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Old 13th February 2020, 15:44   #1
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Default Not going for IPOs - Missed opportunity by the auto majors?

It has just come to my notice that almost all the international auto companies operate in India via their wholly owned subsidiaries like

1. Honda Cars India Ltd.
2. Mercedes-Benz India Pvt. Ltd.
3. BMW India Pvt. Ltd.
4. Audi India Pvt. Ltd.
5. Renault India Pvt. Ltd.
6. Skoda Auto Volkswagen India Pvt. Ltd.

But almost all the home grown majors are listed in both the stock market exchanges namely - TVS, TATA, Maruti, Mahindra, Hero, Bajaj, Ashok Leyland including ancilliary companies like Amara raja batteries, Apollo tyres etc. In fact even some of the auto dealers are listed.

For the auto sector, these are the times of rising costs and tough competition when they are forced to invest huge sums in constant new launches, marketing, R&D to excel in new technologies. The auto lobby has been crying out loud about the recession within the sector. We are also witnessing mergers and JVs for risk hedging. The question then arises why none of the foreign parent companies have gone public to raise capital? Is it possibly the biggest missed opportunity? (also note that the respective parent companies are all listed in their home countries.)

The potential value to be unlocked is huge in some of these subsidiaries. We take a sample of MB India. MB in the fiscal of '18 had clocked over 6000 crores in revenue. Even if they raise 40% of this amount through IPO or QIP, it's going to be 2400 crores (That's huge!!). When all the brands decide to forego this opportunity, obviously its not something they overlooked. It's intentional.

So is their something more to it than meets the eye. Is it possible that these auto majors are just shedding fake tears over revenue loss and economy slowdown while in hindsight they are actually earning big bucks.

SmartCat replied before i could make this thread public. All his explanation seems very logical. But still why would any business not hedge its risk? I mean if KIA were to list its company now after the success of Seltos, it can easily become one of the best IPO in the Indian history.

Last edited by bmw_lover : 15th February 2020 at 12:36.
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Old 13th February 2020, 17:28   #2
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Default re: Not going for IPOs - Missed opportunity by the auto majors?

- Foreign auto majors like to own 100% of their subsidiaries. All these companies are in India for the long term. Infusing Rs. 1,000 crores (to expand business or to sustain operations) into Indian subsidiary is no big deal for these auto majors, especially in this zero/low interest rate era. The initial Rs. 6,000 cr needed to setup shop in India has to come from auto major's pockets anyway

- Maruti Suzuki was a Govt of India/Suzuki JV. It was listed on the stock market as a part of disinvestment process.

- Sure, we have MNCs like Hindustan Unilever, Nestle etc listed on Indian stock exchanges. That's because, before liberalization, foreign companies were not allowed to own 100% of their Indian subsidiaries. That's why MNCs owned 75% of Indian subsidiary and listed the remaining 25% on Indian stock exchanges. But after liberalization, there is no need for MNCs to list here. Companies like Reckitt Benckiser (maker of Dettol), Cadburys etc have delisted from Indian exchanges. Why share profits and ownership with Indian shareholders?

- All auto majors are listed in their home country (Japan/ Korea/ Germany). Hence, it would have made lots of sense for Tata Motors to list JLR at London Stock Exchange a couple of years back when it was making billions of pounds in profit. Proceeds from JLR IPO would have reduced Tata Motors debt burden and funded its EV and other R&D investments.

- Indian companies like Bajaj Auto, Hero, M&M etc have a reason to list. Because it gives the promoter an idea about his actual wealth and market value of his company. Being known as the Xth richest man in India is a pretty good incentive for listing on stock exchanges. He can sell some shares and invest in a new business if we wants to.

Last edited by SmartCat : 17th February 2020 at 08:56.
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Old 17th February 2020, 08:39   #3
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Default Re: Not going for IPOs - Missed opportunity by the auto majors?

Thread moved from the Assembly Line to the Indian Car Scene. Thanks for sharing!

Two points to add:

1. Nearly all the MNC car makers have raised public money in their respective countries (e.g. Ford in the USA, VW in Germany...).

2. Almost all Indian players are listed on our stock markets.
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Old 17th February 2020, 10:25   #4
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Default Re: Not going for IPOs - Missed opportunity by the auto majors?

Quote:
Originally Posted by bmw_lover View Post
The potential value to be unlocked is huge in some of these subsidiaries.
While there is indeed an upside when the going is good, being listed (i.e. having public shareholders) brings with itself a bunch of liabilities, obligations and scrutiny.

Leaving aside Maruti, Hyundai and luxury car makers, name one PV manufacturer that you'd happily invest in. I am a shareholder in Tata Motors; you'd want to take a look at the stock chart for the last two years. From ~300, it tanked to almost 100. And Tata Motors still has a very successful CV business.

Being listed on the market would mean,
1) The companies' focus becomes generating value for the stakeholders (not those who own their cars, but those who own their stock). This means, sharing the profit, not sending it back to HQ.

2) The shareholders will crucify the stock when the company doesn't do too well. Case in point, what happened to Tata Motors when had a one-time write off for JLR or Maruti most of last year when the market was sluggish.

3) They open up to a lot of regulations and scrutiny so they have far less autonomy to take business decisions that may not be necessarily public-centric

Add the threat of activist investors who can drive massive change in the org for their benefit. Having 100% ownership in subsidiaries gives them flexibility to go about their business without significant explanation.

Last edited by Sheel : 17th February 2020 at 12:01. Reason: As requested.
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Old 17th February 2020, 11:34   #5
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Default Re: Not going for IPOs - Missed opportunity by the auto majors?

I think it also makes a business sense, in a way, if company so decides to quit. Take example of DCM or GM. They evaluated that they're not doing good, they wrapped up and left.

If a public limited company files for bankruptcy, there is lot of scrutiny, loss, etc. attached to it. If a private limited company files for bankruptcy, it simply has to abide to certain laws (like service/support for 10 years from closure). Cost of quitting is minimal for private company as against a public company.
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Old 17th February 2020, 13:58   #6
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Default Re: Not going for IPOs - Missed opportunity by the auto majors?

No promoter would really want to dilute his ownership+control and share his profits and also tolerate + address the meddling by non value adding shareholders with short terms goals.

Most firms prefer to issue bonds/debt instruments to tide over financing needs.
IPOs are generally the last resort.
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Old 25th May 2020, 15:43   #7
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Default Re: Not going for IPOs - Missed opportunity by the auto majors?

Let me put into a personal perspective and think from what is going on in ones mind :

You have a great family business making good money from it and have lots of funds and savings accumulated.

Now you decide to expand and open one more shop or unit.

Will you invest your own or raise funds ?

Will it make sense to have lakhs of owner
shareholders ranging from as low as 10 rs. ?

Would you like to be answerable to all of them ?

Would you like at any point someone gaining more control through big owner ship ?

Would you like others to interfere every now and then ?

Would you want to comply with stock exchange and government compliances ?

These are just few, in reality there are many more headaches, so its just easier to open and own fully by oneself.
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