In 1992, it was merged into BBTCL.
The company currently deals in 1,400 types of spring and its clientele includes Maruti Udyog (Zen, Wagon R, Swift, Esteem and Alto), Suzuki Powertrain (new model diesel engines), TATA Motors (Indigo, Indica, Marina) and Hindustan Motors (Isuzu), among others.
BBTCL scrip closed on Thursday at Rs 410 per unit, down 1.40 per cent from its last close on the BSE.
“The division is now non-core to the group and technology support is required for further growth. So, it’s better to sell,” said a source on condition of anonymity. The deal is, however, not a distress sale or such similar transaction. “It is an attractive valuation of almost ‘nine times plus EBITDA,’ which one doesn’t often see in the auto components space,” the source added. There are no advisors to the deal, as it is more of a private deal between two business associates and the parties have been in a dialogue for almost two years now.
An e-mail query sent to Ashok Panjwani, managing director of BBTCL, did not elicit any response till the time of writing this article.
As part of its restructuring exercise to liquidate non-core operations, BBTCL sold its Sunmica unit to Japan’s AICA Kogyo Ltd for Rs 100.30 crore.
In March, BBTCL also sold its 50.3 per cent stake in Indonesian firm PT Indo Java Rubber Planting Company for $15 million.
BBTCL is part of the Nusli Wadia Group, which has diversified business interests across airlines, plantations, foods, textiles, chemicals, laminates, electronics and light engineering, health care and real estate.
The total market for auto components in India is around Rs 990,000 crore ($22 billion) and components aftermarket constitutes around 25 per cent of the total market, valued at Rs 24,750 crore ($5.5 billion), according to data available with ACMA. If labour cost is also added to the component aftermarket, the size touches Rs 33,000 crore. The growth drivers for the industry are also in place – namely, rising demand for vehicles as vehicle production grew to around 17.9 million in 2010-11; global original equipment manufacturers (OEMs) entering India to establish their manufacturing base; low-cost operations and high quality standards, availability of low-cost, skilled manpower and policy initiatives, among others.
Moreover, this space has witnessed quite a bit of activity in the recent past. In August this year, the automotive gear division of Premium Transmission Ltd was acquired by Indsur Global Ltd. Also, in July, 2011, Pune-based Premium Transmission announced the acquisition of the entire business of Rexnord-Stephan GmbH & Co. KG, Germany.