Atul Auto Limited

Stock Opportunities
121

With the recent corrections, think Atul Auto is priced attractively again. Fundamentals remain intact:

1). Debt Free, Strong Balalnce Sheet,

2). Low Working Capital ~4.5% Sales, which is amazing

3). High Asset Turns at 3x

2). Stable margins

3). Ability to grow 20-25%

If we take a 1 yr forward view, Atul Auto is available at similar valuations like when we started discussing the stock. Growth visibility has slowed down for sure. But even with a conservative 20% growth for FY13, its available ~5.5x

I am a buyer at current levels.

Disc: Vested interest in Atul Auto, significant portion in Short-Term Portfolio

122

My conservative projections for Atul Auto for FY13.

Views Invited.

Atul Auto 2007 2008 2009 2010 2011 2012 6yr CAGR 2013E
Growth
-37.08% 49.14% -0.91% 68.20% 48.24%
25.00%
Net Sales 128.88 81.09 120.95 119.85 201.59 298.83 18.32% 373.54
Equity Dividend 0.54 0.59 0.29 1.17 2.34 3.66 46.63%

EBITDA 7.82 7.01 5.85 14.18 20.06 28.20 29.26% 33.62
EBITDA Margins 6.06% 8.65% 4.84% 11.83% 9.95% 9.44%
9.00%
Depreciation 1.95 2.29 2.46 3.87 4.25 4.25
5.31
Depreciation/Sales 1.51% 2.83% 2.03% 3.23% 2.11% 1.42%
1.42%
EBIT 5.87 4.72 3.39 10.31 15.80 23.95
28.31
Interest 1.01 2.81 2.80 3.16 1.74 0.59
0.37
Interest/Sales 0.78% 3.46% 2.32% 2.64% 0.86% 0.20%
0.10%
PBT 4.86 1.91 0.59 7.15 14.06 23.36 36.90% 27.93
Taxes 1.71 0.64 0.13 2.61 4.64 7.76
9.28
Tax rate 35.15% 33.72% 22.61% 36.52% 32.97% 33.22%
33.22%
PAT 3.15 1.27 0.46 4.54 9.43 15.60 37.71% 18.65
Net Margins 2.44% 1.56% 0.38% 3.79% 4.68% 5.22%
4.99%
# of Shares 0.56 0.56 0.61 0.61 0.61 0.73
1.10
EPS 5.64 2.27 0.76 7.46 15.49 21.34
17.01
Adj EPS 3.76 1.51 0.50 4.97 10.33 14.23
17.01
EPS growth
-59.78% -66.70% 887.51% 107.70% 37.74%
19.57%
P/E



9.10 6.61
5.53
P/Sales



0.28 0.23
0.28
P/Book



1.42 1.23

Yield



3.41% 3.55%


123
[quote="Donald, post:122, topic:582050293"] > My conservative projections for Atul Auto for FY13. > > Views Invited. > > | 25.00% > Net Sales | 373.54 > Equity Dividend | 33.62 > EBITDA Margins | | 9.28 > Tax rate | 18.65 > Net Margins | | 4.99% > # of Shares | | 17.01 > Adj EPS | | 17.01 > EPS growth [/quote]

donald,valuations wise it seems ok but i just dont see enough of them on the roads except the goods carriers on the roads to give confidence.Even in the goods carriers the Piaggio APE seems to be doing good.Im not sure if people are going to shift to atul from bajaj for the passenger ones.More feedback from people including interaction with drivers/dealers would help in evaluating this.If the greave cotton engine is available to evrybody,what is it that distinguishes this from bajaj,mahindra,piaggio etc
Atul Auto 2007 2008 2009 2010 2011 2012 6yr CAGR 2013E
Growth
-37.08% 49.14% -0.91% 68.20% 48.24% 128.88 81.09 120.95 119.85 201.59 298.83 18.32%
0.54 0.59 0.29 1.17 2.34 3.66 46.63%

EBITDA 7.82 7.01 5.85 14.18 20.06 28.20 29.26%
6.06% 8.65% 4.84% 11.83% 9.95% 9.44%
9.00%
Depreciation 1.95 2.29 2.46 3.87 4.25 4.25
5.31
Depreciation/Sales 1.51% 2.83% 2.03% 3.23% 2.11% 1.42%
1.42%
EBIT 5.87 4.72 3.39 10.31 15.80 23.95
28.31
Interest 1.01 2.81 2.80 3.16 1.74 0.59
0.37
Interest/Sales 0.78% 3.46% 2.32% 2.64% 0.86% 0.20%
0.10%
PBT 4.86 1.91 0.59 7.15 14.06 23.36 36.90% 27.93
Taxes 1.71 0.64 0.13 2.61 4.64 7.76
35.15% 33.72% 22.61% 36.52% 32.97% 33.22%
33.22% PAT 3.15 1.27 0.46 4.54 9.43 15.60 37.71%
2.44% 1.56% 0.38% 3.79% 4.68% 5.22%
0.56 0.56 0.61 0.61 0.61 0.73
1.10 EPS 5.64 2.27 0.76 7.46 15.49 21.34
3.76 1.51 0.50 4.97 10.33 14.23
-59.78% -66.70% 887.51% 107.70% 37.74%
19.57%
P/E



9.10 6.61
5.53
P/Sales



0.28 0.23
0.28
P/Book



1.42 1.23

Yield



3.41% 3.55%


124

I see plenty of atul shakti vehicles-- most of them brand new looking in my city. It seems this is now the growth driver. gem paxx (passenger vehicles) are also there but havent seen any new ones recently.

I agree with donald, this looks worth loading up.

Technically stock is taking support at its 200 day exponential moving average which is around 90. Some consolidation at these levels is usually good for the long term health of the stock’s subsequent upmove.

125

Company got big expansion plan of 200 cr and diversify business in diff vehicle section. This would be funded by debt and equity i feel.

Company making 15 cr yearly and making big plans. Do you think we need to see some signs of implementation of this plan before jumping and putting significant money in this

Regards,

Milind

126

To be honest, I’m very confused about this Company. One the one hand the historical financials look so enticing that it seems like a no brainer. But on second thoughts, this company has had its fair share of ups and downs with certain strategic mistakes committed in the past and the future is what counts.

I would not expect the company to repeat the same level of top line growth this year.

I also have my doubts regarding the competition. How does this company’s products stack up against the competition and do customers prefer their product just because it is cheap? I went through the management interview and found no specific input on how Atul beats competitors. Just a line that says that Atul is more focussed on the 3-wheeler space and can therefore give better value i.e. cheaper products but better quality", which is good but cheaper products restrict the ability of the company to pass on price increases. The Company was able to dodge cost increases last year due to strong top line growth but I’m not sure if it will be able to do the same this year. margins might come under pressure.

It might make sense to wait for Q2 results. Anyone can shed more light on Atul’s competitive strengths?

127

String of comments re-iterating interest in Atul Auto. Most of what has been raised, has been discussed at length earlier in the discussions. Let me try and summarise what I have understood of Atul Auto and the industry, comepetitiveness etc.

1). Fundamentals of the company are strong. There is no debate on that

2). There is no magic to the company’s growth - entering new markets, is what’s driving its growth. Explosive demand in rural, semi-urban markets has driven growth in the past. This growth is now tapering so you may not see 40% growth, but more likely 20-25% - which is still pretty good

3). The cargo segment is doing very well. I was told by a friend - a dealer in Ashok Leyland, that their new product mirroring Tata Ace is flying off the shelves. if 4-wheelers in that segment are doing that well, I am sure the 3-wheeler Cargo’s should do equally well (given they quote at 0.5x Ace levels.

4). Not sure how the Passenger seg is doing. We will do well to quiz management on diff product segments, value they bring, demand growth vs supply, etc.

5). Atul auto does not offer a cheaper product. Infact is it priced slightly higher than Piaggio Ape. Offering the same load-bearingcapacity and as per claims slightly better mileage.It offers 2 years warranty, unlike 6 months of the others. They offer this warranty by tying up with Insurers. These vehicles are abused a lot with overloading…and the 2 year warranty is a big hit with this segment, we are told.

The exciting part for me is that the company is doubling its capacity at very little incremental cost. De-bottlenecking and Incremental additions to Ancillary units like Paint shop etc to increase capcity while simply doubling the shifts.

The company keeps making noises about JVs and 4-wheeler expansion, etc. But I have taken these as more as staying in the news, positioning. future plans, etc. When they do move in 4-wheelers for example, there will be big risks …and time for me to exit!

Till such time, we should ride this story. We have a chance to meet Management later this month.

So please fire away structured queries.

-Donald

1 Like
128

Thanks Donald. I have gone through the quarterly reports and annual reports in great detail and don’t have complicated questions. My only concerns are highlighted below-

  1. Please take us through the margin scenario. We have noticed that margins vary significantly between each quarter. Please enlighten us on the factors that you margin depends on i.e. engine prices, rubber prices, any other commodities used (iron/steel/copper)?

  2. We noticed that Atul has a lot of plans - increasing capacity, tapping export markets - Sri Lanka, Bangladesh, venturing into 4 wheeler segment, acquisition of scooters india. Do you believe management has the bandwidth to take on so many ventures at the same time? Would it be better to focus on fewer areas and achieve reasonable yet profitable growth?

  3. Will the company have to go in for a rights issue to fund the different ventures. In one of the news reports you mentioned about setting up a 200 crore facility. How likely is this going to materialise and will you be undertaking another rights issue or fund it via internal accruals and debt? Rights issue is not ideal from an investor perspective as it could lead to dilution for non-participating investors.

  4. Do you have any specific plans/targets in terms of revenue for the next 3 - 5 years?

129

oh boy! vijay kedia(MD and promoter) is definitely positive about the future of his company. he has bought 2,25,000 shares on 27th august at around 100 and 95,000 shares on 14th aug at 94.

130

Its more of a inter-se transfer from the promoters

131

aah thanks for the clarification ayush… spot on as always :slight_smile:

132

http://articles.timesofindia.indiatimes.com/2012-06-16/chennai/32268543_1_three-wheeler-goods-carriers-exports

this report says the growth of the three wheeler goods carrier over last 5 years has been only 9%,growth drivers are going to be the passenger ones and the ace type ones,which seems to be a aspirational brand for the load carriers,that could be a reason for the mgmt to think of a ace kind of vehicle,Piaggio is planning to bring new products to take on bajaj in the passenger ones,especially the smaller ones suitable for the cities.Ayush,are there product mix details for first qtr sales or if you could spot a trend in the mix of passenger/cargo ones over the last few qtrs

133

Since 2009, the company has grown due to its launch of Atul GEM, which is a rear engine vehicle and mostly used for bulk passenger carrying.

So now the ratio of sales to passenger segment would be higher (don’ t have exact breakup, may be one can search in annual report)

134

Recently been to kerala, I did a casual observation of Three wheeler and Auto and found out of every 5-6 there is one Atul. On my previous visit about 6 months back i never saw any atul auto on road. Looks like its slowly started moving in the kerala(places i went were kochi,palakkad,munnar etc).

Did not get a chance to interact with any of the drivers as i only saw moving vehicles

135

atul auto has reported the sales volume for the month of august. the company has sold 2322 vehicles as compared to 2051 in august 2011 which is a growth of 13.2%. the volume in april-aug 2012 period was 11692 vs 9370 in the same period last year which is a growth of 18.5%. the slowdown in the momentum is clearly visible with growth slowing down to 13.2% vs 19.9% in the previous 4 months of the current fiscal.

136

donald, i believe you met the atul auto management recently. any guidance on growth from them?

137

August Sales Fig. out:

Particulars 2012 -13 2011 - 12 Var.
Sales for Aug 2322 2051 13.21%
Total Sales from Apr. to August 11692 9866 18.50%
138

Recent report by I-Sec:-

http://content.icicidirect.com/mailimages/ICICIdirect_AtulAuto_NanoNivesh.pdf

139

Wow … have forgot to see the dividend yield part of Atul auto. Was turned off by atul auto after selling it with some loss.

With 5% dividend yield (post tax FD return is 6.3% only these days), and HIGH ROCE 30+, folks like Vijay kedia increasing stake, there can not be any better time to invest in Atul auto.

140

Hi Subash,

After the 1:2 bonus, the dividend per share is 3.33 meaning a dividend yield of 3.2% at CMP.

The recent purchases by Vijay Kedia are more of Inter-se transfer as mentioned by Ayush above.

Look into my detailed post in MC in this regard.

Overall the Promoters + Vijay Kedia (with PACs) hold a little more than 75%.