ACI Motors will utilise the money to expand its existing farm equipment manufacturing facilities
ACI Motors thought its Yahama motorcycle plant capable of producing 60,000 bikes a year will be sufficient until four years from now.
But an unprecedented sales growth opened up new opportunities as the company Thursday announced that the Dutch government's private-sector investment institution, FMO, in partnership with Singapore-based SDI Pte Ltd, will invest Tk126 crore in ACI Motors Ltd.
With this new investment, ACI Motors wants to vroom its production to 1 lakh units within this year.
This means, its market share now at around 6 percent will almost double if other competitors' share remain unchanged.
Besides expanding its manufacturing facilities, the new investment will bolster it with new money muscle to aggressively sell its agriculture machinery on credit.
With the infusion of new finance, ACI Motors' will issue new shares which would reduce the mother company's stake at the subsidiary to 52.7% from the existing 65%.
"The best part of the development is the foreign investors believe in our growth," Dr FH Ansarey, managing director of ACI Motors, told The Business Standard.
"The money from investors would be utilised in two ways – plant level capacity expansion and working capital for strengthening credit sale programs in agricultural machineries," he added.
According to the managing director, the Yamaha motorcycle plant was built with an annual capacity of 60,000 units and the company expected the capacity to exhaust in 2023-24.
But Yamaha's sales paced fast and grew by over 30 percent against 20-25 percent industry average that hints that the plant's capacity might exhaust next year.
"We will enhance our capacity to 1 lakh motorcycles within this year," Ansarey said.
The company is building another plant to make agricultural machineries like power tillers, threshers and assemble combined harvesters at a Manikganj plant.
"Besides, we are selling agro machinery to farmers on credit. The working capital would increase our strength to extend the facility and go more aggressive," he added.
ACI Motors also has a plan to set up an assembly line for Foton commercial vehicles. Currently they are selling around 350 vehicles a year and have a target to make it to 1,000 next year.
The assembling plant will have a capacity to make 3,000 commercial vehicles a year.
ACI Ltd, a listed conglomerate, after its board meeting on August 13, said its board had approved the subsidiary's draft shareholders agreement and share subscription agreement with the foreign investment partnership.
As per the current plan, the investment would be for at least five years and by this time ACI Motors will be listed with the stock market and offer an exit opportunity to the investors.
"This will be an opportunity, not obligation. The investors may prefer holding the investment even after the planned listing," said Pradip Kar Chowdhury, chief financial officer of ACI Ltd Chowdhury.
According to a price sensitive information notice from the company, ACI Motors will issue 2,333,334 convertible non-cumulative preference shares in favour of the new investors' partnership entity namely Bangladesh Managed Account CV.
Each of the preference shares with a face value of Tk100 will be sold at Tk540.
The preference shares will be convertible into ordinary shares after a certain period.
As the shares are non-cumulative, ACI Motors will not have to pay any preferred dividends at a fixed rate and the investment is more an equity than debt in nature, said Chowdhury.
The preference shareholders would avail dividends like the existing ordinary shareholders, if any, he added.
ACI Motors at a glance
ACI Motors began its journey in 2007, mainly to serve the agricultural mechanisation drive in Bangladesh.
Its imported tractor brand "Sonalika" became a poster child for agro mechanisation and is currently leading the market occupying over one-third of the tractor market.
Various subsidy programmes of the government at different times – like the one involving Tk150 crore in 2010, another Tk339-crore one in 2012-13, or the ongoing Tk3,198-crore one – helped the annual market for agricultural machinery grow to over Tk10,000 crore.
The company gradually included power tiller, diesel engines for diversified use, combine harvester, water pump, rice transplanter, reaper, construction equipment in its product portfolio and all are very popular brands internationally, if not under their own brand name, like YanmarKobelco, Case, Honda.
The company in 2016 got sole distributorship of Yamaha motorcycles in Bangladesh and inaugurated its production facility for the motorcycles a year ago.
In 2018, the company began selling commercial vehicles of China's Foton Motors and in 2019 Yamaha also awarded it the licence to distribute its musical instruments in Bangladesh.
ACI Motors now has a paid-up capital of Tk100 crore which was Tk10 lakh until last year since beginning.
ACI motors witnessed a 618% growth in revenue in eight years to reach Tk1,122 crore in the fiscal year 2018-19. Over the same period, its net profit grew by 1,020% to Tk78.78 crore.
At the end of the FY2018-19, ACI Motors' long-term borrowings stood at Tk147.42 crore which was Tk58.48 crore in the previous year.
Analysts welcome the move
FMO as an investor tends to look for growth opportunities that ensure sufficient return considering the risk they are taking. Because of their presence in various markets, they tend to identify investable opportunities better, said Md Shaheen Iqbal CFA, President CFA Society Bangladesh.
ACI Ltd in recent years of a tightened money market has suffered in terms of profitability because of its debt-dependency for rapid business expansion in diverse fields.
ACI Group's total turnover of Tk6,314 crore in the FY2018-19 was 261% higher than that eight years ago.
Because of an almost equal combined debt – both for short and long term, the conglomerate failed to deliver a similar growth in the bottom line.
Analysts also blame some loss-making businesses for the low consolidated profitability, and even losses sometimes, of the group.
Debt burden has emerged as a problem for ACI and the recent move to look towards equity is positive in a sense that it would fix the ratio of debt and equity, said Md Emran Hasan, chief executive officer of Shanta Asset Management.
Analysts at his team cover ACI's business updates extensively.
"We hope the company will think the same for reducing debts of some other subsidiaries," he added.
ACI Ltd has 14 subsidiary companies and four joint ventures and this investment in ACI Motors is going to be the first of its kind for them.
The subsidiary companies are ACI Formulations, ACI Motors, ACI Salt, ACI Logistics, ACI Pure Flour, ACI Edible Oils, ACI Foods, ACI HealthCare, ACI Agrolink, ACI Chemicals, Creative Communication, INFOLYTX Bangladesh, Premiaflex Plastics, and ACI Biotech Limited.
Meanwhile, the joint ventures are Tetley ACI (Bangladesh) Limited, Asian Consumer Care (Pvt) Limited, ACI Godrej Agrovet Private Limited and Stochastic Logic Limited.