An employee works on the engine at a factory in U.K. (Photographer: Simon Dawson/Bloomberg)

Amtek Auto: The Odd One Among RBI’s 12 Bad Apples 

Steelmakers and infrastructure builders dominate the dozen companies that the central bank identified for insolvency proceedings. There is also an odd name: Amtek Auto Ltd.

The car-parts maker is the only large stressed account from the automobile and ancillary sector on the list. While its peers gained from a steady growth in India’s passenger vehicle sales to 3 million units over the last five years, Amtek’s fortunes tumbled. A string of overseas acquisitions left it under a pile of debt.

Amtek’s board on Friday approved the resignations of Vice-Chairman and Managing Director John Ernest Flintham and independent director Sanjiv Bhasin citing “unavoidable circumstances”. The decision was taken at a meeting convened after the Reserve Bank of India identified the company for resolution under the Insolvency and Bankruptcy Code, it said in a statement. A day later, the two were appointed as presidents.

Given that eight of the 12 accounts that contribute a quarter of Rs 7.7 lakh crore non-performing assets of Indian banks have been referred for insolvency proceedings, the auto components supplier is set to follow suit.

The company’s debt woes first came in the spotlight when CARE Ratings suspended its rating on Amtek’s bonds in August 2015. JPMorgan Mutual Fund, which held the company’s papers, froze redemptions from its schemes as the value of units fell. A month later, Amtek missed payments.

It’s been on a downward spiral ever since. The company hired Morgan Stanley to look for buyers for its assets. Yet, more than a year and half later, Amtek hasn’t had any luck. Its lenders are looking to recover over Rs 7,800 crore, according to its annual report for the year ended March 2016. To add to that, it also owed bondholders and had overseas borrowings worth Rs 2,100 crore.

Amtek’s bankers include Corporation Bank and IDBI Bank, the annual report said. The lenders didn’t reply to BloombergQuint’s emails on their exposure. The auto components maker is yet to respond to queries sent via email.

Overseas Buyouts

The Gurugram-based machining and forging company’s consolidated secured debt rose three-times to Rs 9,500 crore in just one year – the 12 months ended September 2013 – after it acquired German components makers Neumayer Tekfor, according to its exchange filings. Amtek followed it up with the acquisition of another three German parts makers, Kuepper, Rege Holdings and Scholz Edelstahl, over the next two years.

The buyouts failed to bring the intended results. While the overseas business formed a chunk of its consolidated operations, margins remained in single digits. The company’s interest coverage ratio, a measure of its ability to service debt, deteriorated from 2.87 in 2012 to less than one last year, according to data compiled by BloombergQuint. A ratio of one or more suggests an entity can cover its debt for a year.

The additional manufacturing capacity added through acquisitions turned out to be a drag. Amtek counted India’s largest carmaker Maruti Suzuki Ltd., Tata Motors Ltd. and Honda Cars India Ltd. among its customers. Yet, the company’s latest filings show that its overall capacity utilisation remained in the range of 55-60 percent, not justifying its operating leverage.

Moreover, the parts supplier wasn’t selling its products as fast and had to wait longer to receive payments. Inventory stayed on its books for 167 days as of March last year. That compares with 85-100-day industry standard. Receivables at 140 days were more than twice the industry average for the 12 months ended March, according to Bloomberg and company data. This left Amtek stretched for working capital.

As its troubles mounted, investors lost faith. Shares of Amtek have fallen by nearly 90 percent since its last peak in June 2014, around the time when the company was on an acquisition spree. That compares with more than 50 percent jump in the BSE Auto Index during the period.

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