The Hindu : Business : Sundram Fasteners' 76:24 venture with German firm

Online edition of India's National Newspaper
Tuesday, Oct 26, 2004

Business

Business

Sundram Fasteners' 76:24 venture with German firm

By K. T. Jagannathan

CHENNAI, OCT. 25. Sundram Fasteners Ltd. (SFL) has joined hands with Bleistahl Produktions Gmbh & Co. of Germany to float a joint venture to make valve train parts, including valve guides and valve seats, in India. SFL will hold 76 per cent in the joint venture, christened Sundram Bleistahl Private Ltd. The family-owned German firm will have 24 per cent stake in the new venture. The joint venture will be a 100 per cent EOU (export-oriented undertaking).

According to Suresh Krishna, Chairman, SFL, the German firm will transfer plant and equipment into the joint venture for re-location in India. These will come into the Indian venture line-by-line as the new company gains familiarity with technology and production. These will be paid for in cash by Sundram Bleistahl once the valuations are made.

Addressing a press conference here today, Mr. Krishna indicated that the new facility would most probably come up at Hosur in Tamil Nadu as SFL already had land, tool room and related infrastructure there.

Initially, the venture would make valve guides for supply to Bleistahl. He estimated the immediate capital outlay for the project at Rs. 20 crores. At least Rs. 10 crores would come via equity fund and the balance would be raised through debt. Over time, the venture would take up production of valve seat inserts and valve train parts. To a question, Mr. Krishna said the new venture could see an investment of Rs. 120-140 crores in the next 5-7 years. Asked on the job potential of the upcoming project, he said it could provide employment for about 40. Mr. Krishna said the venture could fetch sales of Euro 4 million in a full year. This could go up to Euro 25 million over seven years as it took up production of more items, he added. The new venture would go on stream in the second quarter of next financial year.

Entry into Europe

The Euro 45-million Bleistahl has under its fold top-notch clients such as Audi, BMW, Daimler Chryser, Ford, General Motors, and Mitsubishi. Surely, the tie-up with Bleistahl gives SFL Godsend opportunity to gain entry into Europe and access to some prestigious clients. It has joint ventures in China, Brazil and South Africa.

In India, however, it has settled for a junior role with SFL playing the senior partner. Among the auto component firms, SFL, though a quiet player, has been hitting the headline oftentimes these days. It may be recalled that SFL became the first in the Indian engineering industry to kick-start a manufacturing operation in China early this year. Late last year, it spread its wings to the U.K. by acquiring the precision forgings business of Dana Spicer Europe. Much earlier, it took over Autolec, a company in its own territory.

Change in tactics

The alliance with the German firm has sort of surprised long-time watchers of Mr. Krishna who always held that if an Indian firm were to become a multi-national company it should not have any joint venture. He insisted that SFL was indeed independent and justified the arrangement with the German firm on the ground that exigencies of time required a change in tactics. While conceding that there was some dilution in his view, he, nevertheless, pointed out that SFL was a majority partner in the joint venture. Though SFL stood its ground on the majority position, the German firm had agreed for an alliance. This spoke volume for the company's stature.

Mr. Krishna, nevertheless, admitted that but for the German tie-up SFL could never imagine entering Europe. The alliance obviated the need for spending huge time, energy and money in re-inventing the wheel, he pointed out.

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