Battling a debt-pile of about R14,800 crore, Amtek Auto is attempting some major steps to send the right message to investors as well as lenders.
The troubled auto parts maker is looking at allowing institutional investors on its board while it will consolidate some of the group businesses under Amtek. Moreover, the promoters of the company will infuse R200 crore capital in to the company.
In an interaction with FE, Amtek Auto vice-chairman and managing director John Flintham said that the company’s debt is at an “unacceptable level” and the drive for the year is to match the cash flows with the forecasted debt of the company. “We want to match our revenues with our forecasted debt. We are now looking to introduce an institutional investor to come in to Amtek Auto. We have set ourselves a target now of reducing the debt by about two-thirds, which is significant,” Flintham said.
By the third quarter of the fiscal year, the company is aiming to close the deal with institutional investors for a substantial stake in the company. “We have already had some commercial due diligence work. Some financial due diligence is being done now. Hopefully we will be able to announce something in the next quarter with completion in quarter three,” Flintham said. “They will take a board seat. (One) seat or seats, we have not decided that. They will also be actively involved in the business. We are in talks with three investors at the moment. We may just come down to one, it depends,” he added. Though he declined to give details of the funds that will be raised from institutional investors, a senior executive said that the company might raise about R3,000 crore.
At the end of March, the company had a net debt of R14,725.3 crore on its books, compared to R13942.7 crore at the end of September 2014. With the high level of debt, finance costs for the beleaguered company jumped 69% during the quarter ending March from the same period last year. At R289.8 crore, the finance costs stood at 45% of the total income of the company for the quarter.
To make the debt payment comfortable, the company is also in talks with a consortium of banks to realign the payments. Under the program, the company is expected to get a moratorium of two years on the repayment of the principal amount while the interest payments would continue. Flintham said that the discussions with the banks for the realignment are “more or less complete,” and should take effect from the first quarter of 2016-17 itself.
However, Flintham insists that the infusion of capital by the promoters is not a condition set by banks or investors.
“We just felt that is the right thing to do,” he said. The promoters had also infused R200 crore in the company last year. At the end of the January-March quarter, the promoter and promoter group held 49.99% in the company.
All of this, combined with the sale of Amtek Tekfor, which is primarily based overseas and has operations in in Italy, Brazil and the US, and sale of stake in some non-core businesses in India is expected to fetch close to R6,500 crore. While the sale of the overseas business unit Tekfor is progressing as planned, the sale of non-core assets in India is delayed. “The sale of non-core assets in India is slightly behind schedule, may be about a quarter. That is mainly because of the Indian economy is not right, liquidity, finding buyers is an issue,” Flintham said.
On the operational front, the company is implementing consolidation measures and also adapting to lean manufacturing practices to improve productivity and reduce costs. “The operational cash that we are generating at the moment is being eaten away by interest payments etc. We still are relatively strong at the ebitda level. Operationally, we are still strong. We generate cash,” Flintham said.
In the quarter ending March, with a revenue of R651 crore the company’s standalone ebitda stood at R120.6 crore with a margin of 18.5%.
The company posted a net loss of R529 crore, compared to a profit of R130 crore in the same period last year.
“Even though the big drive this year is debt reduction, we cannot lose sight from the fact that we need to competitive and reduce costs. Headcount has also been reduced as part of cost reduction,” he said. The company’s employee benefit expense in the January-march quarter came down 20% on year and 11% sequentially. Shares of Amtek Auto closed 2% up at R34.8 on Thursday on the Bombay Stock Exchange (BSE).