Atul Auto is eyeing growth from the eastern region of the country as it plans to diversify beyond its stronghold in the diesel segment into petrol, CNG and LPG run vehicles.
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I really liked the Q2 results of the company in terms of balance sheet. The co seems to be a cash cow now 
They have accumulated 37 Cr of investments on BS!!
This co is having beautiful negative working capital now. If they are able to sustain this and grow at 25%, the stock should do well and PE re-rating may also happen.
Ayush
Company doubling the current capacity from 24000 to 48000 by year end.
Another new 4 wheeler making all biggies think!
Mahindra & Mahindraas October launch of the __Gio_, a half-tonne, four-wheeler goods vehicle, has impelled other big auto companies such as __Bajaj Auto__, _Piaggio_ and Tata Motors_ to have a similar offering. The Gio is priced at Rs 1.65 lakh (uniform across the country) and is the cheapest four-wheeled goods truck.
Tata Motorsa 1-tonne Ace was introduced in 2005 and was the first vehicle of its kind in the domestic market. Within three years, the Ace had impacted sales of large-bodied three-wheelers and trucks that are less than 3.5 tonnes.
From April to October 2009, the industry sold 10,160 units of large three-wheeler goods carriers, a dip of 28 per cent. Whereas, 110,160 four-wheeled light CVs (LCVs) were sold in the sub-3.5 tonne class, a healthy growth of 24 per cent.
Mahindraas aggresive pricing of the Gio has been their key selling point. It is cheaper than the price of a comparable, large-bodied, three-wheeler goods carrier, which sells at about Rs 1.70 lakh, and close to the price of a mid-range three-wheeler, which is around Rs 1.3 lakh.
Around 7,000 units of three-wheeler goods carriers are sold every month. Piaggio Vehicles has a market share of 56 per cent in this segment. Mahindra & Mahindra is next, with 16 per cent, while Bajaj Auto has 11 per cent.
aThe entry of the Gio will impact sales of three-wheelers, going forward. The aggressive pricing, combined with the aspirational values the Gio offers for a current three-wheeler operator, will impact sales of large three-wheelers,a says Ravinder Singh, President (Marketing & Sales) of Force Motors. Prices of his multi-utility three-wheelers start at Rs 1.80 lakh.
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Ok! Relax This article is from 2009. This is basically to let us think.
What happened in 2009 can be repeated again. Does Atul have a broad based demand scenario which can sustain on its own accord ? Would like to hear the views of people holding Atul as a long term pick in their portfolios.
Hi Rudra,
The key thing to note here is that despite capturing of 3 wheeler commercial vehicles market by LCVs, Atul Auto has grown at 30% for last 3 years. The reason is that they are present in the passenger side and are trying to penetrate a market which is huge for their low base.
I agree the risk is there of productobsolescence over a longer termbut in a country like India, where people still go for the cheapest mode of transport, 3 wheelers will continue to have a business segment. May be going forward, the co can tap export markets too.
These industry changes wonât happen overnightâŚthey will play out over 3-5 yrs. So its a medium term pick where key monitorable is momentum in sales growth. Till they are in a position to maintain growth at 20%+, the story is good. If they start doing stagnanant nos for some 2-3 qtrs, it may be a time to exit.
Ayush
As Ayush mentioned in the above post, Atul Auto is a play only in the passenger segment.
The state of public transport in India is very well known. There is a huge demand for commuting in the rural and semi-urban space, where public transport is non-existent. We all know that even in semi-urban and rural areas, services dominate the economy and not agriculture. With an increase in the working population and the need to get to work, three-wheelers will supplant tractor trollies, chakdas and other means of transport in these areas. Some of this commuting demand will be fulfilled via two wheelers. However a majority will be fulfilled via three wheelers. The price difference between a Tata Magic and an Auto is huge and a small entrepreneur trying to make a living in these areas will opt for a cheaper three wheeler.
It is also for this reason that i like Muthoot Capital, as they play right into this nascent transportation demand which is going to explode in the coming years.
The day Atul Auto forays into the four wheeler goods carriers, one should exit this stock.
Thanks Ayush & P Sharma for your inputs.
The typical market specific preferences in Gujarat and Rajasthan for front engine vehicles may have unknowingly contributed to Atulâs market dominance (through Atul Shakti) in these states. Had this been a story of replicating a home success in other territories (aka Lynch dictate) I would have been much more confident on Atul.
But the other states where Atul is venturing (through Atul Gem) are mostly into rear engine vehicles. The low base will definitely aid Atul in lodging year on year growth as it moves steadily to more states, but it is not creating a sustainable demand scenario to be of threat to the incumbents in the rear engine market.
Basically I would prefer a challenger who is moving steadily to dislodge the incumbent in all territories ( Amara Raja vs Exide, Kajaria vs H&R Johnson) and is looking at a much more broad based demand scenario, so that slack from one sector may not reduce the overall demand scenario.
Also Bajaj RE 60 commercial launch was scheduled around end of FY13. So it will have a cannibalization on the 3-wheeler passenger segment (shrinking the market) as the aspirational value of owning a four wheeler is way more.
Atul management has been very through and transparent, and quite good on execution front (major leanings from the Lombardi mishap). But somehow the long term picture is still not complete. The short - medium term mis-pricing is not there anymore with the over 60% rise. Need to study this in more details as the suitability of a long term play.
Hi,
TVS Motors sold 5000 3 wheelers in Nov an increase of 87%!! I had noticed the increasing no of TVS autos in Bangalore especially the LPG version. Also remember Atul folks telling taht the TVS product is better than Bajaj.
The competition is heating-up and players will need to come-up with better products in all fuel categories.
Rudra, with regards to Bajaj RE and LCVs I think there is still a good enough market for 3 wheelers owing to their unique features - unbeatable turning radius and smaller size for congested cities and markets, lower cost and fuel efficiency leading to higher ROI for buyers.
Atul valuation is no longer mouth-watering, but the unused capacity (48000 units with 2 shifts), exports to Bangladesh and Africa and Srinlankan JV could offer good growth in sales which hasnât been factored yet. Interest rate cut can also bring in more up-move in Price in next few quarters. Close monitoring required.
Most importantly we need to find out how TVS grew so much - my hunch is a good LPG variant - and how Atul is planning to exploit the same segment.
Cheers
Vinod
Bajaj 3 wheeler sales also up 7% in Nov at 45500 units. So 3 wheeler mkt is having a decent growth.
Bajaj also claims to have increased their mkt share with increase in diesel vehicle sales. And with TVS sales up 87% in Nov, looks like Piaggio is the one losing its share.
Will be interesting to see Atul auto nos, they should have also done well.
Cheers
Vinod
Mahindra had a 17% growth in 3 wheelers at 6700 units in Nov.
Tata had a 21% growth in LCVs in Nov.
Everyone having a great festive season. The growth figures could also be due to festive season falling in Nov. Diwali was in Oct in 2011.
But TVS nos are great!
Cheers
Vinod
@Rudra: What you are saying is right to an extent but go to places like Gurgaon, Faridabad, Puri etc, and it is then when one realises the potential of 3 wheelers. In these areas, almost every other vehicle was a 3 wheeler because of poor public transport and increasing city limits. Atul caters to the bigger 3 wheelers where pooling is done to save costs. And 3 wheelers are almost 50% cheaper to LCV in terms of cost & fuel efficiency.
Bajajâs RE wonât impact them much as it is a replacement for smaller 3 wheelers (which are usually for max 2-3 ppl)
Atul Auto does has plans of expanding its product range by also catering to LPG variants and the smaller capacity autos. And this is sort of less risk as they have to just tap their current dealer network.
So what you are saying is a concern but over a much longer term.
When we first entered the stock, the valuations were very compelling and there was a potential of 25-30% growth for next few years. So I think many often we have to see valuations along with growth and not just very high business quality.
From here also, there are some triggers like - expanding of capacity at bare minimum cost. So if they are able to increase sales then majority of the profits would flow to bottomline.
Ayush
Atul Auto Nov. sales at 2997 v/s 2286 a year ago and 3332 a month ago.
Hi Ayush,
I can relate to what you said about lack of public transport and autoâs as preferred mode of transport in some cities.
Actually, in cities like Puri (my home town), the public infra(roads) are so narrow and poor that itâs impossible for any form of public transport to be viable even in near future. The situation would be similar in many other cities of Odisha too (like Cuttack). Also shared autoâs are the norm even in bigger cities like Bhubaneswar, where infra is better but public transport isnât good. I did notice lot of Atul autoâs last year in Puri, but i wasnât invested then, so didnât take muchinterest. Hope to do some scuttlebutt during my next visit in Feb.
I think in villages many families are also using Autoâs as their private transport vehicles to commute to nearer cities for jobs etcâŚ
Regards
The Nov sales are good and they seem to be lower than Oct due to the large no of holidays in this month. I wonât be surprised if they go back to 3300+ nos in december
Thanks for the clarification Ayush.
It is amazing the kind of grip you and seniors have on the companies they are tracking. KudosâŚ!!
Hi all,
I am new here. I would like to thank all of you guys for the excellent quality of discussions and analysis on a consistent basis.
Disclosure: I own shares of Atul Auto. It makes part of my long-term portfolio and am still building position in it. Entered recently so have very small portion, but I will look to add on any weakness.
As per latest icici direct report, they have updated tp to Rs. 205. Here is the link:
http://content.icicidirect.com/mailimages/ICICIdirect_AtulAuto_CompanyUpdate.pdf
Three wheeler sales turbo charged. Read the article here:
How will Atul Auto sales be???
Generally December is a slow season for automotive sales. The primary reason being the fact that in a monthâs time, the vehicle becomes a year old.
One of my relative runs a bike show room and he says the same thing about bike sales across vendors.
Regards
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