CD Equisearch Pvt Ltdbreport.myiris.com/CDEQUI/ATUAUTO_20150617.pdf · MFs / Banks / FIs 8.3 Total...

CD Equisearch Pvt Ltd June 17, 2015

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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).

2

2

CD Equisearch Pvt Ltd


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


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


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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3



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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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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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.


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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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).


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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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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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Balance Sheet Rs in cr


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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Key Financial Ratios


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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DISCLOSURE & DISCLAIMER: CD Equisearch Private Limited (hereinafter referred to as ‘CD Equi’) is a Member registered with National Stock Exchange of India Limited, Bombay Stock Exchange Limited and Metropolitan Stock Exchange of India Limited (Formerly known as MCX Stock Exchange Limited). CD Equi is also registered as Depository Participant with CDSL and AMFI registered Mutual Fund Advisor. The associates of CD Equi are engaged in activities relating to NBFC-ND - Financing and Investment, Commodity Broking, Real Estate, etc. CD Equi has applied for registration under SEBI (Research Analysts) Regulations, 2014. Further, CD Equi hereby declares that –

• 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)

• CD Equi/its associates/research analysts have not received any compensation from the subject company(s)

during the past twelve months.

• CD Equi/its research analysts has not served as an officer, director or employee of company covered by analysts and has not been engaged in market making activity of the company covered by analysts.

This document is solely for the personal information of the recipient and must not be singularly used as the basis of any investment decision. 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 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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