Autoline Industries- Potential Turnaround Story

Autoline Industries is engaged in manufacturing sheet metal components, assemblies and sub-assemblies like Foot Control Modules, parking brakes, hinges, cab stay and cab tilt, exhaust systems, tubular structures, fabrications, etc. for large OEMs in the Automobile Industry. They have a product portfolio of over 1500 products including parts from 1g all the way till 400 kg.

Their major divisions are as follows:

Almost 80% of company’s revenues comes from a single customer-Tata Motors. They are sole sheet metal suppliers for number of models like ACE, Bolt, Zest, Indica, indigo etc.

Key thesis here is a potential turnaround story.

In Q2 FY22 they made their highest sales in 12 quarters and first-time positive PAT in last 12 quarters (excluding Q4 FY19 where there was 45 Cr other income):

While debt to equity is still very high, it is important to note that they have already reduced debt by Rs 120 Cr in last 3 financial years.

We also find that debt and interest repayment entry has been very large in cash flow statement over last several years.

In the process of debt reduction, they have also converted debt into equity shares.

They have also sold some properties and consolidated the manufacturing facilities (divestment of assets?). Even more important, they have used part of the proceeds for repaying debt.

Company did preferential allotment to marquee investors.

The issue price of Rs 40 seems fair since on 2 June 2021, the market price was Rs 38

There has been a change in top management (CEO) with Mr Shivaji Akhade (who was a director since inception) becoming CEO.

They have implemented various cost cutting measures.

Management commentary is also positive regarding a clear intention of turnaround.

As mentioned earlier, Tata Motors is 80% of revenue so customer concentration is a big risk. They are very intent on reducing the customer concentration.

They are also making significant inroads into EVs through electric cycles.

It seems like management is extremely determined to turnaround the business. They have prepared a clear plan of action and they have executed on the plans very well so far.

Their guidance is for 650 Cr revenue in FY23 with 12% EBITDA margin.

This implies an expected FY23 EBITDA of Rs 78 Cr. Against this, TTM EBITDA is Rs 26 Cr. Market cap is Rs 290 Cr and EV is Rs 420 Cr. This suggests a 6x FY23 EV/EBITDA.

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Company posted great Q3 FY22 numbers.
Sales are Rs 165 Cr against 135 Cr for Q2 FY22 and 93 Cr for Q3 FY21

PAT up 86% QoQ. Q3 FY21 was negative PAT so not comparable

They are also monetizing the land bank at Chakan by converting it into an industrial park


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I was reading more on the company recently and prepared a chart of capex to depreciation.
Autoline Capex To Depreciation Ratio Chart

This is a ratio used by Marathon Asset Management, written in the book “Capital Returns”. Depreciation can be used as a proxy for maintenance capex. Hence, the ratio of capex to depreciation indicates the proportion of growth capex to maintenance capex. A high ratio suggests that a higher proportion of the total capex is done for increasing supply, which may be a red flag for a capital cycle analyst. For Autoline, this number was very high in FY10 and FY11, but has declined significantly over the years. This could imply a potential for an upturn.

I had initially overlooked their wholly-owned subsidiary, Autoline Design Software (ADSL). But on further digging I found that it is essentially an ER&D company.

Since ADSL has parentage of an auto ancillary company, it has an advantage over a standalone auto ER&D company

They are also doing non-auto ER&D

They are providing ER&D services not only to Autoline but also to external clients

ADSL is currently making losses…

…but if they manage to improve it (perhaps through a demerger), it could be a very good optionality in my opinion.

They seem to be quite aggressive in their marketing on social media

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Disc- have a position


Autoline Q4 numbers were good.

14% QoQ sales growth. Not reading much into EBITDA/PAT since there was large change in inventory and also exceptional item. Good to see that long term debt is down to 27.8 Cr as of Mar 22 against 33.8 Cr as of Sep 21 and 65.3 Cr as of Mar 21.

Short term borrowings have increased significantly from 96 Cr as of Sep 21 to 171 Cr now. Was a bit disappointed by this. Will be important to monitor this figure and understand the reason for this jump.

download-879-Outcome-of-AGM–Gist-of-Proceedings-along-with-Presentation.pdf (2.0 MB)

Agm presentation. Company eyes 25-30% growth with 10%+ margins for Fy22-23. Another interesting thing to note is company has added a lot of EV players as customers during last 2 years.