Looks like you have recovered your lost Rs100. One needs to keep the faith on this company. Solid management, zero debt, high RoE and high RoCE and with a very long growth runway. There is a temporary slowdown before they launch their new product.
Management has guided for double digit volume growth and margin expansion for FY16E
Disclosure: Long term core holding
Two reasons for slowdown
(1) Slowdown in rural incomes (due to reduced govt welfare schemes, unseasonal rains, and forecast of deficient monsoons). — Atul Auto has a large rural footprint
(2) Petrol engine - delayed…
(2) is within the control of the company. (1) is outside the control of the company.
However, petrol engines are more popular in urban areas - so, if AA gets its petrol engine models up and running, it can compensate for slowdown in rural sales…
Disc: Invested
The memorandum of understanding (MoU) was signed by Lalita Sharma, Chief General Manager, IDBI Bank, and J V Adhia, President (Finance & Accounts) Atul Auto Limited.
Commenting on the development, Adhia said, “With IDBI Bank’s competitive products and wide reach, we see it as a value addition to our customers. Also, the rate of interest offered by IDBI Bank is very competitive in the market and that should give a boost to our sales, in the future.”
Disc: Invested
JV Adhia, VP Finance took the queries.Key Points from the discussion by Capital Mkt
In the industry, there was overall 2.42% growth in overall volumes during the first quarter ended June 2015. Out of this, 2.42% was in domestic market and 1.24% was in exports.In the domestic front for three wheelers and LCVs, volumes were down. Domestic three wheelers market was down 6.77%. There was 12.7% overall growth for three wheelers due to 40% rise in exports.During the quarter, for Atul Auto, volume growth was 5%. Out of this, domestic was 2.5% and exports was 56%.The overall composition for Atul Auto improved in terms of export sales.The industry cargo segment degew by 5.1% during the quarter but Atul Auto registered 3.6% growth.In the passenger segment category, industry de grew 7.97% but Atul Auto grew by 1.5% during the quarter.Market share for Atul Auto improved from 6.3% to 7.32% on yoy basis during the quarter.
Atul Auto continues to gather momentum of higher market share in cargo segment with a share of 18%. In the passenger category, market share stands at 4.8%.The company stands with its double digit volume growth guidance for full year.The company exported 567 expo vehicles during the quarter.The drop in raw materials/ sales stood at 60 bps during the quarter.There has been no change in product mix and there was no price hikes undertaken during the quarter.The company plans to enter African countries, Sri Lanks, Bangladesh for petrol segment overseas.600 petrol engine fitted vehicles has been despatched till date for exports.The company is confident to enter among Indian peers in terms of exports and enjoy a gross margin that is dictated by the big names.The expansion to increase capacity to 60,000 units has already been done.The maintenance capex per year stands at Rs 3-5 crore.For the expansion plan, the company is going to have capex plan of Rs 110 crore in next two years’ time.The company is confident about sustaining gross margins at 26% in coming quarters.The company’s addressable areas are semi urban and rural areas where permits do not have much impact at all.The company’s dealers are mostly concentrated in urban areas and hence with new products, itwill be able to increase share.EBITDA margins should improve between 50 bps-100 bps in coming quarters.
The big names in the industry do far higher volumes compared to Atul Auto in the export market and hence enjoy far higher margins. The company wants to improve to that level.The company is expected to launch gasoline 3W in Q3 FY 15 in the domestic market.The company expects domestic 3w to grow @ 6-8% in medium term. In the current year, the company expects things to improve from second half.
Hi All,
I’m trying to grasp the product lifecycle of a 3 wheeler Auto-Rickshaw. I couldn’t find it on google (although only went through 7-10 links) and thought it may be mentioned here in this thread. Searching on this thread, Ctrl + F didn’t throw up any results for “lifecycle”, so am I safe in assuming it has been discussed in this 500+ posts thread without really being explicitly mentioned?
With 110Cr capex planned for next 2 years seems there will be no FCF for next 3 years.
Current auto sales of 42K units generating profit of 42Cr.
For generating 85Cr of profit company will have to sell around 84K units which will be possible only when ahmedabad plant is fully operational which seems may take around 3-4 years and given that industry dynamics remain good.
Assuming company doubles it sales to 84K in 5 years CAGR comes around 14.5%.
The current valuation of 22PE seems somewhat on higher side.
Disc : Holding
Maruti was found testing a LCV recently (link below). This should possess some threat to Atul Auto, I guess. Mainly due to the extensive network and reliability the company offers. Also, depends upon the pricing of the model. Though impact to Atul Auto may take time or may not impact it. But looks that LCV is still a hot market.
Sept proved to be yet another month of poor sales growth- just 4% Yoy growth in Sept.
1st half of this financial year saw just 6% growth.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/4C724C3B_1DEC_4B1E_927C_AD2AC7BA6E1C_122226.pdf
Management, on the other hand, remains confident of recovery in the 2nd half.
While some Players like TVS are growing fast in 3W even in current markets, it would be interesting to see how Atul performs in 2nd half & next year!
Atul Auto has just launched or about to launch petrol and CNG version of three wheeler named GEMINI-PETROL and GEMINI-CNG, because Atul Auto’s official site is showing the petrol and CNG version of three wheeler with specifications.Link is here http://www.atulauto.co.in/product.php#AtulGemini
Company to launch CNG Gem by Diwali, plans to step into the 0.35-tonne category, 4-wheeled LCVs on the radar.
Can someone help me to know more about suppliers of Atul auto for all variants of its passenger and cargo vehicles ??
I went to my hometown Rajkot for few days (where you see lot of Atul users). I saw CNG varients running on the roads. They have already launched CNG models.
Did some scuttlebutt with few autowalas who used Atul and they were of view that both on pick-up and efficiency front Atul was better than peers. Although the look is not too attractive, Atul is very good on parameters that really matter.
Last week I saw CNG version getting tested in Pune. I asked driver and he told he is onduty for R & D center in Pune. But couldn’t ask more as there was a full traffic.
Expect 200-400 bps margin improvement in medium term: Atul Auto
Nigel: I was just going through your business model. You are looking at some petrol passenger three-wheeler segment currently. You have recently launched it. Could you give us some targets? What kind of a volume trajectory are you looking at? Which states are you looking at selling this new product?
A: As of now, it would be a little premature to talk about the volume and numbers, but best I can expect is that once we seed product correctly, there is a huge potential for gasoline three-wheeler within the domestic front as well as on overseas front. What I expect that going forward, once we get the correct kick-off, we will be able to put definitely good numbers.
Reema: How has the festive season been for you? I was looking at your November sales numbers and that showed a decline on a month-on-month basis, your total sales were at 4,000 units versus nearly 4,600 units in October. How has December been? Have we seen a pick-up? Has there been festive cheer?
A: Not yet. We are yet to test that jerk in the market. But what we can say, things are stable. Fairly, for Atul Auto, the year has turned out on a positive note in spite the industry remaining flat. Now, what we expect that once we are done with this fiscal, next year, we definitely expect good numbers form the market. But this year, particularly, if you talk about the month of November, October, since it was a festive season, November, there were a few expectations from the market and in particular, Diwali festival, was not turned out as expected.
Reema: And December will it be lower than November?
A: Likely to remain flat in line of November only.
Nigel: Looking at your domestic numbers, that is what we just chatted about, but what about your exports? How do you see it grow? It has been growing at a very fast pace. So, what kind of numbers are we working with may be in the next couple of years? That is point number one. And secondly, could you tell us what kind of a difference are you getting in terms of margins on domestic sales as well as on export sales because I believe that export sales give you a higher margin?
A: Let me reply number two, first. Yes, exports, there are a little more incentives when we send the dispatch the material overseas. But, again, it is not that wide compared to domestic one.
About the exports strategy, as I said, the entire overseas market is scattered by gasoline three-wheelers, and now, we are going to launch that particular vehicle. Till now we were addressing to rural and semi-urban side with 0.5 tonne diesel three-wheeler. We were not having the right product to address that market. Since the product is ready now, we started seeding it in overseas market. We got few of the distributors, who has already imported few numbers and once the market clinic is over, we expect good numbers going forward from quarter one or quarter two of next fiscal.
Nigel: Could you give us some numbers of what is your current percentage, you domestic sales and export sales?
A: Very negligible. It is around 4-5 percent.
Nigel: And you are looking to push it what level?
A: In a medium-term, definitely, we expect above 25 percent surely.
Nigel: And that could give you much better margins?
A: Absolutely.
Nigel: Could you give us some numbers, 200-300 basis points? What could it be like?
A: Will be in a range of definitely somewhere between 200 basis points to 400 basis points. Anywhere between 200 basis points to 400 basis points.
Reema: That will be the improvement in margins in FY17, 200-400 basis points?
A: No, not in FY17, in the medium-term.
Reema: What about closer back home? What should we expect in terms of margins for the rest of FY16? Is there any scope for improvement because we have seen raw material prices come down?
A: If you consider my results for Q2, we have improved substantially. We expect that this improvement will continue in Q3 as well. But, on a broader basis, what I can tell you is on a yearly basis, it will keep on improving somewhere between 50 basis points to 100 basis points.
Nigel: In terms of market share, you have done so well in the last few years, moved from around 1-2 percent, currently you have moved to around 8 percent. That is primarily because one of your big competitors has lost market share. Are you facing any kind of pressure that 8 percent, you can maintain it? Until which level do you want to push your market share? What are your targets?
A: As of now, we are benchmarking our own numbers and growth. What we expect that there is a huge space in the market and we can keep continue our growth momentum barring few quarters or a year or so, when the sentiments are negative. Otherwise, I am quite positive and bullish about our growth. We expect that we will be able to keep continuing this double digit growth momentum in times to come as well.
Reema: Have you been affected in anyway by the restrictions on Diesel vehicles in the Delhi and National Capital Region (NCR)?
A: Not largely. Firstly, we are into a very small micro-commercial three-wheeler segment.
Reema: But, they are diesel vehicles right?
A: Yes, these are diesel vehicles, but as I said, we are ready with our gasoline three-wheeler as well and Delhi in fact, we were not available over there in the past.
Reema: So if you had o give us a few numbers, what percentage of your volumes would come under the impacted diesel vehicles in the Delhi NCR region? Any numbers, if you could give us.
A: Hardly anything.
Nigel: Could you tell us what exactly is your capital expenditure (Capex) over the next couple of years, how do you plan on funding it? I know you are a debt free company and secondly, what kind of free cash flows can we see in the next couple of years?
A: As of now, we are committed for a Rs 150 crore Capex for Greenfield three-wheeler plant which we are going to have close to Ahmedabad. Land is already acquired. Close to Rs 40 crore, we have already incurred through internal accrual. We expect that production will be rolled out sometime in FY17-FY18 and by then, through internal accrual, we are going to fund that particular Capex. About free cash flow, I have generated somewhere close to Rs 45 crore last year and we expect that with the improvement in business in current year as well, we will be able to generate close to Rs 45-50 crore every year. So, it would be definitely going to meet up with my Capex plan.
Disclosure: Invested from lower levels.
AtulAuto 2015122.pdf (971.8 KB)
Detailed report by Nirmal Bang on Atul Auto.
http://www.nirmalbang.com/Upload/Atul%20Auto%20-Initiating%20Coverage%20-30%20December%202015.pdf
Disclosure: Invested from lower levels
Solid results. despite weak volume growth, margins have gone through the roof and PAT is up 41% YoY in 3Q
Disclosure: Invested for a very very long time now.
CONFERENCE CALL - from Capital Markets
The management feels that 50-100 basis points margin expansion on yoy basis is possible
Atul Auto held a conference call on 11 February 2016 to discuss the Q3FY 15-16 earnings. JV Adhia, VP Finance took the queries.
Key Points from the discussion:
In the industry, there was overall 2.13% growth in overall volumes during the first nine months ended Dec 2015. This was due to subdued market sentiments and poor rainfall.
Out of this, 2.27% was in domestic market and 1.4% was in exports.
On 9-month basis for 3W, there was 8 basis points drop in growth. Total volumes stood at 7,31,000 units. While domestic saw 4.3% drop in growth, exports increased 5.48%.
In the domestic market, Atul Auto increased its market share from 7.29% to 8.07%.
The company is slowly foraying into the urban market now.
The company’s domestic and export growth has been 16% and 21% on 9-month basis.
In the cargo segment, the company has increased its market share from 18% to 20%.
The company is confident of maintaining current growth momentum.
The company is present in all states except West Bengal and Tamilnadu. The company plans to be in all states by next fiscal.
As of today, the company has a total of 200 primary dealers and 120 secondary dealers.
Low commodity prices and operational efficiency aided margins growth in the third quarter of FY16
The management feels that 50-100 basis points expansion in margins year-on-year is possible.
The company is expecting a double digit growth for the company in next fiscal.
The company has very recently launched the gasoline three-wheeler. As of now it is focusing on seeding the product in the right market with a right strategy.
The management would like to take some more time to get established over there and then move to the next market.
The company plans to venture in all geographies where there is potential for 3 Ws in the next 3-5 years.
The company has 8 distributers in overseas market and plans to add 10-15 in next couple of years.
In the long term (3-5 years), management feels that exports should be 30% of total sales.
There is 4-7% difference in gross margins between exports and domestic business.
Disc: Invested.
Anyone has views on this in terms of how this is going to get resolved
Disclosure: Invested
Since this is a budget announcement, it must have been 4 to 6 weeks for the dealers to realize this anomaly. If it hasn’t resolved in last 4 to 6 weeks, it’s not clear to me how long it will take to resolve, if at all there is a resolution. Unless the company makes an announcement, the only way to find out is to wait for next month’s sales numbers or call the dealers in Gujarat to check if they are taking deliveries
Since this is a tax law change in motor vehicles, it’s not just Atul Auto or just 3 wheelers that are impacted. All segments of the auto industry must have been impacted. I think someone will have to take a tax burden and pass it on to customers. I don’t think the govt is going to budge. I don’t think this is an anomaly as the company calls it. If we go down from here, we will rebound swiftly once there is some clarity. Until then it will be volatile.
Disclosure - not invested.
This is a tax issue affecting sales in Gujarat only. How can the total sales of April drop by 50% due to this? Is the co. selling mainly in Gujarat? I see their tin-can phatpati in Maharashtra too.
Management Interview on this issue
