Amtek India - Stock Analysis

Business of the company

The company is engaged in the manufacturing of auto components and manufactures machined and casting component for the automobile industry. Amtek is Tier – I supplier to OEMs like Maruti, Kinetic, Escorts and M & M Tractors etc. Its foundry is one of the biggest in the country with a capacity of 30000 tpa and it has got an installed capacity of 75 lakh auto components per annum. Having two manufacturing units the company the company is the biggest producer of gear shifter forks and yokes in India.
Additionally the company holds around 9.5% stake in group company Amtek auto which values at over 40% Amtek Auto’s market capitalization. Amtek Group has nearly got 35% market share of the global market of ring gears.

Industry Growth

The auto ancillary market has entered into a growth phase and the Indian market which is worth $7 billion is poised to take advantage of the outsourcing wave that will take place because of the cost pressures that the global manufacturers face. The Indian auto ancillary players are being sought out for design, R & D and engineering capabilities and here the country and especially players like Amtek auto that have links with global players hold an edge.

Acquisitions

The company has acquired UK Based Sigma cast group which is one of the biggest which is one of the largest supplier of turbo charger components in the world. Not only will this provide volume growth by adding to the topline straight away the subsidiary of Sigma Cast Group Sigma Cast Iron will meet its casting outsourcing requirement from Amtek, thus the company now has a ready customer for casting outsourcing.
This is the third major overseas acquisition of the company which had previously acquired UK based GWK Group and prior to that New Smith Jones based in the US which is a producer of ring gears and flex plates.

Capacity Expansion

The company intends to expand the capacity of both its LOBs. Capacity of castings in the foundry division is set to increase to 70000 tpa and the machining component capacity is to increase to 125 lakh ppa.

Now the company is slated to become more profitable to the shareholders as most of the acquisitions and the capacity expansions are mainly funded by internal accruals and proportionately debt taken is less. So the money made per share of the company will also be higher as the company has utilized its cash reserves well.

Decently Priced

The company is hovering around under a P/E of 9 on its FY 05 EPS, which also happens to be just about 4 times its forward looking EPS, on top of this the stake that it holds in the group company is over 40 % market capitalization. The steel prices are also slated to go down and a combination of all these factors make the stock attractively priced.

Investors however would do well in waiting for the present euphoria in the markets to die down and let the index cool off before making fresh investments in the market.