The Indian auto-components industry has experienced healthy growth over the last decade. Some of the factors for this are a buoyant end-user market, improvement in consumer sentiment and adequate liquidity in the financial system. The auto-components industry accounts for over 7% of India’s Gross Domestic Product (GDP) and gives employment to nearly 19 million people. India has become a favourable destination for investment due to a stable government framework, increasing purchasing power, large domestic market and an ever increasing development in infrastructure. During the last decade, the automotive components industry has grown by three times to US$39 billion, while exports have grown by leaps and bounds to US$10.8 billion. This has been driven by strong growth in the domestic market and increasing globalisation of several Indian suppliers. According to a recent study by Automotive Component Manufacturers Association of India (ACMA), the Indian auto-component industry is expected to register a turnover of US$100 billion by 2020.
The company supplies steering assemblies to Maruti Suzuki and global auto companies like Toyota, Tata Motors, Mahindra and Mahindra, Honda, Renault Nissan and Ford. Sona Autocomp has recently entered into an agreement with its collaborator JTEKT Corporation to sell its entire stake in SKSSL for a total consideration Rs 419 crore, at a price of Rs 84 per share representing 25.12% stake in SKSSL. The deal values SKSSL at an enterprise value of Rs 1,922 crore at the stock price of Rs 84 per share, representing a premium of around 34% to the average closing price of SKSSL stock during the last three months. The Japanese co promoter JTEKT Corporation will also be acquiring additional shares through an open offer representing 26% of Sona Koyo’s existing share capital at a price of Rs 84 per share from the public shareholders of the company. This transaction is expected to conclude by the first quarter of 2017-18 and on the full completion of the transaction, JTEKT Corporation would have increased its stake to 71.22% in the company from the current 20.10%. This would make SKSSL an integral part of the largest steering system company in the world and bring global scale to the company.
The Sona Koyo stock is presently hovering around Rs 82 on the Indian bourses and is an excellent buy by portfolio investors for 15 months, with a price target of Rs 140.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.