Debt not the only concern for Amtek Auto

Company has an inventory loss of Rs Rs 591 crore in the nine month period ended June 30, 2015

The problems at Amtek Auto, the Delhi-based automobile components maker, are not limited to its huge debt. The nervousness among investors is also a result of the poor operating performance, visible in its latest quarterly results.

First, there is an inventory loss of Rs 591 crore in the nine-month period ended June, against a loss of only Rs 34 crore in the corresponding period last year. The company follows a October-September accounting year. The April-June quarter showed an inventory loss of Rs 252 crore against a loss of Rs 7 crore in the same period last year.

Second, expenditure on raw materials surged 35 per cent to Rs 841 crore in the June quarter. Unusual, as net sales in the period declined 13 per cent to Rs 979 crore. In the nine months to June 30, the expenditure on materials consumed went up 37 per cent to Rs 2,415 crore, while net sales showed flat growth at Rs 2,798 crore. The softening prices of most industrial commodities should have got reflected in less expenditure on raw materials.

The third and most worrying element is weaker operating profit. In the quarter ended June, this shrank 87 per cent to Rs 30.7 crore. After accounting for the finance cost and other charges, the company reported a loss of Rs 157.6 crore against profit of Rs 86 crore in the same quarter last year. In the nine-month period till June 30, operating profit slipped 41 per cent to Rs 400 crore.

The company did not respond to detailed queries on these issues. In a statement to the BSE exchange on August 20, Amtek said it faced ‘temporary cash flow mismatch’. Last month, CARE Ratings suspended that of Amtek -- it said the company had not furnished the information needed for monitoring the ratings.

“While we can only see the problem of debt, there could be serious operational level problems. The story beneath will have to be unveiled by Sebi (the capital markets regulator) or the company management,” said a Delhi-based analyst.

An ICICI Direct report of last year said India accounted for 56 per cent of Amtek’s revenue, followed by Germany (20 per cent) and Italy (eight per cent). And, that the passenger vehicle business accounted for 60 per cent of the revenue, while commercial vehicles formed 14 per cent. Amtek produces forging products, alumunium and iron casting products, among other items.

Amtek has been aggressively adding capacity (both organically and through acquisitions), which has significantly impacted its return ratios, the report said. When approached for a comment on recent developments there, ICICI Direct said they were not comfortable with the company’s huge debt and, hence, did not initiate further coverage or actively track it.