Yash Birla puts restructuring of auto part firms on hold

A major restructuring plan of the auto parts division of the Rs 3,000-crore Yash Birla Group has hit a roadblock. Impacted by the exit of some key senior executives from the group and by the economic downturn, the group has decided to put the consolidation plan of the auto component division on hold.

The group was actively scouting for acquisitions to beef up business for the four auto component manufacturing companies it has. Additionally, the four companies, Birla Perucchini, Birla Kennametal, Dagger Forst and Indian Tools Manufacturers were to operate under a common company called Birla Auto and Engineering.

PVR Murthy, Director Finance, Yash Birla Group, said, “There has been a change in the original plan. Due to the adverse prevailing market conditions, we have decided to hold back our original plans.”

As a result, the group has downsized its investment for the four companies by 15-20 per cent. It will now invest about Rs 100 crore instead of the earlier estimated capital expenditure of more than Rs 120 crore.

This fresh fund infusion, however, will not have any debt component and will be purely sourced from the group’s own reserves and surplus funds.

After the successful formation of the holding company - Birla Auto and Engineering, the group had planned to list this entity on the stock exchanges and thereby raise equity to meet the expansion targets.

According to sources, the Yash Birla group would have invested a total of Rs 350-400 crore, including debt and proceeds from the initial public offering (IPO) proceeds among other means, in the four companies as part of the integration and expansion process.

The Yash Birla Group’s auto restructuring plan was expected to commence by mid-January when audit company Ernst & Young was supposed to submit its report on the financial restructuring.

A change in the operating structure was also scheduled to take place which would have involved induction of new personnel into four companies or the main holding company.

The new entity will have a head for each of the different verticals like manufacturing, IT and HR which will be common for all the companies.

The severe slowdown in the automotive space has impacted plans of most original equipment and component manufacturing companies in India. In addition, the export of components from the country has also been hit due to falling demand from the overseas market.