Amtek Auto: Will it see the light of the day?
Created on 21 Oct 2020
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They say 'fortune can turn the tables and break mountains.'
Amtek Auto was a company which was favoured by fortune for quite a long time. With success, hard work and luck, it created the perfect recipe for mind-blowing returns for any investor. But the winds of fortune did not favour them for too long. It soon started to rain, bringing in floods of misfortune. The founder himself and acts of the company at large can be deemed responsible for many such mishappenings.
So, what is it that went wrong, and how is the company now sailing upon the flood? Well, scan further to get the answer.
History and Growth Story of Amtek Auto
Not ready to join the family business Aravind Dham, the CMD of Amtek Auto was all set to establish his very own enterprise. Started in 1985, the company was incorporated in 1988. The company started its operation at a time when the Government of India was opening up the auto sector.
So the demand was also increasing as the days passed by. He didn't restrict himself to the domestic market and spread wings to fly overseas as well. He extended operations to Japan and Germany as well. Soon, the company reached great heights and went on to become the largest player in the industry, with more than 20 per cent of the market share. They also had huge clients like BMW, Ford, Fiat and Daimler. But the dreams and wishes of Aravind Dham were short-lived and did not go as thought.
String of Troubles
The market which was highly positive of the company's future and other prospects saw their hopes and beliefs being shattered when the company was listed among the RBI's 12 troubled units. This was when the bitter truth choked every investor of Dalal Street. From seeing a peak in the 2000s, Amtek Auto saw a great fall by the end of 2007. So, what happened to the company which was the closest ally of success? Let's break it down.
As mentioned earlier, the company saw a huge demand flowing in the initial stage, forcing them to expand. But where the mistake lies is with the company's 'aggressive expansion policy'. After 2005, the company undertook some huge acquisition and expansion policy overlooking the worst possible outcomes.
They made a total of 22 acquisitions which included units not only in India but also in Japan, UK, Germany, etc. While these units were cash cows and milked a lot of profit, the debt taken to support their plans became a deadly nightmare. It grew over time and started haunting the very base of the company.
As of 2015, the total debt of the company stood at 1900 crores. It reached a point where it had to pay about 2000 crore as its interest alone. This brought their Debt to EBITDA ratio to more than 7 points from the industry benchmark of 2.2.
A few other factors that made the company travel the unintended path was the industrial slowdown. The global slowdown which had put various industries to its kneel affected Amtek Auto as well. Its clients went on to introduce a new set of compliance policies which further affected the company largely. As the domestic demand, which contributed to over 30% of the company's revenue, got hit, the company suffered a lot to keep up with their top line. Further, demonetization also had a toll.
While the company tried selling some of its assets in a bid to resolve the debt, little did they know that there was another obstacle that lay ahead A falling demand.
That is when the Rating Agencies degraded its assets and securities. This brought the share prices from the peak of Rs.231 to a mere Rs.23 in no time. The market cap also saw a landslide fall from a peak of 6745 crores to 945 crores in 2015.
Soon they took place in the list of RBI under the new bankruptcy amendment forcing the company to undergo resolution. By early July, Ametek Auto was taken in by the NCLT for the insolvency process. Among the bids that were received, the NCLT chose a UK – based liberty house as the highest bidder. However, the story has not quite reached the end.
As the company expressed a sigh of relief, another trouble was brewing up. The takeover saw certain issues as the Liberty house failed to meet a certain requirement and started dragging the entire process down. This made the NCLT move towards liquidation.
The Supreme Court halted the entire process and ordered the Resolution professionals to proceed forward and invite new bids in December 2019. After 3 long years, Amtek auto laid eyes on a bid that will save the company from a long and tedious wait.
The committee of Creditors chose the bid put forth by Deccan Value Investors as the next possible company eligible for the takeover. In February this year, the court offered 30 days to complete the payment process. Further, the creditors offered a haircut of about 80% to Amtek Auto. Hence, the Deccan Value Investor Ltd (DVIL) will be proceeding forward with its 2700 crore resolution plan.
DVIL will be paying 500 crores in cash, and the rest will be pumped in the form of future receivables. Further, DVIL also promised to offer 300 crores worth optionally convertible debenture.
One cannot deny the fact that the road followed by Amtek Auto was filled with potholes, ups and downs. However, despite the setbacks faced by the company, this will surely go into the history books like the one which was revived from ashes, one which saw the light of the day despite bad luck pulling it down.
The entire market as such, is looking forward to the acquisition to finish successfully and getting the business back on its track. As with the case of Usha Martin, we will have to wait for Amtek Auto as well to find what will happen next. So fingers crossed!
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