Investments, capex to boost productivity, profits: Amtek

The investments made in high quality iron casting and machining done a couple of years back have now started to pay dividend for the company said John Flintham, Senior Managing Director, Amtek India. The company would continue to invest into the future he said in an interview to CNBC-TV18.

The company expects good growth in terms of topline and a continued improvement in productivity and profits said Flintham.

Debt for the company currently stands at around Rs 4000 crore on back of investments and capital expenditure. The company plans to increase their casting capacity from 250,000 tonnes to 300,000 tonnes, he added.

The promoter shareholding at present is at 71 percent, Flintham said he would be comfortable if it was at 75 percent.

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Below is the verbatim transcript of his interview on CNBC-TV18

Q: Your numbers look fairly impressive. Take us through your numbers.

A: It has been a very good performance. Even though our sales on a like for like year basis are flat, we have increased our profit both EBITDA or net profit by 6 to 7 percent which has really been driven by good productivity in the factories as we carry on introducing our lean manufacturing process.

Overall it has been a very steady performance. We continue to invest in the future. Amtek India is iron casting and machining, heavily marketed into the agricultural tractor business which is one of the good markets at the moment in India.

Q: What is your sense about how the next quarters are likely to pan out and what you expect for the whole of FY14 in terms of revenues?

A: We suggest that we are going to be between 5 and 8 percent in the next few months as the investments we started a couple of years ago are being completed. Generally in India, there is a shortage of good high quality iron casting and machining companies, so the decision to invest has now started to pay a dividend.

Investing for the agricultural business is relatively strong going forward. There is also going to be a continued centralisation of business. The market has been fragmented over the last few years and I think you will find that that consolidation will continue and we are placed with good capacities to capture that consolidation.

Therefore, we are looking at a pretty good growth in terms of top-line which in this day and age in India at the moment when lot of markets are flat is pretty good and a continued improvement in the productivity and profit.

Q: Looking at the shareholding pattern it does appear that in the last couple of quarters the promoter holding has gone from nearly around 61 percent to around 71 percent odd. What is happening on that front?

A: Amtek Auto over the last few years has bought in terms of shares; there is maximum allowance of about 5 percent per year. We saw that a good opportunity and a good use of our cash from group level. So we continue to do that in the last year.

Q: Do you think that increasing stake of promoters is likely to continue in the coming quarters as well?

A: I think we would be comfortable if we maxed out at 75 percent, although you have to be careful, we have no board decision to do that for the moment, but personally if we maxed out at 75 percent I would be comfortable.

Q: What about on the debt front? That used to be a problem for the company. Could you give us an update on what the debt currently stands at for the company? Are there any plans to pare it down? Separately what investments you all have lined up going forward?

A: Our debt has increased Year-on-Year, over the last 15 months because we extended our year end. It was about Rs 3,000 crore and it is just over Rs 4,000 crore. A lot of that has been investment and also capital expenditure which is now coming to provision. So all of that capex will increase our capacity substantially in iron casting which is roughly around 250,000 tonnes currently and we will report another 50,000 tonnes during this financial year

Q: Once this capacity addition comes on stream what contribution will it have to your revenues and when will it show on your P&L, if you could just give us a forecast?

A: I think I have already given you the forecast in terms of where we expect the top-line to be in the next 12 months. In terms of profitability usually the similar sort of growth predictions, it is very difficult for me to talk much more about that.  However, on the basis that we are increasing our capacity from 250,000 tonnes to 300,000 tonnes on castings, as well as significant increase in machining capacity, that will start coming through. It does take time to get customer approvals, so over the next two years you will start seeing that coming through very strongly.

Q: It does appear that the tax rate was a tad bit higher this quarter around just comparing it on a Year-on-Year basis as well as on a sequential basis. Any particular reasoning for that?

A: Taxes for the last year was pretty similar, maybe up by Rs 2-3 crore but of course the debt has increased slightly, so we would have seen that, but it is well controllable.