Manish,
To put it simply, if Rs. 136.25 crores is sales for 180 days, what is the no.of days sales represented by debtors of Rs. 8.47 crores. So what you get is (8.47*180)/136.25 = 11 days
Thanks Sandeep.
Hi Manish,
Glad to see atleast some folks taking interest in noticing the quality of growth that Atul is showing:)
Attached is my excel sheet on Atul Auto. for your reference and anyone else interested! Any questions, we can take it offline.
-Donald
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Atul-Auto-results-tracker.xls (89.5 KB)
Dear Donald,
Sorry to ask you basic question, I was going through your excel sheet on Atul auto. You noted the that total no of shares 7310000 tell from where did u get this number. I was going through rediff ,money control and BSE website the numbers comes to be about 5851520. Since I was comparing the EPS value given in these sites. As I am very new to the investing business trying to learn how to get the datas from different sources and calculate various parameters.
Regards,
Chethan
showing
Sure Chethan. We welcome all questions - especially on basics - lot of other lurkers benefit too:) Somehow its been my failing to be able to encourage everyone to ask questions. (I have learnt only by asking questions< so am I glad you are asking:))
The capital structure post rights issue, Sep 2011 is 7.31 Cr. A good place to check current/history of capital structure is as below
-Donald
could you please
Dear Donald,
Thank you for your encouraging words. I was calculating EPS based on Money control and rediff which gives different values than you mentioned. Is equity capital and is mean the same.
Regards,
Chethan
too questions< so am I glad you are asking)
No.of outstanding shares x Face Value of stock = Equity Capital
So if a company has 70,00,000 shares outstanding with FV of 10, then equity capital of the company is 7 cr.
Please refer to the Stock Market Glossary at ValuePickr for simple explainations on many stock market jargons. I have found that really useful in the early days.
http://www.indiainfoline.com/Markets/News/Atul-Auto-net-sales-up-54-percent/5303595143
| India Infoline News Service / 09:16 , Dec 05, 2011 | |
THREE WHEELERS MARKET IS VERY BUOYANT IN INDIA FOR US, AND WE ARE EXPLORING OUR STRENGTHS TO INCREASE MANUFACTURING CAPACITY OF ATUL AUTO LTD. |
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Very interesting story, and I am pretty much kicking myself for not investigating earlier (lost 30% already :
Anyway, hereâs my analysis-
Positives:
a) Promoters seem very competent and given their history, pretty much grounded.
b) Balance sheet is very healthy (and they are in the process of retiring their little debt with the rights issue) (As the saying goes, in small and micro caps, check the B/S before the P&L).
c) Most interesting and the reason I got kicked on this stock - Dealer advances. 3 cr dealer advances out of 18 cr sundry creditor. Alright, so its a 20% composition. Letâs look at the B/S after Q2. We see that Sundry creditors has almost doubled. Do we think that dealer advances also increased at a similar level? Your guess is as good as mine.
d) They seemed to have increased the avg. price per product by Rs.7000 and I think thatâs due to them selling more Atul Gems than Shaktis. (Calculation was done thus. At the end of 2011, they had sold 19398 units and realised 221 cr, thereby price per unit being Rs. 1.14 lakh. Checking the latest Q2 nos., 6794 units were sold for Rs. 82.65 cr, thereby price per unit is Rs. 1.21 lakh.)
Inspite of increasing the price, demand has gone through the roof confirming two things - i) Product in huge demand and hence price inelastic for now (which is great!) and ii) As c) states, dealer advances would have increased because of this demand.
So, all in all, a great demand and revenues story. The last two quarters historically have been better than the first two. Hence, I have pretty much no doubt in my mind that the revenues wouldnât disappoint, and the company is on its way to achieve its stated 40% revenue growth y-o-y.
Negatives:
Expenses. Probably my single biggest worry for this stock. Not the expansion into LCV story, not the failed Gujarat expansion story and definitely not the Scooter India acquisition story.
a) If you go through the Rights offer document, they clearly state that they have got no contracts with any of its suppliers for engines. They just buy as much there is a demand (engines are being bought from Greaves Cotton - so thatâs another stock story we might want to investigate if AALâs demand continues). In inflationary times like this, this non-contract behavior will pretty much kill you.
b) Coming to actual numbers. Letâs try to project FY12 numbers (and I use the word âprojectâ very loosely)
2011 2012
No. of units sold 19398 27157 (40% growth as stated by mgmt)
Avg. price per unit 1.14 1.21 (Avg. price realised as explained above)
Gross Sales 22114 32860
Excise Duty 2034 3023 (Seems constant at 9.2%)
Net Sales 20080 29837
Expenditure 18689 27428 (1.01 is the factor btw nos. sold and exp)
Operating Profit 1391 2408
Net Profit 943 1445
No. of shares (in cr) 6.08 7.31
EPS 13.82 19.7
Assume the current multiple, you arrive at a price of 140, a 20% appreciation from these levels, assuming there is no re-rating. However, if the expenses in the last two quarters are substantially more than the first two (the management has expressed worries recently), we might be in a little bit of trouble given the very little margin of safety we have from current levels. (Of course, we can assume loans are paid off, and hence interest of 38*.7 = 26 lakhs will flow down to net income,but will create only a decimal difference)
Summary: Although I am pretty excited about the stock and the revenue nos., the margin of safety is a little too less to load up on the stock to get a quick 20-30% gain.
Views invited.
I couldnât stop myself from continuing some sensitivity analysis.
Without going into a lot of numbers, hereâs the deal -
To achieve the managementâs target of 40% growth, AAL has to sell about 14780 units more in Q3&Q4. Letâs assume for a moment that they sell it equally across two quarters.
In Q1 and Q2, the ratio of Expenditure to the number of units sold is 1.01.
I did run a sensitivity analysis of this ratio from 1.01 to 1.1 for Q3 and Q4 and added this expenditure (Q3+Q4) to the expenditure of Q1+Q2, which would obviously give us the total expenditure for the year.
Plugging in other numbers, I found that an increase beyond 2% in expenditure costs in Q3&Q4 beyond Q1&Q2 numbers (that is, the ratio of expenditure to number of units sold increases from 1.01 to 1.02 to 1.03 etc.), leaves us with lesser and lesser target price.
2% is all we have. In this inflationary environment and with lack of contracts, isnât that thin ice margin of safety?
Of course, all the talk of target price is valid if there isnât a re-rating due to off-the-chart numbers in revenues.
Make no mistake, I am quite excited about this stock and its potential. The price is just not right yet.
Views invited.
P.S - Someone mailed me asking why dealer advances are good? Well, if your customer (in this case a dealer - and a dealer doesnât pay money unless he has a line of customers waiting outside his shop for the product) is paying you money in advance for a product, that is a great business to be in. In any case, do read up Prof. Bakshiâs analysis on VST industries which is on similar footing on customer advances thingy.
What could be the reason for lower margins in Q3 and Q4?
It has been the case in the previous year as well. Though Revenues are highest in Q4, profitability (gross margin) is lowest.
Profitability is highest in Q2 and this we have already seen in good results.
@Akbar - The Rights Issue document throws light on this. However, in brief, they state increased marketing expenses, increased directorâs remuneraton and increased raw materials cost as the reasons. There is no reason why we should assume that the trend would not continue this year too.
@All -
In the analysis above, I have assumed a 40% growth from previous year unit numbers, leading to AAL selling around 27157 units. However, their production capacity is capped at 24000 units. We can assume that they run production at 110-120% capacity for the next couple of quarters to fulfill demand. What next?
As in, they canât keep running it at more than 100% capacity (well, they can but then you would have the side-effects of breakdown, repair and increase in maintenance costs). I have not seen any concrete manufacturing expansion plans till date (assume they buy Scooter India (which in my view is highly unlikely, given govtâs paralysis behavior), it would still take them atleast a quarter or two to streamline the production).
What they can do?
a) Currently they run on a single shift basis. They can make it a double shift enterprise, thereby double the capacity (approx.). But they have to trade that off with maintenance repair costs. Given the demand, I guess this is possible alternative.
b) Since the product seems price inelastic for Rs. 7000, AAL can probably increase the prices again in the next quarter or two,citing increased raw material prices and thereby lead to better realization. They still have a long way to go before they catch up with the M&Ms and Piaggios of the world in terms of similar product prices.
c) Or do both a) and b), which in my opinion, the company might opt for.
Anyway, as I stated earlier, I have no concerns on the revenue aspect of the company. They will do great on that front.
On the expenses front though, their major cost seems to be Engines (sourced from Greaves Cotton. For the more curious, they source tyres from CEAT and MRF and their batteries from Exide - the trio constituting majority of costs). I tried checking Greaves Cotton numbers, but they donât break out their sales in terms of number of units sold for the Automotive segment (which AAL falls under) in their quarterly results. Therefore, it would be difficult to know how far they have increased their prices - but given the environment, we can be pretty sure they have increased their engine prices. Just not sure by how much (anyone can throw light on this figure?) (I did look through Greaves Cotton AR, and on average they had increased their engine prices by 5% from 2009-10 to 2010-11). However, for the half year ending 2011 though, per unit raw material expenditure seems to have come down by 11% compared to the previous year. Not sure thatâll be the trend in the next two quarters.
If the expenses increase (or already have increased dramatically), the contribution would be lesser per engine and thereby may not lead to re-rating of the stock. (Can someone explain me whether re-rating happens due to consistent outperformance in revenues, profit or EPS or all three or two out of three etc?)
Views invited.
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I just realised that Iâve got the number of units wrong. Management has guided a 40% increase in gross revenues and not number of units sold.
Revised number calculation (which will include avg. price per vehicle as 1.21 lakh), number of units will be 25625.
I have calculated EPS for the year (including sensitivity analysis), and the most probable EPS comes to Rs.19.5. With current multiple of 6.6, we arrive at a price of 128, a 11% upside to current levels. With very moderate re-rating to 7, we arrive at Rs. 135.
However, I have assumed the company has paid off the debt (and hence no interest expense in the next two quarters). Also, no other income has been considered (which I think is being very conservative, given the cash levels they have). All in all, a 15-20% appreciation from current levels cannot be ruled out (unless of course market tanks, and we all go to Uranus for settlement).
Hi Friends,
Planning to do a mgmt meet or con-call to get a better understanding of the co and its prospects. Please put up your queriesâŚsome of them from my side:
1). The growth has been spectacular over last 2 years. Kindly take us through the journey and key factors behind the same
2). The growth seems to be because of your new launch Atul Gem. What was the differentiator and reason for success?
3). Isnât the growth and current revenues dependent on just the new model - Atul Gem. Is this risky?
4). This 3 wheeler space does sees lots of changes from time to timeâŚin term of vehicle efficiency and hence the demand. How is your co equipped to match thecompetition?
5). How is thecompetitionin this space? What edge does the co have over MNCs and biggies like - Piaggo, Bajaj?
6). It seems the coâs presence is more on the commercial auto sideâŚwhy havenât we been able to penetrate the passenger side?
7). The coâs diesel version seems to be popular. But going forward it seems CNG would be a more economical and viable thingâŚhow is the co prepared for that?
8). What advantage does Atul Gem have over others like Piaggo? I mean is it cheaper? more efficient etc?
9). As per feedback, Atul Gem sells more as it has 2 yr warranty vs 6 month given by others. Is it the co is taking too much of riskâŚconsidering the nature of roads, overloading etc? How risky can this warranty liability could be?
10). Co sources engines from Greaves CottonâŚso what is the competitive edge for the co? Canât somebody else source engines and assemble a vehicle?
11). 2007-08 was a challenging period for the co and their was some engine problem when the co was trying to go pan india. How serious was the thing and has it damaged brand Atul in new areas? What abt the contingent liability?
12). The sales nos are pretty good nowâŚwhat is the expectation on the sales momentum? How will the growth be maintained?
13). There was an article that the co wants to double the capacity by Dec, 11. What is the status. Has it been done? From when will the growth come from there and in what time does the co plan to utilize the new capacity? How much was the capex?
14). Co also talked about its vision of 1000 Cr turnover by 2015-16. How realistic is it and what would be the components of the growth (i mean only 3 wheelers or does it include 4 wheelers also?)
15). Revenue and profitability guidance for next 1-2 yrs?
16). Historically co has had OPM at just 5-7% but now it is at 9-11%. How sustainable is this?
17). The Balance is showing magic - the co has repaid all of the debt of 30 Cr in 2 years and now is sitting on excess cash. Kindly take us through the reasons. As per Sep, 11 BS, the creditor has risen to 18 CrâŚhow much is advance and deposit from dealers?
18). Why was the rights issue done when the growth had started coming?
19). The good thing is the co is getting advance from dealers. So what is the strategy, terms etc on dealer appointment. How many dealers does the co has? and what are the targets? Why didnât we have advances earlier and why now?
20). What are the main territories for the coâŚplz give a % share of each. Also what would be new areas?
21). Any plans for launching of new models?
22). As per a case study the new generation is trying new business models like education etc. Isnât the new generation excited abt prospects here? How much are they involved?
23). The 4 wheeler foray seems risky to investors as many cos have burnt their hands. And as its a high capital intensive and long gestation period project, why is the co wanting to do that? How will we be better than the established brands?
24). Div policy? NSE listing? Bonus issue? More communication with shareholders
25). Atulâs sister concern was into financing earlierâŚbut the co had faced losses. What is the status now and plans ahead?
26). In new territories, the co has talked abt plant at AP, presence in Sri Lanka, JV in Bangladesh. Plz share details and quantum of revenues expected.
Ayush
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Wonderful first compilation Ayush! Thanks, this gives a big leg-up to our efforts.
Range of questions is good - certainly covers my top-of-mind range - both from the positives that we can see and the negatives that we can anticipate.
I will straightaway get into refinement mode, taking some of the questions deeper and structuring the questions for holistic probing.
Hitesh, Kiran, Naga - and others interested - in understanding Atul Auto and its prospects better - please chip in with additional questions.
fire away!
-Donald
10 Questions for Atul Auto Management
1). If we look at 2007 -2010, Sales have been rather flat at ~120 Cr. However Atul Auto has been registering heady growth over the last 2 years. 68% in FY11 and 1HFY12 has seen Sales growth of over 56%.
Kindly take us through this journey of the last 5 years. What has the company done differently in the last 2 years? What are the main contributors to this recent success?
2). Atul Shakti (Front Engine 3 Wheeler) and Atul Gem (Rear Engine 3 Wheeler, introduced in FY09) comprise ~94% Sales. The contribution of Atul Shakti has come down from 63% in FY10 to 43% in FY11. Also in volume terms Atul Shakti has grown only by 6% over FY10. Seems like Atul Gem is a spectacular success, and the primary driver of growth for the company.
Kindly explain the dynamics of the 3 wheeler market. Why is a rear-engine 3 Wheeler preferred over front-engine 3 wheelers?
If rear-engine 3 wheeler is a overwhelming favourite, why did the company work on introducing front-engine 3 wheeler (Atul Shakti)â especially when market leaders like Bajaj, Piaggio always had only rear-engine 3 wheelers?
What is the Sales mix between Passenger and Cargo Vehicles? Is it any different for front-engine and rear-engine vehicles?
3). The 2006 collaboration with Lombardi didnât work out. The project was a failure and the company had to recall and replace engines in nearly 8500 vehicles eventually.
What went wrong? What are the lessons learnt by the company? How did you handle the financial impact?
What is the legal situation on the court cases filed by both sides? Whatâs the companyâs view on risks posed by the contingent Liability of ~11 Cr?
How did you solve the technology/engine sourcing problem subsequently?
Greaves Cotton supplies all your engines today â and Atul is on a spectacular growth trajectory - why has this alliance worked out so well?
What is the nature of relationship with Greaves Cotton on this front? Without any binding contracts, how do you mitigate risks on this front? Are there any competing 3-wheeler manufacturers also sourcing engines from Greaves Cotton?
4). Competition. Atul competes against bigger and more establish rivals in the 3 Wheeler space like Bajaj and Piaggio. In Gujarat Atul Auto is #1 3 wheeler maker and its #2 in Rajathan.
Apart from the home advantage in these 2 states, what are the factors that has helped Atul best competition in these 2 states?
What are the key technology parameters that serve as Sales drivers â Load-bearing capacity and mileage? Do Atul products offer any advantage vs competing products on these 2 fronts?
How does the company keep pace with technological advances in its field? How strong is the Pune R&D facility? Please give an idea of the quality/skill levels of the R&D team? Any new models planned for launch soon?
Any other competitive advantages?
5). In rural markets, 3 wheelers - especially in Cargo segment- are routinely abused. Road conditions are bad and almost always vehicles are over-loaded. Despite this Atul Auto offers extended warranty of 2 years, while competition offers only 6 months warranty.
Is this correct? How long has Atul Auto been providing the 2 year warranty and what has been the experience so far?
How does Atul balance the trade-off risks? If Insurance covers are the answer, that will only inflate the cost (known risks), why are competing companies not following suit?
6). Industry growth. The entire 3 wheeler market is growing at a much faster pace in the last 2 years. This was not the case in earlier years.
What are the reasons for the change in fortunes? Is it because the rural economy is growing much faster due to govt-funded schemes like NREGA, increased spends on improving rural infrastructure like better roads & connectivity?
What are the main growth drivers for Atul Auto for the next 2-3 years?
7). Sales & Distribution Network. The company has been focusing on increasing its dealer network in the last 2 years.
Kindly elaborate on your Sales & Distribution model. In how many states are you present? Other than Gujarat and Rajasthan, which is your next biggest market and why?
What are the challenges when you try to expand into a new state? Arenât there permits/controls imposed that vary from state to state. Usually these come with political patronage, and competitors we assume are already entrenched. How do you tackle these issues when expanding into a new territory?
What is the current Dealer network strength? What are the plans for the next 2 years?
What kind of incentives do you offer to new dealerships while entering a new market? What kind of market mapping exercise is done within the company before you take a decision to enter a new market?
8). Dealer Advances are now a significant factor in improved working capital situation.
Kindly explain your Dealer Advance Policy. Why has it shot up from 36 lakhs to 3 Crs in FY11?
100% Dealer Advance indicate strong demand and product acceptance? Are you meeting with the same success in all the new markets you have entered?
Do your foresee this happy situation as an established aspect of your business model from here on? Is this likely to continue for the next 2-3 years? Will the Advance base keep growing as you expand into newer markets and appoint more dealers?
As per 1HFY11 BS, the Creditors has risen to 18 Cr? How much do Advances and deposits from dealers account for in this?
2Q Fy12 saw Working Capital situation turning negative. Is this sustainable?
9). Production Capacity. There were press reports and articles quoting the company wanting to double its production capacity from existing 24000 vehicles capacity.
Kindly inform on the progress on the same? Is this being done in existing location or this is a new location being planned?
What is the outlook for FY13 on the production front? Will it be able to match rising demand from the expanded sales & distribution network? What kind of Sales growth is the company aiming for in FY13?
What is the outlook on the margins front? Are operating margins sustainable at the current 9-10% range for the next 2-3 years?
10). 1000 Cr Turnover target by FY2015-16. A 5 fold increase in 5 years.
Is this a realistic target for a company of your size? What will be the main growth planks and what are the milestones to be achieved along the way?
What contribution is expected to be forthcoming from your Sri Lanka and Bangladesh forays?
We have often heard of the companyâs LCV plans. Given that are entrenched players in this segment - there are products like Tata Maxis, and Magic 4 wheelers âpositioned well for the rural/semi urban market, what are the companies strategies for the same?
Technology collaboration would be necessary for the companyâs entry into LCV segment. Has the company tied up with any technology partners? Or, is the company planning to enter this market on its own home-grown technology? How far are we from some action on the ground on this front?
What kind of Capital Expenditure will be necessary for the LCV project? How has the company planned to fund this?
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Ayush,
Please go ahead and set up the interaction with Atul Auto Management.
The above set of questions should enable you to go about the questioning in a structured way! Please feel free to add/modify suitably.
If we manage to get all these answered properly, it will be a good advancement in our understanding of the company.
Thanks.
Donald
PS: I am an vacation and may not be able to respond much from here on. Wishing everyone Merry Christmas in advance!
I guess Atul dropped plan to develop newmanufacturing facility in the earlier proposed location due to land price. Did they find another location?
I have a few questions to add :
- If the co. is manufacturing 24000 vehicles p.a. on single shift basis, can the co run on double shift??? (that would save a lot of capital cost in near future)
- What about the provision of warranty provided on sale of vehicles? How is it dealt in balance sheet
- What is the avg life of a Atul auto vehicle on indian roads?
- Is there any second hand market of autoâs ? If yes what is the market share
- Who is Mr. Vijay Kedia and how is he a director in the co.? He is just 14% shareholder and a big investor in the market? How is he regulating the market price of the co.
- Is the any scrap to the co ??
There is an important question to be asked if possibleâŚ
they are planning to arrange 200 crs for takeovers through debt and internal accruals. They have in past tried for an acquisitions and are now planning to buy scooters India ltdâŚwhat is the rationale behind itâŚand is it wise to buy a company bigger than parent company?