Restructured Europe biz to account for lower sales: Amtek

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Due to the adverse impact of the ongoing crisis in the eurozone, Amtek Auto tells CNBC-TV18 that it has restructured businesses so as to account for the drop in sales. "However, our largest market Germany is still doing well," says chief executive of global operations, John Flintham.

Despite the overall market's poor performance, plans to buyback shares boosted the company's stock over the past few days. "We are awaiting SEBI approval for the buyback, which we expect to come in the next few days," said Flintham. He goes on to say that the next stage of debt restructuring for the company will be done only next year.

Amtek plans to set aside Rs 290 crore for the buyback, which is 10% of the company's equity.

Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.

Q: What are you expecting out of Europe and are you adjusting your operations for perhaps a slowdown that's coming? What is the trajectory you are looking at in the coming months?

A: The outlook we are looking for both Europe and America is pretty flat; they have been flat for certainly the last 12 months and we are not expecting any real recovery in Europe until probably the middle of 2012. We structured our businesses substantially about 12-18 months ago and we now have the businesses based upon the new low level of sales that we are seeing in Europe.

Obviously the financial issues in Europe have an effect across the board, but our largest market, which is Germany, is still doing quite well. In fact, some of the high added value cars are doing very well for exports such as Jaguar-Land Rover (JLR), Land Rover, BMW and Mercedes.

Q: Can we ask you about the debt reduction plan of Amtek Auto?

A: The buyback which was agreed at the board meeting a few weeks ago is still awaiting SEBI approval. What we are expecting in the next few days to be honest and once we have that approval we have the authority to do the buyback.

Q: What will that mean you have to set aside in terms of cash and why have you priced it so much above the current market price?

A: The cash is around about Rs 290 crore, which is about 10% of the share equity as of 30 June, 2010. We set it a price of Rs 200, which we believe to be our top price so we have the ability to buy from where we are today up to that price.

Q: Since you are aware what is happening with the domestic front, I guess you have taken a look at the share price and that is the reason you perhaps announced a buyback. What led to that sharp correction? Is there anything to do with the promoter pledges of the stock?

A: No, the market is very volatile. The fall and the subsequent rise in the market has nothing to do with the buyback. Actually, it was announced quite a few weeks ago, so its just market volatility at the moment.

The passenger car market is very flat, if not slightly down, at the moment, greatly affected of course by with the last three months of the Maruti strike. But overall, I still see the medium to long-term future in passenger cars being very strong in India. Lots of lots of overseas players have invested a lot of money in India and maybe that is driven by not only by domestic demand but also export demand.

Q: Your current debt stands at Rs 3,680 crore. Have you since reduced it and what is the plan going forward?

A: We have got a fairly flat debt structure both last year and probably through this year. Most of our debt was restructured two-three years ago. Our first debt restructure plan formally with the banks is not until next financial year. Obviously with the high rate of interest we may look at doing some rescheduling, but there is nothing planned at the moment.

Q: But no plan to retire some of the debt?

A: We are pretty comfortable because we see the business growing. The last quarter results were very encouraging, EBITDA increased by 24% year on year and 8% quarter on quarter. We are obviously facing challenges in the passenger car market, but on the flip side quarter of our sales now is in our non-auto section which is growing substantially in India.

Q: What is the split between domestic revenues and global revenues for Amtek?

A: Certainly 80:20; 80% in India and 20% globally.

Q: How does the rupee depreciation impact you in terms of both imports and exports? How will it hit the bottomline?

A: We import very little. In fact for our operations we import really nothing. The exports are all in rupees so we see no effect internally for Amtek for the currency market.

Q: The exports would get you a little more, so it would add to the bottomline?

A: We would like to move rupee in the high 40s than where it is at the moment because it affects all sorts of other things. But as I said, no direct effect on Amtek.

Q: In terms of potential slowdown, what worries you more about the auto sector - the domestic operations or a potential catastrophe in the euro zone market?

A: The domestic market worries me more. Obviously the passenger car market which saw substantial growth in last year is pretty flat. The revised forecast from the corporate governance people have been coming down every quarter. We are now seeing 2-5% growth this year, but I think that's pretty optimistic, I think it's going to be pretty flat.

But our overseas operations we can cope. We specialize sales and a lot of our sales go into high quality end of the market. So I don't see that falling off as exports is driven from Jaguar-Land Rover, BMW, Mercedes are not overly dependent upon European markets.

Q: Can you give us an idea of how revenues and margins will pan out. I think you did nearly 30% growth in revenues on year on year basis when you last reported numbers. Would that be the kind of yearly growth that we can expect and how would FY13 shape up for you?

A: We are not allowed to publish forward figures. But I don't expect to see the same sort of growth for this following year.

Q: What kind of margins can one work with?

A: We expect our margins to be pretty similar. We are obviously dependent on commodity prices and therefore oil is key commodity. But I would be disappointed if we don't hold somewhere around our current margins.

Q: Would you want to look at any inorganic opportunities, buying up something because you probably are already getting or will get some bargain prices either in Europe or even in India for that matter?

A: I think we have got a plan that is developed internally; our strategic plan is developed without acquisition. I think the debt markets are very difficult and I think acquisitions will prove difficult. Obviously there is lots of value, there is quite a lot of sales within Europe and in America but nothing that we are looking at the moment.