The Impact of Private Equity in Emerging Markets Case Study: Jamna Auto ()

Jamna Auto’s The Company Story

When Clearwater Capital was first intro- duced to Jamna Auto Industries Limited, the commercial vehicle spring manu- facturer existed as three separate enti- ties. The factory plants were located in Yamuna Nagar at Jamna Auto Industries Essentials Ltd; the second company, located in southern India, was known as Jai Parabolic At the time of the investment, Jamna was Company: Jamna Auto Industries Limited, Springs Ltd; and the third company, the already a top 10 manufacturer of commercial www.jaispring.org vehicle suspension parts in the world. Following aftermarket business, was housed in a Country: India promoter-owned, company based in . Clearwater’s investment, it is now within the top five in the world and the largest in India. Jamna’s Sector: Industrials & Manufacturing From June 2006 to August 2010, Clearwater in- annual revenues have grown from roughly vested US$45–50 million into the three compa- US$75 million at the time of Clearwater’s invest- Business focus: Commercial vehicle nies in multiple stages through a combination of ment to approximately US$220 million. Previous- components manufacturer debt and equity financing. Clearwater invested ly unprofitable, Jamna generated US$25 million via senior secured loans, with equity brought in in EBITDA in FY 2011. Demonstrating Jamna’s Size: Consolidated turnover, approximately substantially by way of convertible instruments strong cash flows, the company announced US$220 million (FY 2010–2011) that provided a downside protected structure. an interim dividend of 10% in August 2011. GP: Clearwater Capital Partners, LLC invests in special situations and distressed or otherwise undervalued assets and securities located in Jamna’s three separate entities into one listed The Role Played company: Jamna Auto Industries Limited. Asia, excluding Japan (www.clearwatercp.com) Phase two involved achieving financial stability Date of investment: 2006–present by Private Equity through a combination of deleveraging Investment: US$45–50 million (of which and improving cash flow management. approximately 50% was debt, 50% equity); Prior to Clearwater’s investment, Jamna These initiatives included an aggressive receivables recovery strategy, renegotiation Clearwater currently holds a 29% equity was suffering from balance sheet stress. The stake in Jamna Auto and all debt from the company had overleveraged itself to finance of rates with key customers to improve capital expenditures during the credit EBITDA, reducing financial break-even levels transaction has been paid down bubble leading up to the Asian Financial through intensive cost reductions, better Crisis. Then, the company faced a collapse plant efficiencies and improved interest rates in market demand from late 2001–2005. on debt through a better credit rating. Impact Highlights Despite these headwinds, Clearwater saw a Jamna Auto has transformed from a loss-making Growth in Indian Commercial Vehicle Sales clear case for investment: first, there was a business to a company generating US$25 million positive outlook in demand for commercial Category 2008–09 2009–10 2010–11 Growth in EBITDA, and growing each year vehicle parts manufacturers (which was borne Medium & out by the growth statistics for commercial 192,380 248,977 344,115 38% Clearwater helped consolidate Jamna’s three Heavy CVs vehicle (CV) sales in subsequent years—see corporate entities into one core business, adjacent chart); second, Clearwater saw value Light CVs 111,247 159,742 222,278 39% streamlining operations and capturing in the strong engineering capability and economies of scale managerial skills of Jamna’s management team; Clearwater also supported the acquisition and finally, there was a strong competitive of an old spring unit, which Strategic asset purchase negotiations have advantage in Jamna’s scale and geographic ensured that Tata Motors no longer had ensured a long-term offtake agreement footprint, which placed its manufacturing an in-house commercial vehicle spring with Tata Group, the Indian multinational facilities in close proximity to key customers, manufacturing capability and enabled Jamna conglomerate, for the manufacture of including Tata Group and . to establish a long-term offtake agreement commercial vehicle springs to be Tata's manufacturer of choice. For its turnaround strategy, Clearwater Clearwater has helped professionalize undertook a three-phase process spread over Now in phase three, Clearwater is focusing on Jamna’s business, while strengthening its five years. In phase one, it set out to achieve increasing public and investor awareness of Board of Directors and improving corporate operational turnaround by plant, product and Jamna to build market demand for Jamna’s stock. strategy. To streamline the business and achieve Clearwater intends to support such demand governance economies of scale, Clearwater helped merge through its approximate 29% equity stake.

September 2011 The Company View

“In 2006, when we began looking for investors, our sole goal was to raise capital. “Jamna Auto is a great market example of the growing global leadership Clearwater’s proposition was not solely a position of low-cost manufacturing and engineering businesses from India. On financial one: they brought international the market facing side, Jamna has rapidly built global scale and efficiencies best practices to our corporate governance with a dominant market share in perhaps one of the fastest growing and auditing processes. Our Board meetings have become more structured, and our commercial vehicle markets. It is also of pride to Clearwater that Jamna has growth strategy has become more clearly managed to re-establish significant credibility in the Indian credit and capital articulated to our stakeholders. With markets with one of the best balance sheets in the business. We believe Jamna Clearwater’s guidance, we continue to will be a flagship case study within the rapidly maturing Indian restructuring evaluate several opportunities for further expansion—whether by adding to Jamna’s market and look forward to realizing its true value over the next few years.” product portfolio or by looking to secure Karthik Athreya, Director for India, Clearwater Capital synergistic businesses in Europe where there is a clear value-add proposition.”

“When we began the search for an investment partner, we were only really looking for an equity provider. The Beyond the Bottom Line success of Clearwater’s A key component of Clearwater’s turn- added value through its around strategy has been to improve corporate governance transparency and corporate governance advice, in addition to the practices at Jamna, and to subsequently help the manufacturer articulate its financial restructuring, was business strategy on a quarterly basis to a very welcome surprise. investors, analysts and the market. Amidst As a result of Clearwater’s other initiatives, it supported shareholder- friendly efforts such as dividends and expertise, Jamna is no longer bringing in international auditors to move a family-run company; toward international accounting practices. it is a family-driven, Under Clearwater’s recommendation, Jamna’s professionalized one.” merger facilitated the firm’s ability to combine all Mr. Pradeep Singh Jauhar, synergistic businesses under one roof and elimi- COO of Jamna Auto nate any potential conflicts of interest. This action ensured that these businesses’ equity was solely invested in Jamna, and that all interests were fully aligned with those of Jamna’s shareholders. Clearwater also supported Jamna in restructur- ing and strengthening the experience of its Board of Directors. It appointed Dr. Pierre Jean Everaert, Honorary Chairman at InBev and former Managing Director of Phillips Worldwide, to the Board in 2007 to provide strategic growth advice to the company. In addition to its corporate governance improve- ments, Jamna has been an active corporate citi- zen. Jamna has sensitized employees to environ- mental conservation issues and encouraged them to reduce and reuse waste; and in 2010, Jamna organized a health check-up facility in Karnidi vil- lage, located in , which provided free examinations to over 120 patients.

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