AMTEK INDIA LIMITED. CARE AA- (Double A Minus) Reaffirmed and credit watch removed. CARE A1+ (A One Plus) Reaffirmed and credit watch removed

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1 AMTEK INDIA LIMITED Ratings Facilities/Instruments Amount (Rs. crore) Ratings 1 Remarks Long-term Bank Facilities (enhanced from ) Short-term Bank Facilities 88 (enhanced from 38) Total Facilities CARE AA- CARE A1+ (A One Plus) Non-convertible Debentures-I CARE AA- Non-convertible Debentures-II CARE AA- Foreign Currency Convertible Bonds (FCCB) Commercial Paper (CP) (Carved out of existing working capital limits) Commercial Paper (CP)/Non- Convertible Debentures (NCD) USD mn* (USD 200 mn) Total Instruments * Around Rs.1,231 crore CARE AA- - - Withdrawal - - Withdrawal Rating Rationale The ratings for bank facilities and various instruments of Amtek India Ltd (AIL) were under credit watch in view of the acquisition of Kueppor group. As the company has concluded the said acquisition, credit watch has been removed. The ratings continue to derive strength from the experience and resourcefulness of the promoters, AIL s established market position and its long-standing relationship with a large number of Original Equipment Manufacturers (OEMs). The ratings also take account of AIL s healthy profitability margins over time. However, the ratings are constrained by risks associated with ongoing debt-funded capex leading to increase in gearing levels, relatively higher working capital cycle and challenging industry scenario in the near term. Going forward, AIL s ability to sustain its profitability along with successful completion of the ongoing capex within estimated time and cost while effectively managing the overall gearing shall be the key rating sensitivities. Background AIL was incorporated in 1983 and is engaged in the manufacturing of machined and casting components for the automobile sector. AIL is a subsidiary of Amtek Auto Ltd (AAL, rated CARE AA/CARE A1+ ), which is a part of the Amtek group having business interest in automotive component manufacturing. AIL s product portfolio mainly comprised products used in transmission and suspension assembly for all categories of vehicles. Credit Risk Assessment Experienced and resourceful promoters AIL is promoted by the Amtek group led by Mr Arvind Dham who has been associated with the auto ancillary industry and trade for over 25 years. Furthermore, the group has established its presence in the industry through various group companies including Amtek Auto Ltd [AAL, rated CARE AA/CARE A1+ ], Ahmednagar Forgings Ltd (rated CARE AA-/CARE A1+ ), ACIL Ltd (rated CARE A/CARE A1 ), ARGL Ltd, JMT Auto Ltd, NT Group etc] and is one of the largest manufacturers of connecting 1 Complete definitions of the ratings assigned are available at and in other CARE publications. 1

2 rods and crankshaft in India and amongst the largest manufacturer of ring gears and specialized turbocharger housings in the world. During FY13, the promoters stake in AIL increased from 61.64% as on June 30, 2012 to 71.23% as on Sep 30, On a consolidated basis (including domestic and overseas subsidiaries), AAL reported a total operating income of Rs.10,590 crore in FY13 (refers to the period July 1 to Sep 30) with PBILDT and PAT margin of 24% and 5.38%, respectively. Furthermore, the consolidated net-worth and overall gearing stood at Rs.8,265 crore (PY: Rs.7527 cr) and 1.84x as on Sep 30, 2013 (PY: ended 30-June-2012: 1.18x). Established marked position Incorporated in 1983, AIL has track record of almost two decades in manufacturing of machined and casting components for the automobile sector. Over time, AIL has expanded operations to various manufacturing facilities located across Haryana, Rajasthan and Himachal Pradesh with installed capacity of 40 mn units p.a. of auto components and 2,50,000 mtpa of castings as on Sep 30, Established relationship and diversified clientele With its long track record of operations, AIL has established long-standing relationship with its clients over the years. The same is also reflected by AIL s client profile dominated by leading OEMs. Maruti Udyog Limited dominated the company s client profile with an overall contribution of about 23.52% to sales in FY13. AIL caters to OEMs in the passenger vehicles, commercial vehicles, two-wheeler segment tractors and Light Commercial Vehicles (LCVs), railways and refrigeration which diversifies the revenue stream. Further, the company also caters to the replacement market (16% of sales in FY13). Continued healthy profitability margins The total operating income of AIL remained flat on y-o-y basis in FY13 due to subdued demand conditions in the auto industry. However, the PBILDT margin of the company continued to remain at healthy levels although increased interest and depreciation restricted the growth in PAT margin. As per provisional results for Q1FY14 (period ended 31-Dec-13), the total operating income registered y-o-y growth of 60% in quarter ended Dec-2013 on the back of increased capacities. The recent slowdown in auto sector has resulted in shift in demand from smaller ancillary units to larger players that have resulted in increased sales growth. The PBILDT and PAT margin stood at 30.70% and 9.02% in Q1FY14 vis-a-vis 30.02% and 6.78% in Q1FY13. AIL s business continues to be working capital intensive with elongation in operating cycle during FY13 on account of increase in inventory period on the back of large product portfolio. However the average working capital utilization stood at reasonable level mainly in the range of 50% to 75% for past 12 months ended January 31, Conclusion of acquisition of Kueppor Group In Jan-2014, AIL announced acquisition of substantial business interests of Germany based Kuepper group, through its 100% subsidiaries. In Mar-2014, AIL has successfully closed the acquisition of the Kuepper group having total enterprise value of Euro 50 mn (equity of Euro15 mn and debt of Euro35 mn). The acquisition involved buyout of promoter stake for EUR15 mn (about Rs.125 cr) which was funded through internal accruals by AIL. Kuepper group had revenues of EUR170 mn in CY13 with an EBITDA margin of 8% and debt of Euro35 mn. The Kuepper group is engaged in the business of iron and aluminium casting and integrated machining having 5 manufacturing units across Germany and Hungary with a diversified customer base. The deal is likely to complement AIL s core expertise in casting and machining operations and strengthen its market position. The enhanced capacity and product range will enable the Amtek group to better service its global OEM and Tier-1 blue chip customer base. 2

3 Growth plans of the group and increasing debt levels There has been increase in the overall gearing of AIL as on 30-Sep-13 attributable to the ongoing debt funded capital expenditure that includes expansion in capacity at group level and across product categories. AIL capacity is projected to increase to 50 mn machined component pieces by FY14 (from 40 mn as on 30-Sep-13) and 300,000 MTPA for castings (from MTPA as on 30-Sep-13). The capex is being undertaken mainly across existing manufacturing units at Haryana, Rajasthan and Himachal Pradesh. In line with above expansion plans, the total debt increased from Rs.2,844 cr as on 30-Jun-12 to Rs.4,266 cr as on 30- Sep-13 resulting in increasing in overall gearing. However, AIL has maintained high cash balance (Rs.589 cr as on 30-Sep-13) over time to fund the business requirements, yet, effective execution of the growth plans along profitable scale-up of the same shall remain crucial for AIL s credit profile, especially in light of large repayments related due in the near-term. Industry prospects The auto industry is presently facing a downturn with continued slowdown in growth across all the segments of vehicles due to slowing GDP growth, high fuel prices, rupee depreciation and high interest rates. The passenger vehicles (PV) domestic sales saw a drop of 5% on account of weakening demand observed in domestic markets while exports observed marginal growth of 1% on y-o-y basis during 11MFY14 (refers to the period April 01 to February 28). The overall commercial vehicle (CV) sales tapered by 18.6% on y-o-y basis during 11MFY14 due to downturn in economy with subdued demand from infrastructure, construction and mining sector. However, two-wheeler (TW) industry continued to maintain growth momentum with overall growth of 6% on y-o-y basis during 11MFY14 driven by healthy rise in both exports and domestic sales. Furthermore, the tractor industry witnessed domestic sales growth of 23% during 9MFY14 (refers to the period April 01 to December 31) led by good monsoons and a fairly good minimum support price (MSP). In the short term, CARE Research expects it would be challenging for the industry, as slowdown in the automobile sales growth would impact the auto-components manufacturing business as well. However, in the medium-term period (FY13-FY18), CARE Research foresees strong fundamentals would pull-off the concerns and growth levels for both PV and CV industry would gradually recover. Furthermore, in the tractor industry, as the short term concerns hovering over construction and infrastructure activities taper off gradually in the medium term, the tractor demand is expected to get significant push. Prospects On the back-drop of the aforementioned, going forward, AIL prospects would depend upon its ability to sustain its profitability margins in the light of challenging operating environment along with successful completion of the ongoing capex within estimated time and cost while effectively managing the overall gearing. Financials (Rs. crore) For the year ended 30/06/ /06/ /09/2013 (12m, A) (12m, A) (15m, A) 1) Working Results Total Operating Income PBILDT Interest and Finance Charges Depreciation PBT PAT (After Deferred Tax) Gross Cash Accruals Financial Position Equity Share Capital Networth Total Capital Employed Key Ratios Growth Growth in Total Income (%)

4 For the year ended 30/06/ /06/ /09/2013 (12m, A) (12m, A) (15m, A) 1) Growth in PAT [after Deferred Tax] (%) Profitability PBILDT / Total Operating Income (%) PAT / Total Income (%) ROCE (%) RONW (%) Solvency Long Term Debt Equity Ratio (times) Overall Gearing Ratio (times) Interest Coverage (times) Term Debt / Gross Cash Accruals (years) Liquidity Current Ratio (times) Quick Ratio (times) Turnover Average Collection Period (Days) Average Creditors (Days) Average Inventory (Days) Operating cycle (days) * 1) The financial year has been extended from June 30 to September 30. *The operating cycle has been estimated based on annualized sales based on 15 months results Analyst Contact Name: Harsh Gaba Tel: Mobile: harsh.gaba@careratings.com (This follows our brief rationale for entity published on 22 April, 2014) DISCLAIMER CARE s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/ instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. 4

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