 "Banks are working to realign our debt repayment to cash flows: Arvind Dham")
The Amtek Group, especially Amtek Auto, has come under pressure due to weakness in domestic operations, consolidated debt of Rs 19,000 crore, investor worries related to conversion of bonds and losses in the quarter ended June. Founder of the group Arvind Dham tells Ajay Modi the group has support from bankers who are in the process of realigning debt repayments. Edited excerpts:
Take us through the origin of problems at Amtek Group.
Our overseas business, with (yearly) revenue of $2.5 billion, is larger than the India business. It has an Ebitda (operating earnings) of $300 million. The domestic business is $1.5 billion. We undertook a lot of capacity expansion in India between 2011 and 2014, investing Rs 5,000 crore. We had anticipated the domestic market to grow from FY14. The market did not grow. There was pressure on us for the first time since we started business. A lot of new projects which we had financed had a repayment schedule from FY16.
We expected 15-18 per cent (yearly). It was zero and somewhere negative. Light commercial vehicle sales are declining, tractors and two-wheelers are under pressure and passenger vehicles are growing at only three to four per cent. The construction market is weak. We will have an advantage when growth kicks in.
What did the management do?
We spoke to banks in March this year and told them there would be a mismatch of cash flows for two years. Most of the banks, led by IDBI and State Bank of India, assessed the situation and are in the process of realigning debt maturity with cash flow. In the next two months, the process should be complete. The economic viability of the business is not in question. It is not a restructuring. The arrangement will help us to pass the low phase and emerge healthy.
Banks have, as a formality, done a viability study which they have approved. As promoters, we also need to infuse some liquidity. We put Rs 225 crore in the group companies in the year ended September 15. We have not sought any relief from the banks. Interest payment will continue as before.
What explains the crash in Amtek Auto's stock price?
In the quarter ended June, we posted our first loss in 20 years. The market responded to some extent. Later, our stock was removed from F&O (the futures and options segment) and the stock price crashed. The expiries of 90 per cent of these were due in five days. There was a rush to exit. It created negative sentiment and the media connected the dots to put this in the limelight.
What led to the suspension of rating by agencies?
After we posted a loss in the April-June quarter, the rating agencies had approached us for information. Since a realignment process was on with the banks, we were not in a position to share details. Due to low information availability, the agencies decided to suspend their ratings. Once everything stabilises, ratings will be reinstated.
What went wrong with the foreign currency convertible bond (FCCB) redemption at Castex?
There was a $200 million FCCB in Castex. The stock price started going up from February. We had a firm agreement that at Rs 160, this would be mandatorily converted. The price kept going up. Bond holders cried foul and blamed us, saying we'd manipulated the price. No one till date has been able to file a legal case on this. Let the matter be investigated. We have furnished the information sought (by the stock markets regulator).
Would a less aggressive acquisition strategy have been better?
Overseas business has to be acquisition-driven, unlike India, where organic growth is the key. Our overseas business is healthy. The stress came from India. The overseas strategy has worked well, where the return on equity is high double-digit; in India, it is low single-digit.
How are your plans to raise money through deleveraging going on?
After the painful exercise of the past six months, we wish to deleverage. The exercise has started. We have a plan over 18 months to raise $1 billion. Overseas, we want to raise $500-600 million through a minority stake sale of 25-30 per cent. Another $300-400 mn will be raised from sale of non-core domestic business. We are not going to sell anything in the automobile segment. At the moment, our focus is on consolidation and strengthening of the balance sheet.
Take us through the origin of problems at Amtek Group.
Our overseas business, with (yearly) revenue of $2.5 billion, is larger than the India business. It has an Ebitda (operating earnings) of $300 million. The domestic business is $1.5 billion. We undertook a lot of capacity expansion in India between 2011 and 2014, investing Rs 5,000 crore. We had anticipated the domestic market to grow from FY14. The market did not grow. There was pressure on us for the first time since we started business. A lot of new projects which we had financed had a repayment schedule from FY16.
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What growth had you expected?
We expected 15-18 per cent (yearly). It was zero and somewhere negative. Light commercial vehicle sales are declining, tractors and two-wheelers are under pressure and passenger vehicles are growing at only three to four per cent. The construction market is weak. We will have an advantage when growth kicks in.
What did the management do?
We spoke to banks in March this year and told them there would be a mismatch of cash flows for two years. Most of the banks, led by IDBI and State Bank of India, assessed the situation and are in the process of realigning debt maturity with cash flow. In the next two months, the process should be complete. The economic viability of the business is not in question. It is not a restructuring. The arrangement will help us to pass the low phase and emerge healthy.
Banks have, as a formality, done a viability study which they have approved. As promoters, we also need to infuse some liquidity. We put Rs 225 crore in the group companies in the year ended September 15. We have not sought any relief from the banks. Interest payment will continue as before.
What explains the crash in Amtek Auto's stock price?
In the quarter ended June, we posted our first loss in 20 years. The market responded to some extent. Later, our stock was removed from F&O (the futures and options segment) and the stock price crashed. The expiries of 90 per cent of these were due in five days. There was a rush to exit. It created negative sentiment and the media connected the dots to put this in the limelight.
What led to the suspension of rating by agencies?
After we posted a loss in the April-June quarter, the rating agencies had approached us for information. Since a realignment process was on with the banks, we were not in a position to share details. Due to low information availability, the agencies decided to suspend their ratings. Once everything stabilises, ratings will be reinstated.
What went wrong with the foreign currency convertible bond (FCCB) redemption at Castex?
There was a $200 million FCCB in Castex. The stock price started going up from February. We had a firm agreement that at Rs 160, this would be mandatorily converted. The price kept going up. Bond holders cried foul and blamed us, saying we'd manipulated the price. No one till date has been able to file a legal case on this. Let the matter be investigated. We have furnished the information sought (by the stock markets regulator).
Would a less aggressive acquisition strategy have been better?
Overseas business has to be acquisition-driven, unlike India, where organic growth is the key. Our overseas business is healthy. The stress came from India. The overseas strategy has worked well, where the return on equity is high double-digit; in India, it is low single-digit.
How are your plans to raise money through deleveraging going on?
After the painful exercise of the past six months, we wish to deleverage. The exercise has started. We have a plan over 18 months to raise $1 billion. Overseas, we want to raise $500-600 million through a minority stake sale of 25-30 per cent. Another $300-400 mn will be raised from sale of non-core domestic business. We are not going to sell anything in the automobile segment. At the moment, our focus is on consolidation and strengthening of the balance sheet.