The sharp and sustained selloff in broader markets has impacted a majority of stocks, but Amtek Auto shares are being dumped at an alarming pace. Amtek Auto, which makes auto components, crashed 20 per cent on Friday underperforming the broader Sensex, which was down 2 per cent.
The stock saw heavy trading volumes in the opening deals, with as many as 2.5 million shares changing hands as compared to average of 3.1 million shares traded daily in the past two weeks on the BSE. Amtek Auto shares had closed 35 per cent lower yesterday. Over the last one month, Amtek Auto shares are down 83 per cent as compared to a 10 per cent fall in the Sensex.
Analysts say a number of reasons have led investors to dump Amtek Auto shares.
1) Rising concerns about liquidity issues is the biggest reason for the slump in Amtek Auto shares, analysts say. Amtek Auto has acquired huge debts over the last few quarters in order to acquire a string of companies, analysts say. The company’s debt/equity ratio of about 1.5 times is among the highest for auto component makers across emerging economies in Asia Pacific, according to StarMine data.
“Amtek Auto has a disastrous business model and the company is paying a big price. Most of the acquisitions were largely funded by high debt. The company has debt of Rs 17,000-18,000 crore with a market cap of Rs 690-700 crore,” said Avinnash Gorakssakar of Precision Investment Services.
On August 20, Amtek Auto conceded that it was facing liquidity issues. “There is temporary cash flow mismatch in the company and to mitigate the present situation, the promoters have already infused Rs 75 crore and if required in future will also infuse more funds,” Amtek Auto said in a statement to the BSE.
2) JP Morgan Mutual Fund has restricted redemptions from two of its debt schemes – Short Term Income Fund and India Treasury Fund – following a decline in NAVs (net assets value) of the schemes due to fund house’s exposure to Amtek Auto’s debt papers. These schemes have a collective exposure of around Rs 200 crore in Amtek Auto. The decline in NAVs was triggered after a rating agency withdrew its rating on these debt instruments, after rating them quite high earlier.
3) Amtek Auto’s operational performance has also unnerved investors. In the June quarter, Amtek Auto posted a net loss of Rs 157.6 crore as compared to net profit of Rs 86 crore in the corresponding quarter because interest costs more than doubled to Rs 237 crore against Rs 115 crore year-on-year.
4) Finally, exclusion from the derivative segment at October series-end has also given investors a reason to sell Amtek Auto shares.
5) Analysts say investors must stay away from a “troubled” company like Amtek Auto. The way the stock has been hammered, I think there could be more pain, said Mr Gorakssakar.
As of 10:02 a.m., the shares of Amtek Auto traded 11.6 per cent lower at Rs 27.90.
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