KPMG - Axel & Zane M&a Deal and Integration Assessment - Rohan Shah

Axel India and Zane Automotive M&A and Integration Assessment
12th July 2021

Agenda
⚫ Executive summary
⚫ Detailed Assessment
- Diagnosis : India Auto and Auto Aftermarket Overview
- Diagnosis : Axel India and Zane Automotive Profiling
- Axel’s Drivers for Acquisition
- Synergy Levers and Potential Synergies from the Deal
- Integration Hypothesis and Target Operating Model
- Potential Showstoppers for Successful Integration
- Key Questions
2 Confidential
Axel may be considering to acquire Zane to strengthen its position in a growing Indian market by expanding its
offerings portfolio and leveraging Zane’s leadership position to diversify to into aftermarket and 2W segment
Axel’s Potential Rationale/Drivers for Acquisition
Tap Future Potential in Indian Auto Industry Strengthen its Position in Domestic Market Broaden its Portfolio of Services & Products
• Indian automobile sales grew at 8.6% during FY16-17 • Only 30% of Axel India revenue from domestic sales • Existing product offering restricted to powertrains
(~22% of overall component cost in a car)
• Rising middle income populations and affordability • Caters to OEMs only (no presence in aftermarket)
driving growth • Zane has presence in vehicle exteriors,
• Limited presence amongst value segment players interiors(including electronics) and electricals
• Significant untapped potential (car ownership 22 per (who occupy >60% market share)
thousand in India v/s US-980, UK-850, Aus-740) • Cumulative product potential (>80% of component
• No presence in 2W segment cost for car manufacturing)
• Govt support – PLI scheme, scrappage policy etc.
• Leverage engineering services solutions
Pathway to Enter into Aftermarket Segment Pathway to Enter into 2W Segment Leverage Leadership Position of Zane
• Aftermarket segment contributes ~20% of the • 2W segment occupies 79% volume share • Zane is the largest player in organized service parts
overall auto components sales • Grew at 8.9% during FY16-19 (faster than market • Strong market share (30% to 45% ) in batteries,
• Aftermarket segment stood at $10Bn in FY19 growth) Wiper blades, Lighting/ Braking systems
(growing at >14%CAGR during FY16-19) • High future potential due to low cost and ease of • Presence in diverse customer (OEM and retail) &
• Axel does not have presence in aftermarket mobility in smaller cities application segment (car and 2W)
• Zane has network of 600 stockists and 100 own • Axel does not cater to 2W players, but Zane has • IP for 50+ products, assets (5 mfg. plants)
service centers strong presence amongst top manufacturers in India • Strong presence amongst value segment OEMs
3 Confidential
Through the acquisition, Axel has opportunity to tap onto several potential synergies across revenue, cost
and capital levers
Ease of
Synergy Lever Potential Synergy Importance
Implementation
Axel provides engineering solutions to value segment car manufacturers
Revenue – Customer Axel provides existing powertrain products to value segment car manufacturers
(OEM) Axel develops new products for value segment car manufacturers
Zane provides its products to global car brands
Revenue – Customer Axel’s products are sold through Zane’s stockists

(Retail) Axel’s products are sold through/used in Zane’s service centers
Revenue – Markets Zane’s product are sold in export market
Revenue – Customer Axel provides engineering solutions to 2W players

(Application) Axel develops new products for 2W players
Optimize raw material costs
Optimize conversion costs
Cost Synergy
Redesign organization structure
Optimize SG&A spends
Optimize procurement team strength
Cost Synergy – Manufacturing workforce optimization

Personnel Expenses Optimize sales & marketing team strength
Optimize employee strength in support functions
Optimize working capital needs
Capital Synergy Optimize cost of capital
Leverage assets & networks of Axel & Zane
High Medium Low Confidential
4
Acquisition also presents several risks for Axel which can critically impact the expected outcomes from the
deal
Cultural Risks Operational Risks

• Diverse work cultures in Axel & Zane • Strong labour unions – may become
difficult to lay-off workers
• Axel – Agile work culture (compensation
1 above industry average with significant
focus of performance linked incentives
• IP rights to be retained by Zane group or
will become available to Axel
2
• Zane – Employees highly satisfied with • 3 plants of Zane are outdated plants
work life balance, low attrition • Past litigations with vendors
Key Risk
Areas
Financial Risk Systems Integration Risk
• Liability from any litigations • ZA’s IT integrated with Zane group’s IT;
• Investments to be made for Decoupling and integration of IT from
4 modernization of 3 manual process
driven plants
Zane group to Axel’s network & systems
3
• Zane’s uses ERP to manage data related
• Zane has been financially dependent on to business operations; customization
Zane group and thus may not have done over 10 years; migration to Axel’s
adequate funds to invest in capacity systems may create challenges
5 Confidential
Distinct operating model and integration type needs to be developed for various business functions of Axel
& Zane
Business Function As-Is Operations To-Be Operating Model Integration
• Option 1:
• Axel
• Independent operations (due to low product overlap)
• R&D function is centralized
• Oversight from common R&D director
• Budget & funding for R&D allocated at group
level and then cascaded below to regional teams • R&D funding will continue to be centralized Partial/ Complete
R&D
• Option 2: Integration
• Zane
• Zane has its own R&D team • R&D teams are fully integrated and capabilities are cross
capabilities leveraged
• Decentralized mode of operations
• Centralized function (funding from Axel global office)
• Axel – Centralized function (consolidated
procurement for all group companies) • Centralized procurement (Better price and credit terms from
Procurement Full integration
• Zane – Decentralized procurement (Has its own suppliers driven by higher volumes)
procurement team)
• Due to low product overlap, manufacturing operations to
• Axel – Network of 10 factories & 200 sub- continue as is
contractors Predominantly
Manufacturing
• Leverage each other’s facilities for overlapping products separate
• Zane – Network of 5 factories
• Zane can tap into Axel’s sub-contractors
• Axel has 2 warehouses • Complete integration in warehousing and distribution to drive Complete
Supply Chain
• Distribution model info not available efficiencies by leveraging each other’s network & assets Integration
• Sales & marketing teams to be integrated (role overlaps and
• Axel and Zane currently have independent sales redundancies to be eliminated) Complete
Sales & Marketing
teams catering to their available customer segments • E.g. A particular customer/ stockist to be managed by single Integration
team member (instead of one from Axel and one from Zane)
• Axel – Several functions are either in-house or • Support functions to be completely integrated basis Axel’s
outsourced existing operating model for each of those functions Complete
Support Functions
Integration
• Zane – Predominantly in-house • Eliminate redundancies, derive cost synergies
6 Confidential
Cultural integration, ability to realize revenue synergies and systems integration are expected to be major
showstoppers; if executed correctly may drive successful outcomes from the deal
Showstopper Description Impact of Showstopper
• Axel and Zane both have significantly diverse working cultures

• While Axel has aggressive work culture, Zane has a more relaxed & balanced work culture
• Integrations of two entities with such opposite work cultures will be critical for success of the M&A
Cultural Integration
• Axel will be able to realize the synergies and value from the deal only if they are able to harmonize the
working culture and ensure smooth transition of working style
• Large number of M&A deals have failed to realize their potential because of cultural differences
• From the analysis it appears that one of the major drivers of this deal is for Axel to strengthen its
business position in India
Revenue Synergy • Currently its share of revenue from India is only 30% & that too from global car OEMs
Realization • It does not have strong presence amongst value segment players, retail segment and 2W applications
• Thus, the deal has potential to offer higher revenue led synergies and will be dependent on Axel’s
ability to cross-sell
• ZA’s IT system in integrated with the Zane group and its data & financial management is through ERP
(which has been customized over a period of 10 years)
Systems Decoupling & • Decoupling of IT and business data systems and integration into Axel’s system is going to be highly
Integration critical
• Zane manages its designing, components testing, sales management etc. through ERP and migrating to
Axel’s systems will require these features to be available so as not to impact business continuity
• Multiple cost synergies exist that needs to be realized to derive value from the acquisition
Cost Synergy Realization
• Cost synergy realization may however be relatively easier to handle compared to other showstoppers

7
Key questions for management
Key Questions
Strategic
• What are management’s key drivers/ strategic goals behind acquiring Zane Automotive?
• Whether management had considered any other targets and why did they choose Zane for acquisition?
• What are the synergies that management expects to derive from the deal? How are they broken down in various synergy levers?
• What is the management’s view on agreed valuation of $360Mn for acquiring Zane?
Business/Operations
• What has been the historical growth in revenue? (By Offerings, by markets, by customers etc.)?
Key Questions for Axel’s • What is the split of domestic revenue between products and engineering solutions?
Management • What is the market share of Axel for its offerings in India? How has it grown historically?
• Whether Axel’s global group companies have any presence in 2W? Does it have R&D existing capabilities for 2W?
M&A/Integration
• Whether management is wary of diametrically opposite work culture in Zane compared to Axel’s? How does management plan to manage the
cultural risk? Whether Axel has planned on potential org structure for merged entity?
• What are other risks that management perceives that may impact the outcomes of the deal?
• What is the management’s view on integration of each business functions?
• Whether all the potential cost outflows have been factored while arriving at synergies?
Strategic
• What are the reasons for Zane management to sell its automotive operations despite its leadership position?
Business/Operations
• What has been ZA’s historical revenue & profitability trends (by products, customers, application segments)?
Key Questions for Zane’s • Whether there has been any loss in market share?
Management • Whether Zane has any presence in 3W and commercial vehicles application segment?
• Whether the IP rights for 50+ products will get transferred to Axel post acquisition?
• What is Zane’s compensation strategy? (above average, performance linked incentives etc.)
• Whether Zane has its own warehouses? Whether logistics and distribution operations are in-house or outsourced?
• What challenges does Zane face in decentralized model of operations?
8 Confidential
Agenda
- Key Questions
9 Confidential
Indian automobile industry has witnessed steady growth at ~8.6% in units sold during FY16-19 (both in
domestic and export sales); FY20 domestic sales however were impacted due to covid
India Automobile Sales

In Million Units
Performance
35.0 impacted due to CAGR CAGR
Covid (FY16-19) (FY 16-20)
30.9
30.0 29.0
4.6
25.3 4.0 26.3 8.6% 2.2%
25.0 24.1
3.5 4.8 8.3% 6.9%
3.6
20.0
15.0
25.0 26.3
21.9 21.5 8.7% 1.3%
10.0 20.5
5.0
-
FY16 FY17 FY18 FY19 FY20
Domestic Sales Export Sales Column1
Source: Society of Indian Automobile Manufacturers (SIAM)

10 Confidential
2-wheeler segments accounts for ~79% of volume sales and passenger vehicles account for ~13-15%; Axel
India has its portfolio presence only in passenger cars segment
India Automobile Sales – By Category

In Million Units CAGR Category Presence
35.0 (FY16-19)
Axel India Zane Automotive
31 8.6%
30.0 29 1.3
1.1
10.4%
12.0%
r Info not available
1.0
25
1.0
4.1 5.6%
r Info not available
25.0 24 0.8 4.0 (13%)

0.9 0.8 (14%) a a
0.8
3.8
20.0 3.4 (15%)
(14%)
15.0
24.5 8.9%
10.0
23.0
(79%) r a
18.9 19.9 (79%)
(79%)
(79%)
5.0
-
Potential Revenue Synergy
FY16 FY17 FY18 FY19
1. Leverage Zane’s existing clients in 2W
2 Wheeler Passenger Vehicles Commercial Vehicles 3 Wheelers Total 2. Provide engineering services & develop
relevant products to cater 2W segment
Note: Category share in value terms may represent a different picture given the average sales value per unit of automobile under each category
Source: Society of Indian Automobile Manufacturers (SIAM)
11 Confidential
Zane’s strong presence amongst value segment Indian car manufacturers and 2-wheeler segment which
contribute to majority of market share can be one of the major deal driver for Axel India
Market Share – Passenger Vehicles Customer Presence Market Share – 2-Wheeler Customer Presence
In % (For FY19) In % (For Dec 2019)
Axel India Zane Axel India Zane
100% 100%
11% A F
90% 20% P F 90%
12% A P
80% D P 80%
5%
70% 7% D F 70% 14% A F
60% 18% P P 60%
50% 50% 24% A P

40% 40%
30% 30%
51% D P
20% 20% 39% a f
10% 10%
0% 0%
Market Share Market Share
Hypothesis
1. In passenger vehicles segment, Axel has strong presence amongst global brands, whereas Zane has strong presence amongst value segment domestic brands which occupy
majority of market share. This will allow both the companies to cross-sell respective products and services thereby creating potential revenue synergies
2. Zane also has presence in 2W segment which can we leveraged by Axel to develop products and provide services for that segment thereby creating revenue synergies
Source: Tradebrains.in/passenger-vehicles-industry-pv-India/, financial express article
12 Confidential
Domestic & export demand for automobiles from India is expected to grow led by several drivers which
might be another key factor for Axel to consider M&A (domestic revenue for Axel being only 30%)
Car Ownership Per 1000 Individuals – By Country

# Cars
01 02 1,000
India has significant future
potential vis-à-vis vehicle
900 ownership
Growth in Demand Increase in Investments
• India is already 5th largest • ~$25Bn FDI investments in auto
800
automobile market industry during 2000-2020
• Increase in proportion of middle- • 10-25% operating cost advantage in
class population improving 700
India compared to other countries
affordability
• Additional $8-10Bn investments
• Increase in ownership capability & 600
expected by 2023
willingness amongst young
population
500 980
850
03 04 400 774
740
662
300 591
Favorable Government Policies New Age Opportunities
200
• Automotive Mission Plan 2016- • Increasing focus towards electric
2026 emphasizes on development vehicles to reduce emissions
roadmap for auto industry • Plans to develop India into global 100
164
• Vehicle scrappage policy announced R&D for automotive sector
in budget for 21-22, will create - 22
demand for new vehicles
• Introduction of PLI scheme for auto
component manufacturing to reduce
import dependence
Source: IBEF Report on Automobiles in India, March 2021
13 Confidential
Domestic & export demand for automobiles from India is expected to grow led by several drivers which
might be another key factor for Axel to consider M&A (domestic revenue for Axel being only 30%)
Component Cost Contribution Breakdown (Passenger Car)

In %
Axel India Zane Analysis & Hypothesis
100%
90%
14% Electricals r a 1. On a standalone basis, Axel’s presence is
restricted to only powertrain products (22%
80% contribution to component cost)
70%
19% Vehicle Exterior r a 2. Zane has presence across multiple component
categories which contribute to 80% of overall
component cost
60%
50%
22% Chassis r r 3. Thus, acquiring Zane will enable Axel to tap on
following revenue led synergies
1. Broad portfolio of offerings covering
40% majority of component cost breadth
30%
22% Powertrain a a 2. Increase in share of wallet from each
other’s customers
20%
3. Ability to leverage engineering and
design services of Axel to offer holistic
10% 23% Vehicle Interiors r a solutions
4. Ability to offer better pricing to the
0% customer
Market Share
Source: Mckinsey Report titled “The future of North American Supplier”
14 Confidential
Ability to create presence in aftermarket segment (14% growth) and ability to provide Zane’s product’s to
Axel’s global customers might be potential revenue driver considerations for M&A
India Auto Aftermarket Turnover Product-wise split of Aftermarket Turnover

$ Bn In %
CAGR (FY2016-19) Drive Transmission & Steering
12.0
14.1% 14%
10.0 21% Engine Components
8.0 Electricals & Electronic
14%
6.0 Components
10.1 Suspension & Braking
8.4 9.2
4.0 19%
6.8
15% Cooling Systems
2.0
- 18% Others
FY16 FY17 FY18 FY19
Analysis & Hypothesis

Customer Category Axel India Zane Automotive
1. Axel India’s 100% revenue comes from OEM customers (either
in domestic market or from exports)
OEM a a 2. Axel does not have any presence in aftermarket (segment with
>14% growth)
3. Whereas Zane has presence in OEM & aftermarket segment
Aftermarket r a (restricted to domestic market)
4. Potential revenue drivers for M&A:
1. Ability to service aftermarket segment
Exports a r 2. Export potential for Zane’s product portfolio through
network of Axel’s global group companies
Source: IBEF Report on Auto Components, March 2021
15 Confidential
$360Mn valuation agreed between Axel and Zane management appears to be attractive for Axel basis
valuations of other comparable players in auto & ancillary industry in India
EV/EBITDA Multiples – Auto & Ancillary in India Comparison of Zane’s Valuation with Industry Benchmarks
# Observations
1 <0x Zane’s Sales EBITDA

8
14
# Observations 82 Performance $ 400Mn $100Mn
10 2x-8x
Median 11x
9x-15x
Mean 12.5x Agreed valuation $360Mn $360Mn
16x-22x
Valuation as per
$400Mn (1x) $1,100Mn (11x)
49 23x-30x median multiples
Valuation as per
$720Mn (1.8x) $1,250Mn (12.5x)
EV/Sales Multiples – Auto & Ancillary in India mean multiples
# Observations
Analysis & Hypothesis
3
0x-1x
# Observations 82 1. Valuations arrived at basis industry benchmarks are on
higher side vis-à-vis agreed valuations across both
Median 1.0x EV/EBITDA and EV/Sales measures
36 43 2x-4x
Mean 1.8x 2. It seems that Axel has managed to get a better deal from
Zane for its business
5x-8x
Source: RSBA Advisors Report Titled “Industry Multiples in India”
16 Confidential
Agenda
- Key Questions
17 Confidential
M&A with Zane provides potential revenue synergies in the form on wider product portfolio and ability of
engineering solution team to cater to Zane’s customers for engineering solutions
Particulars Axel India Zane Automotive Comments/Hypothesis

Revenue • $240Mn • $400Mn • Product overlap only in select categories such
as clutch & drive plates, transmission systems
• Car Powertrain Products • Engine and transmission components,
Business
• Engineering Services body interior and exteriors, electronic • Larger product basket can be offered to
Focus
components, service parts and accessories customers of both the companies as one stop
• Engineering Services (25% - 60Mn) • Top 10 SKUs shop, leading to revenue synergies (potential to
provide 80% of component requirements for car
• Powertrain Products (75% -180Mn) • Batteries
manufacturer’s)
60% product sale from top 10SKUs • Wiper blades
• Transmission systems • Braking system • Engineering services team of Axel can provide
their services to the customers of Zane thereby
• Control modules • Automotive belts
offering end-to-end design and product solutions
Revenue by • Clutch coupling & disconnect systems • Clutch & Engine drive plates, Filters leading to revenue synergies
Product • Engine drive plates • Spark plugs
Offerings • Zane is a market leader in multiple product
• Clutch modules • Horns categories providing Axel well developed
• Gears • Lighting market and customer relationships to tap into
• Shafts and sprockets • Relays • High brand recall (household name) for Zane
• Clutch housing group
• 4-wheel / All-wheel drive systems
• Chassis subframes
• Information not available • 30% to 45% market share (Batteries,
Product Wiper blades, Lighting/ Braking systems)
Market • 5% to 15% market share (Automotive
Share belts, Clutch plates, Filters, Spark Plugs,
Horns and Relays)
18 Confidential
M&A with Zane provides additional revenue synergies in the form of exports of Zane’s products through Axel’s
global reach, access to Zane’s network of stockists and service centres to develop presence in aftermarket

• Exports - $168Mn (70%) • 100% Domestic • Revenue Synergy : Merger will allow cross
Revenue by selling of ZAs products to Axel India's existing
Markets • Domestic - $72Mn (30%) export customers as well as Axel Group
companies' customers in export market
• Only Passenger Vehicles (i.e. cars) • 2Wheelers and 4 Wheelers • Potential to developing products for 2W
Application segment (81% volume share in India) (for
Segment Zane’s customers) leading to potential revenue
synergies
• 100% OEM • Retail - $240Mn (60%) • It appears that Axel is strong amongst global
premium brands whereas Zane has strong hold
• Global Car manufacturers (Hyundai, Ford, • Stockists - $180Mn (45%) amongst value segment brands
Volkswagen, Renault, Nissan and Honda) -
80% revenue • Own Service Centers - $60Mn (15%) • Furthermore, Axel’s customer segment is
restricted to OEMs
• OEM - $160Mn (40%)
• Axel can significantly leverage from Zane's
Customer • 90% OEM sales from top 6 customers (2- diverse customer segment presence to tap on
Segment wheeler manufacturers and budget / to revenue synergies
compact car manufacturers Maruti
Suzuki, Tata, Hyundai, Honda • Sale of products through stockist network
motorcycles, Yamaha and Bajaj)
• Sale of Axel products through Zane service center
network
• Value engineering by Axel to cater to value segment

brands where it is weak, but Zane has good presence
19 Confidential
One of the potential roadblocks that may critically impact the successful outcomes (integration and synergy
realization) from M&A is the diverse work cultures observed between Axel and Zane

• No Presence in Retail Segment • 600 stockists (50% associated with more than 10 • Opportunity to rationalize some of the
years) margins as stockists get larger portfolio of
offerings to sell thereby increased revenue
• 100 owned service centers
potential for them
Retail • Largest player in organized service parts in India
Reach • Increased potential for usage of Axel
products in Zane's service centers
• Risk : Depends on cost of Axel's products and

its impact on overall pricing for customers
• No information available • 50+IP rights • Provides exclusivity in selling the products
with IP rights
IP Rights
• Limited competition and ability to command
premium (thereby leadership position)
• 13 Levels - Engineer to CEO • Org Structure (8 Levels + 4 Bands) • Post merger integration will require
Organizatio
harmonization of organization structure &
n Structure • Pay band from 2-8
standardization in pay-bands
Organizatio • Aggressive and agile work • Balanced work life culture • Diverse work cultures
n Culture culture (outcome driven) • Awarded the ‘Best Place to Work in 2019’ • May critically impact success of integration &
• Pay well than others • Info not available on compensation strategy ability to realize synergies
Compensati • Above average fixed • Variety of employee benefits being provided • Major risk and potential show-stopper
on Strategy compensation + high • Attrition rate is as low as 7% to 8%
performance-based incentives
20 Confidential
Given that plants and warehouses of Axel and Zane are in similar locations, cost synergy may accrue through
optimization of warehousing & logistics cost; cost outflow to be budgeted for Zane’s plant modernization
Zane
Axel & Zane’s Manufacturing Particulars Axel India
Automotive
Comments/ Hypothesis
+ Warehousing Network # Plants • 10 •5 • Majority plants located in same
locations
• Warehouse in Pune &
• Info note Bangalore
# Warehouses •2
available • Warehousing, logistics &
distribution spend can be
Noida (1) optimized
Manesar (1) Land
Manesar (1) • Leased • Own
Ownership
• Chennai + • Cost outflow risk to modernize
Manesar 3 plants of Zane
(highly
automated • Since Zane’s plant are already
Sanand (1) Own Plant • State of the operating at 90%+ utilization,
Sanand (1) Quality art • Others (Low modernization is necessary to
automation, ramp up production to cross
majority sell products to Axel’s
processes customers in domestic and
manual exports market
Pune (1)
Pune (1) Axel manufacturing plants • Own plant and • Own plants (no
Pune (1) Manufacturin • Sub-contractor network of Axel
approved sub- sub-
Axel Warehouses g Model can be leveraged by Zane for
contractors contracting)
Bangalore (1) Zane manufacturing plants
areas such as high precision
# Sub-
Bangalore (2) • 200 • Nil cutting
contractors
Chennai (4) • Capacity ramp-up required at
Chennai (1) Zane’s plants to tap cross-sell
Capacity opportunity
Coimbatore (1) • 75-80% • 90+%
Utilization • Axel can improve utilization by
developing products for value
segment car players & 2W
21 Confidential
Potential exists to save costs for raw materials through centralized procurement entailing better rates and
credit terms; potential to reduce manufacturing costs in Zane’s 3 outdated plants through modernization
Axel – Cost Structure & Operating Profitability Cost Levers Assessment
% Particulars Axel India Zane Automotive Comments/ Hypothesis
100%
• Potential savings in RM+ spares
80% + consumables cost due to
42%
centralized procurement
60%
100% 14% • Cash outflow for modernization
40% 7% of 3 outdated plants of Zane.
7%
20%
30% • Long-term benefits may
• Decentralized significantly outweigh short-
0% • Centralized
procurement term investment in upgradation
Revenue COGS Cost of Personnel SG&A EBITDA procurement
+Direct Services Expenses COGS + team
team
Expenses Direct • 3 outdated plants may have
Zane – Cost Structure & Operating Profitability Expenses • 3 plants have frequent breakdowns & high
• Modern
% manual outdated repair/ maintenance cost
100% plants
technology
80% • Productivity from these plants
55% may be significantly lower
60%
100% • Per unit mfg. cost for similar
40% 14% products in automated plants of
6% Zane v/s manual process driven
20% plants may be significantly
25%
different
0%
Revenue COGS Personnel SG&A EBITDA
+Direct Expenses
Expenses
22 Confidential
Potential exists to either rationalize the workforce across functions or improve productivity leading to
probable cost synergies
Axel – Cost Structure & Operating Profitability Cost Levers Assessment – Personnel Expenses
% Particulars Axel India Zane Automotive
100%
Total Employees • 4000 • 7000
• Manufacturing – 5,250 (75%)
80% 42% • Eng. Solutions – 1,500 (38%)
Break-up of • Procurement & R&D – 700 (10%)
• Manufacturing – 2,125 (53.1%)
60% Employees by • Sales – 210 (3%)(predominantly
14% Functions • Sales & Marketing – 200 (5.0%)
100% manage stockists)
40% 7% • Enabling Functions – 175 (4.4%)
7% • Enabling Functions – 840 (12%)
• Decentralized (Only Procurement
20% Operating Model • Decentralized
30% and R&D centralized)
0% • In-house : FP&A, Treasury, HR+
Revenue COGS Cost of Personnel SG&A EBITDA In-house v/s compensation & IT strategy • Strong in-house HR team
+Direct Services Expenses Outsourced • Outsourced : book-keeping, audit • Robust finance & accounts
Expenses Functions co-ordination, recruitment, IT division
Zane – Cost Structure & Operating Profitability development & help-desk etc.
% Comments/ Hypothesis for Personnel Expenses
100%
• Potential to optimize procurement team size of Zane (centralized procurement in Axel)
80% • Potential to optimize manufacturing workforce for Zane’s 3 outdated plant (post modernization)
55% (strong labour union may become a risk for any potential workforce reduction)
60% • Leverage Eng. Solutions team of Axel to develop value engineered products for value segment car
100% manufacturers in India & for 2W segment (improve productivity)
40% 14%
• Limited potential to optimize R&D teams given presence in different product segments
6%
20% • Improvement in productivity of Zane’s sales team (600 stockists managed by 150-200 sales team
25% member’s i.e., 3-4 stockists per sales team member)
0%
• Potential to rationalize sales & marketing team members where redundancies may be detected
+Direct Expenses (e.g., 2 sales team members (1 from Zane & 1 from Axel) may not be required for Hyundai)
Expenses • Potential to rationalize Zane’s staff in enabling functions (especially where these functions are
outsourced by Axel)
23 Confidential
Potential exists to save certain costs by effectively leveraging common assets and resources, eliminating
redundancies
Axel – Cost Structure & Operating Profitability Cost Levers Assessment
% Particulars Axel India Zane Automotive Comments/ Hypothesis
100%
• Potential areas of cost synergy
• Warehouse info
80% 42% • Optimization in warehousing
not available
and distribution spends by
60%
leveraging assets
100% 14% • HR, IT and
40% 7% Finance function • Savings in marketing and
7%
in-house promotion spends
20%
30% • 2 warehouses • Potential savings in some of
• Legal, industrial the shared services costs
0%
Revenue COGS Cost of Personnel SG&A EBITDA • Majority of relations handled • Potential savings in rental
+Direct Services Expenses enabling at group level costs in places where teams
Expenses functions are based in common cities
SG&A
Zane – Cost Structure & Operating Profitability outsourced • Multiple
Expenses • Potential risk areas
% litigations in past
100%
• Only critical with the vendors • Decoupling/migrating
enabling financial systems to Axel’s
80% group systems
55% functions inn- • Dependence on
60% house group for • Decoupling and integration
100% financial of IT from Zane group to
40% 14% requirements Axel’s network & systems
6% • Potential outflow due to
20% • ZA’s IT integrated litigations with vendors
25%
with Zane group’s
0% IT
+Direct Expenses
Expenses
24 Confidential
Agenda
- Key Questions
25 Confidential
Axel may be considering to acquire Zane to strengthen its position in a growing Indian market by expanding its
offerings portfolio and leveraging Zane’s leadership position to diversify to into aftermarket and 2W segment
Axel’s Potential Rationale/Drivers for Acquisition
Tap Future Potential in Indian Auto Industry Strengthen its Position in Domestic Market Broaden its Portfolio of Services & Products
• Indian automobile sales grew at 8.6% during FY16-17 • Only 30% of Axel India revenue from domestic sales • Existing product offering restricted to powertrains
(~22% of overall component cost in a car)
• Rising middle income populations and affordability • Caters to OEMs only (no presence in aftermarket)
driving growth • Zane has presence in vehicle exteriors,
• Limited presence amongst value segment players interiors(including electronics) and electricals
• Significant untapped potential (car ownership 22 per (who occupy >60% market share)
thousand in India v/s US-980, UK-850, Aus-740) • Cumulative product potential (>80% of component
• No presence in 2W segment cost for car manufacturing)
• Govt support – PLI scheme, scrappage policy etc.
• Leverage engineering services solutions
Pathway to Enter into Aftermarket Segment Pathway to Enter into 2W Segment Leverage Leadership Position of Zane
• Aftermarket segment contributes ~20% of the • 2W segment occupies 79% volume share • Zane is the largest player in organized service parts
overall auto components sales • Grew at 8.9% during FY16-19 (faster than market • Strong market share (30% to 45% ) in batteries,
• Aftermarket segment stood at $10Bn in FY19 growth) Wiper blades, Lighting/ Braking systems
(growing at >14%CAGR during FY16-19) • High future potential due to low cost and ease of • Presence in diverse customer (OEM and retail) &
• Axel does not have presence in aftermarket mobility in smaller cities application segment (car and 2W)
• Zane has network of 600 stockists and 100 own • Axel does not cater to 2W players, but Zane has • IP for 50+ products, assets (5 mfg. plants)
service centers strong presence amongst top manufacturers in India • Strong presence amongst value segment OEMs
26 Confidential
Agenda
- Key Questions
27 Confidential
Synergies may arise from the deal through 4 key levers i.e., revenue, cost, capital and capability
Revenue Synergy Cost Synergy

(Increase in revenue from cross-selling/new product (Increase in profitability from reducing costs by value
development) creation and eliminating redundancies)
Customer Markets Application Raw Material Conversion Personnel SG&A

• Axel sales in Retail • Zane products sold in • Axels enters 2W segment • Cost savings due to • Plant modernization • Procurement team • Marketing spend
(through Zane network) export market through through Zane’s existing bulk centralized • Reduction in • Mfg. personnel in • Distribution &
• Axel sales to value Axel’s global network relations (engineering procurement maintenance & manual process warehousing
segment OEM (where solutions, new products) downtime driven plants • Rental costs
Zane is strong) • Other factory OHs • Sales & marketing • Shared services
• Zane sales to premium • Enabling functions • Channel commission
OEM segment
Capital Synergy Capability Synergy

(Revenue increase/cost decrease driven by certain
(Improvements in balance sheet and cashflow)
capabilities)
Working Capital Leverage Assets • R&D capabilities – Strong R&D teams in Axel & Zane
• Better trade terms with • Better ability to raise • Leveraging manufacturing • Procurement capabilities – Centralized procurement team
creditors due to bulk funds plants, sub-contractor
procurement • Reducing cost of capital network • Human resources – Availability of strong talent pool, training
• Control over stockist through leverage • Common warehousing programs, leadership development, succession planning etc.
receivables assets
• Inventory optimization • Global IT platform of Axel • Culture – Working style
•
28 Confidential
and capital levers (1/4)
Ease of
Synergy Lever Potential Synergy Description Importance
Implementation
• Axel is strong amongst global premium brands but has limited revenue
Axel provides engineering share from value segment players.
solutions to value
• Zane has a strong presence with value segment players
segment car
manufacturers • Leveraging Zane’s relations, Axel can provide engineering services to
these car manufacturers
Axel provides existing
• Axel can leverage Zane’s relationships with these value segment car
powertrain products to
Revenue – manufacturers to cross-sell their existing powertrain products thereby
value segment car
Customer increasing share of wallet
manufacturers
(OEM)
Axel develops new • Axel’s share of revenue maybe low from value segment car
products for value manufacturers may be low due to product cost competitiveness
segment car • Axel can then leverage its R&D team to develop value engineered
manufacturers products that meets customer’s cost & quality criteria
Zane provides its • Axel has strong presence amongst global car brands
products to global car • This relationship can be leveraged by cross-selling Zane’s products to
brands these brands where Zane’s share of wallet is low
• Axel’s existing revenue is only from OEM customers
Axel’s products are sold
through Zane’s stockists • Zane has a network of 600 stockists which can be leveraged to sell
Revenue –
Axel’s products in aftermarket
Customer
(Retail) Axel’s products are sold • Zane also has a network of 100 own service centers
through/used in Zane’s
service centers • Axel’s products can be used in these in-house service centers

29
Ease of
Implementation
• Axel through its global group companies and global customer relations
Revenue – Zane’s product are sold in can introduce and sell Zane’s products
Markets export market • This will allow Axel to offer its customers a complete range from
engineering solutions to auto components (one stop solution)
• Zane offers its products in the 2W segment also and has strong
Axel provides engineering presence amongst players holding significant market share
Revenue – solutions to 2W players
• Axel can offer its engineering solutions offering to these players
Customer
(Application) • Since Axel does not have any existing products to offer to 2W segment,
Axel develops new
it can tap onto it’s R&D team’s capabilities to develop products for 2W
products for 2W players
players
• Zane follows a decentralized mode of operations, including its

procurement function. This may lead to several procurement
inefficiencies
Optimize raw material
Cost Synergy
costs • Axel has a centralized procurement team sourcing for all global offices
• Centralized procurement driven by high volumes will help reduce RM
costs by securing better pricing deals from RM suppliers
• Zane has 3 outdated plants which may have frequent breakdowns &
high repair/ maintenance cost thereby impacting productivity
Cost Synergy Optimize conversion costs • Mfg. cost per unit might be higher than automated plants
• Axel to invest in modernization of these plants to ensure future gains
• Identify scope to reduce factory overheads, downtime etc.

30
Ease of
Implementation
• Develop an organization structure of the merged entity to identify
Redesign organization
Cost Synergy roles & responsibilities, reporting relationships, staffing levels and
structure
redundancies
• Determine the common raw materials required in manufacturing
Optimize procurement operations for Axel and Zane’s products
team strength • Given centralized procurement operations in Axel, determine potential
headcount optimization potential
• Identify and evaluate productivity levels of the employees in Axel and
Zane
Manufacturing workforce • Determine areas of inefficiencies and identify to improve productivity
optimization per employee or identify potential to rationale production line team
Cost Synergy –
size
Personnel
Expenses • Optimize workforce for 3 outdated plants post modernization
• Identify areas of redundancies in sales & marketing team roles across
Optimize sales & Axel and Zane’s structure
marketing team strength • Identify need to maintain certain sales team groups (e.g., sales team
managing stockists) & evaluate scope to improve productivity
Optimize employee • Optimize workforce in areas where support functions have been
strength in support outsourced by Axel
functions • Identify and optimize workforce where redundancies exist

31
Ease of
Implementation
• Optimization in warehousing and distribution spends by leveraging
each other’s assets
• Savings in marketing and promotion spends (combined efforts to
generate sales)
Cost Synergy Optimize SG&A spends
• Potential savings in some of the shared services costs
• Potential savings in rental costs in places where teams are based in
common cities
• Evaluate rationalizing commissions for stockists
• Renegotiate credit terms with suppliers given increase in procurement
quantities
Optimize working capital • Offer lower credit to customers & improve receivable management
needs practices
• Optimize inventory holding for RM and stock to reduce working capital
needs
Capital Synergy • Evaluate existing mix of debt and equity and resultant cost of capital
Optimize cost of capital • Identify potential to increase leverage in the balance and reduce equity
component to reduce cost of capital and ensure higher returns for
equity shareholders
• Zane plants are operating at 90%+ capacity utilization
Leverage assets &
networks of Axel & Zane • Evaluate potential to leverage Axel’s spare capacity or approved sub-
contractors (thereby deferring capital investments)

32
Acquisition also presents several risks for Axel which can critically impact the expected outcomes from the
deal
Cultural Risks Operational Risks

• Diverse work cultures in Axel & Zane • Strong labour unions – may become
difficult to lay-off workers
• Axel – Agile work culture (compensation
1 above industry average with significant
focus of performance linked incentives
• IP rights to be retained by Zane group or
will become available to Axel
2
• Zane – Employees highly satisfied with • 3 plants of Zane are outdated plants
work life balance, low attrition • Past litigations with vendors
Key Risk
Areas
Financial Risk Systems Integration Risk
• Liability from any litigations • ZA’s IT integrated with Zane group’s IT;
• Investments to be made for Decoupling and integration of IT from
4 modernization of 3 manual process
driven plants
Zane group to Axel’s network & systems
3
• Zane’s uses ERP to manage data related
• Zane has been financially dependent on to business operations; customization
Zane group and thus may not have done over 10 years; migration to Axel’s
adequate funds to invest in capacity systems may create challenges
33 Confidential
Agenda
- Key Questions
34 Confidential
Distinct operating model and integration type needs to be developed for various business functions of Axel
& Zane
Business Function As-Is Operations To-Be Operating Model Integration
• Option 1:
• Axel
• Independent operations (due to low product overlap)
• R&D function is centralized
• Oversight from common R&D director
• Budget & funding for R&D allocated at group
level and then cascaded below to regional teams • R&D funding will continue to be centralized Partial/ Complete
R&D
• Option 2: Integration
• Zane
• Zane has its own R&D team • R&D teams are fully integrated and capabilities are cross
capabilities leveraged
• Decentralized mode of operations
• Centralized function (funding from Axel global office)
• Axel – Centralized function (consolidated
procurement for all group companies) • Centralized procurement (Better price and credit terms from
Procurement Full integration
• Zane – Decentralized procurement (Has its own suppliers driven by higher volumes)
procurement team)
• Due to low product overlap, manufacturing operations to
• Axel – Network of 10 factories & 200 sub- continue as is
contractors Predominantly
Manufacturing
• Leverage each other’s facilities for overlapping products separate
• Zane – Network of 5 factories
• Zane can tap into Axel’s sub-contractors
• Axel has 2 warehouses • Complete integration in warehousing and distribution to drive Complete
Supply Chain
• Distribution model info not available efficiencies by leveraging each other’s network & assets Integration
• Sales & marketing teams to be integrated (role overlaps and
• Axel and Zane currently have independent sales redundancies to be eliminated) Complete
Sales & Marketing
teams catering to their available customer segments • E.g. A particular customer/ stockist to be managed by single Integration
team member (instead of one from Axel and one from Zane)
• Axel – Several functions are either in-house or • Support functions to be completely integrated basis Axel’s
outsourced existing operating model for each of those functions Complete
Support Functions
Integration
• Zane – Predominantly in-house • Eliminate redundancies, derive cost synergies
35 Confidential
Agenda
- Key Questions
36 Confidential
Cultural integration, ability to realize revenue synergies and systems integration are expected to be major
showstoppers; if executed correctly may drive successful outcomes from the deal
Showstopper Description Impact of Showstopper
• Axel and Zane both have significantly diverse working cultures

• While Axel has aggressive work culture, Zane has a more relaxed & balanced work culture
• Integrations of two entities with such opposite work cultures will be critical for success of the M&A
Cultural Integration
• Axel will be able to realize the synergies and value from the deal only if they are able to harmonize the
working culture and ensure smooth transition of working style
• Large number of M&A deals have failed to realize their potential because of cultural differences
• From the analysis it appears that one of the major drivers of this deal is for Axel to strengthen its
business position in India
Revenue Synergy • Currently its share of revenue from India is only 30% & that too from global car OEMs
Realization • It does not have strong presence amongst value segment players, retail segment and 2W applications
• Thus, the deal has potential to offer higher revenue led synergies and will be dependent on Axel’s
ability to cross-sell
• ZA’s IT system in integrated with the Zane group and its data & financial management is through ERP
(which has been customized over a period of 10 years)
Systems Decoupling & • Decoupling of IT and business data systems and integration into Axel’s system is going to be highly
Integration critical
• Zane manages its designing, components testing, sales management etc. through ERP and migrating to
Axel’s systems will require these features to be available so as not to impact business continuity
• Multiple cost synergies exist that needs to be realized to derive value from the acquisition
Cost Synergy Realization
• Cost synergy realization may however be relatively easier to handle compared to other showstoppers

37
Agenda
- Key Questions
38 Confidential
Key questions for management
Key Questions
Strategic
• What are management’s key drivers/ strategic goals behind acquiring Zane Automotive?
• Whether management had considered any other targets and why did they choose Zane for acquisition?
• What are the synergies that management expects to derive from the deal? How are they broken down in various synergy levers?
• What is the management’s view on agreed valuation of $360Mn for acquiring Zane?
Business/Operations
• What has been the historical growth in revenue? (By Offerings, by markets, by customers etc.)?
Key Questions for Axel’s • What is the split of domestic revenue between products and engineering solutions?
Management • What is the market share of Axel for its offerings in India? How has it grown historically?
• Whether Axel’s global group companies have any presence in 2W? Does it have R&D existing capabilities for 2W?
M&A/Integration
• Whether management is wary of diametrically opposite work culture in Zane compared to Axel’s? How does management plan to manage the
cultural risk? Whether Axel has planned on potential org structure for merged entity?
• What are other risks that management perceives that may impact the outcomes of the deal?
• What is the management’s view on integration of each business functions?
• Whether all the potential cost outflows have been factored while arriving at synergies?
Strategic
• What are the reasons for Zane management to sell its automotive operations despite its leadership position?
Business/Operations
• What has been ZA’s historical revenue & profitability trends (by products, customers, application segments)?
Key Questions for Zane’s • Whether there has been any loss in market share?
Management • Whether Zane has any presence in 3W and commercial vehicles application segment?
• Whether the IP rights for 50+ products will get transferred to Axel post acquisition?
• What is Zane’s compensation strategy? (above average, performance linked incentives etc.)
• Whether Zane has its own warehouses? Whether logistics and distribution operations are in-house or outsourced?
• What challenges does Zane face in decentralized model of operations?
39 Confidential
Thank You
40 Confidential

KPMG - Axel & Zane M&a Deal and Integration Assessment - Rohan Shah

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Axel India and Zane Automotive M&A and Integration Assessment

12th July 2021

- Diagnosis : Axel India and Zane Automotive Profiling

- Axel’s Drivers for Acquisition

- Synergy Levers and Potential Synergies from the Deal

- Integration Hypothesis and Target Operating Model

- Potential Showstoppers for Successful Integration

Axel’s Potential Rationale/Drivers for Acquisition

Revenue – Customer Axel’s products are sold through Zane’s stockists

Revenue – Customer Axel provides engineering solutions to 2W players

Cost Synergy – Manufacturing workforce optimization

Cultural Risks Operational Risks

Showstopper Description Impact of Showstopper

• Axel and Zane both have significantly diverse working cultures

High Medium Low Confidential

- Diagnosis : Axel India and Zane Automotive Profiling

- Axel’s Drivers for Acquisition

- Synergy Levers and Potential Synergies from the Deal

- Integration Hypothesis and Target Operating Model

- Potential Showstoppers for Successful Integration

India Automobile Sales

Source: Society of Indian Automobile Manufacturers (SIAM)

India Automobile Sales – By Category

25.0 24 0.8 4.0 (13%)

50% 50% 24% A P

Car Ownership Per 1000 Individuals – By Country

Source: IBEF Report on Automobiles in India, March 2021

Component Cost Contribution Breakdown (Passenger Car)

Source: Mckinsey Report titled “The future of North American Supplier”

India Auto Aftermarket Turnover Product-wise split of Aftermarket Turnover

Analysis & Hypothesis

Source: IBEF Report on Auto Components, March 2021

1 <0x Zane’s Sales EBITDA

Source: RSBA Advisors Report Titled “Industry Multiples in India”

- Diagnosis : Axel India and Zane Automotive Profiling

- Axel’s Drivers for Acquisition

- Synergy Levers and Potential Synergies from the Deal

- Integration Hypothesis and Target Operating Model

- Potential Showstoppers for Successful Integration

Particulars Axel India Zane Automotive Comments/Hypothesis

Particulars Axel India Zane Automotive Comments/Hypothesis

• Value engineering by Axel to cater to value segment

Particulars Axel India Zane Automotive Comments/Hypothesis

• Risk : Depends on cost of Axel's products and

- Diagnosis : Axel India and Zane Automotive Profiling

- Axel’s Drivers for Acquisition

- Synergy Levers and Potential Synergies from the Deal

- Integration Hypothesis and Target Operating Model

- Potential Showstoppers for Successful Integration

Axel’s Potential Rationale/Drivers for Acquisition

- Diagnosis : Axel India and Zane Automotive Profiling

- Axel’s Drivers for Acquisition

- Synergy Levers and Potential Synergies from the Deal

- Integration Hypothesis and Target Operating Model

- Potential Showstoppers for Successful Integration

Revenue Synergy Cost Synergy

Customer Markets Application Raw Material Conversion Personnel SG&A

Capital Synergy Capability Synergy

High Medium Low Confidential

• Zane follows a decentralized mode of operations, including its

High Medium Low Confidential

High Medium Low Confidential