AIG Global Investments, the private equity arm of American International Group (AIG), is putting in close to $20 million in Uniparts, a Rs 500-crore company that specialises in making machinery for the construction and agricultural equipment sector, a niche segment within the auto ancillary sector.
This is AIG’s third investment in the last three months and second in the auto sector with Kinetic Engineering being the other investment. Mr Ashish Kumar of AIG will sit on the board of Uniparts. Paramjit Soni, founder and managing director of Uniparts, confirmed about the deal to ET.
AIG’s investment in the sector is a bit counter-intuitive because the entire auto component sector has taken a beating over the last year. A slowdown in consumer demand (especially trucks) has affected the domestic market while the rising rupee has hit the exports market. But Uniparts, say industry experts, operates in a niche that makes it different and more profitable.
The Delhi-based company is the world’s largest manufacturer of the Three Point Hitch. “We made 400,000 of the 1.1 million hitches that were sold globally last year,” says Mr Soni. Making a three point hitch is not sophisticated. The primary benefit of a three point hitch is to transfer the weight and stress of an implement to the rear wheels of a tractor. “What makes us different is that the tractor manufacturer has to simply tell us the parameters that it wants.
We do the design, validation, manufacturing and then supply the entire system to the customers,” says Mr Soni. It is because of this that the company enjoys almost 40% gross margins, higher than many companies in the auto component sector. It also competes with companies in Western Europe and Japan with CBM of Italy being one of its key competitors.
Uniparts also has a mix of nearshoreoffshore manufacturing sectors. It has two plants in the US in Augusta and Eldridge, one plant in Holland and four locations in India. “This allows to offer lowcost as well as quick time to market to our customers,” says Mr Soni. One of the auto component sector’s key woe has been the appreciation of the rupee.
But Uniparts seems to have worked its way around that. “We have really long-term contracts with our customers to lock-in the exchange rate and we also have a clause in all contracts that revises the pricing if the exchange rate crosses a certain threshold. It is a measure of our close integration with our customers that we get them to accept these terms,” he says .
Source: Economic Times