Despite its current troubles, Spain had one of the highest industrial GDPs in Europe during the 1960s and 1970s. Now it stands at 15% of the entire national GDP, halved comparing to the past and far from today’s German 25%. It is also true that a sort of second industrialisation is not easy to be developed.
However, Spain’s industrial sector moves forward by the sheer stubbornness of its companies, the big ones, of course, blue chips as Repsol, but also the not so big, midcaps like CIE Automotive, which just jumped into the car components Asian market. CIE has signed an agreement with Indian manufacturer Mahindra to merge their components and forging businesses. Mahindra is a $16.2 billion multinational group based in Mumbai and featured on the Forbes list of the 2,000 biggest and most powerful listed companies in the world .
This strategic alliance with the Indian company will enable CIE to reach its €3 billion expected turnover for 2017. This figure means to double the Spanish company’s current sales of €1.6 million. CIE Automotive’s president Antón Pradera explained that Mexico and India are currently the best markets to grow, but estimations for Thailand and Indonesia are “impressive”.
The deal between CIE and Mahindra will be divided into two operations. The first step will involve the acquisition by the Indian company of a 13.5% stake of CIE. Following this transaction and also depending on acceptance percentage, the Spanish will control some 51-53% of Mahindra, and this will take control then over 20% of a jointly new founded company called Mahindra CIE, which will be listed in Bombay’s Stock Exchange uniting the Indian group’s components division with CIE’s forging plants in Spain and Lithuania.
According to Banesto analysts’ financial calculations, “CIE will invest near €118.5 million on Mahindra’s majority stake which generates a €66 million in earnings before interest, taxes, depreciationa nd amortisation (ebitda) and a net financial debt of €170 million. Therefore, the operation would be performed at 6.03x EV/EBITDA against 4.86x of CIE’s price and 5.05x of the company share estimated value of €6, which is the price Mahindra is buying at. The premium would be based on the Indian/Asian market growth. Furthermore, buying its treasury stock at €6 should generate a capital gains for CIE, since they were bought at approximately €5.4.”
CIE’s president Pradera also said that the Asian market is a “key place to make small cars,” while the company’s CEO Jesús María Herrera underlined that the agreement means a “qualitative leap” for CIE Automotive to become one of the “most relevant sector providers.” The Spanish company rebounded by 10% in the Stock Exchange market after Mahindra’s contract was announced.