CD Equisearch Pvt Ltdbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · Quarterly Highlights • AAL’s total volumes in 9MFY16 grew by 6% overall whereas its

CD Equisearch Pvt Ltd April 7, 2016

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Atul Auto Ltd.

No. of shares (m) 21.9

Mkt cap (Rs crs/$m) 1116/167.7

Current price (Rs/$) 509/7.6

Price target (Rs/$) 561/8.4 /9.1 52 W H/L (Rs.) 635/330

Book Value (Rs/$) 71.8/1.1

Beta 1.1

Daily volume (avg. monthly) 37220

P/BV (FY16e/17e) 7.3/5.7

P/E (FY16e/17e) 22.4/20.0

EPS growth (FY15/16e/17e) 25.7/35.9/9.7

ROE (FY15/16e/17e) 34.7/36.4/31.0

ROA(FY15/16e/17e) 35.1/36.7/31.3

D/E ratio (FY15/16e/17e) -/-/-

BSE Code 531795

NSE Code ATULAUTO

Bloomberg ATA IN

Reuters ATUL.BO

Shareholding pattern %

Promoters 52.7

MFs / Banks / FIs 10.0

Foreign 6.3

Govt. Holding -

Total Public 31.0

Total 100.0

As on Dec 31, 2015

Recommendation

ACCUMULATE

Phone: + 91 (33) 4488 0043

E- mail: [email protected]

Figures (Rs crs)

FY13

FY14

FY15

FY16e

FY17e

Income from Operations 363.84 430.14 492.80 542.22 598.70

Other Income 1.98 2.92 7.51 2.46 2.46

EBIDTA (other income included) 42.06 48.31 65.42 83.26 92.26

Net Profit 25.92 29.78 37.42 50.85 55.77

EPS 11.81 13.57 17.05 23.18 25.42

EPS growth (%) 11.4 14.9 25.7 35.9 9.7

Company Brief 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). It produces auto rickshaw under various

product names- Atul Shakti, Atul Smart, Atul Gem and Atul Gemini-DZ.

Quarterly Highlights

• AAL’s total volumes in 9MFY16 grew by 6% overall whereas its exports

rose at 21% y-o-y. As a result of modest increase in sales volumes revenues

grew by just 8.4% y-o-y. The net profit has seen a growth of 21.5% (y-o-y)

to Rs 36.55 crs compared to Rs 30.07 crs in the same period a year ago.

• AAL’s cargo segment market share has gone up to 20% in 9MFY16 FY16 as

compared to 18% in the same period last year. The company has achieved

200 primary dealerships in 9MFY16 as compared to 180 in FY15. Its

international presence is also on an increase with a total number of 8

distributors for exports.

• Demand sentiment was bad which had affected trade receivables in

Q2FY15. Working capital has worsened a little more in Q3FY16 but is

expected to return to normal in a few quarters. Although the demand for

diesel vehicles is very strong in rural and semi-urban areas, it suffered in

the last quarter due to the bad monsoons.

• The ability to maintain positive growth even in dampening market

conditions clouded with negative sentiments portrays AAL’s ability to

sustain the same in the future. Positive growth in EPS and revenues

together with its plans to maintain the debt free status works in its favor.

• The stock trades at a currently trades at 21.9x FY16e EPS of Rs 23.18 and

20.0 x FY17e EPS of Rs 25.42. Aided by higher operating margins (14.7% vs

11.6%), earnings advanced by a spectacular 21.6% in the first three

quarters of current fiscal. AAL’s three wheeler volumes in FY16 have

grown at the lowest rate (5.5%) in last four years, goading us to cut next

year EPS estimate by 8.9%. Yet there exists high chance of revival in the

Indian automobile sector in the near term. We, therefore, assign

‘accumulate’ rating on the stock with revised target of Rs 561 (previous

target: Rs 586) based on 22x FY17e earnings (peg ratio:1; on FY15-FY17

earnings growth), over a period of 6-9 months; forward P/E justified not

least due to high probability of dramatic improvement in volumes.

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CD Equisearch Pvt Ltd


[

Outlook & Recommendation

Outlook of Three Wheeler Industry

Exports of cars, utility vehicles, commercial vehicles and two-wheelers have grown every year since 2000. In 2014-15, Indian

factories exported a record 3.5 million vehicles which, according to industry statistics, was 15% more than what they

managed a year back (refer chart below). This compares with domestic sales of just above 19.7 million units during the same

period, up 7.2% from the previous year.

The market for three wheelers in India witnessed a quick increase during early 1950s. Three wheelers are an essential

ingredient of the country's automobile sector as they are one of the most favored means of transport in rural as well as

urban India. The industry witnessed a minor decline in 2011 which can be accredited to government policies such as cap on

permits and elevated interest rates. However, the market has been performing quite well thereafter as a result of rising

population and growing commercialization which are all contributing to unprecedented use of three wheelers for intra city

transportation.

Source: SIAM, CD Equisearch Source: AAL

India’s three wheeler market is categorized into passenger carrier and goods carrier three wheelers. Passenger carrier three

wheelers are used for public transportation, while goods carrier three wheelers are used for carrying goods and materials

over short and intermediate distances. Increasing demand for cheap and suitable public conveyance in rural and semi

urban areas and increasing number of permits being issued by state governments across the country are also playing a

greater role in driving the demand for three wheeler markets in India. The demand for passenger carrier three wheelers

exceeds that of goods carrier three wheelers in domestic as well as export markets including South Asia, Africa and Latin

America.

BREAK UP OF TOTAL INDUSTRY SALES

Source: AAL Source: AAL

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Roadmap for AAL

Despite the slowdown in three wheeler sector in some parts of the country and stiff competition from other players, the business

performance of AAL continues to be robust during the 9mFY16. AAL continues to have a strong marketing and distribution

network with a pan-India presence with the exception of 2 major states- West Bengal and Tamil Nadu. It is present in the rural

and semi-urban segment in and now plans to focus on penetrating the urban markets.

It has 200 primary dealers and 120 secondary dealerships in totality. It plans to enter into all the geographies with three wheeler

potential in the next 3-5 years across India. Its long term plan includes increasing market share because better penetration

opportunities exist. The focus will now be more on tier II cities and urban sector. There were around 180 dealers in FY15 which

increased to 200 in FY16. This was a lower addition in absolute terms than expected. However it plans to add 25-40 dealers

domestically in the next fiscal year.

PRESENCE IN INDIA

Source: AAL Source: AAL

Overseas presence includes presence in countries like Bangladesh, Tanzania, Kenya, South Africa, Nigeria and Jamaica. Beyond

Africa, AAL plans to venture into countries like Sri Lanka, Indonesia and Bangladesh. There is also sound potential in Latin

American countries. There are a total of 8 distributors in the export segment and AAL plans to add 10-15 more in the next

couple of years. AAL plans to increase its share of exports to 17%-25% of its total sales in the next 3-5 years compared to the 4%

for FY15.

There is very little scope for technological advancement as far as three wheelers are concerned. AAL is focusing more on

offering better features, low maintenance or no maintenance vehicles to the customers and better after sale service. AAL does

not believe in pricing its product below that of its competitors. It will maintain its price at par with competition in export

segment. Instead it will focus more on providing better features to end customers. Typical end users include large corporate in

FMCG, pharmaceuticals and construction, mid-size companies for captive use and business proposition and individuals who

use it as a means of self employment. Growth in the consumer driven industries has been driving growth in the past.

Financials and Valuations

India is one of the largest manufacturers of three-wheelers producing a volume of ~9.4 lakh units p.a. and growing at 6-8% p.a.,

having a domestic demand of ~5.5 lakh units p.a. Government focus on development of rural road infrastructure coupled

with the ease of availability for permits for fuels like CNG/LPG driven vehicles is assisting in the passenger application in the

rural and semi-urban areas. The overall auto industry registered a marginal growth of 1.67% in Apr-Feb 16 period. Three

wheelers sales declined by -0.5% in April-February 2016 over the same period last year - passenger carrier sales increased by

0.24%, while the goods carrier sales declined by 3.75%.

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Source: CD Equisearch; AAL Source: CD Equisearch; AAL Source: CD Equisearch; AAL

AAL has marginally increased its market share to 8.07 % in 9mFY16. The new gasoline vehicle which was launched this year

has garnered excellent response and AAL expects the good response to continue in the future as well. AAL’s revenues are

projected to rise by 10.4% in the current fiscal. However operating margins are expected hover at 15%. It is going to set up a

new plant for 60000 vehicles in Ahmedabad, Gujarat, involving a capex of approximately Rs 150 cr, which will be funded

through internal accruals.

Source: CD Equisearch; AAL Source: CD Equisearch; AAL Source: CD Equisearch; AAL

The stock trades at a currently trades at 21.9x FY16e EPS of Rs 23.18 and 20.0 x FY17e EPS of Rs 25.42. Aided by higher

operating margins (14.7% vs 11.6%), earnings advanced by a spectacular 21.6% in the first three quarters of current fiscal.

AAL’s three wheeler volumes in FY16 have grown at the lowest rate (5.5%) in last four years, goading us to cut next year EPS

estimate by 8.9%. Yet there exists high chance of revival in the Indian automobile sector in the near term. We, therefore, assign

‘accumulate’ rating on the stock with revised target of Rs 561 (previous target: Rs 586) based on 22x FY17e earnings (peg ratio:1;

on FY15-FY17 earnings growth), over a period of 6-9 months. For more information, refer to our previous report dated 17th

June, 2015)

Source: CD Equisearch; AAL Source: CD Equisearch; AAL

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Risks and Concerns

Easing growth

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 operating results.

Margin pressure

AAL may face difficulties in procuring raw material at competitive prices because of its relatively small size of operations

compared to its competitors and therefore may have adversely impact margins.

Weak monsoons

Poor monsoons could impact demand for three wheelers not only in rural areas but also in tier II and III cities.

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Financials

Quarterly Results Figures in Rs crs

Q3FY16 Q3FY15 % chg 9MFY16 9MFY15 % chg

Income From Operations 151.70 139.33 8.9 401.34 370.32 8.4

Other Income 0.43 0.78 -44.9 1.19 7.23 -83.5

Total Income 152.13 140.11 8.6 402.53 377.55 6.6

Total Expenditure 126.57 121.65 4.0 342.38 327.33 4.6 EBITDA (other income

included) 25.56 18.46 38.5 60.15 50.22 19.8

Interest 0.05 0.11 -54.5 0.72 0.45 60.0

Depreciation 1.33 1.33 0.0 3.99 4.23 -5.7

PBT 24.18 17.02 42.1 55.44 45.54 21.7

Tax 8.21 5.71 43.8 18.89 13.59 39.0

PAT 15.97 11.31 41.2 36.55 31.95 14.4

Extraordinary Item - - - - 1.88 -100.0

Net Profit 15.97 11.31 41.2 36.55 30.07 21.5

EPS(Rs) 7.28 5.15 41.2 16.66 13.71 21.5

Income Statement Figures in Rs crs

FY13 FY14 FY15 FY16e FY17e

Income From Operations 363.84 430.14 492.80 542.22 598.70

Growth (%) 21.8 18.2 14.6 10.0 10.4

Other Income 1.98 2.92 7.51 2.46 2.46

Total Income 365.82 433.06 500.31 544.68 601.16

Total Expenditure 323.76 384.75 434.89 461.42 508.89

EBITDA (other income included) 42.06 48.31 65.42 83.26 92.26

Interest 0.40 0.35 0.59 0.83 0.92

Depreciation 4.44 5.21 5.58 5.38 6.85

PBT 37.22 42.75 59.25 77.05 84.50

Tax 11.30 12.95 18.68 26.20 28.73

PAT 25.92 29.80 40.56 50.85 55.77

Extraordinary Item - 0.02 3.15 - -

Net Profit 25.92 29.78 37.42 50.85 55.77

EPS (Rs) 11.81 13.57 17.05 23.18 25.42

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Balance Sheet Figures in Rs crs


Sources of Funds

Share Capital 11.20 11.20 11.20 11.20 11.20

Reserves 63.10 83.27 109.86 147.51 190.08

Total Shareholders Funds 74.30 94.47 121.06 158.71 201.28

Long Term Debt 0.00 0.00 0.00 0.00 0.00

Total Liabilities 74.30 94.47 121.06 158.71 201.28

Application of Funds

Gross Block 68.63 83.45 116.96 121.96 126.96 Less: Accumulated Depreciation & Impairment 25.56 30.75 37.52 42.89 49.73

Net Block 43.07 52.70 79.44 79.06 77.23

Capital Work in Progress 5.00 0.63 0.48 40.00 90.00

Investments 1.23 1.23 0.99 0.99 0.99

Current Assets, Loans & Advances

Inventory 22.95 23.37 26.00 28.34 28.81

Trade receivables 7.15 13.07 32.25 46.99 45.42

Cash and Bank 38.07 45.15 27.36 18.41 17.09

Short term loans (inc. other current assets) 1.64 3.50 3.56 3.30 3.50

Total CA 69.81 85.08 89.17 97.04 94.82

Current Liabilities 28.59 35.94 37.21 44.55 47.51

Provisions-Short term 12.80 7.54 13.44 14.96 15.53

Total Current Liabilities 41.39 43.48 50.65 59.51 63.04

Net Current Assets 28.42 41.60 38.51 37.53 31.78

Net Deferred Tax Liability -4.49 -6.12 -5.19 -5.80 -5.80

Net long term assets ( net of liabilities) 1.08 4.44 6.84 6.93 7.08

Total Assets 74.30 94.47 121.07 158.71 201.28

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Cash Flow Statement Figures in Rs crs


Net Income (a) 25.92 29.80 40.56 50.85 55.77

Non cash exp. & others (b) 4.27 6.85 5.30 5.98 5.54

Depreciation 4.44 5.21 5.58 5.38 6.85

Loss/ (profit) on sale of Fixed Assets 0.00 -0.01 0.01 0.00 0.00

Prov. of diminution in value of investment 0.00 0.00 0.24 0.00 0.00

Deferred tax and others -0.17 1.64 -0.53 0.61 -1.31

(Increase) / decrease in NWC (c) 10.75 -6.38 -16.53 -7.39 4.28

Trade Receivables -1.07 -5.92 -19.18 -14.74 1.56

Inventories 6.88 -0.42 -2.64 -2.34 -0.47

Other assets 0.12 -3.10 0.24 0.10 -0.45

Other liabilities 4.83 3.06 5.05 9.59 3.63

Operating cash flow (a+b+c) 40.94 30.27 29.33 49.45 65.58

Purchase of Fixed Assets -10.05 -10.37 -36.13 -44.52 -55.00

Proceeds from sale of Fixed Assets 0.07 0.01 0.08 -0.01 -0.01

Investing cash flow (d) -9.99 -10.36 -36.05 -44.53 -55.01

Equity dividend paid -3.66 -10.97 -9.33 -11.52 -9.88

Income tax on dividend -0.59 -1.86 -1.75 -2.34 -2.01

Financing cash flow (e) -4.25 -12.84 -11.08 -13.86 -11.89

Net change (a+b+c+d+e) 26.70 7.08 -17.79 -8.95 -1.32

*adjusted for capital advances ** includes change in fixed deposits

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Key Financial Ratios


Growth Ratios(%)

Revenue 21.8 18.2 14.6 10.0 10.4

EBITDA 49.4 14.8 26.0 36.9 10.8

Net Profit 67.1 14.9 25.7 35.9 9.7

EPS 11.4 14.9 25.7 35.9 9.7

Margins (%)

Operating Profit Margin 11.0 10.6 11.8 14.9 15.0

Gross profit Margin 11.4 11.1 12.2 15.2 15.3

Net Profit Margin 7.1 6.9 7.6 9.4 9.3

Return (%)

ROCE 39.0 35.6 35.1 36.7 31.3

RONW 39.8 35.3 34.7 36.4 31.0

Valuations

Market Cap/ Sales 0.4 0.9 2.5 2.1 1.9

EV/EBITDA 3.0 7.2 19.6 13.5 12.1

P/E 6.3 13.3 32.6 22.4 20.0

P/BV 2.2 4.3 10.3 7.3 5.7

Other Ratios

Interest Coverage 93.3 124.5 93.3 93.7 93.0

Debt Equity 0.0 0.0 0.0 0.0 0.0

Current Ratio 1.7 2.0 1.8 1.6 1.5

Turnover Ratios

Fixed Asset Turnover 8.8 9.0 7.5 6.8 7.7

Total Asset Turnover 5.6 5.1 4.6 3.9 3.3

Inventory Turnover 12.3 16.6 17.6 17.0 17.8

Debtors Turnover 55.0 42.5 21.8 13.7 13.0

Creditor Turnover 16.4 15.1 16.1 15.7 15.8

WC Ratios

Inventory Days 29.7 22.0 20.7 21.5 20.5

Debtor Days 6.6 8.6 16.8 26.7 28.2

Creditor Days 22.2 24.1 22.6 23.2 23.1

Cash Conversion Cycle 14.2 6.4 14.9 24.9 25.6

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Financial Summary – US dollar denominated

million $ FY13 FY14 FY15 FY16e FY17e

Equity capital 2.1 1.9 1.8 1.7 1.7

Shareholders funds 13.7 15.7 19.3 23.8 30.2

Total debt 0.0 0.0 0.0 0.0 0.0

Net fixed assets (incl CWIP) 8.8 8.9 12.8 17.9 25.1

Investments 0.2 0.2 0.2 0.1 0.1

Net current assets 5.2 6.9 6.2 5.6 4.8

Total assets 13.7 15.7 19.3 23.8 30.2

Revenues 66.8 71.1 80.6 81.4 89.9

EBITDA 7.7 8.0 9.9 12.5 13.9

EBDT 7.6 7.9 9.9 12.4 13.7

PBT 6.8 7.1 8.9 11.6 12.7

PAT 4.8 4.9 6.1 7.6 8.4

EPS($) 0.22 0.22 0.28 0.35 0.38 Book value ($) 0.6 0.7 0.9 1.1 1.3

Operating cash flow 7.5 5.0 4.7 7.4 9.8

Investing cash flow -1.8 -1.7 -5.8 -6.7 -8.3

Financing cash flow -0.8 -2.1 -1.8 -2.1 -1.8

*income statement figures translated at average rates; balance sheet at year end rates; projections at current rates All dollar denominated figures are adjusted for extraordinary items.

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Disclosure& Disclaimer CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited,

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• No disciplinary action has been taken against CD Equi by any of the regulatory authorities.

• CD Equi/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material

conflict of interest in the subject company(s).

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months.

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engaged in market making activity of the company covered by analysts.

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Nothing in this document should be construed as investment or financial advice. Each 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

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contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy,

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While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or

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buy: >20% accumulate: >10% to ≤20% hold: ≥-10% to ≤10% reduce: ≥-20% to <-10% sell: <-20%

Documents

CD Equisearch Pvt Ltdbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · Quarterly Highlights • AAL’s total volumes in 9MFY16 grew by 6% overall whereas its