The Amtek India stock shot up by 64 per cent last week, riding on the preference for cyclical stocks in the ongoing market rally. An expected recovery in vehicle sales in India, presence in the faster growing European nations such as Germany and the UK and brighter financial prospects for the Amtek group companies are the key triggers.
A pick-up in new vehicle sales endows bigger suppliers such as Amtek India with greater bargaining power and, hence, the opportunity to improve margins. More so globally, with the company becoming one of the largest makers of specialised turbocharger housings after acquiring Germany-based Kuepper group. This buy gives Amtek India access to automakers such as Renault Nissan, Volkswagen, BMW and Daimler abroad and greater visibility to revenues when auto sales in select European nations too are turning around.
A third reason is the improving financial fortunes for the Amtek group. Leveraged acquisitions — Neumayer Tekfor, Kuepper Group and JMT Auto — stretched the consolidated debt-to-equity ratio to 1.9 times (March 2014). The group plans to bring down debt through higher capacity utilisation in the next two years and cash flows from turnaround of acquired companies.
Even after the run-up, at 15 times trailing earnings, Amtek India’s valuation does not seem too expensive.