How Credit Suisse and big fund managers got it wrong!

How Credit Suisse and big fund managers got it wrong!
How Credit Suisse and big fund managers got it wrong!

Navin Upadhyay

New Delhi

On July 21, Credit Suisse (Singapore) Limited bought 16,90,000 shares of Amtek Auto at ₹170.12 ($3) per share on the National Stock Exchange (NSE). Coming just eight days before the auto ancillaries company was to post its first quarter result, the bulk deal created a buzz in the market. Hopes were rekindled that the company will post good numbers on the back of its recent foreign acquisitions and the management might announce some measure to reduce the huge debt burden of ₹16,000 cr ($2.45 billion).

But three weeks down the line, Amtek Auto has fallen by nearly 70% and the investors have lost huge money in this stock which was recommended by all and sundry as one of the best bets in the auto ancillaries sector. Last year a well-known market pundit had gone to the extent of suggesting that the stock will touch ₹400 ($6.6).

Hammered over the news of its exclusion from Futures and Options (F&O) market and debt restructuring issues, on August 19 the stock lost 39%. On August 20, it again shed 32% on intra-day day basis before making some recovery. In one single trading session on August 19, the company lost ₹870 ($33.5 million) crore of market capital.

A week after the Credit Suisse made the huge investment in the company’s share, the June quarter result came as a big jolt for the investors. The company posted a net loss of ₹157.76 crores ($24.2 million) compared with a profit of ₹86.08 crores ($13.2 million) in the same period of the preceding financial year. This was the first time in ten years the company posted a negative quarter.

However, the company management expressed confidence that future prospects remained positive and Amtek Auto will come out of the challenging situation.

“Amtek Auto’s management remains confident in the Company’s abilities to capitalize on opportunities arising out of a stronger recovery in the Indian automobile industry over the quarters to come. The management re-iterates that the long term fundamentals of the company remain strong.”

– Amtek Auto in a Press Release

Taken aback by the huge fall in the share price. the company tried to soothe the nerves of the investors by claiming that there was no reason for panic and said it would write to the Security and Exchange Board of India(SEBI) to probe the reasons for the crash.

“The company would like to clarify that it’s not aware of any reasons of the significant single day fall in the price of Amtek Auto’s share. A key development, that Amtek Auto would like to make known, has been the exclusion of Amtek Auto from the Futures & Options (F&O) segment,” said Amtek Auto in the press release.

Amtek Auto stock price at 2.30 PM on August 20 was ₹62.50 ($0.9), down 31%. The 52-week high of the share was ₹266.00 and the 52-week low was ₹50.70 ( which it touched on Thursday). The company’s trailing 12-month (TTM) EPS was at ₹5.33 (8 cents)per share as per the quarter ended June 2015. The stock’s price-to-earnings (P/E) ratio was 12.73.

Interestingly, with a book value of ₹233.01 ($3.57) per share at its current value, the e price-to-book value of the company was a mere 0.29.

After such a crash, the Credit Suisse move to buy over 1.6 million shares at such a high valuation raises eye brows. The credit Suisse was expected to have talked to the management and gained a hint of the debt situation and move to restructure it before making the investment. Any astute investor would also have gained some indication of the coming result and follow up actions on the part of the management to put the company back on track. But it seems the Credit Suisse did not bother to do either.

Credit Suisse is not the lone financial service company to burn a hole in the pockets of the investors. Foreign Institutional investors (FII) and Domestic Institutional investors (DII) hold 25.72% and 14.53% stakes in Amtek Auto whereas the promoters’ holding stands at nearly 49%. Some of the well known mutual funds invested in the Amtek Auto are from the following groups: HDFC Tax Saver Fund, IDFC Arbitrage Fund (Regular plan), JM Arbitrage Advantage Fund (Direct Plan), Kotak Equity Arbitrage Fund (Regular Plan), DSP-BR India Tiger Fund, DSP-BR Opportunity Fund, GS CNX 500 fund, HDFC index sensex plus fund, L&T Arbitrage opportunity plan, UTI spread fund, Religare INVESCO arbitrage fund, etc.

With ₹16,000 crores ($2.45 billion) of debt, the company will have to clock double digit margin for debt furnishing. But that seems difficult under circumstances and it is unlikely that Amtek Auto will stage any meaningful recovery.

In an interview with CNBC-TV 18, Gautam Malhotra of Amtek Auto refuted that the company was facing any problems (payment) with lenders, terming them as ‘rumors’. Malhotra said the company hopes to reduce the debt burden by ₹2000 crores ($307 million) in the next two years.

Claiming that promoters of the company are ready to infuse ₹75 crores ($11.51 million) if required, the company might write to SEBI about abnormal fall in the company share price..

Time alone will say if Mehrotra is right or wrong, but the investors would do well to do their own home work and not be swayed either by the recommendations of the so-palled experts or allotment made by FIIS and DIIS.

1. The conversion rate used is 1 US Dollar = 65.14 rupees

Navin is a senior journalist with years of experience in covering India’s Capital city. His keen observations and ability to create the big picture from disparate pieces of information is invaluable.
Navin Upadhyay


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