Rothschild sees consolidation in auto parts makers
MUMBAI, Aug 27 (Reuters) - Consolidation in the global automotive parts industry has been slowed but not stalled by the credit crunch as suppliers are still looking for scale, new capabilities and clients, according to Rothschild [ROT.UL].
Automotive suppliers are facing one of the most competitive environments ever, with increasing raw material prices, higher fuel prices and greater pressure from vehicle makers, the investment bank and advisory firm said in Mumbai on Wednesday.
While private equity-fuelled acquisitions have dried up, there may be opportunity for firms to buy distressed assets in markets that have been affected to a greater degree by the credit crunch and by slowing vehicle sales, said Thomas Kaestele, a German-based managing director of the firm.
"In the current scenario, acquisitions are more difficult as financing's dried up and expectations of buyers and sellers are different," said Kastele, who co-authored a recent worldwide study by Rothschild of automotive suppliers.
"But it also throws up opportunities for consolidation."
The tough business climate was making companies more risk averse, he said, with firms taking longer over due diligence and deals also taking more time to complete.
"Investors are generally more wary about the automotive industry's prospects for the next couple of years," he said.
The Rothschild study showed profitability of auto parts makers in western Europe, Japan and India had improved over the last six years, while suppliers in North America, China and Korea have suffered.
"Indian suppliers have, in the last couple of years, managed to keep costs down even while growing," Kastele said, adding that Amtek Auto Ltd (AMTK.BO), Bharat Forge (BFRG.BO) and Subros Ltd (SUBR.BO) were the most profitable of Indian parts makers.
"But they will need greater scale and greater efficiencies to remain profitable. You need a certain critical mass ... when you're small, you don't get airtime of your client."
India's Automotive Components Manufacturers Association estimates the outsourcing potential for Indian parts suppliers to rise to $25 billion by 2015.
"Indian firms have bought distressed assets and turned them around successfully, but you will also start to see some inward acquisitions," Kastele said. (Reporting by Rina Chandran; Editing by John Mair)
