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F

Amtek India Ltd BUY


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C.M.P: Target Price:
Rs.60.00 Rs.75.00 March 31, 2010
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SYNOPSIS
1 Year Comparative Graph We initiated the coverage of Amtek India
Ltd and set a target price of Rs.75.00. S
Amtek India (AIL), one of the flagship
companies of Amtek group, is an integrated T
automotive component manufacturer with
facilities for casting, machining, and sub-
assemblies at locations in India and the C
UK. The company was incorporated in
1992.
Amtek India Ltd BSE SENSEX A
During the Quarter, the Company has
Stock Data allotted 1,882,961 Equity Shares of Rs 2/-
each at a premium of Rs. 118.12/- each L
Sector Automobile Ancillary
aggregating US $5.15 million upon the
Face Value (Rs.) 2.00 conversion of Foreign Currency Convertible
52 wk. High/Low (Rs.) 78.00/31.10 Bonds of USD 100 million. L
Volume (2 wk. Avg.) 54000 The Company plan to expand its casting
BSE Code 532282
capacities from 1,05,000 t.p.a. to 2,25,000
t.p.a. And also planning to foray into high
Market Cap (Rs.mn.) 7197.00 precision components like cylinder blocks
of bigger engines, cylinder heads,
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Share Holding Pattern
transmission covers etc.

The Credit Analysis & research Ltd. (CARE) E


has assigned a CARE AA- (CARE Double a
Minus) rating to the NCD issue of the
Company for Rs. 200Crore.
S
E
* Year ending
on June 30th A
Financials FY08 FY09 FY10E FY11E

V.S.R. Sastry
Equity Research Desk
Net Sales 9695.9 7752.2 9765.5 11230.3 R
EBIDTA 2657.1 1888.1 2935.9 3370.4
vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.


PAT 1313.6 541.5 783.0 976.8 C
Chief Research Officer EPS 30.92 4.83 6.53 8.14
drsastry@firstcallindia.com
P/E 1.94 12.43 9.19 7.37 H

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Table of Content

Content Page No.

1. Peer Group Comparison 03

2. Investment Highlights 03

3. Company profile 06

4. Financials 07

5. Charts & Graph 09

6. Outlook and Conclusion 11

7. Industry Overview 12

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Peer Group Comparison

Market
Name of the company CMP(Rs.) Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Amtek India Ltd 96.00 7197.00 5.94 10.20 0.49 10.00

Bosch Ltd 4907.00 154074.40 236.90 20.71 4.55 300.00

Amtek auto Ltd 164.60 31745.80 8.83 18.64 1.24 25.00

Munjal Showa 52.45 2097.70 6.15 8.53 1.10 100.00

Investment Highlights

Results Updates (Q3 FY10)

For the third quarter, the top line of the company increased 40%YoY and stood
at Rs.2551.20mn against Rs.1818.00mn of the same period of the last year. The
bottom line of the company for the quarter stood at Rs.193.40mn from
Rs.108.70mn of the corresponding period of the previous year i.e. an increase of
78%YoY.

EPS of the company for the quarter stood at Rs.1.61 for equity share of Rs.2.00
each.

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Expenditure for the quarter stood at Rs.1923.10mn, which is around 35%
higher than the corresponding period of the previous year. Raw material cost of
the company for the quarter accounts for 67% of the sales of the company and
stood at Rs.1703.20mn. Employee cost stood at Rs.130.40mn from
Rs.125.00mn. and accounts for 5% of the revenue of the company for the
quarter i.e., an increase of 4%YoY.

OPM and NPM for the quarter stood at 30% and 8% respectively from 24% and
6% respectively of the same period of the last year. During the Quarter, the
Company has allotted 1,882,961 Equity Shares of Rs 2/- each at a premium of
Rs. 118.12/- each aggregating US $5.15 million upon the conversion of Foreign
Currency Convertible Bonds of USD 100 million.

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Conversion of Warrants

Board of Directors of the Company has allotted 62,10,000 Equity Shares upon
conversion of warrants into equivalent number of equity shares of Rs. 2/- each
at a premium of Rs. 39/- aggregating to Rs. 25.461Crores to the promoters
group Companies by way of preferential allotment.

Further the Convertible warrants issued by the company are exercised by the
allottees within the currency period of warrants which were allotted on July 08,
2009 in terms of Chapter XIII of the SEBI (Disclosure & Investor Protection)
Guidelines, 2000.

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.

Amtek India to declare dividend

The company has declared dividend to its Equity shareholders Rs 0.20 or @


10% per equity on a face value share of Rs 2/- each for the year 2008-09.

Credit Rating

The Credit Analysis & research Ltd. (CARE) has assigned a CARE AA- (CARE
Double A Minus) rating to the NCD issue of the Company for Rs. 200Crore. The

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instruments carrying AA- rating are considered to offer high safety for timely
servicing of debt obligation. Such instruments carry very low credit risk.

Company Profile

Amtek India (AIL), one of the flagship companies of Amtek group, is an integrated
automotive component manufacturer with facilities for casting, machining, and sub-
assemblies at locations in India and the UK. The company was incorporated in 1992.

The company is engaged in manufacturing automotive components with a special


focus on iron castings. The plants of the company are located in Narasinghpur in
Gurgaon and at Bhiwadi in Rajasthan.

In the year 2007-08 the company expanded its casting capacity from 75000 tonnes
per annum (TPA) to 105000 TPA. The company has also expanded the manufacturing
capacity of components from 175 lakh per annum to 200 lakh pa. In 1993 AIL
Initiated forging operations at Gurgaon, India. In 2002 the company established an
iron casting facility at Bhiwadi. The company has one subsidiary -- Amtek Industries
UK (wholly-owned foreign subsidiary company incorporated in the UK).

The company has grown significantly through acquisitions over the last three years.
AIL has acquired UK-based Sigma Cast group, is one of the biggest and largest
supplier of turbo charger components in the world.

The customers of the group consist of Ashok Leyland, Aston Martin, Bajaj Auto, BMW,
Briggs & Stratton, CNH Global, Cummins, Dana Italia, Davis Industries, Eicher
Motors, Escorts, Fairfield, Fiat India, Ford, General Motors, GE Transportation, Hero
Honda, Hindustan Motors, Hyundai, Isuzu Diesel, Jaguar, JCB, John Deere, Kawasaki
and many more.

Associates:

• Amtek Auto Ltd.


• Amtek Crank Shafts India Ltd.
• Amtek Deutschland GmbH
• Amtek Investment UK Ltd.
• Amtek Investment US (1) Inc.
• Smith Jones Inc.
• Amtek Ring Gears Ltd.
• Amtek Transportation Systems Ltd.

Plant Location

Unit l - Village Narsinghpur, Old Manesar Road, District Gurgaon (Haryana)

Unit ll - SPA 1195, Phase IV, RIICO Industrial Area, District Bhiwadi (Rajasthan)

Unit III- Nalagarh, Distt. Solan (Himachal Pradesh)

Unit IV - SPA 502, Phase-I, RIICO Industrial Area, District Bhiwadi, (Rajasthan)

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 9695.90 7752.20 9765.47 11230.29

Other Income 175.20 255.60 562.68 618.94

Total Income 9871.10 8007.80 10328.15 11849.24

Expenditure -7214.00 -6119.70 -7392.20 -8478.87

Operating Profit 2657.10 1888.10 2935.94 3370.37

Interest -260.50 -402.90 -879.20 -947.52

Gross profit 2396.60 1485.20 2056.74 2422.85

Depreciation -557.70 -695.80 -915.54 -1007.09

Profit Before Tax 1838.90 789.40 1141.21 1415.76

Tax -525.30 -247.90 -358.16 -438.89

Profit After Tax 1313.60 541.50 783.05 976.87

Extraordinary Items 2154.30 - - -

Net Profit 3467.90 541.50 783.05 976.87

Equity capital 224.30 224.30 239.90 239.90

Reserves 13998.60 14513.00 15296.05 16272.92

Face Value 2.00 2.00 2.00 2.00

Total No. of Shares 112.15 112.15 119.95 119.95

EPS 30.92 4.83 6.53 8.14

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Sep-09 31-Dec-09 31-Mar-10 30-Jun-10E

Description 3m 3m 3m 3m

Net sales 2084.60 2425.40 2551.20 2704.27

Other income 148.20 155.10 124.70 134.68

Total Income 2232.80 2580.50 2675.90 2838.95

Expenditure -1604.80 -1836.10 -1923.10 -2028.20

Operating profit 628.00 744.40 752.80 810.74

Interest -174.20 -213.50 -236.30 -255.20

Gross profit 453.80 530.90 516.50 555.54

Depreciation -205.00 -234.50 -234.50 -241.54

Profit Before Tax 248.80 296.40 282.00 314.01

Tax -78.00 -92.90 -88.60 -98.66

Net Profit 170.80 203.50 193.40 215.35

Equity capital 224.30 236.10 239.90 239.90

Face Value 2.00 2.00 2.00 2.00

Total No. of Shares 112.15 118.05 119.95 119.95

EPS 1.52 1.72 1.61 1.80

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Key Ratio

Particulars FY08 A FY09 A FY10 E FY11 E


EBIDTA % 27% 24% 30% 30%

PAT % 14% 7% 8% 9%

P/E ratio (x) 1.94 12.43 9.19 7.37

ROE - % 24% 4% 5% 6%

ROCE - % 10% 5% 9% 10%

EV/EBIDITA (x) 4.39 2.60 2.75 2.67

Debt Equity Ratio 0.46 0.48 0.48 0.48

Price/Book Value 0.82 0.46 0.46 0.44


A-Actual E-Expected

Charts:

• Net sales & PAT

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• P/E Ratio (x)

• P/BV (X)

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• EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.60.00, the stock is trading at 9.19 x and 7.37 x for FY10E
and FY11E respectively.

On the basis of EV/EBDITA, the stock trades at 2.75 x for FY10E and 2.67 x for
FY11E.

Price to book value of the company is expected to be at 0.46 x for FY10E and 0.44
x for FY11E respectively.

EPS of the company is expected to be at Rs.6.53 and Rs.8.14 for the earnings of
FY10E and FY11E respectively.

During the Quarter, the Company has allotted 1,882,961 Equity Shares of Rs 2/-
each at a premium of Rs. 118.12/- each aggregating US $5.15 million upon the
conversion of Foreign Currency Convertible Bonds of USD 100 million.

The company has declared dividend to its Equity shareholders Rs 0.20 or @ 10%
per equity on a face value share of Rs 2/- each for the year 2008-09.

The Company plan to expand its casting capacities from 1,05,000 t.p.a. to
2,25,000 t.p.a. This will lead to large scale economics and hence better margins.

The Company is also planning to foray into high precision components like cylinder
blocks of bigger engines, cylinder heads, transmission covers etc. that command

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better margins. This will ensure sustainability of higher margins in the years to
come.

We recommend ‘BUY’ this stock with a target price of Rs.75.00 for medium to long
term investment.

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 India’s 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.

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.

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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,
Michelin’s proposal to set up a US$ 851.5 million Greenfield project near
Chennai, Tamil Nadu.

• 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

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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.

• 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

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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.

________________ ____ _________________________

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 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 it’s
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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