To pare debt significantly over 2-3 years: Amtek Auto

Amtek Auto reported loss of Rs 529 crore in the fourth quarter of FY16 while the revenue fell 32 percent to Rs 651 crore year-on-year. The company had two exceptional losses related to write-offs and depreciation in the last quarter, says Vice Chairman and MD John Flintham. The company has reached its lowest point, he says adding that recovery will happen once economy picks-up. The first quarter of FY17 did see uptick in demand.However, overall "India market continues to be challenging," he says.Flintham says the company is looking to pare its debt down by two-thirds over next two to three years via asset monetization, which has already begun. The company’s consolidated debt stands at Rs 14,800 crore.Amtek has also shortlisted bidders for its Neumayer Tekfor subsidary and hopes to close the deal in four to six weeks.Below is the verbatim transcript of John Flintham’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.Reema: It has been challenging quarter for the company. The revenues have fallen by more than 30 percent the company has reported a huge loss Rs 530 crore. Things seem to have gotten a lot tougher in the last three to six months?A: What we need to do is look behind the figures. If you look at the fall off year-on-year there is a significant fall off as you say but that is not like for like analysis because 12 months ago we had some of our subsidiary companies in the Amtek consolidated figures. They are not there now so it is not a like for like scenario on the revenues. The real like for like is probably a last quarter to this quarter. Last quarter we were around Rs 3,400 crore this quarter Rs 3,600 crore and plus. So, I think it has bottomed out, we have reached the lowest point and when the economy picks up we will start seeing this coming back. In terms of the loss, you are absolutely right we did post over Rs 500 crore loss as a consolidated figure. However, over Rs 500 was exceptional, two exceptional in there as well one was to do with the deprecation rules, some write offs in there as well, so in reality or net profit after tax (PAT) was slightly better than last quarter. The economy particularly for the auto and non auto industry in the first quarter or the last quarter of this was January to March was still very challenging as I think is for many people or was for many people. The non auto sector with the tractors and the constitution equipment is very difficult. Passenger cars was fragmented with some winners and some losers and two-wheelers was pretty flat. We are seeing a little bit of a pickup in this quarter but it is not a game changing in that respect. So, I think result was pretty much smooth in line what I talked about to you in the last quarter.Nigel: The other big problem really is the high interest burden that you have been bearing. On a standalone basis finance costs have risen to around Rs 290 crore or thereabout which means that 45 percent of your revenue is getting eaten up by interest based payments. Now tell me have you been able to reduce your debt what does it currently stand at?A: That’s a very good question and clearly we will not look to bear the interest cost on an ongoing basis. I think it is the management team what we are doing is without debt reduction programme, we are looking to overall bring out debt in line with our operating income. So, we have launched the asset monetisation programme that I talked about the last quarter that’s the sale of Amtek Tekfor from our overseas business. That sale is going very well. We had a number of interested bidders. We finalise with two bidders. We have had final bids from those two bidders. In the next 4 to 6 weeks we will firm down on one bidder and close the deal, which means that it is pretty much in line with expectations and very much in line with the timing expectation that I reported to the board and to the Citi last quarter. So, that’s very encouraging. The non-asset sale within India is running slightly behind plan, may be a reflection of the economy in India, but we are hopeful that we are going to close couple of small deals on the non-auto sector in the next quarter. The real big change as well is that as part of the recognition in terms of the debt reduction plan we have started a process to look at a financial institutional investor (FII) to come into the company, to bring the equity into the company therefore reduce our debt. Our overall target with all of these actions, with all of the asset monetisation action both overseas and in India, plus the institutional investors coming into Amtek Auto, we expecting our debt to fall by two-thirds of where it is today which is a significant reduction.Reema: On the point about bringing your debt down by two-thirds, could you give us some absolute numbers where does the debt currently stand at and how much will you bring it down by?A: We got a consolidated debt of Rs 14,800 crore and we are looking to bring that down by two-thirds.Nigel: Then any other overseas business apart from the Neumayor Tekfor that you will be able to sell?A: No other announcement. We are not looking to offload any other overseas business. A portion of our overseas is in Amtek Tekfor and we are obviously in advanced sale, detail of which I just explained, but the rest of the businesses will stay within the group.Reema: How was the demand situation in European markets like Germany and France, has there been any improvement, what about Japan where you operate as well?A: In terms of the market place in the quarter we are talking about which was January to March, India domestic market was very challenging and remain so and certainly it pretty much in line with where we expected it to be which is a very low level. Our European businesses performed very well. Our Asia business performed very well. In fact, the only business overseas that was not good was Brazil which everybody knows is a challenge, but generally going forward we see that pretty stable; Europe continues to perform okay. There is being a big shift in our revenue streams. Now 76 percent of our consolidated revenues come from our overseas businesses which was around 50:50 not long ago, so there is quite a big shift which also a driver for the margin, earnings before interest, taxes, depreciation, and amortization (EBITDA) margin because European businesses, overseas businesses tend to have a lower EBITDA margin, so if you look at this on a consolidated basis it does bring our EBITDA margin down, but that just a mathematical calculation, our European businesses continue to perform very well.Nigel: Then could you tell us about the India business, you were just discussing that, you were talking about it slowing down. How much really has it slowed down?A: Certainly areas have slowed down substantially, but that’s quite old information. If you look at where we are currently commercial vehicle industry has picked up slightly only in this current quarter, not in the quarter that we are reporting, but its offered extremely low base. Passenger car industry in India is pretty challenging with some winners and some losers within the market, but overall I think it’s a very challenging market at the moment in India.Reema: When do you see the company turn into the black and let me come back to the debt point, you said debt is at Rs 14,800 crore, you planned to bring it down by two-thirds. How will you achieve this debt reduction because there has not been too much progress in deal closures?A: To be honest with you it is exactly the same plan as I talked about last time in terms of the sale of Amtek Tekfor. It is exactly on line with the timing plan that we have been telling everybody for the last six months. We will close the business and we will sell that business certainly within the next 6-8 weeks. These things take time. This is not a distressed sale. We want to maximise the opportunity for the company, we have done a thoroughly professional job in terms of realising that asset and it will close in the next 6-8 weeks so that we have a positive news when it’s come through.