CMP:
Rs. 502.30;Market Cap: Rs. 1,102.20 Cr; 52 Week High/Low: Rs. 721.80 / Rs. 240.28
Total
Shares: 2,19,43,200 shares; Promoters : 1,20,84,810 shares –55.07 %; Total Public
holding : 98,58,390 shares – 44.93 %; Book
Value: Rs. 41.76; Face Value: Rs. 5.00; EPS: Rs. 17.92; Dividend: 75.00 % ;
P/E: 28.08 times; Ind. P/E: 23.68; EV/EBITDA: 16.09.
Total
Debt: ZERO Cr; Enterprise Value: Rs. 1,057.05 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 Shakti 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 the country and has its
manufacturing facility at Rajkot in the state of Gujarat. Atul Auto Ltd was conferred with "IndiaMart Leaders of Tomorrow
Award 2013" in Auto Components sector of West Zone presented by ET Now. The
Company manufactures popular 3-wheelers in the sub 1 tonne
category targeting the passenger and cargo segment. In passenger segment, the
Company manufactures the Diesel & CNG powered carrier for carrying 3 to 6
passengers. In the cargo segment, the Company
manufactures vehicles with a rated carrying capacity of 0.50 tonne. Both these
vehicles have been approved by the Automotive Research Association of India
under the Bharat Stage-III. The Company has its existing plant at Village Shapur,
near Rajkot. The plant commenced its commercial production from July 1992 and
has installed capacity is 48,000 vehicles (from April 2013) per annum. The
company has improved its market position in the domestic 3-wheeler industry
with incremental market share in the goods as well as passenger carrier in 0.5
Tonne segment (third large player in 0.5 T three wheeler industries). This has
happened with established distribution network, increase in capacity and launch
of new products. This increase in
capacity was achieved through local level innovations and process
re-engineering, and did not involve any major capital expenditure. Atul Auto
has defied all market hurdles & is growing consistently. The company
launched various variants to its vehicle line, thus by increasing its market
share to over 7 % from 2 % in FY09. Atul Auto has aggressive expansion plans
and more variants are to be launched, which will boost the company top line,
and being debt free strengthens the bottom-line as well. The Indian automobile
industry has been growing at a remarkable rate over the years, contributing
approximately 7 % to the country’s GDP and employing about 19 million people.
However in recent years, it has been going through challenging times with both
production and domestic sales declining due to weakening economic sentiments
caused by the slowing economy, volatile fuel prices and expensive loans. India
is one of the largest manufacturers of three-wheelers in the world with an
estimated production of 850,000 units annually. Of these, almost 500,000 units
are sold in the domestic market, with exports comprising the balance 350,000
units. Three-wheelers play an important part in transporting both passengers as
well as goods, providing a cost-effective alternative for last mile
connectivity in both urban cities as well as rural towns of the country. With
easier permits available for CNG-LPG vehicles, three-wheelers are emerging as a
popular alternative for both personal and mass transportation needs. The Indian
automobile sector is a fully de-licensed industry and free imports of automotive
components are allowed. The outlook for the Indian automobile sector is
positive. The sector is expected to resurge in 2015 on the back of revival in
demand both from consumers as well as industry. Driven by a renewed confidence
in the economy and a general improvement in liquidity and sentiments, demand is
expected to rise as early as in the first quarter of FY 2014. The industry
estimates demand to pick up to 5 % in the year 2014-15 and return to double
digit demand in the year 2015-16. The industry is further hopeful that the new
government will favourably consider reduction of excise duty, which would
result in unlocking middle-class demand. Faster economic growth coupled with
the government's policies is likely to drive volumes and revive the Indian
automobile sector. A fall in interest rates and stable fuel prices are expected
to create an environment conducive for growth in this industry. Many foreign
companies have also started to show their presence in India leading to a very
competitive automobile market in the country, which augurs well for the
sector's growth. It has been predicted by IHS Automotive, a global market
information provider that India will become the third largest automotive market
in the world by 2016 ahead of Japan, Germany and Brazil, riding on its domestic
automotive sales. Atul Auto Ltd.’s main forte has been rural markets,
especially the large diesel segment, which is of a strong 2.5 to 3 lakh unit market.
The company has a significant market share in the goods carrier segment in
which it is a strong player. 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. The increase in
dealerships across the country could propel faster volume growth. Atul’s market
share has grown in its target market across the years. It is interesting to
note that Atul has as of now only been able to target 60 % of domestic market
due to absence of petrol variant. The entry into petrol segment, increasing
capacity and footprint could lead to faster growth in market share in the
coming years. Atul
Auto Ltd would be launching petrol based three-wheelers in the next 6-8 months
to tap growth in export markets and urban markets as several new permits are
likely to be issued to markets like Mumbai and New Delhi. The company has been
doing a lot in the last few months to increase its export share, where
realizations are higher. Company is in the process of launching gasoline
three-wheelers which is the correct product for overseas market. Company is
also establishing direct marketing network around the prospective geographies.
The new product is likely to boost export volumes with the management expecting
exports to grow significantly on a low base. The company has already
established six distributors in Kenya, Mozambique and Bangladesh which will
enhance company's expansion plans. Atul Auto Ltd is expected to witness a product mix improvement in the
coming years with the launch of petrol-alternate fuel versions coupled with an
entry in export markets. Both these factors could aid in improving average
realisations from present levels.
Outlook and
Valuation:
Atul Auto Ltd. is one of the
youngest players in the 3 wheelers business with humble beginning in 1992 that
started with manufacturing of Chhakaras (Rural Transportation Vehicle- RTV).
Company produces auto rickshaw under Atul Shakti, Atul Smart, Atul Gem and Atul
Gemini-DZ product names. Atul Auto is the only pure play 3-W manufacturer in India. Atul Auto’s growth trajectory
has been impressive with volumes growing at a CAGR of 34 % over FY09-15. With 18 % share in
the goods carrier segment and 5 % share in the passenger carrier segment, Atul
has reached a respectable size in the market. Atul has also gone pan-India with
a presence across almost all states. The company launched various variants to
its vehicle line which helped company to now command overall 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 free 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. India
is one of the largest manufacturers for three-wheelers producing volume of
950,000 units p.a. and growing at 6 % to 8 % p.a. having a domestic market of
550,000 units p.a. Three wheelers is an important element of goods
transportation in the country as it provides last mile connectivity in the
metro and urban markets where entry of large commercial vehicles into city
limits is increasingly getting restricted and it is the ideal and most widely
used mode for goods transportation in rural and semi urban markets. Also it is
a cost effective mode for personal and mass transportation. Atul
Auto Ltd.’s passenger segment is likely to see robust growth in domestic
markets on account of government focus on improvement in rural road
infrastructure and three-wheelers continue to be a popular mode of passenger
transportation. New permits for fuels like CNG-LPG driven vehicles are
available more easily. Passenger application in the rural and semi urban areas
will continue to grow. Moreover availability of easy financing by banks and big
NBFCs will provide more impetus to three-wheeler sector in India. It is believed
that India’s three-wheeler industry is on the cusp of growth over the next few
years and company like Atul Auto which is a dedicated three-Wheeler player will
surely be one of the major beneficiaries of revival in the sector. Atul’s cargo
segment will also witness good amount of volume growth on the back of added
dealership which will provide good penetration to Atul Auto Ltd in the tier II
and tier III cities along with improvement in urban areas as well. Growth in
key user industries like fmcg, pharma, retail, construction etc. will augur
well for the company as major retail push by these industries in tier II and
tier III cities and smaller towns where three wheelers serve as the ideal mode
of goods transportation. The management has maintained the guidance for double digit growth for
the next couple of years. However, they expect volumes to remain subdued in
H1FY16E and expect it to pick up from H2FY16E onwards. Erratic rains in Q4FY15
have impacted rural demand from where Atul Auto derives a majority of its
volumes. Hence, demand is likely to be under pressure in the near term. The
management has guided that the dealer network expansion will continue with 25
to 50 new dealers likely to be added till FY17E. The current count of touch
points stands at 325 with primary dealers at 200. On the export front, the
company has 7 distributors that are also likely to added, going forward. The
land acquired for the new plant is likely to be commissioned in H2FY17E. The
current capacity of 48,000 units is likely to get expanded to 60,000 units by
carrying out the de-bottlenecking activity. The management has guided that
capex for FY16E could be Rs. 50 crore. The company witnessed a three to four
month delay in receiving approval from Automotive Research Association of India
(ARAI) for its petrol model while the new model currently in the testing phase
and is under review. Post the completion of this phase, the company would
launch its new petrol engine model, which is likely to take another six to
eight months. Atul possesses strong balance sheet strength, with zero debt on
the books. For the major capex planned in FY15E, FY16E, the management has
guided at meeting the capex need by using existing cash as well as CFOs. Atul’s
debt-free status is likely to sustain for more years to come with CFO
generation which is likely to remain robust as the demand scenario improves. Atul Auto Ltd's performance has been
quite encouraging and consistent with strong top line and bottom line growth. Atul’s specialised
focus has clearly paid rich dividends as evidenced by market share gains. India's 3-wheeler growth
trajectory looks quite promising going ahead with government thrust on
infrastructure and focus on encouraging new and small entrepreneurs, which will
boost the sales of 3-wheelers. In a scenario where multiple challenges in the
economy and industry have weighed down heavily on the automobile industry, with
most players struggling to cope with falling sales and margins, it is believed
that the worst is over for automobile industry and the sector is poised to grow
well on the back of improving economy with strong government at the center and
improving consumer sentiments. At CMP of Rs 502.30, the stock currently trades at
23.20x FY16E EPS of Rs 21.65 and 17.99x FY17e EPS of Rs 27.91, even thought the stock has run up from the recent lows of Rs. 377 odd levels, it's still attractively valued considering the strong prospects of the company in domestic
markets as well as its expected ramp up in exports. Atul Auto Ltd’s valuations leave scope of
improvement looking at three-wheelers sector prospects and expected
profitability. Company can show a conservative growth of about 21 %. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY14 | FY15 | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 430.14 | 492.80 | 575.88 | 673.36 |
| NET PROFIT (₹ Cr) | 29.80 | 40.57 | 47.52 | 61.25 |
| EPS (₹) | 13.58 | 18.49 | 21.65 | 27.91 |
| PE (x) | 14.20 | 30.00 | 20.30 | 15.80 |
| P/BV (x) | 4.30 | 10.10 | 6.20 | 4.90 |
| EV/EBITDA (x) | 19.00 | 18.20 | 12.30 | 9.80 |
| ROE (%) | 31.50 | 33.50 | 30.60 | 31.30 |
| ROCE (%) | 45.60 | 49.40 | 44.10 | 44.20 |
As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do not hold ATUL AUTO LTD in my any of the portfolios.
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disclaimer:
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
VIEW THE POWER POINT PRESENTATION ON
