Ahmednagar Forge to focus on non-auto, mining space

Gautam Malhotra, MD of Amtek India & Director, Ahmednagar Forgings in an interview to CNBC-TV18 said the company is looking at increasing its presence in the non-auto segment backed by the tractors, railways, and oil and gas segments. They company also aims to increase presence in mining, he added.Commenting on the new orders bagged from Ashok Leyland, Nissan, he said the impact of that would be seen over the next 6-8 months. According to him, the industry has witnessed traction on passenger car side, and on the commercial vehicle side too the decline seems to have been arrested, and some hardening of demand is visible which should bode well for the company, said Malhotra.Ahmednagar Forgings stock was up 195% this year. The company for its third quarter FY14 ended June posted spectacular earnings. The revenues for the company were up  79% at Rs 649.5 crore versus (vs) Rs 362.5 crore (cr) year-on-year (Y-o-Y). EBITDA up 75% at Rs 172.3 cr vs `98.4 cr Y-o-Y. Their operating margins came in at  26.5% vs 27.2%  and PAT was up 49% at  Rs 57.7 cr vs Rs 38.72 cr Y-o-Y.Going forward, Malhotra expects the company continue seeing strong growth in topline an improvement in margins from the current 27 percent.

Below is the transcript of Gautam Malhotra’s interview to CNBC-TV18’s Sumaira Abidi and Latha VenkateshSumaira: You have seen a very good quarter this time around so your profits are up nearly about 49 percent. Even if we see in the nine month basis your profits are up about 40 percent. Do you think this kind of growth is sustainable to us, what do you hope to end FY15 with?A: Just a small factual point, our financial year is September so we are actually looking at closing our September 2014 financial year. Yes we have had a good nine months run and the way we look forward is this year should end up on a good note. We expect to continue the traction that we have seen on the top line as well as the margins and it should be a strong closing at the end of the year.Latha: What is the year likely to end with in terms of revenues?A: I cannot give any forward looking statements but if you see the nine months we closed at about Rs 1750 crore and our EBITDA has been roughly about Rs 450 crore. So we feel that the growth rate we have seen in Q3, a similar growth rate should be easily possible in Q4 as well. Latha: Will you maintain margins at this 27 percent?A: I think we will be able to maintain margins. The other thing that we have to look out for is that as your top line grows and utilizations increase, there is a certain bit of operating leverage which will kick in and we have already seen a bit of that kicking in so going forward we should see a little more kicking in and improving the margins.Sumaira: Where are you seeing the biggest pickup in demand from? We understand now also that you have bagged an order of about 500 wagons add to that the CV OEMs like Ashok Leyland etc so where are you seeing the biggest traction?A: There are two things, one obviously we have seen a bit of traction on the passenger car side over the last few months and that is more sentiment driven and that is expected. On the CV side the market has more or less arrested its decline and has stabilized and there is some hardening of demand visible at our end. Going forward the festive season is around the corner and that should create an uptick in the demand. But in terms of our growth I think lot of it is attributable to also the consolidation that is happening in the industry. We have spoken about that in the past and the customers continue to contract the supply chains and go forward with stronger and better suppliers and that has shown a bit of uptick in demand for us. As well as there is an underlying strategy of the company to move more towards the non auto segment backed more by the tractor, railways, oil and gas segments. We are also trying to increase our presence in mining as well as the pumps and valves segment. So going forward you should see a change in mix of our non auto business and that is also going to have a margin play in it.

Latha: Your Amtex rail car division got that 500 wagon order that will obviously mean the forgings will be sourced from you, so is that what is giving you this confidence of Rs 650-700 crore for the current quarter or does this actually play out in the next year?A: Yes the major play will come into the next financial year but having said that we have other mechanical components for railways, we do connecting rods, we do Cam Shafts, Anchor Shackle and a whole host of further components. So we are seeing a lot of traction on that side. Yes we have won 500 wagon, and as we have always maintained that once you get your first order from Indian railways a lot of traction also starts coming out. We have also yesterday won our first order from a private player for wagons from a big logistics company so the growth has started. It is just a development order of about three wagons and that is a start, every order starts with a development order. Latha: You have got a capex plan going so how much do you see revenue growth in FY16 and 17?A: Tough to answer, it becomes a bit forward looking but within the company we are very optimistic about the next financial year and the financial year forward. We had a capex plan which is coming towards its end and we have entered some new product segments as well so they are giving us a lot of market share as well as new product segment growth. So we should expect double digit growth next year.