Amtek Auto Limited

BUY Target price: Rs.208.00

CMP: Rs. 181.40 Market Cap. : Rs.28343.75mn.
Date: March 22nd, 2010.

Key Ratios: SYNOPSIS

Particulars FY09 FY10E FY11E • Amtek manufactures a wide range of components for
(12 m) (12 m) (12 m) automotive applications, specialized in engine,
OPM (%) 37 39 38 transmission and suspension systems. The company
NPM (%) 15 14 14 has clients like Maruti, TVS, Hero Honda, Mahindra &
ROE (%) 6 7 7 Mahindra, Bajaj Auto and Tata Motors. It also has
ROCE (%) 5 5 6 presence in the US and UK.
P/BV(x) 1.03 1.07 0.99
P/E(x) 16.69 16.34 14.30 • Amtek Auto allots 3,65,41,314 equity shares upon the
EV/EBDITA(x) 2.81 6.62 6.60 conversion of FCCBs.
Debt equity ratio 1.35 1.39 1.42
• As per the order of Hon'ble High Court of Punjab &
Haryana the Scheme of Arrangement of Amtek India
Key Data:
Ltd., Ahmednagar Forgings Ltd., Amtek Ring Gears
Sector Automobile Ancillary
Ltd., Amtek Crankshafts India Ltd. and Amtek Casting
Face Value Rs.2.00 India Ltd. with Amtek Auto Ltd. has been dismissed on
52 wk. High/Low Rs.239.30/69.00 account of changed circumstances as regards
Volume (2 wk. Avg.) 2691000 valuation of shares and decline in turnover and profits.
BSE Code 520077
• The company has declared dividend to its Equity
shareholders @ 25% for the year 2008-09 i.e. Rs 0.50
per equity share of Rs 2/- each.

V.S.R. Sastry • The company & Sumitomo Metal Industries

(Sumitomo Metals) of Japan have signed a joint
Vice President
venture (JV) agreement for production and sale of
Equity Research Desk forged crank shafts for automotive applications in
91-22-25276077 India.
vsrsastry@firstcallindiaequity.com
Share Holding Pattern:

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer
drsastry@firstcallindia.com

1
 Table of Content

Content Page No.

1. Investment Highlights 03

2. Company profile 06

3. Company products 07

4. Peer Group Comparison 11

5. Key Concerns 11

6. Financials 12

7. Charts & Graph 14

8. Outlook and Conclusion 16

9. Industry Overview 17

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Investment Highlights
• Result Updates (Q2FY10)

For the second quarter, the top line of the company increased 25%YoY and stood at
Rs.3021.80mn against Rs.2413.30mn of the same period of the last year. The bottom
line of the company for the quarter stood at Rs.350.80mn from Rs.203.80mn of the
corresponding period of the previous year i.e. an increase of 72%YoY.

EPS of the company for the quarter stood at Rs.2.25 for equity share of Rs.2.00 each.

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Expenditure for the quarter stood at Rs.2218.30mn, which is around 15% higher than
the corresponding period of the previous year. Raw material cost of the company for
the quarter accounts for 63% of the sales of the company and stood at Rs.1905.90mn.
Employee cost stood at Rs.148.00mn from Rs.155.00mn. and accounts for 6% of the
revenue of the company for the quarter i.e., a decrease of 5%YoY.

OPM and NPM for the quarter stood at 38% and 12% respectively from 28% and 8%
respectively of the same period of the last year.

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• Allotment of Equity Shares

The Company has allotted 52,054 equity shares at Rs. 209.83/- per shares upon the
conversion of FCCB's of US $ 0.25 million.

• Amtek Auto allots 3,65,41,314 equity shares upon the conversion of FCCBs

The Board of Directors of the Company , in the meeting held on February 9, 2010 have
allotted 36541314 equity shares at Rs. 148.40/- per shares upon the conversion of
FCCB's of US $ 111.51 million.

• 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.

• Dividend

The company has declared dividend to its Equity shareholders @ 25% for the year 2008-
09 i.e. Rs 0.50 per equity share of Rs 2/- each.

• Repurchases Foreign Currency Convertible Bonds (FCCBs)

The Company has repurchased and cancelled, of the face value US$ 9,500,000, of June
2010 Foreign Currency Convertible Bonds (FCCBs), at a discount in compliance with the
RBI FCCB Buyback Guidelines

As a result of their repurchase of FCCBs the Company's outstanding FCCBs as on date at

US$ 8,000,000

• Amtek, Sumitomo Metal form JV for forged crankshafts

The company & Sumitomo Metal Industries (Sumitomo Metals) of Japan have signed a
joint venture (JV) agreement for production and sale of forged crank shafts for
automotive applications in India.

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 This JV is to be formed with investment of 50% by Amtek, 40% by Sumitomo Metals, and
10% by Sumitommo Corporation. Sumitomo Corporation is the global partner of
crankshaft business of Sumitomo Metals.

This is in line with Amtek`s strategy of augmenting its product portfolio. The company
will contribute to this JV, its existing local market and manufacturing know-how and
experience. Sumitomo Metals, on the other hand will bring in its world-class crankshaft
forging technology.

This JV will be another milestone for the Amtek Group and step forward in the direction
of consolidating its customer and product portfolio as well as attaining world-class
technological edge in automotive manufacturing. This also makes Amtek a full serviced
supplier of crankshafts for automotive applications as Amtek has already created market
leader position for itself in the field of fully machined crankshafts in India. This JV also
provides to Sumitomo Metals entry into the high growth crankshaft market of India.
This is based on Sumitomo Metals` corporate strategy to `add strength to strong areas.
`With this entry to India, Sumitomo Metals will have a global `tetra polar` production
system (Japan, US, China and India)

The automobile industry faces unprecedented difficulties, but the Indian automobile
market has been growing rapidly in recent years and local demand for forged
crankshafts is expected to surge significantly in the medium to long term.

Company profile
Amtek Auto Limited engages in the manufacture and sale of auto components in India and
internationally. The major categories of components manufactured by the company include
connecting rod assemblies, flywheel ring gears and assembly, steering knuckles, suspension and
steering arms, cv joints, crankshaft assemblies, and torque links. The products are used for 2-3
wheelers, cars, tractors, light commercial vehicles, heavy commercial vehicles, and stationary
engines. It exports its products primarily to Europe, North America, Asia, Africa, the Middle
East, and South America. The company was incorporated in 1985 and is based in New Delhi,
India. The company is a part of Amtek Group.

The company's customers include Ashok Leyland Limited; Aston Martin; Bajaj Auto Limited;
BMW; Briggs & Stratton; CNH Global; CNH New Holland; Cummins; CYT; Dana Italia; Davis
Industries; Defence; Delco Machining; Eicher Motors Limited; Escorts; Fairfield; Fiat India; Ford;
General Motors; GE Transportation; GWK, Ltd; Hero Honda; Hindustan Motors; Honda
Scooters; Hyundai; International Tractors; Isuzu Diesel; Jaguar; JCB; John Deere; Kawasaki;
Ketlon Machining; Land Rover; LG Electronics; LML Limited; Luk Industries; Mahindra &
Mahindra; Maruti Suzuki; MDM; MG Rover; Mulhoff; Musashi Auto Part Pvt., Ltd; Navistar

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General Motors; Perkins Engines; Rail; Saab; Sanden Corp; Scania; Sisu Diesel; Tallent
Engineering; Tata Motors; Tecumseh; Toyota; Unimotion Gears; and Yamaha Motors.

Company products
Product portfolio

• Flywheel Ring Gears

• Machining
• Forging
• Casting Aluminium (HPDC & GDC)
• Casting Iron(HPDC & GDC)

Flywheel Ring Gears

• Starter Ring Gear

• Flex plate Assemblies (2 Piece)
• Flywheel Assemblies

Machining

• Steering Knuckles
• Ladder frames
• Engine bearing ladders
• Exhaust manifolds
• Aluminium Case Housings
• Bridge Fork Assemblies
• Hubs
• Spindles
• Connecting Rods
• Crankshaft
• Housings
• Gear Shifter Forks
• Front Axle Beam Assembly
• Crankshaft Assembly
• Conrod Piston Sub Assembly
• Flywheel Assembly
• Pivot Arms
• Flywheel Housing & Assembly
• Wheel Hubs
• PTO Casing

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 • Front Axle Beams
• Front & Rear Axle

Forging

• Connecting rods & Caps

• Crankshafts & Camshafts
• Steering Levers
• Gear shifter forks
• Sector gears & shafts
• Front Impact Beams Drive Shafts
• Spindlers
• Hubs & Flanges
• Transmission Components
• Steering Parts
• Pistons
• Propeller Fork Shafts
• Stub – Axle
• Front Axle Beam
• Front & Rear Axle Shaft

Casting Aluminium (HPDC & GDC)

• Clutch Cases
• Transmission cases
• Timing Chain Covers
• Mounting Brackets
• Camshaft Covers / Carriers
• Bearing Ladders / Sumps
• Structural Covers
• Differential Flange

Casting Iron (HPDC & GDC)

• Cylinder Block & Head

• Transmission Housings
• Brake Carriers & Caliper
• Trumpet casings
• Crankshafts
• Intake and Exhaust Manifolds
• Flywheels & Flywheel Housings
• Turbo Charger

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 • Bell Housings
• Linkshafts

Services

• Product Design
• Lean Six Sigma

Product Design

The Group has a Design and Development facility that fully supports to the customer
requirements. The facility offers design activity using 3D modeling, detailed FE analysis,
NVH Refinement and Kinematic analysis.

Latest Design Soft wares such as CATIA, C3P I-Deas, Unigraphics and Pro Engineer are
used. Data Exchange is done through Metaphase, FTP, ENOAT/ODETTE as well as
Internet, DAT tape etc.

Design engineers can work from customer’s premises, from company modern design
coordination centre at Letchworth, UK and from their well-equipped design centre in
India.

A key feature of the design process is the use of advanced CAE techniques such as
structural optimization of component topology and topography to meet customer-
defined targets for stiffness, strength, mass, NVH and fatigue performance. Linear and
non-linear analysis is undertaken as required to prove design integrity under all
conditions prior to first physical prototypes, thus reducing time between initial concept
and production readiness

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Lean Six Sigma

Amtek is in the process of implementing Lean and Six Sigma. Six Sigma is a process of
reducing variation using a DMAIC (Define, Measure, Analyse, Improve, and Control)
methodology. Lean Manufacturing seeks to identify and eliminate the source of waste
that exists within a process.

Lean & Six sigma will be followed in all the plants of Amtek. Each region & plant will
have a formalized & standardized infrastructure. This will include programme metrics,
project metrics & plant maturity metrics. Training will be provided for different people
at different levels based upon the needs of the organization. They have Champions, full
time Black Belts, Green Belts and we will have Master Black Belts. They have been
trained on Lean/Six Sigma and once trained these people can impart training down the
line. This role will help shape the Lean Six Sigma Strategy & Development within Amtek.

It will become a part of the Amtek Human Resource policy. Each business will
communicate the principles and progress of the Lean and Six-Sigma programme
throughout the business using the agreed communication tools to share, inform and
educate.

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Peer Group Comparison

Name of the CMP(Rs.) Market Cap. EPS P/E (x) P/BV Dividend
company (As on (Rs. Mn.) (Rs.) (x) (%)
March 22,
2010)

Amtek Auto 181.40 28343.75 9.62 18.86 1.11 25.00

Hindustan
Composites Limited 403.05 2216.80 4.24 95.06 9.86 0.00

Exide industries 113.85 91080.00 5.88 19.36 7.48 60.00

Motherson Sumi 131.60 48002.30 3.74 35.19 11.57 135.00

Bosch 4800.00 150714.70 188.11 25.52 4.09 250.00

Key Concerns

Adverse Govt. policies

Economic slow down.

Highly competition

Recession in global economy

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Financials
Results Update

12 months ended Profit and Loss A/C (Standalone):

Value(Rs. in million) FY08 FY09 FY10E FY11E

Description 12m 12m 12m 12m

Net Sales 12823.90 10522.00 12415.96 14030.03

Other Income 985.40 1399.50 1539.45 1693.40

Total Income 13809.30 11921.50 13955.41 15723.43

Expenditure -9427.60 -7979.70 -9162.98 -10354.17

Operating Profit 4381.70 3941.80 4792.43 5369.26

Interest -290.70 -628.10 -1106.33 -1216.96

Gross Profit 4091.00 3313.70 3686.10 4152.30

Depreciation -939.10 -1226.00 -1373.12 -1510.43

Profit before Tax 3151.90 2087.70 2312.98 2641.87

Tax -826.40 -555.30 -578.25 -660.47

Net Profit 2630.50 1532.40 1734.74 1981.40

Equity Capital 282.00 282.00 312.50 312.50

Reserves 23016.40 24548.80 26283.54 28264.94

Face Value (Rs) 2.00 2.00 2.00 2.00

Total No. of Shares 141.00 141.00 156.25 156.25

EPS (Rs) 18.66 10.87 11.10 12.68

*Year ending on June 30th

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Quarterly ended Profit and Loss A/C (Standalone):

Value(Rs. in million) 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10E

Description 3m 3m 3m 3m

Net Sales 2521.90 2674.10 3021.80 3323.98

Other Income 819.20 360.70 356.50 374.33

Total Income 3341.10 3034.80 3378.30 3698.31

Expenditure -1887.80 -1997.90 -2218.30 -2440.13

Operating Profit 1453.30 1036.90 1160.00 1258.18

Interest -228.20 -225.70 -287.70 -302.09

Gross Profit 1225.10 811.20 872.30 956.09

Depreciation -358.00 -403.50 -403.50 -411.57

Profit before Tax 867.10 407.70 468.80 544.52

Tax -244.40 -102.70 -118.00 -137.06

Net Profit 622.70 305.00 350.80 407.46

Equity Capital 282.00 282.00 312.50 312.50

Face Value (Rs) 2.00 2.00 2.00 2.00

Total No. of Shares 141.00 141.00 156.25 156.25

EPS (Rs) 4.42 2.16 2.25 2.61

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Charts

• Net sales & PAT

• P/E Ratio (x)

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• P/BV (X)

• EV/EBITDA(X)

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1 Year Comparative Graph

Amtek Auto Ltd BSE SENSEX

Outlook and Conclusion

• At the market price of Rs.181.40, the stock is trading at 16.34 x and 14.30 x for FY10E and
FY11E respectively.

• On the basis of EV/EBDITA, the stock trades at 6.62 x for FY10E and 6.60 x for FY11E.

• Price to book value of the company is expected to be at 1.07 x for FY10E and 0.99 x for
FY11E respectively.

• EPS of the company is expected to be at Rs.11.10 and Rs.12.68 for the earnings of FY10E
and FY11E respectively.

• The Board of Directors of the Company , in the meeting held on February 9, 2010 have
allotted 36541314 equity shares at Rs. 148.40/- per shares upon the conversion of FCCB's of
US $ 111.51 million.

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• 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 company & Sumitomo Metal Industries (Sumitomo Metals) of Japan have signed a joint
venture (JV) agreement for production and sale of forged crank shafts for automotive
applications in India.

• We recommend ‘BUY’ this stock with a target price of Rs.208.00 for medium to long term.

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 India’s 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 billion-US$ 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.

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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$ 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,
Michelin’s proposal to set up a US$ 851.5 million Greenfield project near Chennai, Tamil
Nadu.

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 • 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, plastic-related items
and metals for its European plants.

Domestic Investments

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.

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 • 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.

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.

___________________________________________________________

Disclaimer:

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 we 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 it’s
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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