Will look at reshuffle of Shanthi Gears: Tube Investments

Tube Investments of India has confirmed to CNBC-TV18 it will buyout the entire 44.12% stake from Coimbatore-based Shanthi Gears’ promoters. Tube Investments will acquire about 3.60 crore shares owned by Mr Subramanian in the Coimbatore-based gear and gear box manufacturer at Rs 81 a share.

L Ramkumar, the managing director of Tube Investments says the company will make an open offer post the acquisition which is expected to be funded via internal accruals. Currently, the debt equity is at 1.5x. Post the deal, Ramkumar says it will look to restructure Shanthi Gears’ board.

Below is an edited transcript of his interview.

Q: Can you confirm that you are buying 44% in Shanthi Gears?

A: I can confirm this. We had a board meeting this morning where this transaction was approved. We will be acquiring 44.12% that is held by the promoters of Shanthi Gears.

Q: At what price has this acquisition been done?

A: It is at a price of Rs 81 and it will be an outlay of Rs 292 crore.

Q: Further to this, will there be an open offer?

A: Yes, as per the regulations we will be doing an open offer.

Q: What will the quantum of that be?

A: We will have to make an offer to the extent of 26%. If people put in up to 26%, our total outlay including what we buy from promoters will be Rs 464 crore.

Q: How are you going to fund this buy? How much cash do you own in your books? Will you be looking to raise any debt?

A: We have a fairly healthy debt equity ratio. At this point of time we are looking at all options of funding this and we will be able to finalize this soon.

Q: How much cash is lying in the books of Tube Investments currently and what is the debt currently at?

A: Tube Investment has got long-term debt equity ratio of 1:0.5. To that extent there is no surplus cash except what we have for short-term kind of usage and we have a leveraging position if we want to take some loans.

Q: What are the synergies that you will be gaining from this acquisition?

A: A couple of things. We are in the industrial chain business, which is in power transmission and gearbox also is a part of industrial power transmission. We have wanted to up the value chain from the current crop of chains into more specialised chains and related systems. One of the things we did was the acquisition of a company in France called Sedis which is into industrial gears. Shanthi Gears will be a little higher in terms of gearbox and gears itself.

The second important thing is, apart from bicycles, the bulk of our balance business is dependent on the auto sector. We also wanted to de-risk and have exposure to other sectors which are also growing in this country. These will be the two objectives and that’s the way it will help the company in terms of growth and future prospects.

Q: Will the existing management continue or will there be a new management put in place now?

A: I think after the transaction is over we will look at restructuring and bringing in new managers from the Murugappa Group.

Q: What would this restructuring be? How will it add to the current business of the Murugappa Group?

A: We are discussing it with them. We have a healthy relationship with the promoters so we need to work it out jointly.