Atul Auto Limited

[harsh.beria93]

@Amit2saxena

So, does it mean that this is a cashless transaction? Atul Auto is not paying 45 Cr in cash , rather issuing preference shares for 70% stake that’s equivalent to 45 Cr and will be paid after five years? I was not able to get clarity if I this is the right way to look at this deal.

I don’t think this understanding is correct, the shareholders of Khusbu finance have been paid out in cash (and not in the form of any preference shares). This is also disclosed in the related party transaction in H1FY22. Manju Vijay Kedia held 17%, Khusbu finance was valued at 63.67 cr. so the 17% should be 10.82 cr. which was the amount paid out in H1FY22.

https://www.bseindia.com/xml-data/corpfiling/AttachHis/ceb20231-10f6-4c53-9c16-ed1e97cdfb1a.pdf#page=2

This is also clearly mentioned in the earlier press release that payment will be made in cash.

394a9671-97fa-4816-aee7-9f4ee7713017.pdf

Now coming to valuations of Khusbu finance, lets first understand their financial history (compiled from annual reports).

FY17: Invested 6.82 cr. (cumulative: 7.81 cr.); stake brought down to 30% from 49.91%; Khusbu raised 25.8 cr. (3 cr. pref + 22.8 cr. rights issue); disbursed loans of 23.34 cr (1’572 customers); AUM: 32.99 cr.; PAT: 1.77 cr.

FY18: Invested 5.4 cr. through rights issue (cumulative: 13.21 cr., 30% stake); disbursed loans of 100.44 cr. (6’050 customers); AUM: 114.7 cr.; PAT: 8.61 cr.

FY19: disbursed loans of 98.97 cr. (6’592 customers); AUM: 139.8 cr., PAT: 7.64 cr.
FY20: disbursed loans of 91.47 cr. (5’090 customers); Networth: 63.66 cr.; AUM: 146.86 cr., PAT: 3.2 cr. ROE: 5%
FY21: disbursed loans of 64.47 cr. (2’798 customers); Networth: 68.96 cr.; AUM: 152.93 cr., PAT: 5.29 cr. ROE: 7.7%

In FY17-21, company disbursed cumulative loans of ~379 cr. and recorded cumulative PAT of 26.5 cr. Atul auto has invested 13.21 cr. cumulatively for 30% stake + 44.57 cr. for remainder 70% stake ~ 58 cr. FY21 reported networth of Khusbu is 68.96 cr., so the valuations are not out of whack. Now we can comment on the very low ROE made by the company. This is probably more of a function of overcapitalization of the NBFC (d/e of 1x in FY21, 1.09x in FY20). If this d/e was 3-4x (in-line with other vehicle financiers), ROE would have been >15%.

@Amit2saxena

By the way, when Khushbu Auto was owned by Atul Auto (30% stake) and Promoter related Parties (70%), why was this deal required at all? They were controlling the NBFC the way they wanted as they were the complete owners.

Valuations were appropriate, being complete owners means alignment of interest. Why should a minority shareholder not benefit from 100% of operations of Khusbu Finance when its being managed by the same team as Atul auto.

Hope this clarifies my thought process.

Disclosure: Invested (position size here)