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In its second innings, Sona Group merges with Comstar, prepares for an electric future

The combined entity Sona Comstar will utilise the expertise of both the companies in their respective domains to create an integrated electric drive unit to power drivetrains of electric vehicles

twitter-logoSumant Banerji | August 30, 2019 | Updated 19:17 IST
In its second innings, Sona Group merges with Comstar, prepares for an electric future

In a fresh life of sorts, Gurgaon-based Sona Group that made a name for itself in the automotive component business by applying steering systems to Maruti Suzuki, on Friday, said it was merging itself with the Chennai-based parts maker Comstar backed by leading alternative asset management firm Blackstone to form a new entity Sona Comstar.

Sona Group had in 2017 exited the steering systems business-Sona Koyo, by selling its stake to its Japanese partner JTEKT, and has since been focussing itself on producing automotive drivetrain solutions under Sona BLW Precision Forging Ltd. It produces precision-forged bevel gears and differential assemblies for passenger, commercial and off-highway vehicles and has a major presence in the Indian market and overseas markets in Canada, USA, Europe, and China. Presently it has six manufacturing plants spread across Gurgaon (4) and Pune (2) and an R&D center in Gurgaon.

Comstar designs, engineers and manufactures starting and charging systems for passenger and light commercial vehicles across the globe. Its products include BSG and ISG systems for full-hybrid vehicles, start-stop starter motors for mild hybrid vehicles, starter motors for conventional engines, as well as BLDC motors, alternators and other electrical motors. It has an installed capacity of over 6.8 million electric motors and operates four manufacturing facilities, one each in India, USA, Mexico and China and an R&D centre in Chennai. With more than 90 per cent exports, it has a presence in the USA, Mexico, Brazil, Europe, South Africa, China and India.

The combined entity Sona Comstar will utilise the expertise of both the companies in their respective domains to create an integrated electric drive unit to power drivetrains of electric vehicles. It will also enable the companies to combine their R&D efforts and create a joint technology roadmap and solutions. While it will allow Sona to expand its geographical footprint to China, US, Mexico and South India, Comstar will get access to North & West India and European markets. Both companies have almost no overlap in customers, enabling both to benefit from being able to offer their products to each other's customers. The combined entity will serve most major OEMs across passenger vehicles, commercial vehicles and off highway vehicles in USA, Europe, India and China.

"This transaction marks the amalgamation of mechanical and electrical capabilities of two world class companies. We will now offer our customers integrated technology products and solutions for hybrid, EV as well as conventional powertrains," says Sunjay Kapur of Sona Group who will become the chairman of Sona Comstar. "With our EV focused automotive technology platform, we will cater

to the future of the automotive industry. Sona Comstar will be among the largest auto component companies of the country."

The process of the two companies coming together has seen much change of shareholding in both companies largely led by Blackstone. The asset management firm aims to create an auto component platform to execute a buy-and-build thesis in India and had acquired Comstar Automotive Technologies in 2018 from private equity firm Argyle Street Management and the Chandaria family for Rs 1000 crore.

Sona BLW Precision Forging has its genesis in 1995 as Sona Okegawa Precision Forgings was a 75:25 joint venture between the Sona Group and Mitsubishi Materials. The Sona Group in January 2008 acquired a much larger company than itself in Thyssenkrupp's forging business. While it became the largest manufacturer of forged gears in the world, it left Sona Group with a substantial debt overhang, something that came back to haunt them after the Lehmann collapse induced global slowdown of 2008-10.

"It was a big gamble. We bought the asset at the peak of the cycle when the valuations were at the highest. Right after that the global recession bit us and sales from the German operations dropped by almost 50-60 per cent," agreed Kapur. "We do cite the example of Tata Steel and Corus, where a company acquired a much bigger firm and fell into the debt trap due to the recession that was at that time unforeseen.  However, it gave us a great platform for understanding global customers. It is very different doing business in Germany and Europe than in India. Now we have completely recovered from it. We are almost debt free in Germany and India."

In 2017, post the sell-off of the steering systems business to JTEKT through which Sona Group got a little over Rs 850 crore for its 51.12 percent stake in Sone Koyo steering systems, the group focussed itself on the precision forging business and bought out the 25 per cent Mitsubishi Minerals stake in Sona Okegawa. It then renamed the company to Sona BLW precision Forging.

"We realised that exiting Sona Koyo had become necessary as we did not have any technology with us. It was entirely with our Japanese partners," Kapur said. "So as the technology is evolving, they wanted to put in more equity and investments and we thought it was a good time to exit and look at another business where we will develop and own the technology. That is the main difference between how we did business earlier and now. We are a more technology driven company now with our own robust R&D set up."

With Kapur's Sona Group owning a 67 per cent stake in this company, Blackstone bought out the remaining 33 per cent stake held by JM Financial and further invested primary capital (undisclosed) in Sona BLW to combine it with Comstar. In the new combined entity, Sona Group has a 35 per cent stake and Blackstone is the majority shareholder with a 65 per cent holding.

"The Indian automotive components space is attractive, both with India as a manufacturing hub for exports and as a domestic market. Sona has exceptional engineering capabilities, deep customer relationships, and a strong management team that has helped sustain its leadership position," said Amit Dixit, Senior Managing Director and Head of Blackstone India Private Equity. "The combination of Sona and Comstar is highly synergistic. There are opportunities to add on to this buy-and-build platform in this fragmented sector, especially in the current environment."

A Japanese partner (JTEKT) has been replaced by an ambitious private equity firm (Blackstone) while the father-Late Dr Surinder Kapoor who founded Sona Group - has been succeeded by his son Sunjay Kapur.

It is a new beginning for Sona Group.

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