*Atul Auto quotes ex-split basis from September 12, 2014. Company declared split in face value of its shares from Rs. 10 to Rs. 5.00 .
Scrip
Code: 531795 / ATULAUTO
CMP:
Rs. 649.50; Buy at current levels and on declines.
Short Term Target: Rs. 700; Medium to Long term Target: Rs. 800; STOP LOSS – Rs. 597.55; Market
Cap: Rs. 712.60 Cr; 52 Week High/Low: Rs. 687.90 / Rs. 143.15
Total
Shares: 1,09,71,600 shares; Promoters : 60,42,405 shares –55.07 %; Total Public
holding : 49,29,195 shares – 44.93 %; Book
Value: Rs. 83.52; Face Value: Rs. 10.00; EPS: Rs. 31.05; Dividend: 75.00 % ;
P/E: 20.091 times; Ind. P/E: 21.53; EV/EBITDA: 12.28.
Total
Debt: ZERO Cr; Enterprise Value: Rs. 682.29 Cr.
ATUL AUTO
LIMITED: ATUL AUTO Ltd was incorporated in 1986
and is based in Rajkot, Gujarat, India. The company was earlier known as Atul
Auto (Jamnagar) Pvt. Ltd and changed its name to Atul Auto Pvt. Ltd on Aug
1994. The company, in May 2012, gave bonus of equity shares of Face value of
Rs. 10 each fully paid up in ratio of 1 new for every 2 equity shares held- the
company issued 36,57,200 equity shares as Bonus. Atul Auto Ltd recently on June
26, 2014 declared split in its face value from Rs. 10 to Rs. 5. Atul Auto limited manufactures and sells front engine and
rear engine passenger, loading three wheeler auto rickshaws and its spare parts
primarily in India. It offers goods carriers; passenger carriers; and special
purpose vehicles such as chicken carriers, trippers, water tank carriers, soft
drink carriers, mobile shops, hoppers, and bio hazard and vegetable vending
vehicles that have applications in courier services, industrial products,
laundry construction, dairies, caterers, FMCG distribution, LPG distribution,
etc. The company provides its three wheelers under its brands namely: Atul
Shakti, Atul Gem, Atul Smart, and Atul Gemini–Dz brands. The Company is also
involved in the generation of electricity with a wind turbine generator at
Gandhavi Village, Gujarat. The company has 150 exclusive dealers, more than 100 sub-dealers, 14 regional
offices and 3 training centres in 16 states of India. Company exports its 3
wheelers in CBU/SKD/CKD conditions and as per the requirement of Importer. The company
also exports its products primarily to Nigeria, Kenya, Egypt, Tanzania, and
other African countries. The Company has its plant
at Village Shapar at a distance of 18 kms from Rajkot. This plant commenced its
commercial production from July 1992 and at present has an installed capacity
is 48,000 vehicles per annum.
Atul Auto Limited is locally compared with Bajaj Auto Ltd,
Hero MotoCorp, Swaraj Mazda Motor Corp, Scooters India Limited, Automobile
Corporation of Goa Limited, Commercial Engineers and Body Builders and globally
compared with Aftab Automobiles Ltd of UAE, Ford Motor Company of USA,
Harley-Davidson Inc of USA, Tesla Motors Inc of USA, Thor Industries Inc,
Mitubishi Motor Corp of Japan, Bayer Motoren Werke AG (BMW) of Germany, Piaggio
& C. SpA of France, Porsche Automobil Holding SE of Germany, Renault
Societe of France, Volkswagen Aktiengesellschaft of Germany.
Investment Rationale:
Atul Auto Ltd is
one of the key three-wheeler manufacturing companies in India. It has its
manufacturing facility at Rajkot in the state of Gujarat. The company has
production capacity of 48,000 units. In the last few years the
company has improved its market position in the domestic 3- wheeler industry
with incremental market share in the 0.5 tonnes goods as well as passenger carrier
segment and is the third largest player in 0.5 T three wheeler industry and is
expanding its distribution network beyond Gujarat, increasing its capacity and launching
new products. Atul Auto, was struggling to maintain its monthly run rate of
1,000 units till 2009, and was dismissed as a fringe player, whose presence was
largely restricted to Gujarat. But it all changed for the company after it
started making rear mounted engines for three
wheelers and focused on tier-II and tier-III cities. The company
launched various variants to its vehicle line which helped company and now it commands a market share of 7.3
% as against less than 1 % five years ago, and has posted an average volume
growth of 17 % in trailing four quarters compared with industry's average of 2
%. Atul Auto
has defied all market hurdles & is growing consistently. Atul Auto has aggressively
expanding itself and plans to launch more new variants, which will boost its top
line and being a debt frees company will strengthen its bottom-line. With the bigger players catering to urban markets, Atul Auto saw opportunity in tier-II and -III cities
and built its strategy around them. For instance, it customized its products to
meet the expectations of smaller cities and rural areas. The customization
included capacity to bear overloading, higher mileage of 35 a litre and a
warranty of 24 months against 14-16 months offered by its competitors. This
strategy worked for Atul Auto as sales started trickling in from other states
other than Gujarat - the western state now contributes 40 % to its sales.
States like Kerala and Assam contributes 7 % to its sales now, and the company
is planning to make inroads into West Bengal and Tamil Nadu. Atul Auto invested
around Rs. 12 crore to double its installed capacity from 24,000 units a year
ago to 48,000 units a year in Rajkot. It is now building a new facility in
Ahmedabad with an investment of around Rs. 100 crore, which would add
another 60,000 units a year which will be ready in the next 18-24 months. The
capital expenditure would be funded by internal accruals and
the balance sheet is likely to remain Debt Free. Besides the
Ahmedabad facility, the company is exploring the opportunity to increase its
export share, where realisations are higher. The company is in discussions with
several distributors in Africa. Atul Auto has been expanding its
distribution network for the past few years. Expansion in dealer network in new
states has enabled the company to grow above industry rate resulting in an increase
in market share from 2.64 % at the end of Mar’07 to 3.81 % at the end of
Mar’13. Going forward, the Company is going to explore new geographies
coupled with new product offerings in the pipeline and anticipated increase in
the capacities. At present Atul Auto Ltd exports are negligible, but there is
huge potential in the under-developed or developing countries like Sri Lanka,
Bangladesh, Malaysia, Kenya, South Africa and Brazil where reasonable
transportation is an issue. Atul Auto is currently exporting in five African countries including
South Africa and Kenya. It is also exporting in Bangladesh under a technical tie
up. The company has planned to invest in Sri
Lanka and proposal for that has been already been filed to Sri Lankan
government in 2012. Atul’s
specialised focus has clearly paid rich dividends to its shareholders and is evidenced
by market share gains. With further capacity addition and new petrol product
launch, Atul can efficiently tap export markets along with urban market in
India and, thereby, continue the strong growth momentum.
Outlook and Valuation:
Atul has attained a
pan-India presence over the past three to four years, establishing its brand in
new markets and gaining market share, which grew from 2.0 % in FY09 to 7.7 % in
FY14. However, one of the major shortcomings of Atul has been the lack of
petrol engine products, which is more in use in urban areas. Management has guided
to have a new petrol engine product, which will be launched in the next 9 to 12
months; going forward, it is believed that Atul’s volumes are likely to remain
on the uptrend and the petrol product will give a boost to the export volumes. Atul
Auto’s growth trajectory has been impressive with volumes growing at 40 % CAGR
in FY09-14 even as the domestic three-wheeler segment has grown at about 7 %
CAGR over the same period. Volumes have been improving on the back of added
dealerships and increasing geographic presence along with market share gains in
existing markets. Atul’s volumes have grown in both the passenger and goods
carrier segments, where Atul has benefited from the launch of its rear-engine
vehicle Atul Gem in 2009, which has helped to serve a wider audience.
Currently, Atul is present in nearly all states barring Tamil Nadu and West
Bengal. Also, the dealer’s network comprises 190 primary dealers and 110
sub-dealers across the country. The management has guided that the number of primary
dealerships will rise to around 240 by the end of FY15E. This is likely to help
meet the management target of 20 % volume growth for FY15E. In a segment that offers
little scope for product differentiation, Atul has been able to carve out a
niche for itself focusing more on providing good after-sale service and product
customisation. So far, Atul’s management has been cautious with respect to
capacity expansion. However, with continued volume growth, Atul will soon reach
ahead of capacity in case demand revival is strong. The management is in the
process of finalising the location for the new plant. The facility is likely to
be fully operational by FY17E. Capex requirement for the project is likely to
be around Rs. 150 crore, to be funded through internal sources without
resorting to debt. The Indian auto industry has been recording tremendous
growth over the years and has emerged as a major contributor to India’s gross
domestic product (GDP). The industry currently accounts for almost 7 per cent
of the country’s GDP and employs about 19 million people both directly and
indirectly. The passenger vehicles production in India is expected to reach 10
million units by 2020–21. The industry is estimated to grow at a compound
annual growth rate (CAGR) of 13 per cent during 2012–2021. In addition, the
industry is projected to touch US$ 30 billion by 2020–21. Atul Auto has continued to outperform the
industry which is facing demand related challenges amidst economic slowdown.
The company has not only been able to maintain healthy performance at the
top-line but at the profitability front as well. Though the significant part of
the current top-line growth was largely contributed from the volume growth, it
is expected that the realization to improve as well going forward. The company
expects to exhaust the increased capacity by next fiscal. In addition, the
geographical expansion plans and wider product line which are like to materialize
over the period of 4-8 quarters are likely to result into robust financial for
the company. In addition the company is working on a significant expansion of
installed capacities from 48,000 units to 1,08,000 vehicles by 2014 which can
be seen as a major driver. The project for Sri Lanka is still under
consideration but the opportunities are huge there. Atul’s specialised
focus has clearly paid rich dividends as evidenced by market share gains. With
the further capacity addition and new petrol product launch, Atul can
efficiently tap the export markets along with urban market in India and,
thereby, continue the strong growth momentum. The company, in May 2012, gave bonus of equity shares of Face value of Rs. 10 each fully paid up in ratio of 1 new for every 2 equity shares held- the company issued 36,57,200 equity shares as Bonus. Atul Auto Ltd recently on June 26, 2014 declared split in its face value from Rs. 10 to Rs. 5 with its 1st September 2014 as its record date for split. The stock split will increase the liquidity among the public shareholding from currently of 49,29,195 shares of face value of Rs. 10 to 98,58,390 shares of face value of Rs. 5 each. Adjusted basis, the stock could trade between the price range of Rs. 371 to Rs. 400. The sharp rally in the stock
price over the past two years has reflected the same. However, looking at the
strong growth potential coupled with a strong balance sheet, robust return
ratios, Atul Auto
looks good buy and can reached Rs. 1100 in one years time (i.e. Rs. 550 after split). At the current market price of Rs. 649.50, the stock is trading at a PE of 17.50 x FY15E and 13.78 x FY16E respectively. The company can post Earnings per share (EPS) of Rs. 37.10 in FY15E and Rs. 47.10 in FY16E. One can buy ATUL AUTO LTD with a Short term target price of Rs. 685.00 and for Medium to Long term investment it can be Rs. 800.
