Indian automotive wheel rim maker plans to raise $16 million by December by selling stakes in phases to global wheel rim makers, Managing Director Dheeraj Garg said Monday.
"We will sell a 2%-3% stake in the first phase," Mr. Garg said in an interview. "We will sell more stakes to raise the $16 million by the end of this year." He didn't specify the size of the stakes that would be sold in the other phases.
"We are still in talks with a few global companies," he said. "We aim to sell the stake at more than 595 rupees ($13.3) per share. We had concluded a deal at that price, and I think that's a fair valuation." Mr. Garg was referring to South Korean company a 2.5% stake in Steel Strips in December 2010 for 595 rupees per share for a total of 224 million rupees, or about $5.04 million at current exchange rates.
However, Steel Strips shares are now trading at about half that valuation. The stock Monday surged on Mr. Garg's comments, rising 15.7% before closing 11.7% higher at 299.15 in a Bombay Stock Exchange market up 0.3%. Steel Strips had planned to conclude the stake sales by June, but the plan was deferred due to "volatile market" conditions, Mr. Garg said.
Mr. Garg said the founding family of Steel Strips will continue to hold at least 50% of the company after the stake sale. The founders now own 51%, but they are buying shares from the public and may issue preferential stock as well, Mr. Garg said. Tata Steel Ltd. unit Kalimati Investment Co. has a 8.5% stake in Steel Strips, while Japan's Sumitomo Metal Industries Ltd. owns 5.7%. The remainder is held by the public.
Growing demand for new vehicles in India has made the South Asian country an attractive investment destination for global auto parts makers. Several Indian parts makers such as Lumax Industries Ltd., Sona Koyo Steering Systems Ltd., Behr India Ltd., Gabriel India Ltd., Federal-Mogul Bearings India Ltd. are joint ventures between local and overseas companies. Steel Strips is also among several Indian companies benefiting from the plans of global auto makers to source parts from emerging markets such as India and China. Steel Strips' customers include Volkswagen AG, Daimler AG, BMW AG, Renault SA and Nissan Motor Co.
Mr. Garg said Steel Strips plans to use the proceeds from the proposed stake sales to construct a factory in the western Indian city of Pune. In March, the company said it plans to invest up to 1.75 billion rupees to make wheel rims for construction equipment, tractors and cars at Pune. Steel Strips will also decide by November whether to build a factory in Morocco to supply wheel rims to Renault. In November 2009, the company received an order to supply 3.0 million wheel rims to the French auto maker over five years.
"This will require much lower investment than any of our greenfield projects in India," Mr. Garg said. The Morocco factory will start with an initial capacity of 2.5 million wheel rims a year, that will be doubled to 5.0 million in phases, Mr. Garg said, without elaborating.
Mr. Garg said Steel Strips expects export volume in the financial year which began April 1 to more than double to 2.0 million wheel rims, while local sales are expected at 13 million wheel rims, up from 9.7 million in the previous year.
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