Omax Autos to buy out US firm

Omax Autos, a sheet metal tubular and machined components manufacturer, has identified a $25 million Chicago-based sheet metal company for acquisition.

A company executive said the financial due diligence and possible closure of the deal was likely by middle of January 2006.The acquisition is expected to cost Omax $15-17 million.

The due diligence was carried out by Ernst & Young, while the target company was identified by management consulting firm KPMG.

"The acquisition would be partly funded by borrowings from the US. Some equity infusion would be done by us from here," said the executive. The Omax board had recently received shareholders' approval to double its borrowing limit to Rs 300 crore (Rs 3 billion) from Rs 150 crore (Rs 1.5 billion).

Post acquisition, Omax plans to retain the current management of the American company for at least two years.

"As part of the deal, the existing management would be retained with a condition that profitability would be maintained at the current level," said an Omax Auto official.

The target company currently reports an operating profit margin of 14 per cent, according to the official.

The US firm, which is over 50 years old, is expected to bring in a new set of customers for Omax Group, mainly in sectors such as construction and agricultural automation (tractors among others).

In the domestic market, Hero Honda Motors is one of the largest customers of the company, which accounts for 60-65 per cent of its total production.

Omax Auto started component exports in 2003-04, with shipments worth Rs 4 crore (Rs 40 million).

In the last financial year, exports jumped to Rs 15 crore (Rs 150 million).

The move to buy a peer foreign company is part of the company's plans to cross a turnover of Rs 1,000 crore (Rs 10 billion) by 2008. The Omax group turnover for the fiscal ending March 31, 2005 was around Rs 675 crore (Rs 1.75 billion).

For the year ending March 31, 2005, the group's flagship Omax Autos had reported gross sales of Rs 608.3 crore (Rs 6.08 billion) and a net profit of Rs 20.28 crore.