Industry Overview and Competitive Positioning - Amtek Auto

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Financial Strength:

Company

Industry

Quick Ratio

0.464

1.49

Current Ratio

0.881

1.94

Total Debt to Equity Ratio

1.961

33.69

I predict a 190 INR target price for next one year with a Buy proposition and two years Hold or Long proposition on the basis of following assumptions and analysis.

- Improving margin : Amtek’s Net sales has shrunk from FY13 to FY14. Although if we look at the Income statement, the reason behind that looks like the shrink in the other operating Incomes, net sales from Operating Incomes look stable and shouldn't be a concern as the overall Economic scenario for Automotive sector continues to be a concern in a broad macro perspective, due to the still slow growth of overall economy.[pic 5]

- Sales growth : Even if we look at the Net sales from Operations, the margin is healthy for Amtek Auto. If we look at the table, the y-o-y growth tends to smooth out in the longer run.

c. Rising Share Count : From shareholder’s perspective, the number of diluted shares are kept constant for last two years,which makes way for the less dividend dilution and more profitability for the investor.

d. Indications : Amtek Auto is coming towards its last 200 day moving average and being a very stable stock for last 6 months we are optimistic about its performance. The stop loss shouldn't be less than 155.

The Financial strength ratios also looks good as an investment perspective.

Management is trying to reduce Debt caused due to the recent acquisitions Amtek had made. As the debt leverage is within a level of 2, as a prospective share holder it is a indication of higher payouts to a shareholder and the management intention is also not something to ignore by.

From a sector standard perspective, 7.14 p/e ratio is moderate and makes the stock all the more valuable to lap it up now. Even EPS of 14.72 is well within than the industry average of 19.16 INR. If we look at the Growth of EPS, we will be able to see that it has shrunk, but that could be due to the shrink in other operating incomes which is not a very significant proportion.

e. Export Growth Projection : According to CEO of Amtek Auto John Flintham, export volume can be expected to rise more than 50% and that can lead to higher revenues as Dollar-INR is still pegged to 63 INR and due to dollar appreciation can fall further leading to more realised revenue. Also a falling oil prices will give help automobile sector leading more revenues and stronger sales,which will also lead to better earnings for Amtek.

f. Target Price Projection : We can try to estimate the target price on account of some secondary market data estimating an enterprise value of 17731 Cr INR and and discounting the net Debt of 13545.1 Cr. Estimating around 22 Cr of diluted shares we can say we will be in a range of 190 INR of book value.

Peers in automotive sector

Name

Last Price

Sales

Net Profit

Amtek Auto

169

3999.7

323

Bosch

23255.1

12085

1337

Wabco

5387

10218

120.66

JBM Auto

176.95

600.11

33.60

We clearly see Amtek Auto is clearly undervalued right now with respect to small cap manufacturers in their sector when they have clear lead to higher profit and sales figures.

Disclosures:

- Current Income and Asset-Liability data are collected from Amtek Auto official website.

- Earning Growth data is secondary research and projected from Thomson Reuters website, and 4-traders.com.

- EPS and PE ratio collected from MoneyControl and DJIg.

- Rest of the data calculated from Amtek Auto’s Financial statements.