Last Thursday, Amtek Auto Ltd became the first among the 12 large insolvency cases referred to the National Company Law Tribunal to get finalized, as the UK-based industrial conglomerate Liberty House emerged as the preferred bidder to acquire the debt-laden auto components firm.
To be sure, it is not going to be an easy road to turn Amtek around. The group is saddled with hefty losses, an unending list of creditors totalling around Rs12,700 crore and 6,000 employees to manage across 35 of its auto component units across the world. Yet the Indian equity markets cheered the decision. Amtek Auto’s stock closed 4.8% higher after the news and even its group companies Castex Technologies Ltd and Metallyst Forgings Ltd toed the line to close 4.8% and 5% higher, respectively.
Investor hope has been rekindled given that the $7 billion Liberty House group is part of the GFG Alliance that is twice the size and has a global presence in energy, metals, engineered components for automobile and aerospace and other downstream products.
Importantly, the Amtek group is not unknown terrain for Liberty House, because in July 2017 it had acquired Amtek’s UK operations and has already turned it around.
What’s more, the expertise of both groups in vehicle technology could be complementary. Replying to a questionnaire from Mint, the Liberty House management says the acquisition marks its entry into India’s rapidly growing component industry when the auto industry is likely to grow at 9-10% year-on-year towards achieving the India Automotive Mission Plan 2027.
Further, the country’s position as an export hub to other regions offers additional growth prospects.
Amtek’s facilities across the global would aid Liberty House’s thirst for growth. After all, Amtek was among the top three names in auto components in India, along with Motherson Sumi Systems Ltd and Bharat Forge Ltd, with a global client list that included all leading original equipment automobile manufacturers. Between FY2010 and FY2014, Amtek’s net revenue grew at 30-40% annually.
Its unfortunate debacle began with the company’s scorching pace of global acquisitions between FY2013 and FY2015 and the mounting debt to fund them. The strategy misfired badly, as soon after the global auto market, especially in the developed regions, nosedived. Amtek’s debt/Ebit (earnings before interest and tax) ratio soared until the profits generated were not anywhere close to mounting interest costs.
The key positive therefore is that if Liberty House has the financial muscle, Amtek may soon be on the road to recovery.
Amtek is sitting on prized assets that have been operational and profitable until three years ago. In June 2014, the Amtek stock had touched a high of Rs274 after which it started crumbling as problems started mounting.
At present, the only grey area in the deal is that, being closely held, not much information about the GFG Alliance is in the public domain. Also, the details of the deal and the procedure to resolve the crises at Amtek are not yet known. Stocks of Amtek Auto and the others in the pack would react to the speed with which the creditors are paid off and a turnaround strategy scripted. Much depends on the haircut agreed to by the creditors.
Nevertheless, this deal reinforces the confidence in the prospects for the auto and auto component industry in India both for domestic markets and as a global export hub.