Johnson Controls Bets On Indian Growth And Buys Out Local Partner
- Quick Take
- Johnson Controls has acquired a 100% stake in its Indian joint venture that sells car seats and other components to the Indian automobile industry.
- Over the last decade, automobile production in India has grown at strong rates and is poised to continue to grow at similar levels driven by rising ownership of motor vehicles in the country.
- This transaction is part of Johnson Controls’ strategy to expand its presence in the fast-growing emerging markets of the world.
Johnson Controls (NYSE:JCI) announced Tuesday that it has acquired 100% ownership of its India joint venture, Tata Johnson Controls, which supplies automotive seat systems and other components to original equipment manufacturers (OEMs) and the aftermarket in India. [1] Johnson Controls had previously held a 50% stake in this JV with the remaining held by Tata Automotive Components (TACO). The purchase price of the transaction was not disclosed. Further, this move follows Johnson Controls’ strategy to expand its footprint in the fast-growing emerging markets globally.
We currently have a stock price estimate of $33 for Johnson Controls, approximately 10% below its current market price.
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Johnson Controls Will Benefit From The Long Term Growth Potential Of Indian Automobile Industry
During 2007-12, the production of cars and commercial vehicles in India increased at a compounded annual growth rate of 13%. [2] [3] Looking ahead, the Indian automobile market is poised for long term growth as current motor vehicles (which include cars, buses and freight vehicles but excludes two-wheelers) ownership rates in the country are very low compared to those in major developed countries. According to the World Bank, there are 18 motor vehicles per 1000 people in India compared to nearly 800 in the U.S., 591 in Japan, 572 in Germany and 519 in the U.K. [4] Thus, as automobile production continues to rise in the country over the coming years, Johnson Controls will want to establish itself as a leading supplier to benefit from the high growth potential of this market. The company manufactures and supplies automotive seats, automotive batteries and automotive interiors and electronics that include instrument panels, floor consoles, door panels and interior electronics to the global automobile industry.
Apart from the market opportunity, India also plays an important role in Johnson Controls’ global engineering network. As part of this sale, the company will seek to expand the engineering and technical center at Pune, located in the western Indian state of Maharashtra.
In addition, this step will increase the share of fast-growing emerging regions in Johnson Controls’ overall sales. Currently, the company generates more than three-fourth of its sales from the relatively slow growing markets of Europe and North America. [5]
Understand How a Company’s Products Impact its Stock Price at Trefis
Notes:- Johnson Controls Assumes Complete Ownership of The Former Tata Johnson Controls (TJC) Joint Venture In India, May 29 2013, www.johnsoncontrols.com [↩]
- 2012 automobile production statistics, May 29 2013, www.oica.net [↩]
- 2007 automobile production statistics, May 29 2013, www.oica.net [↩]
- Motor vehicle ownership level, May 29 2013, data.worldbank.org [↩]
- Johnson Controls investor kit presentation, May 29 2013, www.johnsoncontrols.com [↩]