Mumbai: New Delhi-based Amtek group, one of India’s largest auto component makers, is shifting plant and machinery from overseas subsidiaries to India to lower manufacturing costs, besides cutting excess capacity and diversifying into the aeronautics business.
Taking stock: Chairman and managing director Amtek group Arvind Dham at a factory in New Delhi. He continues to be bullish and feels that the crisis has bottomed out. India Today
Two group companies Amtek India Ltd and Amtek Auto Ltd, which are being merged, have been hit by a 50% drop in revenue because of a slump in demand for auto parts overseas. Apart from this, both the firms have $300 million (Rs147 crore) of debt on their books.
The company had raised $150 million in 2005 and another $250 million in 2006 through foreign currency convertible bonds or FCCBs and loans from commercial banks. About $100 million of this has been retired.
Amtek is relocating units in Letchworth and Tipton in the UK and Stanberry and Kellogg in the US.
“We are restructuring the overseas operations and moving them to India, ” said Arvind Dham, chairman of the group.
This, according to him, will create capacities in a low-cost manufacturing base that will give exports relatively higher margins.
The sharp fall in revenue as well as profits has largely been on account of large-scale inorganic expansion, including overseas acquisitions, between 2002 and 2007. The objective was to access technology as well as developed country markets.
The global auto industry has been severely hit by the economic downturn that began in early 2008 and those investments now weigh heavily on the firm’s balance sheet.
This has also forced Amtek to reverse its export-led business model as revenue from overseas operations plummeted from $250 million in the fiscal year to March 2008 to $20 million last year.
For the fiscal year ending March 2008, the group had sales of Rs5,700 crore and profit of Rs550 crore. In 2009, sales dropped to Rs2,200 crore and sales to Rs350 crore.
“Exports are finished,” conceded Santosh Singhi, chief financial officer at the group.
Branching out
With countries like China, Hungary, Poland and Thailand also saddled with excess capacity and looking for markets for their products that are more cost-competitive than Amtek, Singhi is sceptical about the firm’s exports recovering. Amtek is also increasing its focus on non-auto businesses in the domestic market, such as railways, aerospace and defence.
The group is targeting business of Rs300-Rs500 crore from the defence industry and at least Rs2,000 crore from railways where margins are relatively higher.
It is also studying the aeronautics business for opportunities in aircraft and airport equipment.
“We still believe what we did was right and we will again follow the same path to grow,” Dham insisted, adding that he is scouting for an overseas acquisition in the aerospace industry.