Japan's Toshiba Machine Co. Ltd. is buying one of India's largest injection molding machine producers, L&T Plastics Machinery Ltd., in a move that will significantly expand its presence in a market of growing importance to Japanese firms.
L&T's parent company, Indian conglomerate Larsen & Toubro, announced the sale in an Aug. 27 filing to the Bombay Stock Exchange. Terms were not disclosed.
The investment is part of a significant expansion into developing markets by Toshiba, which is opening an injection press factory in Thailand and has a facility in China, in addition to Japan.
Japanese manufacturers, including the country's plastics machinery sector, have been investing heavily outside the country in the last few years, to escape Japan's higher costs and build business in emerging markets like India.
For example, by some estimates, Japanese carmakers have more than 50 percent of India's automobile market, and that's expected to attract more Japanese component suppliers.
Larsen & Toubro, a major Indian conglomerate with $12.8 billion in total sales, said it is selling the plastics machinery business as part of its “strategic road map to exit non-core businesses and rationalize” its portfolio.
It said the machinery unit had sales of $37.1 million with profit after tax of $1.98 million in the fiscal year that ended in March.
“We are a fairly large technology, engineering, construction and manufacturing company, whereas plastic is a much smaller business in our wide portfolio,” said S. Raghavan, a senior vice president with Larsen & Toubro and head of the company's machinery and industrial products unit, which includes the plastics business.
“Moreover, even the smaller players or companies [in the injection press market] are manufacturing electric injection molding machinery, whereas [L&T] is focusing on hydraulic-based injection molding machinery,” he said in a telephone interview from Chennai.
Asked about L&T's recent results, Raghavan replied: “The first quarter of the current fiscal [year] was not good; sales were down [compared to last period a year ago]. But we hope to maintain or marginally improve the sales turnover in the fiscal 2012-13.”
L&T makes injection presses for a variety of markets and enjoys strong brand recognition in India.
The chief executive of L&T Plastics Machinery, P. Kailas, declined to comment on the sale.
In a statement, L&T said Toshiba was making the purchase to expand globally, with a focus on developing markets.
In an email to Plastics News, Toshiba, based in Numazu, Japan, said the purchase will give it factories in Japan, China, Thailand and India.
It said L&T Plastics Machinery, based in Chennai, has made about 660 presses a year in recent years. Toshiba said it wants to complete the purchase by the end of October and does not need approval from the Indian government.
Measured by sales, L&T's business would at present seem to be only a relatively small addition to Toshiba, which had global sales of $592.7 million in its molding machinery unit in the year ende March 31, 2011, the last period for which figures are available on the company's website.
It reported income of $16.1 million in its molding machinery division in that period.
The molding machinery business includes plastics injection and extrusion machines, along with die-casting machines.
In 2010, Toshiba Machine adopted a new business plan that it said would “launch new sales and service bases primarily in the Asian markets” and develop more systems integration, relying less on only selling machines.
“Emerging economies in Southeast Asia, India and South America are steadily gaining prominence, necessitating a major shift from the conventional business models,” Toshiba said.
L&T's plastics machinery unit was formed in 2000 as a joint venture with Germany's Demag Ergotech GmbH, but L&T bought out the German partner in 2009.
L&T also was one of the initiators of the Indian government's 2009 decision to enact steep anti-dumping penalties against some Chinese-made injection molding machines.
New Delhi-based correspondent Satnam Singh contributed to this report.