Buy Amtek Auto - Better times ahead:: Anand Rathi

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Amtek Auto
Better times ahead; maintain Buy
We expect Amtek Auto to benefit from sustained auto demand
locally and the nascent global recovery, along with market-share
gains overseas. Its completed organizational restructuring and
near completion of its non-auto capex are added positives. We
trim our target price from `254 to `225, while maintaining a Buy.

 Improvement in demand. Domestic auto demand has entered a
steady growth mode, which would continue to provide a firm base
for Amtek’s future operations. As demand in overseas auto
markets recovers, Amtek’s sales volumes would further improve
due to new orders, raising its market-share. Better operating
leverage in its overseas subsidiaries would boost its profitability.
 Non-auto capex nearing completion. Amtek Auto’s non-auto
capex is nearing completion, thereby significantly raising its
revenue potential. Further, on the successful completion of the
open offer, Amtek India is now close to being a subsidiary. This
has led to all forgings and castings units being brought under the
‘Amtek Auto’ umbrella. We expect this to result in better
integrated operations, clearer efficiencies in sourcing and
negotiations, and greater transparency in operations.
 Valuation and risks. We cut our target price from `254 to `225
(10x FY12e EPS, and `29 as value of 38% stake in Amtek India).
Risks: slower-than-expected demand ramp-up in Europe,
unfavourable currency fluctuations and commodity-cost increases.