Thursday, February 23, 2012

Amtek Auto’s Buyback Reaches Minimum Quantity, as Dutch Investor Sells

By Special Correspondent:

Amtek Auto Ltd’s (NSE: AMTEKAUTO, BSE: 520077) ongoing stock buyback scheme from the market has gathered momentum on Wednesday, with a large investor, NDMR B.V., selling 18.41 lakh shares to the company, which amounts to 0.79% of the total shares of Amtek Auto.

The significant sell and buyback was executed at NSE at an average price of Rs. 133.84.

Apart from NDMR, there were also other sellers to the ongoing buyback offer on Wednesday, with other unidentifiable investors tendering 1.83 lakh shares to the company in NSE, taking the day’s tally to 20.24 lakh shares. 

However, there was no identifiable tendering of Amtek Auto shares in BSE on Wednesday.

Amtek Auto Ltd is a leading integrated automotive component manufacturer in India, also servicing global markets. It is the fourth largest listed auto ancillaries manufacturer in India, behind Bosch, Exide, & Motherson Sumi Systems, by way of FY'11 sales as well as current market capitalization.

NDMR B.V. is an Amsterdam, Netherlands based investor that had subscribed to Amtek Auto’s FCCB issue, and later - in early 2010 - opted for conversion into equity shares, under a restructured deal with the company, as the then prevailing market price was much below the agreed-upon conversion price. 

On February 9th 2010, NDMR had picked up 2.83 crore shares amounting to 14.69% stake through this FCCB conversion route, thereby becoming the largest non-promoter shareholder in the company, even ahead of its main backers and private equity players, ChrysCapital controlled Warhol, and Warburg Pincus.

But soon after, without waiting for much appreciation, on March 19th 2010, NDMR B.V. had done one of the largest single-day sells in Amtek Auto, of 85 lakh shares, cutting their exposure by 30%.  And by March 2010 end itself, NDMR had sold off all but 39 lakh shares of their huge stake.

However, this stake had remained constant for the last 21 months, since then, ending December 31st, despite the two highs in 2010 and 2011. That is why, Wednesday’s participation by NDMR B.V. in the official buyback by Amtek Auto assumes significance.

Amtek Auto's core competence areas are forging,  grey and ductile iron casting, gravity and high-pressure aluminum die casting, and machining and sub-assembly. The company also manufactures components for non-auto sectors such as the railways, specialty vehicles, aerospace, agricultural and heavy earth moving equipment. Amtek has manufacturing facilities in India, Europe, and North America.

Amtek Auto Ltd is part of the more than 25-year old Amtek Auto Group, one of the largest business groups in the auto ancillary as well as the allied sector of castings & forgings. The Group has two more listed players, Amtek India Ltd and Ahmednagar Forgings Ltd. Together, the three companies operate 39 manufacturing facilities in India, and 4 in Europe.

On the fundamental side, Amtek Auto which was performing well until FY’10 had taken a hit on net profit, amounting to Rs. 186 crore, in FY’11 due to FCCB redemptions in June 2011. Amtek Auto’s financial year ends in June 30th of every year, unlike majority of Indian companies. 

While that was written off by most Amtek watchers as a one-off incident, the bottom-line growth has become sluggish in the fiscal year-to-date. On a year-on-year basis, standalone net profit has dipped in both Q1 and the recently announced Q2 ending December 31st. 

Reflecting this lackluster performance and also due to the general market correction, Amtek Auto had corrected sharply in the fiscal year-to-date, from a 52-Week High of Rs. 174.40 in BSE on June 08th to a 52-Week Low of Rs. 86.05 on 18th November – a loss of more than 50% in a little over 5 months.

Interestingly, Amtek Auto’s buyback offer at a maximum price of Rs. 200 a share was announced on the very next trading day, on November 21st, though Board approval was obtained on August 25th itself. It was that buyback offer which saved the scrip from a further slide of successive 52-Week Lows, like many scrips were experiencing at that time.

Amtek Auto scrip’s rebound was sharp, but it couldn’t hold on to the gains for long, as it was soon clear that the buyback wouldn’t commence on December 08th as announced. Amtek soon came to near 52-Week Lows by December end, and it was a dividend announcement on December 26th that again saved the scrip.

Soon after, aided by the general market recovery as well as the prospects from the buyback offer, which was getting nearer, the scrip started rallying continuously, and was up by more than 55% by Wednesday, when the NDMR’s sell came.

Meanwhile, on January 10th, Amtek Auto had published the revised dates as well as terms for the buyback offer, which also aided the rally. The buyback commencement date was fixed as January 16th. The revised plan was to buy back a minimum of 36.50 lakh shares and a maximum of 1.46 crore shares at a maximum price of Rs. 200 a share, for a total maximum consideration of Rs. 291 crore, which is around 10% of the paid-up capital plus free reserves of the company, as per the regulations governing buybacks in India.

The buyback opened on a low note, but soon gathered momentum, and by the first 30 days, that is by February 16th, around 21 lakh shares were sold off by investors to the company for cash, at rates prevailing on each day.

But Wednesday’s sell by NDMR of 18.41 lakh shares on a single day is more significant, all the more because with this sell, the buyback offer’s minimum quantity of 36.50 lakh shares is well surpassed. What this means is that Amtek Auto Board can any time close the buyback offer, even though the full period of the offer is till August 24th 2012.

The company is expected to extinguish the bought back shares within 15 days of each transaction, and in case the buyback is closed, within 7 days of the closure. Buybacks shrink the equity base, thus improving EPS slightly, in lieu of spending cash available with the company.

It will be interesting to watch whether NDMR or other institutional investors will tender further shares to  the company, and whether Amtek Auto would buy back such further shares, since the minimum quantity is already reached, and the stock has already run up significantly.

Other large investors in Amtek Auto Ltd include, Warhol, Warburg Pincus, LIC of India, Citigroup, Copthall, Mackenzie Cundill Recovery Fund, Goldman Sachs, Religare Finvest, Silver Stallion, Swiss Finance Corporation, HDFC Trustee Company, Feedbridge Equity Holdings, Indus Capital Advisors (UK), and Pineridge Investments. 

Total institutional holdings amount to 39%, dominated by FIIs with 31% and DIIs with 8%. Promoter stake is 37.44%, which will rise post the buyback as promoters or related entities are not allowed to participate in the buyback.

On Thursday, Amtek Auto traded strongly in a week market, closing the day up by 5% in BSE.

In an unrelated development, Amtek Auto on Thursday  informed BSE that RN Bhardwaj has been appointed as an Additional Director on the Board of the Company with immediate effect.

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