Amtek Auto Limited

BUY
CMP: Rs. 181.40 Date: March 22nd, 2010. Key Ratios: Particulars OPM (%) NPM (%) ROE (%) ROCE (%) P/BV(x) P/E(x) EV/EBDITA(x) Debt equity ratio Key Data: Sector Face Value 52 wk. High/Low Volume (2 wk. Avg.) BSE Code Target price: Rs.208.00 Market Cap. : Rs.28343.75mn.

FY09 (12 m) 37 15 6 5 1.03 16.69 2.81 1.35

FY10E (12 m) 39 14 7 5 1.07 16.34 6.62 1.39

FY11E (12 m) 38 14 7 6 0.99 14.30 6.60 1.42

SYNOPSIS
Amtek manufactures a wide range of components for automotive applications, specialized in engine, transmission and suspension systems. The company has clients like Maruti, TVS, Hero Honda, Mahindra & Mahindra, Bajaj Auto and Tata Motors. It also has presence in the US and UK. Amtek Auto allots 3,65,41,314 equity shares upon the conversion of FCCBs. As per the order of Hon'ble High Court of Punjab & Haryana the Scheme of Arrangement of Amtek India Ltd., Ahmednagar Forgings Ltd., Amtek Ring Gears Ltd., Amtek Crankshafts India Ltd. and Amtek Casting India Ltd. with Amtek Auto Ltd. has been dismissed on account of changed circumstances as regards valuation of shares and decline in turnover and profits. The company has declared dividend to its Equity shareholders @ 25% for the year 2008-09 i.e. Rs 0.50 per equity share of Rs 2/- each.

Automobile Ancillary Rs.2.00 Rs.239.30/69.00 2691000 520077

V.S.R. Sastry Vice President Equity Research Desk 91-22-25276077 vsrsastry@firstcallindiaequity.com

The company & Sumitomo Metal Industries (Sumitomo Metals) of Japan have signed a joint venture (JV) agreement for production and sale of forged crank shafts for automotive applications in India.

Share Holding Pattern:

Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com

Table of Content Content 1. Investment Highlights 2. Company profile 3. Company products 4. Peer Group Comparison 5. Key Concerns 6. Financials 7. Charts & Graph 8. Outlook and Conclusion 9. Industry Overview Page No. 03 06 07 11 11 12 14 16 17

Investment Highlights
Result Updates (Q2FY10) For the second quarter, the top line of the company increased 25%YoY and stood at Rs.3021.80mn against Rs.2413.30mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.350.80mn from Rs.203.80mn of the corresponding period of the previous year i.e. an increase of 72%YoY.

EPS of the company for the quarter stood at Rs.2.25 for equity share of Rs.2.00 each.

Expenditure for the quarter stood at Rs.2218.30mn, which is around 15% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 63% of the sales of the company and stood at Rs.1905.90mn. Employee cost stood at Rs.148.00mn from Rs.155.00mn. and accounts for 6% of the revenue of the company for the quarter i.e., a decrease of 5%YoY.

OPM and NPM for the quarter stood at 38% and 12% respectively from 28% and 8% respectively of the same period of the last year.

Allotment of Equity Shares The Company has allotted 52,054 equity shares at Rs. 209.83/- per shares upon the conversion of FCCB's of US $ 0.25 million.

Amtek Auto allots 3,65,41,314 equity shares upon the conversion of FCCBs The Board of Directors of the Company , in the meeting held on February 9, 2010 have allotted 36541314 equity shares at Rs. 148.40/- per shares upon the conversion of FCCB's of US $ 111.51 million.

Scheme of Arrangement As per the order of Hon'ble High Court of Punjab & Haryana the Scheme of Arrangement of Amtek India Ltd., Ahmednagar Forgings Ltd., Amtek Ring Gears Ltd., Amtek Crankshafts India Ltd. and Amtek Casting India Ltd. with Amtek Auto Ltd. has been dismissed on account of changed circumstances as regards valuation of shares and decline in turnover and profits. The Court held that it would be impermissible to order the scheme proposed on the basis of valuation of shares of the year 2007. The appropriate remedy could only be through a fresh petition and the scheme cannot be considered on the basis of the data available in the year 2007.

Dividend The company has declared dividend to its Equity shareholders @ 25% for the year 200809 i.e. Rs 0.50 per equity share of Rs 2/- each.

Repurchases Foreign Currency Convertible Bonds (FCCBs) The Company has repurchased and cancelled, of the face value US$ 9,500,000, of June 2010 Foreign Currency Convertible Bonds (FCCBs), at a discount in compliance with the RBI FCCB Buyback Guidelines As a result of their repurchase of FCCBs the Company's outstanding FCCBs as on date at US$ 8,000,000

Amtek, Sumitomo Metal form JV for forged crankshafts The company & Sumitomo Metal Industries (Sumitomo Metals) of Japan have signed a joint venture (JV) agreement for production and sale of forged crank shafts for automotive applications in India.

This JV is to be formed with investment of 50% by Amtek, 40% by Sumitomo Metals, and 10% by Sumitommo Corporation. Sumitomo Corporation is the global partner of crankshaft business of Sumitomo Metals. This is in line with Amtek`s strategy of augmenting its product portfolio. The company will contribute to this JV, its existing local market and manufacturing know-how and experience. Sumitomo Metals, on the other hand will bring in its world-class crankshaft forging technology. This JV will be another milestone for the Amtek Group and step forward in the direction of consolidating its customer and product portfolio as well as attaining world-class technological edge in automotive manufacturing. This also makes Amtek a full serviced supplier of crankshafts for automotive applications as Amtek has already created market leader position for itself in the field of fully machined crankshafts in India. This JV also provides to Sumitomo Metals entry into the high growth crankshaft market of India. This is based on Sumitomo Metals` corporate strategy to `add strength to strong areas. `With this entry to India, Sumitomo Metals will have a global `tetra polar` production system (Japan, US, China and India) The automobile industry faces unprecedented difficulties, but the Indian automobile market has been growing rapidly in recent years and local demand for forged crankshafts is expected to surge significantly in the medium to long term.

Company profile
Amtek Auto Limited engages in the manufacture and sale of auto components in India and internationally. The major categories of components manufactured by the company include connecting rod assemblies, flywheel ring gears and assembly, steering knuckles, suspension and steering arms, cv joints, crankshaft assemblies, and torque links. The products are used for 2-3 wheelers, cars, tractors, light commercial vehicles, heavy commercial vehicles, and stationary engines. It exports its products primarily to Europe, North America, Asia, Africa, the Middle East, and South America. The company was incorporated in 1985 and is based in New Delhi, India. The company is a part of Amtek Group. The company's customers include Ashok Leyland Limited; Aston Martin; Bajaj Auto Limited; BMW; Briggs & Stratton; CNH Global; CNH New Holland; Cummins; CYT; Dana Italia; Davis Industries; Defence; Delco Machining; Eicher Motors Limited; Escorts; Fairfield; Fiat India; Ford; General Motors; GE Transportation; GWK, Ltd; Hero Honda; Hindustan Motors; Honda Scooters; Hyundai; International Tractors; Isuzu Diesel; Jaguar; JCB; John Deere; Kawasaki; Ketlon Machining; Land Rover; LG Electronics; LML Limited; Luk Industries; Mahindra & Mahindra; Maruti Suzuki; MDM; MG Rover; Mulhoff; Musashi Auto Part Pvt., Ltd; Navistar

General Motors; Perkins Engines; Rail; Saab; Sanden Corp; Scania; Sisu Diesel; Tallent Engineering; Tata Motors; Tecumseh; Toyota; Unimotion Gears; and Yamaha Motors.

Company products
Product portfolio Flywheel Ring Gears Machining Forging Casting Aluminium (HPDC & GDC) Casting Iron(HPDC & GDC)

Flywheel Ring Gears Starter Ring Gear Flex plate Assemblies (2 Piece) Flywheel Assemblies

Machining Steering Knuckles Ladder frames Engine bearing ladders Exhaust manifolds Aluminium Case Housings Bridge Fork Assemblies Hubs Spindles Connecting Rods Crankshaft Housings Gear Shifter Forks Front Axle Beam Assembly Crankshaft Assembly Conrod Piston Sub Assembly Flywheel Assembly Pivot Arms Flywheel Housing & Assembly Wheel Hubs PTO Casing

Front Axle Beams Front & Rear Axle

Forging Connecting rods & Caps Crankshafts & Camshafts Steering Levers Gear shifter forks Sector gears & shafts Front Impact Beams Drive Shafts Spindlers Hubs & Flanges Transmission Components Steering Parts Pistons Propeller Fork Shafts Stub Axle Front Axle Beam Front & Rear Axle Shaft

Casting Aluminium (HPDC & GDC) Clutch Cases Transmission cases Timing Chain Covers Mounting Brackets Camshaft Covers / Carriers Bearing Ladders / Sumps Structural Covers Differential Flange

Casting Iron (HPDC & GDC) Cylinder Block & Head Transmission Housings Brake Carriers & Caliper Trumpet casings Crankshafts Intake and Exhaust Manifolds Flywheels & Flywheel Housings Turbo Charger

Bell Housings Linkshafts

Services Product Design Lean Six Sigma

Product Design The Group has a Design and Development facility that fully supports to the customer requirements. The facility offers design activity using 3D modeling, detailed FE analysis, NVH Refinement and Kinematic analysis. Latest Design Soft wares such as CATIA, C3P I-Deas, Unigraphics and Pro Engineer are used. Data Exchange is done through Metaphase, FTP, ENOAT/ODETTE as well as Internet, DAT tape etc. Design engineers can work from customers premises, from company modern design coordination centre at Letchworth, UK and from their well-equipped design centre in India. A key feature of the design process is the use of advanced CAE techniques such as structural optimization of component topology and topography to meet customerdefined targets for stiffness, strength, mass, NVH and fatigue performance. Linear and non-linear analysis is undertaken as required to prove design integrity under all conditions prior to first physical prototypes, thus reducing time between initial concept and production readiness

Lean Six Sigma Amtek is in the process of implementing Lean and Six Sigma. Six Sigma is a process of reducing variation using a DMAIC (Define, Measure, Analyse, Improve, and Control) methodology. Lean Manufacturing seeks to identify and eliminate the source of waste that exists within a process. Lean & Six sigma will be followed in all the plants of Amtek. Each region & plant will have a formalized & standardized infrastructure. This will include programme metrics, project metrics & plant maturity metrics. Training will be provided for different people at different levels based upon the needs of the organization. They have Champions, full time Black Belts, Green Belts and we will have Master Black Belts. They have been trained on Lean/Six Sigma and once trained these people can impart training down the line. This role will help shape the Lean Six Sigma Strategy & Development within Amtek. It will become a part of the Amtek Human Resource policy. Each business will communicate the principles and progress of the Lean and Six-Sigma programme throughout the business using the agreed communication tools to share, inform and educate.

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Peer Group Comparison

Name of the company CMP(Rs.) (As on March 22, 2010) Market Cap. EPS (Rs. Mn.) (Rs.) P/E (x) P/BV (x) Dividend (%)

Amtek Auto Hindustan Composites Limited Exide industries Motherson Sumi Bosch

181.40 403.05 113.85 131.60 4800.00

28343.75 2216.80 91080.00 48002.30 150714.70

9.62 4.24 5.88 3.74 188.11

18.86 95.06 19.36 35.19 25.52

1.11 9.86 7.48 11.57 4.09

25.00 0.00 60.00 135.00 250.00

Key Concerns
Adverse Govt. policies Economic slow down. Highly competition Recession in global economy

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Financials
Results Update 12 months ended Profit and Loss A/C (Standalone): Value(Rs. in million) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Net Profit Equity Capital Reserves Face Value (Rs) Total No. of Shares EPS (Rs)
*Year ending on June 30th

FY08 12m 12823.90 985.40 13809.30 -9427.60 4381.70 -290.70 4091.00 -939.10 3151.90 -826.40 2630.50 282.00 23016.40 2.00 141.00 18.66

FY09 12m 10522.00 1399.50 11921.50 -7979.70 3941.80 -628.10 3313.70 -1226.00 2087.70 -555.30 1532.40 282.00 24548.80 2.00 141.00 10.87

FY10E 12m 12415.96 1539.45 13955.41 -9162.98 4792.43 -1106.33 3686.10 -1373.12 2312.98 -578.25 1734.74 312.50 26283.54 2.00 156.25 11.10

FY11E 12m 14030.03 1693.40 15723.43 -10354.17 5369.26 -1216.96 4152.30 -1510.43 2641.87 -660.47 1981.40 312.50 28264.94 2.00 156.25 12.68

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Quarterly ended Profit and Loss A/C (Standalone):

Value(Rs. in million) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Net Profit Equity Capital Face Value (Rs) Total No. of Shares EPS (Rs)

30-Jun-09 3m 2521.90 819.20 3341.10 -1887.80 1453.30 -228.20 1225.10 -358.00 867.10 -244.40 622.70 282.00 2.00 141.00 4.42

30-Sep-09 3m 2674.10 360.70 3034.80 -1997.90 1036.90 -225.70 811.20 -403.50 407.70 -102.70 305.00 282.00 2.00 141.00 2.16

31-Dec-09 3m 3021.80 356.50 3378.30 -2218.30 1160.00 -287.70 872.30 -403.50 468.80 -118.00 350.80 312.50 2.00 156.25 2.25

31-Mar-10E 3m 3323.98 374.33 3698.31 -2440.13 1258.18 -302.09 956.09 -411.57 544.52 -137.06 407.46 312.50 2.00 156.25 2.61

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Charts
Net sales & PAT

P/E Ratio (x)

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P/BV (X)

EV/EBITDA(X)

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1 Year Comparative Graph

Amtek Auto Ltd

BSE SENSEX

Outlook and Conclusion

At the market price of Rs.181.40, the stock is trading at 16.34 x and 14.30 x for FY10E and FY11E respectively. On the basis of EV/EBDITA, the stock trades at 6.62 x for FY10E and 6.60 x for FY11E. Price to book value of the company is expected to be at 1.07 x for FY10E and 0.99 x for FY11E respectively. EPS of the company is expected to be at Rs.11.10 and Rs.12.68 for the earnings of FY10E and FY11E respectively. The Board of Directors of the Company , in the meeting held on February 9, 2010 have allotted 36541314 equity shares at Rs. 148.40/- per shares upon the conversion of FCCB's of US $ 111.51 million.

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As per the order of Hon'ble High Court of Punjab & Haryana the Scheme of Arrangement of Amtek India Ltd., Ahmednagar Forgings Ltd., Amtek Ring Gears Ltd., Amtek Crankshafts India Ltd. and Amtek Casting India Ltd. with Amtek Auto Ltd. has been dismissed on account of changed circumstances as regards valuation of shares and decline in turnover and profits. The company & Sumitomo Metal Industries (Sumitomo Metals) of Japan have signed a joint venture (JV) agreement for production and sale of forged crank shafts for automotive applications in India. We recommend BUY this stock with a target price of Rs.208.00 for medium to long term.

Industry Overview
The Indian auto component industry is one of India's sunrise industries with tremendous growth prospects. From a low-key supplier providing components to the domestic market alone, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen, amongst others. As per an Automotive Component Manufacturers Association of India (ACMA) report, the turnover of the auto component industry was estimated at over US$ 18 billion in 2007-08, an increase of 27.2 per cent since 2002. It is likely to touch US$ 40 billion, increasing Indias share in the global auto component market from 1 per cent to 3 per cent by 2015-16. Aided by a 7 per cent growth in the original equipment manufacturers (OEM) segment and an 8.5 per cent rise in exports and after-market segment, it is expected that auto ancillary production would grow by 8.2 per cent in 2009-10, according to a report by the Centre for Monitoring Indian Economy (CMIE). Investments in the auto component industry were estimated at US$ 7.2 billion in 2007-08 and are likely to touch US$ 20.9 billion by 2015-16. In Tamil Nadu alone, nearly US$ 1 billion have been invested by some of the major trye companies, such as Apollo Tyres, ATC Tires, MRF, Dunlop and TVS Srichakra. Exports of auto components grew at the rate of 35 per cent during 2002-07 and touched US$ 3.6 billion in 2007-08. It is estimated to reach around US$ 20 billion-US$ 22 billion by 2015-16. During April-January 2008-09, exports grew by 27.3 per cent to US$ 2.12 million. A majority of Indian exports are sent to Europe and North America.

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India will be the next destination for the Automotive Testing Expo to be hosted by UKIP Media at Hyderabad next year. The expo will now be an annual event for the country and will showcase latest technologies, including simulation, for new automotives and components. Indian companies are also expanding their footprints abroad. For instance, TVS Logistics, a part of the TVS group, acquired one of the largest after market logistics companies in the UK. The company will undertake an investment in excess of US$ 26.77 million in Multipart Holding in the next 18 months in order to expand its operations in the UK and rest of Europe. Further, Coimbatore-based Elgi Rubber Company has formed a fully owned subsidiary company in Texas, US under the name of Elgi Rubber Company LLC, investing up to US$ 5 million on the venture. Destination India According to the Investment Commission of India, global automobile manufacturers see India as a manufacturing hub for auto components and are rapidly increasing the value of components they source from India due to:

India's cost competitiveness in terms of labour and raw material. Its established manufacturing base.

Makers of luxury cars are increasingly looking at making India a sourcing hub for components, besides using more local components in cars for the Indian market. BMW is likely to sign the first direct sourcing deal with local vendors by the end of this year. Skoda Auto India is looking at increasing localization for its small car Fabia to over 50 per cent over the next two years. Mercedes Benz India expects growth in sourcing from India to continue at 10 per cent. Foreign Investments India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.

Swiss auto clamps maker, Oeitker Group, has inaugurated the first phase of its manufacturing facility in India. It has invested US$ 12.58 million in Phase I and hopes to start work on the second phase by the end of next year. The Tamil Nadu state cabinet recently gave clearance to the French tyre major, Michelins proposal to set up a US$ 851.5 million Greenfield project near Chennai, Tamil Nadu.

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A memorandum of understanding (MoU) has been signed by the US auto giant, Ford Motors, with the Tamil Nadu government to set up a unit with a capacity of 250,000 engines a year. German auto company, Volkswagen has commenced sourcing components from India for its Russian plant and is also looking at sourcing light systems, plastic-related items and metals for its European plants.

Domestic Investments The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. An auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34 automotive ancillary units. This is in addition to a US$ 245.59 million Greenfield project being set up by MLR Motors near the park. Moreover, Indian tyre makers are rolling out investment plans worth US$ 1.24 billion, due to the rising popularity of radial tyres in the commercial vehicles segment. Some other investments include:

Apollo Tyres is to scale up investment at its upcoming radial tyre project at Oragadam in Tamil Nadu from US$ 106.4 million to US$ 447.04 million. Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturing automotive transmissions in India. Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in a new ball bearings manufacturing plant at Haridwar.

Policy Initiatives The government has taken many initiatives to promote foreign direct investment (FDI) in the industry.

Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted. The automobile industry has been delicensed. There are no restraints on import of components.

The government has envisaged the Automotive Mission Plan 2016 to promote growth in the sector. It targets:

Emerging as the global favorite in the area of design and manufacture of automobiles and auto components.

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Taking the output to US$ 145 billion, accounting for more than 10 per cent of the GDP. Offering additional employment to 25 million people by 2016.

Looking Ahead With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India's auto market are bright. Even though India's auto component industry has conventionally relied on exports for its profits, the domestic market itself is ripe with rapidly growing opportunities. Industry experts are hopeful that the country will be able to offset China and other Southeast Asian countries' traditional manufacturing advantage in the coming years, facilitating the industry's achievement of its targeted market value of US$ 40 billion by 2014.

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Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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