Components maker Amtek Auto’s Rs 14,800 crore consolidated group debt and a steep quarterly loss of Rs 529 crore has prompted a rethink of its business strategy. Founder Chairman Arvind Dham tells Ajay Modi they’re getting out of low margin products, shutting unviable businesses and reducing staff. Edited excerpts:
Banks were in the process of realigning your debt repayments with future revenue. What is the progress?
Most of the realignment is done. We are moving ahead with a realigned debt and interest. We have a new schedule from the joint lenders forum. The banks, in accordance with Reserve Bank guidelines, give a one-time realignment in case of a cash flow mismatch. As promoters, we also need to bring some money every quarter. We sold some real estate, some personal assets. KKR has also helped us as a partner. Some delays happen in interest payments but we are managing.
What explains the record loss of Rs 529 crore in the quarter ended March?
A lot of restructuring is happening at the business level. We’ve stopped producing some low-margin products. All such businesses that require capital expenditure (capex) in future where we can not afford to put money are being sold. We want to focus on businesses that bring good margins. It is a change of approach. Earlier, in good times, we used to do everything for customers as a package, even if certain low-value additions and low-margin parts were involved. We have told such customers about the stress points and given them time to find suppliers for such products.
Do all these point to a major shift in your approach to business?
We have started making a strategy on what components to focus. Instead of a sales revenue attitude, we now need to go the bottom line (profit focus) way. Earlier, we were anticipating growth and were aggressive. We wanted to become a $4-5 billion company. The thinking has changed. We are moving ahead with a focus on ratios. We do not want to spend much on capex. Earlier, it was a very gung-ho attitude. We went overboard, not realising debt is a killer. Debt hurts if the market does not grow in line with your expansion plans. For four years we expanded, thinking the market will grow. We never anticipated this bad a time. We had to do a substantial reduction in headcounts.
Ratings agencies stopped rating Amtek Auto last year. When can it resume?
Rating is still suspended. We will apply for it early next year, once debt reduction happens. You will see actual money coming in the next one to two quarters from asset sales and debt will go down.
Some analysts and industry watchers see Amtek as a real estate play as well.
We kept buying land when it was cheap. We have excess land. Now, prices have moved up and we are selling in parcels to tide over the crisis. We are carving out excess land from factories and selling excess industrial estate.