Japanese auto parts makers revenues up in Indian market

Wednesday, Oct 08, 2014

Japanese auto component makers present in India are strengthening their operations in the country in the wake of economic stagnation at their home market.

Recently, India’s Rico Auto Industries announced the sale of its 50 per cent stake in FCC Rico, an auto parts joint venture (JV), to its Japanese partner for ?495 crore.

“A lot of high-end technologies are coming to India from Japan,” said Zakir Merchant, Partner, Khaitan & Co, a legal firm that led the FCC Rico transaction. “Most auto component companies are following big auto companies that are setting up shop in the country.” Parts companies are now flocking to Tamil Nadu and Gujarat where Japanese auto giants Nissan Motor Company and Suzuki Motor Corporation have their respective plants.

Deal pipeline

Sources say the recent spate of merger and acquisitions (M&As) is also an indication of the growing interest of Japanese firms in Indian auto component companies. For instance, Japanese conglomerate Panasonic Corporation is set to form a 60:40 JV with Minda Industries to develop, manufacture and sell lead acid storage batteries in India. The cost is around ?160 crore.

Japanese steelmaker Daido Steel is set to pick up a 10 per cent stake in India’s Sunflag Iron and Steel Company, which makes components for automotive original equipment manufacturers for around ?55 crore. Besides, Japan’s Sumitomo Group has acquired the auto leasing business of Carzonrent, a car rental firm, for an undisclosed amount. The acquisition was made through its joint venture in India, SMAS Auto Leasing India.

“Starting with Maruti Suzuki, the auto industry has been one of the major sectors for Japanese investments in India,” said an official from Japan International Cooperation Agency (JICA), a development finance institution.

Speaking to Business Line at a CII meet, he added some auto companies tend to regard India as an export hub, and have started exporting from India to Europe, West Asia and Africa.

India’s automobile sector owes a lot to Japanese investments in terms of development of advanced supply chains, growth in ancillary units and technology transfer, said the official. Japan is India’s fourth largest investor, with cumulative foreign direct investment of about $16 billion in the last decade and a half.

Officials who handled auto deals told Business Line on the condition of anonymity that Japanese companies had been slow to respond to M&A for some time, and especially since some deals like the Ranbaxy-Daiichi one “have gone bad”. However, big auto component makers from Japan are present in India, and are now looking for full control of their JV operations.

Land acquisition

Some have even acquired land in the country. Like Mitsui Kinzoku Components Ltd that deals with functional components for automobiles has acquired 2.15 lakh sq ft in Sanand, Gujarat, for 50 crore.

Showa India Pvt Ltd, an overseas affiliate of Japan’s Showa Corporation, has also acquired over 4.29 lakh sq ft, and would invest 230 crore.