Tata opportunities fund buys up to 15 per cent in Varroc for Rs 300 crore

Mumbai: Tata Group's private equity (PE) fund Tata Opportunities Fund (TOF) has bought around 15% stake in Aurangabadbased auto component maker Varroc group for $50 million (Rs 300 crore), the fund announced on Thursday, making this its first investment outside the Tata Group companies.

Varroc, India's third-largest auto components maker will use the funds to expand its capacity and partly pay off its outstanding debt, Padmanabh Sinha, managing partner of Tata Opportunities Fund, said in a telephonic interview. ET had first reported about the PE fund's proposed investment in Varroc on January 30 this year.

Promoted by first generation entrepreneur Tarang Jain, Varroc began selling auto components to the Bajaj group in the late 90s, and then to other vehicle makers too. Today, the company has revenues of more than Rs 7,000 crore with almost half of it coming from its overseas operations. Investing in the manufacturing sector at a time when it has lost larger investor interest is a big bet for TOF.

"We believe manufacturing is the need of the hour, and in a couple of years, this industry will bounce back. We will continue to selectively look for such assets with strong entrepreneurs and good governance," said Sinha. TOF, which is the flagship PE fund of the group, will continue to invest around $150-200 million every year.

While it is open to exploring secondary opportunities where an existing fund is looking to cash out of an investment, searching for proprietary deals will continue to be the fund's focus, Sinha said. It would stay away from auction processes run by investment bankers. In the past, the fund had invested in economy hotel chain Ginger Hotels, and Tata Sky, the group's direct-to-home satellite television provider.

In Varroc, TOF gets a high-growing leader in the auto components sector which is riding on the boom in two-wheeler segment which is partly a rural and urban play. Varroc had grown through acquisitions in the global market. In 2012, it had bought the US-based Visteon Lighting for $100 million.

"My team will be able to leverage the intellectual and infrastructural network provided by our partners in advancing the strategic agenda of the company and create value for all stakeholders. TOF and its team of investment and operating professionals not only bolster us financially , but also provide us a strategic springboard which enables us to leapfrog into the next cycle of our growth," Jain, MD of Varroc, said.

The company plans to list on the bourses in 3-4 years, before which some 'growth and transformational' measures will have to be undertaken to take the company to the next level, Sinha added.

Apart from 21 manufacturing plants in all the major auto hubs across India, Varroc has a global manufacturing footprint in lowcost countries spanning Mexico, China and the Czech Republic. The group has marquee clients including JLR, Ford, Tesla, GM, Volkswagen, Bentley and Nissan in the global market and players such as Bajaj, Honda, Yamaha, Hero, Royal Enfield, Mahindra and Tata Motors in the domestic market.

PE and strategic investors have started investing in auto component makers as a slowing economy offers them cheaper assets. The automobile industry's turnover touched $40.6 billion in 2012-13 and is expected to reach $115 billion by 2020-21.

According to the 2012 report by Auto Components Manufacturer's Association, by 2020, the auto component market in India may reach around $84 billion.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.