Strong Revenue mix:
Ahmednagar Forgings Ltd (AFL) has a diversified revenue mix, with about 35-40% comes
from Commercial Vehicles, 25-30% from the Passenger Vehicles, 10% from Two-Wheelers,
while the balance comes from Non-Auto Segment. Diversification across automobile
segments, with no sub-segment accounting for over 40% of the revenues derisks the
company’s business model. Further, the Non-Auto segment is expected to increase
by FY16, reducing the company’s dependence on the automobile segment significantly.
This will help the company to grow its strong business models with improving product
Significant Synergies expected from recent acquisition of Amtek Group:
AFL enjoys significant synergies from the group due to the group’s presence in the
entire value chain of a machined/assembled product from forging and casting to machining
and assemblies, leading to a significantly higher profitability. The company also
benefits from the centralized raw materials sourcing. Acquisition of new companies
recently like Neumayer Tekfor by Amtek Auto, Kuepper by Amtek India and JMT Auto
by Amtek Auto, has led to a significant increase in the global footprint of the
group, adding new client base, product portfolio and geographies. AFL Forgings is
likely to benefit from these acquisitions immensely going forward as these will
help company’s exports to go up.Also export sales are more lucrative for company
in terms of margins and currently that business is negligible in size, leading a
good scope for growth.
AFL’s Non Auto business to boost up:
AFL’s holding company, Amtek Auto had formed a JV with American Rail Car, for manufacturing
wagons for the Indian Railways. Although the company’s facility is ready for production
and has successfully completed the design and prototypes stages, it did not get
any wagon order due to lack of initiative by the Indian Railways. The company has
recently bid for 500 wagons for the Indian Railways and is expected to win the order
and start delivering wagons to the Indian Railways by August 2014. This will kick
in the order inflows from the private transport companies, like Concor etc. Both,
Amtek India and AFL will immensely benefit from the start of commercial production
of this JV as it will help AFL to boost its Non Auto Business.
Large capex to boost AFL’s margins:
AFL invested about Rs 1700 crores in FY13 in expanding and upgrading its manufacturing
facilities, while the balance Rs 200-300 crores will be spent this year. This led
to the capacity going up from 225,000 MTPA to 280,000 MTPA in FY13 and it will further
go up to 325,000 MTPA by September 2014. Also, a large part of the capex went into
upgrading its facilities from the Hammer Route to the Automated Press Route, leading
to a significant reduction in the overheads. Also the company added a heavy press
of 8,000 MT, which enabled it to increase its presence in the MCV & LCV segments
and also to produce complete Axle Beams Assemblies for the Heavy Commercial Vehicles.
This has led to significant increase in the realizations and margins. The company
enjoys about 2-3% higher margin on the Press Route. Also, the Axle Beam Assemblies
fetch significantly higher margins. Currently, Press Route forgings account for
60-70% of entire production.
Consolidation in forging industry:
Despite a recession in the Indian Automobile Industry, AFL was able to grow significantly
by adding new product offerings, increasing market share, targeting new segments
and especially, due to shut-down of smaller forging companies. The slowdown has
led to significant consolidation of the previously fragmented Indian forging industry.
Also, the OEMs have been down-sizing their vendor list, by sourcing entire forging-machining
value chain from a select list of large vendors. This has immensely benefitted the
large integrated forging players like AFL as they are one of the preferred player
in the Industry.