Even as it initialled a share purchase pact with the promoters of Shanthi Gears , Tube Investments of India Ltd. (TII) is keeping its options open on the mode of financing the acquisition.
In an interaction with this correspondent, L. Ramkumar, Managing Director, TII, said the long-term debt to equity ratio of TII was 0.5. This could be leveraged to raise debt, he said. He, however, hastened to add that “no conclusion on the funding mix has been arrived as yet. We are now only talking to people.’’
With this acquisition, TII, for the first time, will have a production base in the textile city of Coimbatore. In the race for Shanthi Gears, the Murugappa Group pipped to the post big names such as Suzlon, Bharat Forge and Triveni Engineering. With TII willing to fork out in excess of Rs.450 crore for a Rs.178-crore turnover company, the company is sending out message that the Murugappa Group is willing to bet on the long-term. Mr Ramkumar said that TII was looking at opportunities in engineering-oriented companies in non-auto segment. Excluding cycles, 25 per cent of the company’s turnover came from the non-auto segment. “We want to move this up,’’ he said. The objective was to have a right balance between auto and non-auto businesses, he pointed out. Mr. Ramkumar said Shanthi Gears had good capabilities in terms of tooling, machining and foundries. As such, “it is useful for us in the long-run,’’ he added. He said Shanthi Gears would add value to TII, which could now offer “integrated systems’’ to its industrial clients.
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To a question, he asserted that, “we paid a fair value’’, and insisted that Shanthi Gears had the potential to reach higher turnover and profitability with “some efforts from our side.’’ Though the Coimbatore-based company had been operating at less than half its capacity, Mr. Ramkumar said, “We can leverage it to turn it (the company) into a better performing and profitable company.’’
In the short-term, the thrust would be on winning back customers, he said. Shrinking production, lower sales and reduced customer base had all led one to the other, he pointed out. In the medium-term, the thrust would be on adding products and customers. Also, the emphasis would be on identifying synergistic projects where both TII and Shanthi Gears could work jointly, he added.
Mr. Ramkumar said, “There will be no need for immediate investment in the company (Shanthi Gears).’’ Should the need arise, TII would chip in with funds, he asserted. The Managing Director said the long-term outlook for the economy “is still good.’’ He insisted that TII would find funds if “they are required for strategic importance.’’
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