Adhunik to offload majority stake in forgings arm

The Agarwals of the Adhunik Group, which has presence in steel through the listed entity, Adhunik Metaliks, and also in mining and power, are in the process of offloading majority stake in an automobile forging manufacturer, Neepaz V Forge (India) Ltd to a strategic investor.

The promoters of Neepaz V Forge, which counts Tata Motors among its major clients, have already kick-started the disinvestment process and have given a mandate to Enam Securities to identify an investor, which could be an overseas auto-component manufacturer, Manoj Agarwal, managing director of Adhunik Metaliks told DNA Money on Thursday.

“We want to focus solely on steel, power and mining and consider forging to be a non-core operation which can be further developed by bringing in a partner. We have given the mandate to Enam and prospective investor could be from Germany or Japan where firms specialises in high-quality forging,” Agarwal said.

Neepaz makes automotive products such as crank shafts, under brackets, steering knuckles, steering arms, tie rod arms, cam shafts, spindles and several other forgings for major OEMs such as Tata Motors, Ashok Leyland, Mahindra & Mahindra, John Deere, Escorts and Dana Spicer.

The Agarwals acquired the company in 2007 with Adhunik Metaliks holding the majority 73.8% stake but it was brought down to 59.20% through inter-group transfer during 2010-11.

Apart from equity investments, the Agarwals have put in long-term debt of about Rs111 crore in Neepaz. The Agarwals don’t want to exit Neepaz fully, but would retain a significant minority stake in the forging arm: while Adhunik will supply the autograde steel to make the forgings, the strategic partner would bring in the requisite technology.

“We will maintain a minority stake and keep on supplying the autograde steel as raw material to them and help them grow multi-fold,” Agarwal said.

Ever since it was taken over, the Agarwals have been investing in Neepaz’s capabilities and in January a fully robotised 8,000 tonne press line was set up taking its installed capacity to 56,000 tonne a year.
The new investment would help Neepaz double its turnover this year.

“We expect Neepaz’s turnover to double to around Rs300 crore in the current fiscal from about Rs150 crore in 2010-11 with the commissioning of a new press shop at Aurangabad. The expansion will help the company to meet the entire demand of leading automobile players,” Agarwal said.
Agarwal refused to divulge the amount that can be generated from the stake sale but said the money would be predominantly be used to retire some of the Adhunik Metaliks’ debt.

Aggressive expansions in mining and power have made Adhunik’s balance sheet highly leveraged with a debt:equity ratio of 2.69, leaving little room to raise further debt. “We need to retire some of our debt and bring it anywhere between 1.75 and 1.6,” Agarwal said. Adhunik invested Rs1,456 crore in 2010-11 as capital expenditure of which Rs1,000 crore went into its power venture.  This apart, Adhunik invested more than Rs300 core in coal, iron ore and manganese mines.