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The Competition Commission of India approves the proposed combination involving the acquisition of one hundred percent share capital of Sunbeam Lightweighting Solutions Private Limited by Craftsman Automation Limited. The transaction entails the subscription of optionally convertible debentures and the purchase of securities from Kedaara Capital Fund II LLP. The combination presents horizontal overlaps in numerous automotive component segments and vertical linkages in manufacturing stages across India. The Commission concludes that the combination is not likely to cause an appreciable adverse effect on competition in any plausible relevant market.
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COMPETITION COMMISSION OF INDIA Combination Registration No. C-2024/08/1172
24th September 2024
Notice under Section 6(2) of the Competition Act, 2002 given by Craftsman Automation Limited
CORAM:
Ms. Ravneet Kaur Chairperson
Mr. Anil Agrawal Member
Ms. Sweta Kakkad Member
Mr. Deepak Anurag Member
Order under Section 31(1) of the Competition Act, 2002
On 8th August 2024, the Competition Commission of India (Commission) received a Notice under Section 6(2) of the Competition Act, 2002 (Act) given by Craftsman Automation Limited (Acquirer). The Notice has been given pursuant to the execution of Securities Subscription and Purchase Agreement, dated 5th August 2024 (SSPA), amongst the Acquirer, Sunbeam Lightweighting Solutions Private Limited (Target), and Kedaara Capital Fund II LLP (Seller).
The Proposed Combination envisages the acquisition of 100% of the share capital of the Target by the Acquirer, involving the following steps:
In terms of Regulation 14 of the Competition Commission of India (Procedure in regard to the transaction of business relating to Combinations) Regulations, 2011 (Combination Regulations, 2011), vide letters dated 22nd August 2024 and 4th September 2024, certain information and clarifications were sought from the Acquirer. The responses to these letters were submitted by the Acquirer on 30th August and 11th September 2024, respectively. The Acquirer also submitted certain additional information on 13th September 2024, by way of voluntary submission.
The Acquirer, a public listed company incorporated in India, with diversified operations is inter alia engaged in the following business segments:
The Acquirer's largest shareholder is a family promoter group comprising individual members namely, Srinivasan Ravi, S. Murali, Chithra Ravi, Ravi Gauthamram, and R. Mirthula (collectively referred to as the Promoter Group). The Promoter Group is the ultimate parent entity of the Acquirer and holds 48.70% shareholding in the Acquirer. The Promoter Group together with all its affiliates (including the Acquirer) is referred to as the Acquirer Group [Hereinafter, the Acquirer Group, Acquirer and Target are collectively referred to as Parties].
The Target, a wholly owned subsidiary of the Seller, is a private company incorporated in India. The Target has operations in the automotive aluminium die-casting industry, with a focus on aluminium auto-components for 2Ws and PVs.
Considering the business activities of the Parties, certain overlaps have been identified for the purposes of competition assessment.
At the broadest level, the Acquirer Group (including the Acquirer) and Target are both engaged in the supply of die-casted auto-components for various types of vehicles (i.e., PVs, 2Ws, CVs, etc.). Die-casting is a distinct manufacturing process which involves injecting aluminium at high pressures into a mould, also known as a die. The equipment required to die-cast an auto-component can be differentiated from other manufacturing processes and usually includes, inter alia, injection systems, clamping units, dies (moulds), spraying and cooling equipment, etc. A die-casted auto-component may be further differentiated based on (i) the vehicle-system it is designed for, and (ii) the vehicle-category in which such a die-casted auto-component will be fitted.
Die-casted auto-components can be assembled into various systems of a vehicle1, namely, (i) engine systems, (ii) suspension systems, (iii) transmission systems, (iv) braking systems, (v) steering systems, (vi) cooling systems, (vii) body / body-in-white, (viii) chassis, (ix) electricals and electronic systems, (x) rubber components, and (xi) interiors (non-electric).
In terms of demand–side substitutability (from an auto-component manufacturer's perspective), die-casting processes are often specialized and tailored to the specific requirements of each vehicle-system. In fact, manufacturers invest in specialized equipment and expertise tailored to the production of components for different vehicle systems. Attempting to die-cast components of an alternative system would require significant process adjustments and expertise transfer including design differences, new equipment, new dies / moulds, and comprehensive training / setup, which can be cost-prohibitive and time-consuming. It has also been averred that the same auto component cannot fit into different vehicles of the same class. The Acquirer however, submitted that in die-casting, a single machine can be adapted to manufacture various auto-components by changing the die / mould within its tonnage limit.
Based on the list of components manufactured by the Acquirer Group and the Target, their presence overlaps in the supply of various die-casted and machined automotive components, namely, engine components for the vehicle segments of 2Ws, scooters and motorcycles, steering components for 2Ws and motorcycles, engine components for Light Commercial Vehicles (LCVs), engine components for M&HCVs, engine components for Compact, Mini, Super Compact, Mid-Size, and Executive Passenger Vehicles (CMPCs), engine and suspension components for Utility Vehicles (UVs).
As per the submissions of the Acquirer, relevant geographic market for the supply of die-casted and machined auto-components should be considered as “India” since the conditions of demand and supply are uniform across the country. Further, auto-component manufacturers make supplies and have the ability to make supplies to the plants of Original Equipment Manufacturers (OEMs) situated across India. According to information submitted for the quantity of the overlapping die – cast /machined – cast automotive component supplied by each facility of the Acquirer Group and Target to the facilities of their respective customer OEMs, the Commission observed that the overlapping components between Acquirer Group and Target are mostly supplied through their manufacturing facilities to the OEMs located within the same cluster in which they are located, yet in certain instances the overlapping products have also been supplied to OEMs whose manufacturing facilities are located at a distance of ~2000 kilometres, demonstrating that the Acquirer Group and Target have been supplying the overlapping die – casted/ machine – casted automotive components to OEMs' plants situated across India. Thus, the relevant geographic market has been considered as being 'pan – India'.
The Commission assessed the Proposed Combination considering the overlapping segments and decided to leave the exact delineation of relevant market open as the Proposed Combination, for the reasons detailed in the ensuing paragraphs, is not likely to cause appreciable adverse effect on competition (AAEC) in any of the plausible alternative relevant markets that could be delineated.
1 While manufacturing a vehicle, various individual components are assembled to form a “sub-assembly”. One or more sub-assemblies and components come together to form a “system”. These systems come together to form an automobile.
The Commission observed that the presence of the Parties overlaps in around forty-five market segments, including the broad markets and narrow sub-segments at the component level. In two of the narrow sub-component level, the combined market shares are in the range of [20-35%], and for the remaining segments, the combined market shares are in the range of the [0-20%].
The Commission also noted that being a bidding market, the said market shares may neither be representative of the market strength of the players, nor of the closeness of competition between them. In these markets/segments, the procurements are made by OEMs on the basis of bidding amongst the auto-component manufacturers/Original Equipment Suppliers (OESs) empanelled by the OEMs, which prefer the lowest cost bidder. Pursuant to the empanelment process, OEMs maintain a list of 'approved suppliers' for each auto-component. Only these empanelled 'approved suppliers' are eligible to receive Request for Quotations (RFQs) from OEMs. The Commission observed that though the Parties may have common customers in some of the broad markets, at the component level, there are currently no overlapping components for any OEMs for which both the Target and Acquirer Group are approved suppliers.
Further, based on the bidding data submitted, the Commission observed that for a significant number of RFQs, they do not appear to be close competitors and there are other bidders for those RFQs. The Acquirer has also confirmed that Parties had not participated in the same RFQ due to differences in their ability to invest in manufacturing capabilities, different requirements of said RFQs, and distinct strategic alignments and market focus.
Based on the foregoing, no concern of AAEC is likely to arise from the horizontal overlaps that have been examined.
With regards to the vertical overlaps/linkages, the Acquirer has submitted that since die-casting and machining form part of separate levels of the supply chain, typically, an auto-component is machined after it has been die-cast to achieve the required precision and surface quality for assembly purposes. Several players, including the Parties, are vertically integrated and offer end-to-end manufacturing solutions (including both, die-casting and machining), though potentially, die-casting and machining may be offered as standalone services by players in the market. Thus, the concerns can be said to be only hypothetical in nature.
Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have AAEC in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.
The order may be revoked if, at any time, the information provided by the Acquirer is found to be incorrect.
The information provided by the Acquirer shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.
The Secretary is directed to communicate to the Acquirer accordingly.
