Will close Asahi Tec acquisition this qtr: Amtek Auto

The company is expected to close the Asahi Tec acquisition this quarter. 

Amtek India is confident of garnering Rs 15,000-16000 crore of pro-forma revenue next year, added Flintham.

Below is verbatim transcript of the interview:

Q: In your investor presentation, you have mentioned that the state of the global economy has impacted your performance this quarter and the Indian manufacturing industry is facing a lot of challenges. This quarter was very subdued for you; your revenues were actually down by around 4 percent. Just give us a sense of whether you expect the next couple of quarters to also be challenging and what kind of revenue growth would you be looking at or will it continue to be a fall from the top-line?

A: Last quarter was challenging, domestic India market remains difficult and if you look behind the currency change, overseas has been pretty good. It is still growing slightly and pretty strong and so, overseas is not the real issue.

In terms of India on non-auto sector, which is our rail sector, agricultural tractors, commercial vehicles is still some way off the pace. Even this quarter we continue to see the same level of revenues that we saw in the last quarter, so, pretty subdued in the non-auto sector.

The two-wheeler market is still flat. We are seeing some increases in the passenger car market, particularly with Maruti which is currently encouraging. But all the markets are still flat relatively in the domestic market.

Q: If the weakness in the Indian demand scenario continues, what kind of growth is expected from Amtek Auto as well as Amtek India in FY15 as well as FY16? Would it be less than the historical growth rate?

A: Overall if you do run organically, then it will be less, but our acquisition strategy is maturing nicely. Not only did we close Scholz last quarter, we have closed Rege this quarter which is a machine company with around Rs 1,700 crore of revenue. And in the coming week, we will be closing the Asahi Tec Japanese acquisition which is another Rs 2,500 crore.

Topline growth will be driven by acquisition and people also need to understand this part of the strategy, there will be big benefits in our casting and forging businesses for our overseas businesses or supplying raw material, low cost raw material from India to facilities abroad. Rege is a machine shop that requires castings.

Asahi Tec is very good technically and will bring technical benefits and the biggest beneficiary of this will be Amtek India.

The market is starting to recognise that it is going to be a big beneficiary of our overseas strategy. By the time we get Asahi Tec in the group, on a pro-forma basis, our overseas manufacturing is going to be around 70 percent of the group which is an incredible turn-around from four years ago which was 83 percent was manufactured in India and 17 manufactured outside.

It is 70 percent outside and if we had been 83 percent with a dependence on the Indian market, then we would be in a lot of problems. But our strategy is working quite and the pay-off over the next six months, 12 months, 18 months will be quite positive, If you look at everything together and gave you a pr-forma run rate, we are looking at Rs 17,000-18,000 crore as our pro-forma run rate including acquisitions.

Q: Would that be Rs 17,000-18,000 crore for the entire group in terms of revenues next year?

A: That is on a pro-forma basis.

Q: What about Amtek Auto separately for this fiscal, what could be the revenue run rate for the company?

A: That is slightly more challenging. We were going to talk in the region of Rs 15,000-16,000.

Q: What was the reason for the margins being weaker in the quarter gone by and will this pressure continue at the operating level?

A: You have got to look behind the figures. The earnings before interest, taxes, depreciation and amortization (EBITDA) from our overseas operation was pretty much in line with expectations but was affected by the currency that affected the EBITDA. But if you strip out the currency, the EBTIDA overseas is still running at the expected levels; at 10-11 percent.

Overall, the margin has come down to around 19 percent. We have always given you a guidance that our consolidated EBITDAs would run between 18-20 percent. We are running around about 18-19 percent currently with a mix of 70 percent overseas; that is the sort of margin we would expect to continue.

Q: The mergers and acquisitions (M&A) have really worked well in your favour, especially the ones from Germany like Neumayer Tekfor and now you have moved to the East as well with Asahi. Any more acquisitions that you have lined up in the next five to six months and what would your war chest for the acquisitions look like? How much cash would have to deploy into these acquisitions?

A: The acquisition strategy and the change in the balance to a more global footprint certainly will help us in the coming months because as we drive the synergies through the whole group, that is going to be beneficial for everybody.

We need to close out Asahi Tec which is next week. That will be a tremendous benefit particularly to Amtek India through its technology and technology transfer. We continue to be active on the M&A front.

I cannot say whether we would do one, two or three or none. But we continue to look for good value assets. All these three assets, Rege, Scholz and Asahi Tec have all been shareholder-enhancing and balance sheet accretive. All of them are around four net debt to EBITDA ratios which are very attractive in their current position.

Q: You did mention that Rs 2,500 crore from Asahi Tec, Rs 1,700 crore from Rege Machining and from Scholz, what is the expectation in terms of revenues?

A: About Rs 1,200 crore.