India's Amtek readies $250 mln to buy firms abroad


By Narayanan Somasundaram

MUMBAI, May 19 (Reuters) - Indian auto parts maker Amtek Auto Ltd. has earmarked $250 million to buy companies in the United States and Europe, where vehicle makers are cutting costs by sourcing components from Asia, a top official said on Friday.

Amtek, which makes transmission, gear box and engine parts, would spend another $100 million to expand manufacturing in India to cater to the factories of acquired entities, Finance Director Santosh Singhi said.

"We are likely to get deals at very good valuation. These (acquisitions) can take care of our next two to three years' business," Singhi told Reuters over telephone.

Amtek was in talks with acquisition prospects and could close some deals in the next few months, Singhi said without elaborating.

The move marks the company's return to the market for acquisitions after a year-long breather, before which it spent about $100 million to acquire 5 auto component firms and two factories in the U.S. and Europe.

"We are returning after a 12 month sabbatical," he said adding the earlier acquisitions would contribute to Amtek's profitability substantially from the financial year to end June 2007.

Exports of auto components from Indian firms, whose manufacturing costs are 30-40 percent lower than in the West, have grown by 25 percent annually in recent years.

"The main arbitrage is coming from manpower," Singhi said. Wages account for 6-7 percent of sales of Indian companies, compared with about 35 percent for Western competitors, Singhi said.

Amtek typically shifts part of manufacturing of its acquired firms to India and supplies them raw materials and castings.

The company this month raised $250 million through 5-year convertible bonds and has cash reserves of another $100 million to fund the acquisitions and expansion.

Amtek, he said, was trebling its forging capacity to 220,000 tonnes a year and production of casts to 130,000 tonnes.

The company planned a 2.5 billion rupee spend for the year to March 2007 to meet current demand, Singhi said. "This is likely to increase once we acquire overseas firms and (the) demand increases."

Consulting firm McKinsey & Co. has forecast India's exports can hit $20-$25 billion by 2015, as nearly 40 percent of an estimated $1.7 trillion in auto components is likely to be outsourced to low-cost centres by then.

Besides Amtek, other Indian auto parts makers such as Bharat Forge Co. Ltd , Motherson Sumi Systems Ltd. , Sundram Fasteners Ltd. and units of Tata Motors Ltd. have recently acquired firms abroad.

Meanwhile, a brokerage tracking Amtek said the company was looking at firms offering a potential of $500 million in sales.

"Post-consolidation, Amtek would emerge as one of India's largest auto component players," the report from Motilal Oswal Securities said.

Amtek shares ended 4.4 percent lower at 305.05 rupees in the Mumbai market.



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