Schlegel eyes rail, truck business

The company was open to diversifying into these sectors both in India and globally, David Boynton, managing director for global operations of Schlegel Automotive Europe, told Business Standard.

Ruia Group's flagship Jessop & Company was one of the major manufacturers of railway wagons and multimodal transport systems.

Boynton said the systems were used in high speed trains all over Europe, and mentioned Spain as a comparable market.

Schlegel was one of the three leading manufacturers in the world supplying rubber-based sealing systems as an original equipment manufacturer (OEM) to top-end models of global auto brands like Toyota, Nissan, BMW, Honda, Jaguar and Aston Martin.

It enjoyed a 21 per cent market share in the UK.

The Indian arm of Schlegel UK was called Schlegel Automotive India.

Dunlop and Schlegel had substantial operational synergies and this could help in cost management in India, said Boynton of Schlegel.

SAEL used a high-end synthetic rubber variant called EPDM sourced from DuPont and Exxon and this was the only raw material not used by Dunlop.

All the other raw materials like carbon black, zinc oxide and curing agents were purchased in bulk by Dunlop in India and could now be available to SAEL at lower cost, Boynton explained.

EPDM constituted around 20 per cent of the compound cost for sealing systems.

SAEL would bring down the selling price for buyers if they offered higher volumes, Ruia said.

According to Ruia, GFL acquired Schlegel in a slump sale at a consideration well below the net worth of the company.

Sources indicated the acquisition deal was worth around $15 million but Ruia refused to confirm the transaction value.

The deal was funded partly from internal accruals and partly by a $12 million line of credit from the State Bank of India.

The SPV had committed to invest over $6 million in plant and machinery to expand the current production line of Schlegel's Coalville plant.

This apart, machinery from a shut-down US plant was on its way to India.

Pawan Ruia said the SPV would set up a plant with an investment of $15 million.

Though the location of the mother plant in India was yet to be decided, in all likelihood it would come up near Chennai.

As shipping sealing systems was a logistics nightmare, the SPV would have smaller finishing plants at various locations closer to consumers, Pawan Ruia said.

Besides the India plans, Ruia said Schlegel would be expanding into other locations like South Africa and South America where it already had an established client-base.

It could come up with a plant at any of these locations in a year's time.

In its sixth acquisition since 1998, the Pawan Ruia promoted UK-based special purpose vehicle (SPV) Global Finvest Ltd (GFL) acquired the Coalville, Leicestershire-based, automotive sealing systems manufacturer SAEL in March this year for an undisclosed sum.

Schlegel UK had asset size of approximately $30 million and turnover in 2006 was approximately $56 million, but was losing money because of low capacity utilization and large outstandings from some clients.