Scholz acquisition to boost margins, EPS: Amtek India

Speaking about the recent German acquisition, Gautam Malhotra, MD, Amtek India in an interview to CNBC-TV18 said the new company will improve margins and would add to the company’s EPS from first year itself. Amtek Auto has acquired German based Scholz Edelstahl GmbH through its 100% Singapore based subsidiary Amtek Precision Engineering PTE Limited. Scholz is a leading high quality hot die forgings manufacturer for the auto and non-auto component industries. It is also engaged in the special steel trading business which will enable backward integration with all of Amtek Group's international businessThe acquisition would help the company by adding news clients, give forward and backward integration and also give trading advantages, said Malhotra.The company has paid less that four times EV to EBITDA for the acquisition through a mixture of debt and equity, said Malhotra. The debt post the acquisition would to to 4.5-4.6 times net debt to EBITDA. The EBITDA of the new company is around 14-15 million euros, he added.According to him there would not be real increase in the debt, only a small amount of Rs 200-300 crore would come in through this acquisition. The debt on the balance sheet for the company is about Rs 15,500 crore.

Below is the transcript of Gautam Malhotra's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Sonia: Can you give us details of how much you have paid for this acquisition and where has the money come from?A: We have spoken earlier on lot of the acquisitions that we do not pay more than roughly around but 4x EV to EBITDA. This acquisition is below that value. At the moment I am not at liberty to give you the exact price but it’s below 4 times EV to EBITDA. It’s actually a mix of debt and equity. Latha: Can you tell us what is the EV to EBITDA because we only have the annual turnover which is 175 million euro?A: It’s roughly about 3.6 to 3.7 times EV to EBITDA.Sonia: What is the cash that you have on your books because you said it will be a mix of debt and equity?A: On the last annual balance sheet we had about Rs 900- Rs 1000 crore. Latha: What is your debt now?A: Our debt roughly was at 4.7 time net debt to EBITDA and after this acquisition it goes down to 4.5 to 4.6 times net debt to EBITDA. The debt on the balance sheet was roughly about Rs 16,500 crore and there is no real increase in the debt because it’s going down organically as well and a very small amount of debt is coming through on this acquisition, roughly about 200-300 crore is coming through this acquisition. Latha: There is no EBITDA mentioned of the company that you are taking over?A: The EBITDA is roughly about 14-15 million euro. Sonia: What will this company bring on board for you in terms of backward integration, in terms of higher earnings, revenues or even EBITDA?A: There are two things – the company has forging business and the forging integrates very well into our existing European forging business and also as customers strengthens, our relationships with the existing customers on the forging business, it will integrate pretty well into the Tekfor business and we are looking at margin increase on this business in the first year. On the trading side, it gives us backward integration for our forging business from day one and in due course it will be backward integration for our casting business as well. It gives us supply chain linkages up to the steel mills. The company currently does about 10,000 types of steel variety. It is a combined company and has two parts to it; the forging and the trading business.Latha: Does the company already have debt which you have to takeover?A: That’s the debt that’s been rolled over. We haven’t taken any new debt.Sonia: What is the cash that Amtek India has in book?A: As of today roughly about Rs 800 crore to Rs 1,000 crore.Latha: So this would add to your earnings per share (EPS) in the first year?A: It would.Latha: Since you are speaking about them getting clients and giving you backward and forward integration and trading advantages, is there anything that it adds to the group besides its own EBITDA? Do you see your business growing because of the clientele it might add?A: It does. You have to understand the European market. Overall the industry is consolidating; the customers are also encouraging it in certain cases where they do not see long-term future with those suppliers. So once we do the acquisition, the customers are pushing us for certain acquisition we do better business along with it. However, apart from that yes, the backward integration into the supply chain allows us EBITDA attrition from day one itself because we started controlling supply chain. So we are roughly looking at 1-2 percent of EBITDA margin straight up. Sonia: Any more acquisitions on the anvil?A: In November we have announced that we were in the process of closing three acquisitions, this is the first of them and about two more on that.Sonia: Those will also be in the German market?A: One is in the German market rather European market and other is in south East Asia market.Latha: A word on business in general. What kind of revenue run rate are you expecting in 2015 or FY16?A: We closed our first quarter in December 2014 and at the end of that our run rate is about Rs 19,500 crore.