Credit is heart of sales for vehicle market as without credit even second hand vehicle market will collapse,
we need to find out what kind of arrangements other auto companies have with NBFC’s.
Is Atul Auto sharing more risk with NBFC’s compared to others?
Need to find out
Is acquisition of KAFL in favor of business of AAL and in the best interest of investors?
I think 60-70% of customers cant do without credit, so credit is must for this business.
AAL already owns 30% shares and acquiring remaining 70% shares at 44.5cr.
It is acquiring in depressed market conditions for NBFC’s & particularly KAFL’s customers are affected more, as in lockdowns they had almost zero cash flow, so I expect them to acquire at significant discount to fair value, as NPA’s are definitely going to be very high in coming quarters.
Need expert opinion on acquiring valuations of 44.5cr for 70%
Will 3 Wheeler business grow?
I think it will.
Reasons,
a) India’s GDP is bound to bounce back to 6-7-8% growth level
b) Rural to Urban population shift theme playing out, cities will get bigger and more populated, so last mile connectivity for material & passenger traffic will increase.
Will AAL’s business grow?
Time frame is uncertain but I think it will,
a) It’s making good quality of vehicles
b) Market leader in Gujarat and it just has to apply same strategy to other states. Hugh growth runway
c) Prime competitor in cargo segment is Piaggio which has to feed financially weak Italian parent, so Piaggio cant stand to win in price war.
d) Good export potential
e) Growing market size
f) Presence in all fuel types
g) Focused management
Why so low price to such high RoCE, strong Balance sheet, good growing business?
Business is depressed, credit risk is there, acquisition risk is there, and definitely there is uncertainty.
Market hates all these
When will the sun shine again?
We don’t know,
3 wheelers segment is one of the most impacted segment in last 6 months due to COVID & Lockdowns,
I guess bad NPA’s cycle is playing out since last 2-3 years and it may be at its peak at the moment, so whatever bad had to happen has happened now.
once the uncertainty is over and GDP starts growing again at heathy pace we can expect a good business, and great share price.
Discl.: Invested and may be biased ( Some famous western investor has said " Keep your eyes wide open when choosing a girl for marriage and half close after marriage)