There is good news for the auto component industry badly damaged by Corona and Lockdown. The world’s largest private equity (PE) such as Temasek, Blackstone, Goldman Sachs, Samara Capital and Bearing Private Equity Asia are exploring investment opportunities in the Indian auto parts industry. Three people associated with this development have given this information.
According to sources, the world’s largest PE companies believe that in the long run, the Indian automobile industry has huge opportunities in the domestic and global markets. In such a scenario, auto industry companies have a better chance of increasing their share in the short market valuation due to the Karona crisis. According to sources, these private equity firms are planning to invest in companies manufacturing parts related to traditional gasoline engines and electric engines.
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In the last two months, several PE firms have held discussions with several companies in the automobile industry in Chennai and Pune. Significantly, most MSME companies manufacturing auto components are facing financial crisis due to the corona crisis and nationwide lockdown. Now they need funds to work on Unlock. Banks and financial institutions are being cautious for fear of bankruptcy. In such a situation, these companies are looking at PE investment.
Vehicle sales will double by 2030
Rakesh Chabra, president of the Rai Industrial Association, told Hindustan that vehicle sales have declined over the past 18 months due to the Corona crisis and economic reasons, but demand is expected to increase in the long run. With the end of the corona crisis, the demand for vehicles will increase rapidly as people will buy their own cars for social distances. The availability of trains per 1000 trains in India is very low. Under such circumstances, vehicle sales have doubled by 2030. Given this opportunity, foreign investment firms have placed bets on the Indian auto industry.
- The turnover of the Indian auto components industry is about $ 57 billion
- 30-25% earnings risk declines in auto parts companies in FY2021
- Auto parts companies operate 50 percent of their production capacity
- The auto industry employs 1.5 million people directly and indirectly in the country
- India imports 30 percent of its automotive components from China
Revenue is expected to decline by 16 percent
According to a Crisil report, the automotive industry is expected to shrink by 16 percent this year. Crisil has presented its report based on a survey conducted on 300 auto parts companies. The revenue of these companies is expected to decrease by 30-35% in FY 2021 before paying interest, taxes, devaluation and paying. Experts say it will see an improvement in the festive season. Vehicle demand has suffered during the lockdown in many parts of the country. The festival season with Onam is starting from August 15 in Kerala. This is expected to increase demand.
The government will buy 15 percent shares
Faced with the challenge posed by the corona epidemic, the government will buy 15 per cent shares to finance small and medium enterprises (MSMEs). Those companies will then be listed on the stock exchange. It may be recalled that the Finance Minister had announced an investment of Rs 50,000 crore in equity capital under the Swanirvar Bharat project. Financial experts say this will be a big advantage for small companies operating in the automobile industry. This will meet their financial needs and enhance the value of their brand. It will also benefit the Indian economy.
Less of challenges and problems
Sandeep Kishore Jain, MD of auto parts company Solo Manufacturing Pvt Ltd, told Hindustan that the corona crisis and growing tensions with China have removed the challenges and problems of auto parts companies. Demand for vehicles is not increasing in the country due to long lockdown. As a result, production at the auto parts factory has reached close to 50 per cent since May. At the same time, container cargo is not coming to the port due to increasing tensions from China. This has aggravated the problem. We demand the government to issue a clear guideline for this area so that we can all get relief.