Calcutta, Feb. 19: Hindustan Motors (HM) will hive off its component business into a separate subsidiary and induct a private equity partner ' Actis ' into it.
The deal, which was approved by the company's board in New Delhi, will improve HM's cash flow by Rs 265 crore. The company plans to use the fund to develop its core automobile business.
Under the deal, the power unit plant in Indore and the power products division at Hosur will be carved out into a subsidiary called AVTEC Ltd. Actis Capital LLP, a UK-based fund, will pick up a 30 per cent stake in the new company.
The promoters of Hind Motors, the GP-CK Birla group, will also pick up a 21 per cent stake in the subsidiary. The remaining 49 per cent will be with Hindustan Motors.
Market sources said Actis would pay Rs 80 crore for the stake.
Going by the price being paid by Actis and the GP-CK Birla group, the enterprise valuation of the subsidiary is around Rs 423 crore.
AVTEC will be India's largest independent engine and transmission (powertrain) manufacturing company. The component business is expected to record sales worth Rs 375 crore this fiscal.
The power unit plant division of Indore manufactures engines, transmissions and components for automobiles. The power products division at Hosur makes automatic transmission and components for off-highway heavy-duty vehicles like dumpers, loaders and dozers as well as on-highway vehicles.
The component division supplies products to global majors like General Motors, Ford and Caterpillar. It also caters to Indian players like BEML and Mahindra & Mahindra.
To strengthen the component business further, Actis and the promoter group would invest Rs 30 crore more into AVTEC.
The company plans to develop forging and castings- based components business at the Uttarpara unit and invest in newer models in the Lancer range as well as increasing the sales of the Ambassador.
'This transaction will augment the resources required for this purpose,' HM managing director R. Santhanam said.
Hindustan Motors, which has been reeling under heavy losses for years now, turned corners during the quarter ended December 31. It has posted a profit of Rs 1.76 crore over net sales of Rs 242.72 crore.
Following the restructuring, HM will now be a pure play automobile company having plants at Chennai and Calcutta (Uttarpara). The company rolls out the Mitsubishi Lancer from Tiruvallur (Chennai) in technical collaboration with Mitsubishi Motors of Japan.
The automobile division at Uttarpara makes passenger car ' the Ambassador ' and multi utility vehicles ' the Trekker, Porter and Pushpak.