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Thursday, Aug 31, 2006

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India Pistons may merge IP Power with itself

M. Ramesh

`The merger would make revival of subsidiary easier'

IP Power Cylinder systems was set up to produce liners mostly for exports of cylinder liners. That did not quite happen, so India Pistons intends to merge the company

Chennai , Aug. 30

India Pistons Ltd, one of the country's leading manufacturers of automotive pistons, is considering merging one of its subsidiaries, IP Power Cylinder Systems, with itself.

Earlier called AEIP, the subsidiary was set up to produce liners mostly for exports of cylinder liners. That did not quite happen, so India Pistons intends to merge the company. The merger would make it easier for India Pistons to revive IP Power Cylinder, the Managing Director, India Pistons, Mr N. Venkatramani, told Business Line on Wednesday.

Asked if another of India Pistons' subsidiaries, IP Pins and Liners Ltd, would also be merged with the parent company, Mr Venkatramani said, "not now".

IP Pins and Liners has been growing well, with its turnover increasing to Rs 9 crore last year from Rs 5 crore in the year before. Its turnover in the current year is expected to touch Rs 18 crore. The company produces pins and synthetic diamond tools.

India Pistons itself expects a 20 per cent rise in its turnover. Mr Venkatramani expects the company's turnover to reach Rs 290 crore in the current year.

No threat from China

He said that India Pistons did not find China a big threat.

The vehicle OEMs prefer the Indian component industry for better engineering skills and proximity to the vehicle unit. (This contrasts with the view of some other component manufacturers, such as Wheels India, who say that China is beginning to hurt.)

Nor has China made any significant inroads into the replacement market. This is because the replacement market itself is undergoing a structural change. Vehicle owners are going more to authorised service centres for servicing, where the parts sold are those approved by the OEMs, which in turn are typically Indian-made.

The replacement turf is therefore getting protected from China through this trend, although the flipside is that selling to the replacement market through the OEMs tells upon the margins.

Besides, selling in the replacement market needs a considerable distribution set up which the Chinese exporters do not have.

Is it difficult to build one? Yes, according to Mr Venkatramani. "They tend to wholesale it," he said.

More Stories on : Mergers & Acquisitions | Automobile Components

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