Amtek Auto's bloated debt adds to the investors' list of concerns

Amtek Auto group is under stress and its latest earnings - a consolidated loss of INR 987 crore for the year ended 30 September (for the first time since 2004), against a net profit of INR 848.21 crore the previous year - aren’t good news for the lenders. Amtek Auto follows the October-September financial year. For the September quarter, its stand-alone loss is INR158.62 crore against a net profit of INR 74.37 crore a year ago.

Further, the group carries a debt burden of INR 21,134 crore in June 2015: a combination of bonds, term loans, working capital loans and external commercial borrowings, or ECBs.

Its total income for the year dropped to INR15,213.4 crore from INR 15,706.6 crore a year ago and the bulk of the erosion happened in the September quarter - a fall to INR 833.8 crore from INR1,042.1 crore a year earlier.

The Delhi-based company, one of the world’s largest aluminium and other metal based auto parts makers and supplier to almost every car maker in India and many overseas, hit the headlines when it defaulted on repayment of bonds worth INR 800 crore.

For the nine months ending June 2015, Amtek Auto had a revenue of INR 2,940 crore, other Indian entities were INR 4,305 crore, and the contribution from international business came to INR 5,714 crore, taking the total to INR 12,960 crore.

Coming to EBIDTA in June, Amtek Auto had INR 781 crore, other Indian entities INR 994 crore while the overseas operations’ contribution was INR 546 crore. The total was INR 2,321 crore.

On the contrary, Amtek Auto had a debt of INR 9,923 crore in June 2015; its other Indian entities, including Ahmednagar Forging and Castex Technologies (formerly Amtek India Ltd) INR 9,811 crore, and international businesses only INR 1,400 crore. Out of a total INR 21,134 crore debt, international businesses’ exposure to lenders was only 7%.

Simply put, by using the Indian banking system, Amtek has built its international business. But its lenders do not get the benefit of the cash flows from the international business as they have been ring-fenced. In the six months between September 2014 and March 2015, Amtek Auto’s capital expenditure was INR 1,623 crore. This investment was done in an environment where capacity utilization at the company had been 35% in forgings and castings, 33% in aluminium castings and 50% in machined auto components.

As of March, Amtek Auto had extended INR 1,230 crore as loans and advances to related parties, including INR 654 crore to its international subsidiaries (AGT, Amtek Deutschland GmbH, Amtek Investments (UK) Ltd, Amtek Germany Holding GP GmbH and Amtek Precision Engineering Pte Ltd).

According to the industry analysts, this ballooning debt of the auto-parts maker is to be attributed to the banks which have failed to structure their lending procedures, as a result of which high-value loans have been turning bad over the years.

Once bank loans to such companies to the tune of about INR 4.3 trillion get converted into bonds, there will be relief and banks’ stressed assets will come down to around 10%.