Amtek To Acquire Neumayer Tekfor

Amtek Auto said earlier today that it has signed a contract to acquire Germany-based Neumayer Tekfor Group. Details of the transaction have not yet been disclosed and the acquisition is likely to close in May 2013. The acquisition would significantly uplift the position of the USD 1.3 billion Amtek Group.

Amtek Group is one of the largest integrated component manufacturers in India with a global presence and operations across forging, casting, machining and sub-assemblies. The group operates in auto and non-auto segments with the latter contributing to 24% of total sales. In all, 87% of Amtek’s sales are contributed to domestically while 13% come from overseas, primarily the UK and Germany.

In the many partnerships that the Amtek Group operates in, includes a joint venture with Neumayer Tekfor for the manufacturing of connecting rods. It is this group that Amtek will now acquire. Neumayer Tekfor is a market leader in the creation, development and production of differentiated solutions for transmissions, engines, driveline, chassis, special applications and safety fasteners. It had revenues of about USD 615 million in 2012. Considering Amtek’s annual revenues of USD 1.3 billion, this would be a significant addition.

Apart from making major enhancements to the financials of Amtek, Neumayer Tekfor would also give access to a rich customer base that includes big names like Volkswagen Group, Fiat, SKF, BMW, Daimler and Ford. Moreover, that would help diversify Amtek’s revenue stream and balance the international to domestic sales ratio from 87:13 to 55:45. It would also expand the geographical presence and extend it to countries like Brazil, Mexico and Italy. In terms of capacity, the combined entity would be included in the top five players across the globe with an ability to forge and machine approximately 1 million tonnes per annum.

In addition to this, Amtek would also gain extensively in terms of technology. It would see upgradation due to Neumayer Tekfor’s high technology product range that includes high precision camshafts, valve train components and connecting rods among others.

Overall, Amtek Auto has clearly moved a step ahead in the auto ancillary business. The financials of the company will grow stronger and the risk more diversified. Although this ensures better performance for Amtek, due to global and domestic macroeconomic conditions and its effects on the automobile industry, we recommend investors to stay away from the scrip in the short term. However, for the long term, this stock seems to be a good investment.