Rating Rationale Brickwork Rating assigns ‘BWR AA’ for Amtek Auto Ltd’s proposed secured, redeemable Non-Convertible Debentures Issue of ₹ 100 Cr with tenor upto 5 Years Brickwork Ratings (BWR) has assigned ‘BWR AA’ (Pronounced BWR Double A (Outlook: Stable) Ratings1 for Amtek Auto Ltd’s (“AAL” or the ‘Company’) proposed secured, redeemable NCD issue for an amount of ₹ 100 Cr. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. BWR has essentially relied upon the audited financial results of Amtek Auto Ltd upto YE Sep 2014, projected financials/estimates for YE Sep 2015 & YE Sep 2016, Term Sheet of the transaction shared with us and information/clarification provided by the issuer. The rating factors, inter alia, AAL’s promoters’ extensive experience in the auto components industry, its professional management, successful track record of operations, well established market position, diversified customer and supplier base, high networth, healthy profitability levels, reputed clientele comprising mostly of original equipment manufacturers and financial flexibility. The rating also takes note of the completed/planned acquisitions and growth prospects as shared by the company. The rating, however, is constrained by increasing gearing levels on account of capex and hence interest burden, relatively high operating cycle, low return on capital employed, significant exposure to foreign subsidiaries and business associates and inherent risk associated with the automotive and non-automotive components industry. Background Amtek Auto Ltd is a listed (NSE & BSE) company. (AAL was initially incorporated as A.M. Metal Cast Limited" in 1985 and the name was subsequently changed to Amtek Auto Ltd in 1987). Amtek Auto Ltd is headquartered in New Delhi. The company has 63 manufacturing facilities (including facilities of Joint Ventures and Subsidiaries) spread across India, Brazil, Germany, Hungary, Italy, Mexico, the UK and the US. AAL is engaged in the manufacturing of various automotive/non-automotive forged/casted/machined and assembled components. Management Profile & Shareholding Pattern Amtek Auto Ltd is headed by Mr. Arvind Dham, as the Chairman and Director. Mr. Arvind Dham is an eminent industrialist having more than 24 years of experience in the field of Project Planning, Implementation. International Trade & Business Management. Mr. D. S. Malik is Managing Director and Mr. John Ernest Flintham is the Senior Managing Director. Mr. Sanjay Thakur, Mr. B Lugani, Mr. B Venugopal, Mr. R N Bhardwaj, Mr. Gautam Malhotra and Mr. Sanjay Bhasin are the other directors of the company. 1 Please refer to www.brickworkratings.com for definition of the Ratings www.brickworkratings.com 1 29 Jan 2015 As of Dec 2014, promoter group shareholding stood at 48.98%, while Institutions, NonInstitutions and Bodies Corporate have 36.61%, 14.41% and 4.39% shareholding respectively in the company. Operations The company has a product portfolio of about 300 varieties of components and assemblies such as ring gears, crankshaft assemblies, gear pinions, pivot arm, connecting rod assemblies, etc. As of September 30, 2014, the company had an installed capacity of 320 million machined and/or sub assembled components per annum, 1065,000 TPA of forgings and 401,000 TPA of castings. In the 15-month period ended September 30, 2013 and the year ended September 30, 2014, ~23.7% and ~37.5% of the company’s consolidated revenue, respectively, came from entities located outside India, mainly from Germany and Italy. In March 2013, Amtek had acquired Germany’s Kuepper Group of companies. Last year, it also acquired the business interests of Germany’s Neumayer Tekfor Group. In India, it bought a majority stake in auto component maker JMT Auto. In Nov 2014, AAL had announced its intentions to acquire 3 entities (2 in Europe and 1 in South east Asia), which is expected to be completed by around April 2015. Issue Details AAL proposes to issue secured redeemable NCDs of ₹ 100 Crores with tenor upto 5 years and coupon of 10.50% p.a. payable on quaterly basis. The issue is secured by First Parri-Passu Charge on all Immovable & Movable Fixed Assets (Present & Future) of the Company (subject to prior charges on Movables in favour of working capital banks) having a minimum asset cover of 1.25 times to be maintained during the currency of NCDs. NCD’s shall be redeemable at the end of 5th year from the deemed date of allotment. AAL proposes to utilize the proceeds of the proposed NCD issue towards present and future business activities in the normal course by the company and for augmenting Medium to Long Term Working Capital of the Company & General Corporate Purposes. Other terms are standard ones that are normally stipulated for such issues. Financial Performance (AAL) For YE Sep 2014(12 months: Oct 2013 – Sep 2014), on consolidated basis, AAL recorded Net Sales of ~₹ 15454 Crores and Profit after Tax of ~₹ 941 Crores against Net Sales of ~₹ 10270 Crores and Profit after Tax of ~₹ 552 Crores for YE Sep 2013(15 months: April 2012 – Sep 2013). The turnover growth was mainly on account of acquisitions of already operating companies. As on Sep 30th 2014, the total borrowings stood at ~₹ 17661 Crores while tangible networth stood at ~₹ 8404 Crores. The consolidated net fixed tangible assets stood at ~ ₹ 18619 Crores while capital work in progress stood at ~₹1321 Crores as on Sep 30th 2014. For YE Sep 2014(12 months: Oct 2013 – Sep 2014), on standalone basis, AAL recorded net sales of ~₹ 3951 Crores and profit after tax of ~₹ 323 Crores against net sales of ~₹ 3019 Crores and www.brickworkratings.com 2 29 Jan 2015 profit after tax of ~₹ 451 Crores for YE Sep 2013(15 months: April 2012 – Sep 2013). As on Sep 30th 2014, the total borrowings stood at ~₹ 7779 Crores while tangible networth stood at ~₹ 5134 Crores. The net fixed tangible assets stood at ~ ₹ 7670 Crores while capital work in progress stood at ~₹ 595 Crores as on Sep 30th 2014. Rating Outlook The rating has essentially factored the successful track record of operations, experience and resourcefulness of promoters and financial performance of AAL. Going forward, substantial reduction in gearing levels, achieving projected turnover and profitability levels, improving liquidity profile and operating cycle, prudent management of the diversified global operations as well as already acquired/to be acquired entities and associated risks, and efficient utilization of working capital, will be the key rating sensitivities. The rating is also subject to the issuer sharing with us the executed documents relating to the transaction as per Term Sheet provided to us and their compliance with the requisite terms of the issue, regulatory and legal requirements. Analyst Contact Relationship Contact [email protected] [email protected] Phone Media Contact 1-860-425-2742 [email protected] Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons. www.brickworkratings.com 3 29 Jan 2015