WHAT WENT WRONG IN AMTEK AUTO

1:COMPANY sales in 2008 was 4656 cr while profit 427 cr with good margin.
In 2009 sales came down upto 3438 cr after this company started to raise borrowing to finance growth, which resulted sales growth a little bit upto 3690 cr from 3438 cr.
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Here interest rising which was 115 cr in 2008 went upto 152 cr in 2009.
2:Company continued to raise fund in terms of debt plus equity which resulted sales growth but increased interest burden.
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Net profit
2008:427 cr
2009: 127 cr
2010:240 cr
2011:259 cr
2012:581 cr
2013:418 cr
2014:848 cr
2015:-562 cr
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While interest is as follows
115 cr
152 cr
205 cr
290 cr
520 cr
775 cr
1139 cr
1508 cr
You can see from 2010 company is paying more interest than net profit.
In 2015 this interst become too much which resulted in loss.
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COMPANY finance its assest through debt and equity but could not improve EBIDTA.
Certain level of debt is good but each year raise debt shows incompetent management.
Surprising that in 2015 company sold off assest to repay borrowing.
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So where is growth?
ANOTHER THING to consider that in 2012 investment was 67 cr which went up 2600 cr in 2015 means fund diversion.
Cash conversion cycle continued to be high from 2009 57 to 123 in 2011 means double.
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It meant most of company funds blocked with debtor and inventory.
Market know this thats why amtek auto price kept going down from 250 to 170 but unfortunately most of investor didn’t know.
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AMTEK AUTO management from the start always tried to grow by raising debt.
They always raised fixed assets from debt but this move neither improved EBIDTA nor margin but resulted huge interest cost burden plus increased pressure from equity shareholders for dividend.
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CONCLUSION :be alert when companies growth finances by debt alongwith equity
Year by year.
When cash conversion cycles increases year by year.
When company start increasing investment.

Author: Atul Singh Stock Market Analyst

Disclaimer: This Blog, its owner, creator / contributor is not a research analyst and expressing opinion only as an individual investor in Indian equities. He/She is not responsible for any loss arising out of any information, post or opinion appearing on this blog. Investors are advised to consult financial consultant before acting on any such information. All information in this blog is posted for personal study, All information posted on blog is as available in public domain.

3 thoughts on “WHAT WENT WRONG IN AMTEK AUTO”

  1. Sir, can u plz explain what is fund diversion that u mention about the increase in investment..thank u very much..

    1. There is no reason to increase investment for a debt burden company. Promoters have vested interest for it.
      Read annual report

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