In a deal representing one of the largest foreign investments in India’s ag-related sector, Japan’s Yanmar Co. Ltd. has agreed to buy Blackstone Group’s 17.75 percent stake in International Tractor Ltd (ITL), owner of the Sonalika farm equipment brand, for between Rs 1,600 cr and Rs 1,700 cr (about US$250 million). This deal now values the company at Rs 9,500 cr (US$1.4 billion) – up from a value of Rs 4,200 cr (US$631 million) in 2012.
Shifting Stakes
Before entering this deal, Yanmar, the second largest tractor maker in Japan, already owned a 12.5 percent stake in ITL, which was acquired in 2005 for Rs 200 cr (US$30 million). Blackstone initially invested in ITL in 2012 with the acquisition of a 12.5 percent stake for Rs 520 cr (US$78 million), but subsequently increased its holding to 17.75 percent. ITL founders led by company chairman Lachhman Das Mittal own the remaining 70 percent according to Live Mint.
At the time, this was Blackstone’s second agricultural investment in India following its $54 million investment in Nuziveedu Seeds Ltd., the largest hybrid cotton seed company in the country.
“Favourable [sic] macro-economic trends such as rising minimum support prices and rising labour [sic] costs are leading to increased adoption of mechanisation [sic] by farmers,” said Akhil Gupta, Senior Managing Director and Chairman of Blackstone India at the time. “ITL’s cost-effective manufacturing facilities with deep value engineering and strong product development capabilities provide it with a competitive advantage to capture this market.”
This deal will lift Yanmar’s total stake to 30 percent, while providing Blackstone with a three-times return on investment from the four-year investment.
Giants Look to Small Horsepower
With the capacity to produce 200,000 tractors per year and a 10 percent market share, ITL is the third largest tractor company in India behind Mahindra & Mahindra with a 38 percent market share and Tractors and Farm Equipment Ltd.
Credit rating company ICRA told Deal Street Asia that it expects tractor sales in India in 2017 to see growth of between nine and ten percent.
“The tractor industry witnessed a spike in domestic volumes since April 2016 with farm sentiments uplifted by reasonable rabi crop production, healthy rainfall precipitation as well as government support programmes [sic],” said a report issued by ICRA this month.
The potential for growth in India’s tractor market, which was valued at US$2.4 billion in 2015, is drawing attention from foreign global giants in the sector. John Deere India is looking to double its market share to between 10 and 12 percent in the next few years as it works to develop lower horse power engines better suited to the Indian buyer. If John Deere achieves this growth in the country, Forbes reports that its revenue from India could top $425 million.
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Lynda Kiernan
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