M&M Auto Case Study M&A – Synergies 5th Sept-08 1 Mergers & Acquisitions In-house Investment Banking Solutions Environment continues to remain favorable $20Bn * $20Bn *2015 India Advantage Suppliers driving i innovation ti LCC Addressability 500 Bn Auto industry share of India’s GDP: from 5% to 10% by 2015 N. American suppliers under severe pressure p essu e Source : ACMA, SIAM, BCG Research Partnering across verticals Increasing Vendor rationalisation Autocomp contribution to India 3.5 mn jobs by ’15 5% of GDP by ‘15 2 Mergers & Acquisitions In-house Investment Banking Solutions Mission Statement T create To t IIndia’s di ’ mostt V Valuable, l bl IInnovative, ti “Art to Part” auto component entity that partners with its global customers to meet & surpass their business needs 3 Mergers & Acquisitions In-house Investment Banking Solutions The Vision 2010 X $1Bn X $1Bn 4 Mergers & Acquisitions In-house Investment Banking Solutions Conception M&M Automotive Farm Equipment Engineering Design Engineering Design Styling Styling Assembly Assembly Testing Testing M k ti / SSales Marketing l M k ti / SSales Marketing l Purchasing Purchasing Gear Manufacturing Gear Manufacturing Transmission / Axle Transmission / Axle Sheet Metal Stamping Sheet Metal Stamping F Foundry d F Foundry d SYSTECH MES 5 Mergers & Acquisitions In-house Investment Banking Solutions Adolescence M&M Automotive Farm Equipment Engineering Design Engineering Design Styling Styling Assembly/Mfg Assembly/Mfg Engine/transmission Engine/transmission Marketing / Sales Marketing / Sales Purchasing Purchasing Gear Manufacturing Gear Manufacturing Drive Train / Axle Drive Train / Axle Sheet Metal Stamping Sheet Metal Stamping Foundry Foundry SYSTECH MES 6 SSBU Mergers & Acquisitions In-house Investment Banking Solutions Growing up M&M Automotive Farm Equipment SYSTECH SSBU Engineering Design Engineering Design Styling Styling Assembly Assembly Testing Testing Marketing / Sales Marketing / Sales Purchasing Purchasing Gear Manufacturing Gear Manufacturing Gear Manufacturing Transmission / Axle Transmission / Axle Forging Sheet Metal Stamping Sheet Metal Stamping Sheet Metal Stamping F Foundry d F Foundry d Foundry 7 MES ACBU Mergers & Acquisitions In-house Investment Banking Solutions Forgings: Global Strategy USA/Canada Market Expansion Import Technology/Skill Product portfolio EUROPE expansion CHINA Market Expansion Future Growth Market INDIA Low-cost base Capacity PH. I (2005-06): Build Capacity PH II (2006 PH. (2006-07): 07) Build B ild Capability C bilit World-class quality SCM capabilities/Brand build-up PH. III (2007 - ): Build Global Co 8 Mergers & Acquisitions In-house Investment Banking Solutions M&A geared to fill strategic gaps Companies M&A Criteria i Amforge, India i Technology i Stokes Forgings, UK i Market Access i Schoeneweiss Forgings, i Quality of Management Germany i Location: L ti E Europe i Jeco Holdings, Germany i Complementary i Precision Engineering, product d t portfolio tf li India i Hinoday, India 9 Mergers & Acquisitions In-house Investment Banking Solutions M&A Strategy…we have acquired companies of pedigree Plant Year Established F lk Falkenroth th 1829 Schoeneweiss 1866 Jeco 1885 GSA 1891 Stokes 1908 Note: Falkenroth, Jeco & GSA are plants of Jeco Holdings 10 Mergers & Acquisitions In-house Investment Banking Solutions Forgings : Evolution Mahindra Forgings - Global • Mahindra Forgings p formed Europe • Machining at Stokes • China MOU • S Africa term sheet Organic Growth Inorganic Growth Both Acquired q Amforge Vauxhall machining line acquired Q2 06 Q1 06 Acquired Schoeneweiss 1st Steering knuckle machine line Stokes Acquired Q3 06 Q1 07 • 1st 4000T press at Chakan • New m/c shop 2nd steering at Jeco knuckle machining li line Acquired Jeco Crankshaft machining hi i line Q2 07 2nd 4000T & 6000T press at Chakan Q3 07 Q4 07 Grow Peak to Peak 11 Q1 08 Q2 08 Q3 08 Q4 08 Mergers & Acquisitions In-house Investment Banking Solutions Forgings : Enabling structure M&M MFL SCH JECO STOKES M&M: 47% Others: 53% M&M: 100% M&M: 67% Scholz: 33% M&M: 100% M&M MFL SCH MFL: 100% JECO MFL: 100% M&M: 60% Others: 40% STOKES MFL: 100% N t MFL h Note: holds ld Jeco J &S &Schoeneweiss h i th through hM Mauritius iti h holding ldi companies i 12 Mergers & Acquisitions In-house Investment Banking Solutions Mahindra Forgings: Among the five largest globally League of the Largest Global Forging Companies Revenue ($ Mn) FY07/CY06 Company, HQ Thyssen, Germany 1,419 Bharat Forge (BFL), India 923 Sumitomo, Japan 792 Hirschvogel, g , Germany y 594 MFL, India F 08 648 Amtek, India ~401 Aichi, Japan 370 Dongfeng China Dongfeng, 13 91 Mergers & Acquisitions In-house Investment Banking Solutions Source : M&M Research Opportunity to Create Value A off M As March h 26 26, 2008 Company Market Cap (Rs cr) P/E Ratio MICO 11850 20 Bharat Forge 6100 24 E id Exide 5450 24 Motherson 3500 27 High: 2600 Low:1600 1000 Avg: Low:13 8 High: 20 Avg: Amtek 951 7 Sundaram Fasteners 675 9.5 Rico 350 15 Mahindra Forgings Forgings* * Institutional investors have continued to increase holdings in Mahindra Forgings 14 Mergers & Acquisitions In-house Investment Banking Solutions The scale achieved is an advantage Operating Margin g (%) 20 Large g Company Set TOTAL 19 18 17 Small Company Set 16 15 FY 03 FY 04 FY 05 15 Source : Edelweiss Report on Indian Auto Component Industry FY 06 FY 07 Mergers & Acquisitions In-house Investment Banking Solutions …Getting Starting There. Out… SYSTECH MSAT SSBU ACBU STEEL STEEL COMPOSITES COMPOSITES MUSCO $$ 177 120 Million Million Siroplast + Acqn $$ 85 Million Million Foundry Unit CASTINGS + Acqn $ 65 Million $0 MES MES MES + Acqn $$ 33 10 Million Million Forging FORGINGS + Acqn, Amforge, UK, Sheet Metal STAMPINGS Kanhe, PSSL, Rudrapur Forge,Vauxhall, m/c $$ 46 30 Million Million $$564 40 Million Million Gear Unit GEARS SAR Auto + Acqn 10 Million Million $$ 17 16 FY07 :$215 Mn $910 Million Mergers & Acquisitions In-house Investment Banking Solutions Our ‘marquee’ customers 17 Mergers & Acquisitions In-house Investment Banking Solutions Systech: among the largest Indian auto comp groups within a few years Indian Companies FY08 Revenue Company (Rs Cr.) Bharat Forge 4,806 Amtek 3,763 MICO , 4,678 Comment Enviable track record 3,644 Tata Autocomp 3,372 Sundaram Fasteners 1,654 18 Mergers & Acquisitions In-house Investment Banking Solutions Walking the talk : our cutting edges •Fifth largest forgings company in the world •Engineering services is growing rapidly •Poised to recreate the forgings story in gears •Other growth areas: castings, stampings, p , steel aerospace, 19 Mergers & Acquisitions In-house Investment Banking Solutions Mahindra Forgings : Vision Leadership Global Innovation Financial • Top 2 in India - 2010 • Top 5 Globally - 2015 • Multi locational presence + India/China as low cost base • Diverse customer base • International management talent • Dominate D i t through th h cutting tti edge d technology t h l • Adoption of best processes & systems • Value added products for higher margins • International price with LCC cost 20 Mergers & Acquisitions In-house Investment Banking Solutions THANK YOU 21 Mergers & Acquisitions In-house Investment Banking Solutions