Amtek Auto: Smooth drive

Zelter is another cheap acquisition for Amtek

Amtek Auto has completed another cheap acquisition, this time picking up a profitable auto component company in Germany at a valuation of just 0.22 times projected sales for 2005.

What's more, Zelter GmbH is profitable and is estimated to turn in an EBITDA of ¤10 million, which means that its valuation of ¤28 million is just 2.8 times its estimated EBITDA.

Zelter is the Amtek group's seventh acquisition in less than three years, although it's only the third acquisition under the Amtek Auto umbrella, after Ahmednagar Forgings and Smith Jones (Midwest). The rest of the acquisitions were done by the parent company.

Zelter, no doubt, would add substantially to Amtek Auto's bottomline. On a standalone basis, Amtek's annualised nine-month EBITDA stood at Rs 165 crore, and Zelter's estimated EBITDA of Rs 52 crore in 2005 would mean an addition of 32 per cent.

Although Zelter was valued at ¤28 million or Rs 145 crore, Amtek is currently buying 70 per cent in the company, which should cost it roughly Rs 100 crore.

The price should hardly be a bother for Amtek Auto, which has built a warchest of over Rs 1,300 crore (through foreign currency loans, a GDR and a preferential issue to promoters) for acquisitions and for capex.

Based on its stand-alone annualised nine-month EPS, Amtek looks expensive at 21 times earnings. The picture would be, however, much different of one were to use consolidated earnings. The consolidated picture is expected to get even better, what with analysts expecting the Amtek Group to consolidate its holdings under Amtek Auto.

While the high number of cheap acquisitions should help the company grow at a fast pace, the concern about handling too many acquisitions (integration issues) remains.

Forex reserve growth

The build-up of foreign exchange reserves has not only slowed down considerably, but has turned negative. Forex reserves amounted to $138.890 billion at end-June, $3.008 billion lower than the level at end-April.

That's in marked contrast to the previous two months, when reserves went up by $6.240 billion. And if you consider the couple of months to end-December last year, reserves rose by $9.837 billion during that period.

Clearly, the Reserve Bank of India is no longer on a dollar-buying spree, and the rise of the dollar has eased to a large extent the upward pressure on the rupee, and consequently the RBI's need to buy dollars.

But it's not only in India that the accretion to forex reserves has turned negative. Japan, the country with the largest reserves, saw its kitty at Rs 842.468 billion at end-May, a marginal $1.133 billion lower that the reserves at the April-end. What's more, Japan's forex reserves rose by a mere $2.381 billion in the six months to end-May compared with a rise of $22.136 billion in the previous five months.

In China, the country with the second largest forex reserves, reserves increased by a sizable $49.2 billion in the first quarter of 2005. But that's in contrast to a rise of $95.4 billion in the immediately preceding quarter.

In South Korea, another country with large forex reserves, the increase has been $3.9 billion between end-February and end-May compared with a rise of $9.6 billion in the previous three months.

The data show that the rate of accretion of reserves has decelerated considerably and has turned negative for some countries.

And, since addition to the reserves implies a corresponding rise in domestic liquidity, as central banks absorb dollars and release local currency into their markets, the deceleration in reserve accumulation is yet another indication of a decline in global liquidity.

In India, however, money supply growth has been higher this fiscal in spite of a much lower addition to net forex assets of the banking sector, primarily because of a huge rise in commercial credit.

Cement

Top four cement players have reported strong despatches for the last month as well as the last quarter. In June, they grew 10 per cent on a year-on-year (y-o-y) basis to 48.23 lakh tonne, similarly for the Q1 FY06 they expanded 10 per cent. Akin to earlier years, the enhanced pre-monsoon construction has helped cement majors improve their performance.

Price realisations in southern markets such as Andhra Pradesh were down about 7 per cent on a y-o-y basis in June, while in Punjab they fell about 6 per cent.

Higher prices in the western region and Delhi ensured that price realisations on an all-India basis were more or less flat in June. Meanwhile, price realisations nationally were up about 2 per cent in the first two months of Q1.

Like earlier quarters, the underlying concern for the industry remains the pressure on operating margins owing to high operating costs. For instance, the overhead power and fuel costs are expected to rise once again in the June quarter on the back of higher coal prices and, in addition, freight charges are also expected to move up.

As a result, cement stocks fell on Tuesday despite better despatch figures "" Gujarat Ambuja dipped about 1.3 per cent, while ACC fell 1.2 per cent.

The tougher operating environment is expected to result in Gujarat Ambuja reporting only a 10-12 per cent profit growth in the June quarter on a y-o-y basis, while for ACC a growth of 15 per cent is forecast.

With contributions from Mobis Philipose and Amriteshwar Mathur