CIE Automotive’s recent alliance with Mahindra Systech is part of its plan to touch sales of three billion euros by 2017 and incorporate companies mainly in Mexico and India. An analysis of the deal by Brian de Souza.
Mahindra Systech, an umbrella of component companies including listed and unlisted ones, set up nearly a decade ago by the Mahindra Group, will now have a Spanish co-owner in CIE Automotive. This follows the signing of a global partnership agreement between CIE Automotive (through its arm Autometal) and the Mahindra Group on June 15. As part of the transaction, CIE Automotive will acquire a stake in listed and unlisted companies in Mahindra’s automotive components business while CIE’s forgings business in Spain and Lithuania will be consolidated under Mahindra Forgings in which the Spanish entity will take a majority stake in a multi-layered acquisition. Mahindra Forgings, a listed company, will be renamed Mahindra CIE Automotive.
The transaction involves several steps till April 2014 which will culminate in:
?CIE Automotive acquiring a majority stake in a single listed entity in India, which will continue to operate all current business of Systech automotive components and operations including CIE's European forging operations.
M&M will get a 13.5 percent stake in CIE Automotive, becoming its second largest shareholder. M&M will appoint two representatives to CIE’s board.
Mahindra Systech has three listed entities: Mahindra Forgings which Mahindra was able to turn around, Mahindra Ugine (which has a 51 percent stake in a JV with Sanyo and Mitsui), and Mahindra Composites, one of the smaller entities under the Systech umbrella. Among the unlisted company is Mahindra Gears which acquired Rajkot-based SAR and in a consortium with ICICI Venture Funds Managements acquired MetalcastelloSpA, an Italian boutique gear-manufacturing firm. Last April, as part of its Strategic Thinking for 2013-2017, CIE Automotive said it plans to double its sales and reach Euro 3 billion (Rs 23,553 crore) at the end of this four-year period. The goal is based on increasing the “company’s presence in markets such as Asia, where it can achieve a significant market share; on reinforcing its products to reduce consumption and increase safety and comfort; and on a solid financial position, together with a successful management model in which the generation of value is guaranteed and is the top priority.” CIE has operations in Europe, China, Brazil and Russia, Morocco. A key Asian market – India – was missing, which it is able to now able to bridge with the Mahindra deal.
BRIC and mortar
For Mahindra, this deal gives it access to other BRIC markets. According to a component industry source, the decision to reach this deal, which hands over control to CIE, was motivated among other factors by the fact that its German acquisitions, particularly Jeco AG, a top forgings unit, have been affected by the European slowdown and were adding red ink to the Mahindra balance sheet. The forgings business in India, on the other hand, has done well and the company was able to turnaround the business with 2011-12 recording a profit of Rs 6.78 crore. Speaking to Autocar Professional, HemantLuthra, president, Mahindra’s Systech Sector, says: “With the agreement with CIE Automotive, we (Mahindra & Mahindra) will now have presence in five continents, compared to one-and-a half earlier. The European markets have not grown as expected, so our customers there want us to follow them to markets like Brazil and Mexico. The new agreement will help us do so. Also, there are a lot of areas where our product portfolios complement each other.” AntónPradera, president, CIE Automotive, says: “The leadership of CIE Automotive and its shareholders have launched a strategy to develop the Asian market through India as the door input to Asia.”
Anand Mahindra, chairman, Mahindra Group, said: “For eight years, we created an Indian automotive supplier with a global presence and this led us to a series of acquisitions in India and Europe. This partnership allows us to position ourselves above the competition, reach into new geographic areas, and grow our joint product range in the coming years. “ Jesus Maria Herrera, CEO of CIE Automotive and Autometalpresident, said that “the focus of CIE growth through operational excellence is a shared value with the Mahindra Group. Through this partnership, marking a qualitative leap to become one of the most important suppliers in our technology sector with presence in all regions of the world, and with a great future ahead."
What lies ahead?
What does this deal mean for Mahindra Systech? With the forgings business in the process of transition. M&M can focus on the existing businesses that include Mahindra Engineering, Mahindra Castings and the aerospace business. The deal also gives Mahindra access to new markets in Latin America and North America. Given the current slowdown in the Indian automotive sector and the developed auto markets as well as a sharply falling rupee, these are tough times for the automotive sector.
(With inputs from SumantraBarooah)