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CD Equisearch Pvt Ltd June 17, 2015
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Atul Auto Ltd .(AAL)
No. of shares (crore) 2.19
Mkt cap (Rs crs) 965
Current price (16/06/2015) 440
Price target (Rs) 586
52 week H/L 722/215
Book Value (Rs) (FV: 5 ) 55
P/BV (FY16e/17e) 8.0/6.2/4.9
P/E (FY16e/17e) 23.8/20.3/15.8
EPS growth(FY15/16e/17e) 36.2/17.1/28.9
ROE(FY15/16e/17e) 33.5/30.6/31.3
Beta 1.2
Daily volume (avg weekly) 125746
BSE Code 531795
NSE Code
ATULAUTO
Bloomberg ATA IN
Reuters ATUL.BO
Shareholding pattern % Promoters 52.7
MFs / Banks / FIs 8.3
Total Govt Holding 0.2
Foreign 11.5
Non-promoter Corp 5.3
Total public 22.1
As on March 31, 2015
Recommendation
BUY
Analyst
VIPUL SANGHANI
Phone: + 91 (33) 4488 0055
E- mail: [email protected]
Figures in Rs crs FY13 FY14 FY15 FY16e FY17e
Income from operations* 363.84 430.14 492.80 575.88 673.36
Other Income 1.98 2.92 7.51 3.00 3.00
EBITDA- Incl OI 42.07
48.31 65.42 76.42 97.27
Net Profit after extraordinary items 25.93 29.80 40.57 47.52 61.25
EPS 11.82 13.58 18.49 21.65 27.91
EPS Growth (%) 43.1 14.9
36.2 17.1 28.9
* Include Other Operating Income
Company Brief Atul Auto Ltd. (AAL) 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.
Highlights � AAL reported revenue and PAT of Rs 122.48 cr and Rs 8.63 cr
respectively in Q4FY15 as compared to revenue and PAT of Rs
112.58 cr and Rs 8.43 cr respectively in Q4FY14 registering a
revenue growth of 9% and PAT growth of less than 2.5% because of
higher tax outgo. Operating profit improved substantially from Rs
11.77cr in Q4FY14 to Rs 14.69 cr in Q4FY15 registering a growth of
more than 24%.
� For FY15, AAL's top line grew by more than 14.5% as compared to
FY14, which is well below our expectation. However, PAT grew by
more than 36% over the same period on account of expansion in
operating margins which improved substantially by more than
120bps. We expect AAL's operating profit margins to improve
further on account of operating leverage, higher capacity utilization
and better product mix.
� It has witnessed a delay of 3-4 months in receiving approval from
Automotive Research Association of India (ARAI) for its petrol
model, while its new model currently in the testing phase and is
under review. After the completion of this phase, it would launch
its new petrol engine model, which may take another 6-8 months.
� At CMP of Rs 440 , the stock currently trades at 20.3x FY16e EPS of
Rs 21.65 and 15.8x FY17e EPS of Rs 27.91, which seems to be
attractively valued considering the strong prospects of the
company in domestic markets as well expected ramp up in exports.
We reiterate a buy on the stock with a revised target of Rs 586
(previous target: Rs 412) based on 21x FY17e earnings (peg ratio:
~1) in the ensuing 9-12 months (Refer to our report dated
19/08/2014).
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Outlook & Recommendation
Industry overview
AAL's has emerged as one of the fastest growing 3-wheelers company in India, capturing both market share
and investors imagination alike. Its growth trajectory has been impressive with volumes growing at a CAGR of
34% over FY09-15 even as the domestic 3-wheelers segment has grown at a meager 7% over the same period.
AAL has reached a respectable size in the market with 18% share in the goods carrier segment and 5 % share in
the passenger carrier segment. 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,
AAL's performance has been quite encouraging and consistent with strong top line and bottom line growth.
We believe 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 centre and improving consumer sentiments.
Automobile Production Data
Category 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Passenger Vehicles 23,57,411 29,82,772 31,46,069 32,31,058 30,87,973 32,20,172
Commercial Vehicles 5,67,556 7,60,735 9,29,136 8,32,649 6,99,035 6,97,083
Three Wheelers 6,19,194 7,99,553 8,79,289 8,39,748 8,30,108 9,49,021
Two Wheelers 1,05,12,903 1,33,49,349 1,54,27,532 1,57,44,156 1,68,83,049 1,84,99,970
Total 1,40,57,064 1,78,92,409 2,03,82,026 2,06,47,611 2,15,00,165 2,33,66,246
Automobile Domestic Sales Data
Category 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Passenger Vehicles 19,51,333 25,01,542 26,29,839 26,65,015 25,03,509 26,01,111
Commercial Vehicles 5,32,721 6,84,905 8,09,499 7,93,211 6,32,851 6,14,961
Three Wheelers 4,40,392 5,26,024 5,13,281 5,38,290 4,80,085 5,31,927
Two Wheelers 93,70,951 1,17,68,910 1,34,09,150 1,37,97,185 1,48,06,778 1,60,04,581
Total 1,22,95,397 1,54,81,381 1,73,61,769 1,77,93,701 1,84,23,223 1,97,52,580
Automobile Exports Data
Category 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Passenger Vehicles 4,46,145 4,44,326 5,08,783 5,59,414 5,96,142 6,22,470
Commercial Vehicles 45,009 74,043 92,258 80,027 77,050 85,782
Three Wheelers 1,73,214 2,69,968 3,61,753 3,03,088 3,53,392 4,07,957
Two Wheelers 11,40,058 15,31,619 19,75,111 19,56,378 20,84,000 24,57,597
Total 18,04,426 23,19,956 29,37,905 28,98,907 31,10,584 35,73,806
Source: Company, SIAM, CD Equisearch
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Three wheeler industry
Source: Company, CD Equisearch
Growth Drivers
Passenger Segment
AAL’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. We believe India’s three-wheeler
industry is on the cusp of growth over the next few years and company like AAL- (a dedicated three-Wheeler
player) is going to be one of the major beneficiaries of revival in the sector.
Cargo Segment
We believe AAL’s cargo segment will also witness good amount of volume growth on the back of added
dealership which will provide good penetration to AAL 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. We are increasingly seeing restrictions being imposed on
large commercial vehicles entry at metros and other cities which will push the sales of three-wheelers going ahead.
This segment will also see traction from government’s initiatives on ease of doing business and make in India
campaign. We believe the initiatives like ease of doing business will provide impetus to new entrepreneur and
government has been doing a lot to push manufacturing activities in India.
*estimated
Sources: Company; CD Equisearch
India is one of the largest manufacturers for three-wheelers
producing volume of 950,000 units p.a. and growing at 6-8%
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.
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Source: Company, CD Equisearch
Source: Company, CD Equisearch
End users
Source: Company, CD Equisearch Source: Business Today, CD Equisearch
Big Businesses-turnover>Rs 500 cr
Exports Visibility
AAL 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.
Strong Revenue Growth Visibility
AAL’s FY15 sales were slightly lower than our expectations at Rs
492.80 cr (up 14.6% over FY14) due to sluggish macro environment.
However, we expect volume growth to pick-up in the later part of
FY16e. We expect AAL’s volume growth to be 12% in FY16e and
15% in FY17e, while the industry growth will be in single digit.
Over the last 5 years, AAL’s volume growth has been more than
27% CAGR, while industry has shown a growth of near 9%.
We expect AAL to register sales of Rs 575.88 cr in FY16e (growth of
16.9% over FY15) and Rs 673.36 cr in FY17e (again a growth of
16.9%), lower than our earlier estimation on account of slower than
expected growth. For FY16e and FY17e, we expect AAL’s PAT at Rs
47.52 cr and Rs 61.25 cr, a growth of 17.1% and 28.9% respectively.
We expect company to report a lower profitability in FY16e than
our previous estimation. However, AAL’s business looks well
poised to gain advantage from pick up in industrial activities.
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Source: Company, CD Equisearch
Capex to be funded by internal accruals and strong financials
At the existing plant AAL’s capacity stood at 48000 vehicles per annum which can be expanded up to 60000
vehicles with a normal capex of Rs 7-10 cr. By the time company will utilize such capacity, its new plant will
be ready within a time frame of less than 2 years. AAL is going to set up a new plant for 60000 vehicles which
is going to come in 2 phases, 300000 plus 30000 and company is expecting a capex of approximately Rs 150 cr,
which will be funded through internal accruals, thus maintaining a debt free status going ahead.
Source: Company, CD Equisearch
Operating Profit Margin to Expand [
Operating profit margin of AAL recorded an improvement of more than 120 bps in FY15. Despite a descent
volume growth AAL's margins have remained lackluster in the last few years as conversion costs have been
high and domestic sluggish scenario prevented the company from passing on the costs to consumers.
However, going ahead we believe AAL is on the right track and we may see improvement in margin on
account of operating leverage, higher capacity utilization and better product mix. We expect AAL's margin to
improve by 100 bps in FY16e and by 120 bps in FY17e.
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Source: Company, CD Equisearch
Valuations
At CMP of Rs 440 , the stock currently trades at 20.3x FY16e EPS of Rs 21.65 and 15.8x FY17e EPS of Rs 27.91,
which seems to be attractively valued considering the strong prospects of the company in domestic markets
as well expected ramp up in exports. We expect AAL’s ROE to be 30.6% and 31.3% in FY16e and FY17e, on
the back of improving profitability and margins. AAL’s valuations leave scope of improvement looking at
three-wheelers sector prospects and expected profitability. We reiterate a buy on the stock with a revised
target price of Rs 586 based on 21x FY17e earnings (~peg ratio: 1) in the ensuing 9-12 months (Refer to our
report dated 19/08/2014).
Source: Company, CD Equisearch
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Risks & Concerns
Growth may get hamper
The last few years have been particularly challenging for the Indian economy. Subdued GDP growth, sustained
high inflation and plummeting currency may pose significant threat to company's growth going ahead. The
economic environment, pricing pressure could negatively affect AAL's revenues and operating results.
Difficulties in procuring raw materials
AAL may face difficulties in procuring raw material at competitive prices because of its size compared to its
competitors and therefore may have to bear the brunt of fluctuating commodity prices , which may result in
reduction of margins and affect profitability.
Wage pressure may mount on profitability
Wage pressures and the hiring of employees may prevent the company from sustaining competitive advantage
and may reduce profit margins.
Threat of weak monsoon
There is possibility of monsoon remaining weak this year. This may have adverse impact on company's top line
and bottom line since company is focusing more on tier II and tier III cities.
Difficult to predict
AAL’s revenues and expenses are difficult to predict and can vary significantly from period to period and it may
not be able to sustain previous profit margins or levels of profitability.
Cross Sectional Analysis
Company Equity*
CMP
(Rs)
Market
cap* Sales* Profit* OPM NPM ROE
Mkt
cap /
sales P/BV P/E
Atul Auto 10.97 440 965 492.8 41 11.8% 8.23% 33.5% 2.0 8.0 23.78
Bajaj Auto 289.37 2391 69191 21614.3 3025 17.5% 14.0% 27.3% 3.2 6.2 22.87
TVS Motors 47.51 228 10837 10311.7 328 5.9% 3.18% 24.8% 1.1 8.2 33.01 *Figures in Rs cr, P/E on TTM basis
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Quarterly Results Rs in cr
Q4FY15 Q4FY14 %.chg FY15 FY14 %.chg
Income from operations 122.48 112.58 8.8 492.80 430.13 14.6
Other Income 0.52 0.79 -34.2 7.51 2.92 157.2
Total Income 123.00 113.37 8.5 500.31 433.05 15.5
Total Expenditure 107.79 100.81 6.9 434.89 384.75 13.0
PBIDT 15.21 12.56 21.1 65.42 48.30 35.4
Interest 0.15 0.01 1400.0 0.59 0.35 68.6
Depreciation 1.35 1.33 1.5 5.58 5.21 7.1
PBT 13.71 11.22 22.2 59.25 42.74 38.6
Tax 5.08 2.79 82.1 18.68 12.95 44.2
PAT 8.63 8.43 2.4 40.57 29.79 36.2
Extra-ordinary Items -0.15 0.00 - 1.13 0.00 -
Adjusted Net Profit 8.78 8.43 4.2 39.44 29.79 32.4
Income Statement
Rs in cr
FY13 FY14 FY15 FY16e FY17e
Income from operations 363.84 430.13 492.8 575.88 673.36
Growth (%) 21.76 18.22 14.57 16.86 16.93
Other Income 1.98 2.92 7.51 3.00 3.00
Total Income 365.82 433.05 500.31 578.88 676.36
Total Expenditure 323.75 384.75 434.89 502.46 579.09
EBITDA 42.07 48.3 65.42 76.42 97.27
Interest 0.4 0.35 0.59 1.00 1.50
EBDT 41.67 47.95 64.83 75.42 95.77
Depreciation 4.44 5.21 5.58 7.92 10.93
Tax Expense 11.3 12.95 18.68
19.99 23.59
Reported PAT 25.93 29.79 40.57 47.52 61.25
Extra-ordinary Items 0.00 0.00 1.13 0.00 0.00
Adjusted Net profit 25.93 29.79 39.44 47.52 61.25
EPS 11.82 13.58 18.49 21.65 27.91
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Balance Sheet Rs in cr
FY13 FY14 FY15 FY16e FY17e
SOURCES OF FUNDS
Share Capital 11.20 11.20 11.20 11.20 11.20
Reserves 63.10 83.27 109.87 144.00 184.20
Total Shareholders Funds 74.30 94.47 121.07 155.20 195.40
Long term provisons 0.19 0.26 0.51 0.52 0.52
Total Liabilities 74.49 94.73 121.58 155.72 195.92
APPLICATION OF FUNDS
Gross Block 68.63 83.45 115.76 159.75 220.45
Less: Accumulated Depreciation 25.44 30.63 36.21 44.13 55.05
Less: Impairment 0.12 0.12 0.12 0.12 0.12
Net Block 43.07 52.70 79.43 115.50 165.28
Capital Work in Progress 5.00 0.63 0.48 0.50 0.50
Investments 1.23 1.23 0.99 0.99 0.99
Current Assets, Loans & Advances
Inventory 22.95 23.37 26.00 28.93 34.43
Sundry Debtors 7.15 13.07 32.25 40.31 48.34
Cash and Bank 38.07 45.15 27.36 26.8 10.73
Loans and Advances 1.69 3.50 3.56 3.50 3.50
Total CA & LA 69.86 85.09 89.17 99.54 97.00
Current liabilities 31.22 35.94 37.21 42.79 47.07
Provisions 12.8 7.81 13.44 14.78 16.26
Total Current Liabilities 44.02 43.75 50.65 57.58 63.33
Net Current Assets 25.84 41.34 38.52 41.97 33.66
Net Deferred Tax -4.50 -6.14 -5.19 -8.63 -9.90
Other Assets (Net Of Liabilities) 3.85 4.97 7.35 5.39 5.39
Total Assets 74.49 94.73 121.58 155.72 195.92
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
Key Financial Ratios
FY13 FY14 FY15 FY16e FY17e
Growth Ratios
Revenue (%) 21.8 18.2 14.6 16.9 16.9
PBIDT (%) 48.8 14.8 35.4 16.8 27.3
Net Profit (%) 66.2 14.9 36.2 17.1 28.9
EPS (%) 114.9 14.9 36.2 17.1 28.9
Margins
Operating Profit Margin (%) 11.0 10.6 11.8 12.8 14.0
Net Profit Margin (%) 7.1 6.9 8.2 8.3 9.1
Return
ROCE (%) 50.6 45.6 49.4 44.1 44.2
RONW (%) 34.9 31.5 33.5 30.6 31.3
Valuations
Market Cap / Sales 2.7 2.2 2.0 1.7 1.4
EV/EBIDTA 22.0 19.0 18.2 12.3 9.8
P/E 6.7 14.2 30.0 20.3 15.8
P / BV 2.2 4.3 10.1 6.2 4.9
Other Ratios
Debt-Equity 0.0 0.0 0.0 0.0 0.0
Current Ratio 1.6 1.9 1.8 1.7 1.5
Interest Coverage 94.1 123.1 101.4 68.5 57.6
Turnover Ratios
Fixed Asset 5.7 5.2 4.3 3.6 3.1
Total Asset 4.9 4.5 4.1 3.7 3.4
Debtors 50.9 32.9 15.3 14.3 13.9
WC Ratios
Debtor Days 6.0 8.0 10.0 15.0 15.0
Inventory Days 18.0 19.0 19.0 18.0 18.0
Creditor Days 22.2 24.0 24.0 24.0 24.0
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CD Equisearch Pvt Ltd
Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance
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recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved) and should consult their own advisors to determine the merits and risks of such an investment. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. CD Equi or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or other reasons that prevent us from doing so. This document is being supplied to you solely for your information and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Neither, CD Equi nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. CD Equisearch Private Limited (CIN: U67120WB1995PTC071521) Registered Office: 37, Shakespeare Sarani, 1st Floor, Kolkata – 700 017; Phone: +91(33) 4488 0000; Fax: +91(33) 2289 2557; Corporate Office: 10, Vasawani Mansion, 2nd Floor, Dinshaw Wachha Road, Churchgate, Mumbai – 400 020; Phone: +91(22) 2283 0652/0653; Fax: +91(22) 2283, 2276 Website: www.cdequi.com; Email: [email protected]
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