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Here are some interesting facts about Amtek Auto, now that the stock has fallen from a price of Rs 257 in September 2014 to the present levels of less than Rs 70.
The present market capitalisation of the company at Rs 1,514 crore is nearly one-tenth of its consolidated turnover of Rs 15,706.64 crore.
Market capitalisation is one-twelfth the debt held by the company which stands at around Rs 18,500 crore.
The company market capitalisation is marginally higher than its cash levels of Rs 1,153 crore.
There are three main reasons for the stock price to fall. First is the poor performance of the company in the quarter ending June 2015. All the companies in the group reported poor top line growth. In fact Amtek Auto posted a loss after a marginally positive operating profit.
Secondly, the stock was removed from the derivatives list. It is surprising that such a move has taken place since the stock has been in the trading ban list for nearly three months on a regular basis. A stock is put in the trading ban list if it has crossed 95 per cent of market wide limit. If the stock had such a high interest, why was it removed from the derivatives list?
Removing the stock from the list deprives the investor of hedging their position, especially now when they need it. Nearly 35 per cent of the company’s shares are held by institutions.
Arbitrage funds that hold the sell would like to exit their position as they would no longer be able to benefit from the opportunity that exists between the cash and the future market.
Thirdly, there are market rumours of the company being on the verge of a default on its huge debt payment. In an interview with CNBC TV18, Amtek Auto’s management evaded the question but did not deny the possibility of such a situation. The company also did not deny the fact that it has been classified as a SMA-2 (Special Mention Accounts), which is given whenever a company does not make interest payment for over 60 days.
All three reasons have contributed to the stock price taking a hit.
But is it a good opportunity to enter now.
The recent events and the company’s performance clearly shows signs of a severe financial stress. Though the promoters have agreed to infuse Rs 150 crore, the infusion is too small given the size of its debt.
The company has been affected by a slowdown in the non-auto segment, which was the focus area for the last two years. Its strategy of expanding in an inorganic manner has resulted in a huge debt burden without the acquisition financially benefitting the company.
More than the company, the shareholders and bankers are paying the price for the company’s thirst for rapid growth.
A Joint Lender Forum has been formed between Bank of Maharashtra, Bank of India and Andhra Bank to try to recover their money. But it looks like it is too late unless there is a broad based recovery.
