F Amtek India Ltd

C.M.P: Rs.63.45 Target Price: Rs.76.00

BUY
September 28th, 2010

I R S T C A L L

1 Year Comparative Graph

SYNOPSIS
Amtek India (AIL), one of the flagship companies of Amtek group, is an integrated automotive component manufacturer with facilities for casting, machining, and subassemblies at locations in India and the UK. The company was incorporated in 1992.

Amtek India Ltd

BSE SENSEX

Stock Data
Sector Face Value (Rs.) 52 wk. High/Low (Rs.) Volume (2 wk. Avg.) BSE Code Market Cap (Rs.mn.)
Automobile Ancillary

2.00 78.00/45.10 541000 532282 8004.22

During the quarter the company has allotted 62,10,000 Equity shares of Rs.2/each at a premium of Rs.39/- each aggregating to Rs.25.46Crores upon the conversion of warrants. The Company plan to expand its casting capacities from 1,05,000 t.p.a. to 2,25,000 t.p.a. And also planning to foray into high precision components like cylinder blocks of bigger engines, cylinder heads, transmission covers etc. The Credit Analysis & research Ltd. (CARE) has assigned a CARE AA- (CARE Double a Minus) rating to the NCD issue of the Company for Rs. 200Crore. The companys net sales and net profit are expected to grow at a CAGR of 18% and 25% over FY09 to FY12E.

R E S E A

Share Holding Pattern

V.S.R. Sastry Equity Research Desk vsrsastry@firstcallindiaequity.com Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com

Financials (Rs.in.mn) Net Sales EBIDTA PAT EPS P/E

FY10 9744.30 2884.77 751.97 5.96 10.64

FY11E 11108.50 3238.11 901.43 7.15 8.88

FY12E 12663.69 3639.96 1061.39 8.41 7.54

R C H

Table of Content
Content 1. Peer Group Comparison 2. Investment Highlights 3. Company profile 4. Financials 5. Charts & Graph 6. Outlook and Conclusion 7. Industry Overview Page No. 03 03 06 09 11 13 14

Peer Group Comparison

Name of the company Amtek India Ltd Bosch Ltd Amtek auto Ltd Munjal Showa
* As on 28-09-2010

CMP(Rs.)* 63.45 6147.00 169.50 58.55

Market Cap.(Rs.Mn.) 8004.22 19300.90 34188.10 2341.70

EPS(Rs.) 5.96 243.73 7.10 6.47

P/E(x) 10.64 25.22 23.87 9.05

P/Bv(x) 0.52 5.70 1.27 1.30

Dividend (%) 10.00 300.00 25.00 100.00

Investment Highlights Results Updates (Q4 FY10)

For the fourth quarter, the top line of the company increased 42%YoY and stood at Rs.2683.10mn against Rs.1893.20mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.184.90mn from Rs.145.10mn of the corresponding period of the previous year i.e. an increase of 27%YoY.

EPS of the company for the quarter stood at Rs.1.47 for equity share of Rs.2.00 each.

Expenditure for the quarter stood at Rs.2045.60mn, which is around 38% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 66% of the sales of the company and stood at Rs.1783.90mn. Other Expenditure stood at Rs.167.50mn from Rs.147.80mn. and accounts for 6% of the revenue of the company for the quarter i.e., an increase of 13%YoY.

OPM and NPM for the quarter stood at 28% and 7% respectively from 29% and 8% respectively of the same period of the last year.

During the quarter the company has allotted 62,10,000 Equity shares of Rs.2/each at a premium of Rs.39/- each aggregating to Rs.25.46Crores upon the conversion of warrants. Allotment of Equity Shares Allotment Committee of the Board of directors of the Company has allotted 5475212 equity shares at Rs. 120.12/- per shares upon the conversion of FCCB's of US $ 14.98 million. Open offer D&A Financial Services on behalf Amtek Auto, which is the acquirer company has made an announcement of open offer to the equity shareholders of Amtek India, for acquiring 25230450 equity shares of the face value of Rs 2 each, which represents 20% of paid up share capital and resulting voting rights capital at a price of Rs 68 per fully paid up equity shares which will be payable in cash. Scheme of Arrangement As per the order of Hon'ble High Court of Punjab & Haryana the Scheme of Arrangement of Amtek India Ltd., Ahmednagar Forgings Ltd., Amtek Ring Gears Ltd., Amtek Crankshafts India Ltd. and Amtek Casting India Ltd. with Amtek Auto Ltd. has been dismissed on account of changed circumstances as regards valuation of shares and decline in turnover and profits. The Court held that it would be impermissible to order the scheme proposed on the basis of valuation of shares of the year 2007. The appropriate remedy could only be through a fresh petition and the scheme cannot be considered on the basis of the data available in the year 2007.

Credit Rating The Credit Analysis & research Ltd. (CARE) has assigned a CARE AA- (CARE Double a Minus) rating to the NCD issue of the Company for Rs. 200Crore. The instruments carrying AA- rating are considered to offer high safety for timely servicing of debt obligation. Such instruments carry very low credit risk.

Company Profile
Amtek India (AIL), one of the flagship companies of Amtek group, is an integrated automotive component manufacturer with facilities for casting, machining, and subassemblies at locations in India and the UK. The company was incorporated in 1992. The company is engaged in manufacturing automotive components with a special focus on iron castings. The plants of the company are located in Narasinghpur in Gurgaon and at Bhiwadi in Rajasthan. In the year 2007-08 the company expanded its casting capacity from 75000 tonnes per annum (TPA) to 105000 TPA. The company has also expanded the manufacturing capacity of components from 175 lakh per annum to 200 lakh pa. In 1993 AIL Initiated forging operations at Gurgaon, India. In 2002 the company established an iron casting facility at Bhiwadi. The company has one subsidiary -- Amtek Industries UK (wholly-owned foreign subsidiary company incorporated in the UK). The company has grown significantly through acquisitions over the last three years. AIL has acquired UK-based Sigma Cast group, is one of the biggest and largest supplier of turbo charger components in the world. The customers of the group consist of Ashok Leyland, Aston Martin, Bajaj Auto, BMW, Briggs & Stratton, CNH Global, Cummins, Dana Italia, Davis Industries, Eicher Motors, Escorts, Fairfield, Fiat India, Ford, General Motors, GE Transportation, Hero Honda, Hindustan Motors, Hyundai, Isuzu Diesel, Jaguar, JCB, John Deere, Kawasaki and many more. Associates: Amtek Auto Ltd. Amtek Crank Shafts India Ltd. Amtek Deutschland GmbH Amtek Investment UK Ltd. Amtek Investment US (1) Inc. Smith Jones Inc. Amtek Ring Gears Ltd. Amtek Transportation Systems Ltd.

Plant Location Unit l - Village Narsinghpur, Old Manesar Road, District Gurgaon (Haryana)

Unit ll - SPA 1195, Phase IV, RIICO Industrial Area, District Bhiwadi (Rajasthan) Unit III- Nalagarh, Distt. Solan (Himachal Pradesh) Unit IV - SPA 502, Phase-I, RIICO Industrial Area, District Bhiwadi, (Rajasthan)

SWOT Analysis
Strengths: Global scale of operations Flexible production system New innovative and world class technology Weaknesses: Tight liquidity position, reluctance on the parts of banks to finance vehicles and firming up of interest rates would affect vehicle demand which in turn could impact the company's revenues and profits. Increase in the prices of inputs like metals, fuel oil etc., and movements in exchange rates and volatility in foreign exchange markets may create pressure on operating margins. The Company is also exposed to the risk of Environment and pollution controls, which is associated with such type of industries. Opportunities: A growing middle income population, rise in their average income levels and demand for a better lifestyle, all augur well for the automotive industry both in terms of personal transportation requirements as well as freight movement. Continued improvement in roads in the coming years is expected to boost automobile demand. The introduction of economical small cars like 'Tata Nano' will reduce the gap between two wheeler prices and the entry level car prices offering a huge opportunity a large section of the society to migrate to affordable safe & comfortable small car. India continues to be a cost effective source for automotive industry globally both for vehicles and components.

The Government has continued its thrust on infrastructure despite the economic slowdown. The Power sector is also showing robust growth potential. Responsiveness to changes in market conditions and product profiles. Dynamic and Progressive leadership, willing to implement change. Threats: Increase in fuel prices has an adverse impact on automobile demand as was seen in the previous year. Hardening of consumer interest rates coupled with tightening of liquidity position and reduction in exposure to vehicle financing by banks could have an adverse impact on the automotive industry. Stringent emission norms and safety regulation could bring new complexities and cost increases for automotive industry. WTO, Free Trade Agreements could make the market more competitive for local manufacturer. The domestic passenger vehicle demand could be adversely impacted by the introduction of rapid mass road and rail transport systems. Global economic recovery may take longer than expected, which will affect exports from India.

Financials Results 12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit Equity capital Reserves Face Value Total No. of Shares EPS FY09 12m 7,778.70 215.8 7994.50 -6,071.50 1923.00 -433.2 1489.80 -701.3 788.50 -247.8 540.70 0.00 540.70 224.3 14512.90 2.00 112.15 4.82 FY10 12m 9744.30 550.07 10294.37 -7409.60 2884.77 -826.50 2058.27 -962.10 1096.17 -344.20 751.97 0.00 751.97 252.30 15264.87 2.00 126.15 5.96 FY11E 12m 11108.50 572.07 11680.57 -8442.46 3238.11 -852.25 2385.86 -1077.55 1308.31 -406.88 901.43 0.00 901.43 252.30 16166.30 2.00 126.15 7.15 FY12E 12m 12663.69 600.68 13264.37 -9624.41 3639.96 -894.86 2745.10 -1206.86 1538.24 -476.85 1061.39 0.00 1061.39 252.30 17227.68 2.00 126.15 8.41

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) Description Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face Value Total No. of Shares EPS

31-Dec-09 3m 2425.40 155.10 2580.50 -1836.10 744.40 -213.50 530.90 -234.50 296.40 -92.90 203.50 236.10 2.00 118.05 1.72

31-Mar-10 3m 2551.20 124.70 2675.90 -1923.10 752.80 -236.30 516.50 -234.50 282.00 -88.60 193.40 239.90 2.00 119.95 1.61

30-Jun-10 3m 2683.10 122.70 2805.80 -2045.60 760.20 -202.50 557.70 -288.10 269.60 -84.70 184.90 252.30 2.00 126.15 1.47

30-Sep-2010E 3m 2951.41 128.84 3080.25 -2243.07 837.17 -212.63 624.55 -322.67 301.88 -94.79 207.09 252.30 2.00 126.15 1.64

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Key Ratio

Particulars EBIDTA % PAT % P/E ratio (x) ROE - % ROCE - % EV/EBIDITA (x) Debt Equity Ratio Price/Book Value
A-Actual E-Expected

FY09 A 25% 7% 13.16 4% 6% 3.50 0.48 0.56

FY10 A 30% 8% 10.64 5% 8% 2.77 0.48 0.52

FY11 E 29% 8% 8.88 5% 9% 2.47 0.47 0.49

FY12 E 29% 8% 7.54 6% 9% 2.20 0.47 0.46

Charts:
Net sales & PAT

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P/E Ratio (x)

P/BV (X)

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EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.63.45, the stock is trading at 8.88 x and 7.54 x for FY11E and FY12E respectively. On the basis of EV/EBDITA, the stock trades at 2.47 x for FY11E and 2.20 x for FY12E. Price to book value of the company is expected to be at 0.49 x for FY11E and 0.46 x for FY12E respectively. EPS of the company is expected to be at Rs.7.15 and Rs.8.41 for the earnings of FY11E and FY12E respectively. The companys net sales and net profit are expected to grow at a CAGR of 18% and 25% over FY09 to FY12E During the quarter the company has allotted 62,10,000 Equity shares of Rs.2/each at a premium of Rs.39/- each aggregating to Rs.25.46Crores upon the conversion of warrants. Allotment Committee of the Board of directors of the Company has allotted 5475212 equity shares at Rs. 120.12/- per shares upon the conversion of FCCB's of US $ 14.98 million. The Company plan to expand its casting capacities from 1,05,000 t.p.a. to 2,25,000 t.p.a. This will lead to large scale economics and hence better margins.

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The Company is also planning to foray into high precision components like cylinder blocks of bigger engines, cylinder heads, transmission covers etc. that command better margins. This will ensure sustainability of higher margins in the years to come. We recommend BUY this stock with a target price of Rs.76.00 for medium to long term investment.

Industry Overview
The Indian auto component industry is one of India's sunrise industries with tremendous growth prospects. From a low-key supplier providing components to the domestic market alone, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen, amongst others. As per an Automotive Component Manufacturers Association of India (ACMA) report, the turnover of the auto component industry was estimated at over US$ 18 billion in 2007-08, an increase of 27.2 per cent since 2002. It is likely to touch US$ 40 billion, increasing Indias share in the global auto component market from 1 per cent to 3 per cent by 2015-16. Aided by a 7 per cent growth in the original equipment manufacturers (OEM) segment and an 8.5 per cent rise in exports and after-market segment, it is expected that auto ancillary production would grow by 8.2 per cent in 2009-10, according to a report by the Centre for Monitoring Indian Economy (CMIE). Investments in the auto component industry were estimated at US$ 7.2 billion in 2007-08 and are likely to touch US$ 20.9 billion by 2015-16. In Tamil Nadu alone, nearly US$ 1 billion have been invested by some of the major trye companies, such as Apollo Tyres, ATC Tires, MRF, Dunlop and TVS Srichakra. Exports of auto components grew at the rate of 35 per cent during 2002-07 and touched US$ 3.6 billion in 2007-08. It is estimated to reach around US$ 20 billionUS$ 22 billion by 2015-16. During April-January 2008-09, exports grew by 27.3 per cent to US$ 2.12 million. A majority of Indian exports are sent to Europe and North America. India will be the next destination for the Automotive Testing Expo to be hosted by UKIP Media at Hyderabad next year. The expo will now be an annual event for the country and will showcase latest technologies, including simulation, for new automotives and components. Indian companies are also expanding their footprints abroad. For instance, TVS Logistics, a part of the TVS group, acquired one of the largest after market logistics companies in the UK. The company will undertake an investment in excess of US$

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26.77 million in Multipart Holding in the next 18 months in order to expand its operations in the UK and rest of Europe. Further, Coimbatore-based Elgi Rubber Company has formed a fully owned subsidiary company in Texas, US under the name of Elgi Rubber Company LLC, investing up to US$ 5 million on the venture. Destination India According to the Investment Commission of India, global automobile manufacturers see India as a manufacturing hub for auto components and are rapidly increasing the value of components they source from India due to: India's cost competitiveness in terms of labour and raw material. Its established manufacturing base. Makers of luxury cars are increasingly looking at making India a sourcing hub for components, besides using more local components in cars for the Indian market. BMW is likely to sign the first direct sourcing deal with local vendors by the end of this year. Skoda Auto India is looking at increasing localization for its small car Fabia to over 50 per cent over the next two years. Mercedes Benz India expects growth in sourcing from India to continue at 10 per cent. Foreign Investments India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. Swiss auto clamps maker, Oeitker Group, has inaugurated the first phase of its manufacturing facility in India. It has invested US$ 12.58 million in Phase I and hopes to start work on the second phase by the end of next year. The Tamil Nadu state cabinet recently gave clearance to the French tyre major, Michelins proposal to set up a US$ 851.5 million Greenfield project near Chennai, Tamil Nadu. A memorandum of understanding (MoU) has been signed by the US auto giant, Ford Motors, with the Tamil Nadu government to set up a unit with a capacity of 250,000 engines a year. German auto company, Volkswagen has commenced sourcing components from India for its Russian plant and is also looking at sourcing light systems, plasticrelated items and metals for its European plants.

Domestic Investments

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The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. An auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34 automotive ancillary units. This is in addition to a US$ 245.59 million Greenfield project being set up by MLR Motors near the park. Moreover, Indian tyre makers are rolling out investment plans worth US$ 1.24 billion, due to the rising popularity of radial tyres in the commercial vehicles segment. Some other investments include: Apollo Tyres is to scale up investment at its upcoming radial tyre project at Oragadam in Tamil Nadu from US$ 106.4 million to US$ 447.04 million. Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturing automotive transmissions in India. Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in a new ball bearings manufacturing plant at Haridwar. Policy Initiatives The government has taken many initiatives to promote foreign direct investment (FDI) in the industry. Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted. The automobile industry has been delicensed. There are no restraints on import of components. The government has envisaged the Automotive Mission Plan 2016 to promote growth in the sector. It targets: Emerging as the global favorite in the area of design and manufacture of automobiles and auto components. Taking the output to US$ 145 billion, accounting for more than 10 per cent of the GDP. Offering additional employment to 25 million people by 2016. Looking Ahead With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India's auto market are bright.

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Even though India's auto component industry has conventionally relied on exports for its profits, the domestic market itself is ripe with rapidly growing opportunities. Industry experts are hopeful that the country will be able to offset China and other Southeast Asian countries' traditional manufacturing advantage in the coming years, facilitating the industry's achievement of its targeted market value of US$ 40 billion by 2014.

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Disclaimer:

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This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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