Analysis Report: Atul Auto (BUY; Estimated Price: Rs. 980)

Analysis Report: Atul Auto (BUY; Estimated Price: Rs. 980)

About the Company

Atul Auto Ltd. began its operations in 1992 at Rajkot, Gujarat and was founded by Late Mr. Jagjivanbhai Karsanbhai Chandra. Being a relatively younger player in the automobile industry, Atul Auto cleared all the hurdles and has become one of the fastest growing players in the 3 wheeler segment. Moreover in the last five years, the production and turnover has grown by three folds. The company has achieved turnover of Rs. 429.26 Crores (US $ 75.02 Millions) for FY 2013-14. The company has an expanded production capacity of 48,000 units at its Rajkot plant. Local level innovations and process re-engineering are the major factors behind this expansion. The company has been conferred with "IndiaMart - Leaders of Tomorrow Award 2013" in Auto Components sector of West Zone presented by ET Now.

Shareholding Pattern

Cat Code	Category of Shareholder	Number of Shareholders	Total number of shares	Number of shares held in dematerialized form	Total shareholding as a percentage of total number of shares
A	SHAREHOLDING OF PROMOTER AND PROMOTER GROUP	28	11563810	11563810	52.699
B	Public Shareholding
1.	INSTITUTIONS
A	MUTUAL FUNDS/UTI	3	1972634	1972634	8.99
B	Financial institutions/Banks	1	2150	2150	.010
C	Central/state govt.	1	4609	4609	.021
D	Foreign institutional investors	16	720302	720302	3.283
2.	NON- INSTITUTIONS
A	Corporate Bodies (Indian/foreign/Overseas)	255	1200442	1200262	5.471
B	Individuals(Resident/ NRI/ Foreign National)
(i)	Individual shareholders holding Nominal share Capital up to Rs.1 lakh	9290	2971101	2718695	13.540
(ii)	Individual shareholders holding Nominal share Capital above Rs.1 lakh	19	1428564	1401564	6.510
C	Any other-Clr-Mem	242	928392	928392	4.231
	OCB	1	1200	0	.005
	NRI	361	1149996	370468	5.241
	Total Public Share Holding (B)	10189	10379390	9319076	47.301
	TOTAL(A+B)	10217	21943200	20882886	100.00

Business Description

Atul Auto’s dealership network has a pan-India spread with 150 exclusive dealers and more than 100 sub-dealers. J J Chandra, Chairman & Managing Director of the company is optimistic about the growth scenario of the industry. Niraj Chandra, son of founder Jayantibhai J Chandra, is the wholetime director of the company. He wants to inculcate the growth mindset in the people of Atul Auto, for this he has moved between five departments, and now put himself in charge of human resources. This is his style of engineering the change. To expand their export market they have now started working on a petrol engine for the export market as three-wheelers in India primarily run on diesel.

Products/Services

Atul Auto Ltd. is a manufacturer of three wheeler auto rickshaw and its spare parts. The company is also engaged in generation of Electricity with Wind Turbine Generator at Village Gandhavi, Gujarat. It manufactures auto rickshaw under the brand names Atul Shakti, Atul Gem, Atul Smart & Atul Gemini which caters to every need of passenger and goods carrier segments. Its product portfolio comprises of 45 models.

	ATUL Shakti	ATUL Smart	ATUL Gem	ATUL Gemini
Engine	Front Engine	Front Engine	Rear Engine	Rear Engine
Segment it Caters to	Passenger and Goods carrier	Passenger and Goods carrier	Passenger and Goods carrier	Passenger
Payload Capacity	500 kg	500 kg	500 kg	350 kg
Fuel	Diesel	Diesel	Diesel & CNG	Diesel & CNG

Manufacturing/Service Process

Atul’s manufacturing processes is a key area of differentiation as the company has state of the art manufacturing equipments and shops. Machining of components, fabrication of chassis, state of art pre-paint and final paint facilities, assembly of 3 wheelers and end-of-line testing all are under one roof.

Capacity of the Company to manufacture/provide service

Atul Auto has a plant located at Shapar in the Rajkot district of Gujarat with an installed capacity of 48,000 vehicles per annum. The company has planned to add a second plant and double its capacity to 1.2 lakh units a year by 2017.

Industry Analysis

Indian automobile industry is growing at a remarkable rate and is contributing 7% to the GDP (KPMG). India is one of the largest manufacturers of three wheelers in the world with a production of 350000 units annually. According to the SIAM (Society of Indian Automobile Manufacturers) the industry produced a total of 1,976,270 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in January 2015 as against 1,937,489 in January 2014, registering a growth of 2.00 percent over the same month last year. Three Wheelers sales grew by 13.63 percent in April-January 2015 over the same period last year. Passenger Carriers and Goods Carriers grew by 15.14 percent and 7.27 percent respectively in April-January 2015 over April-January 2014. Whereas the three wheeler exports grew by 18.98% in the April- January 2015 period as compared to the last year.

Market Analysis

Atul Auto has become the third largest player in 0.5 Tonne three wheeler industry with incremental market share in the goods as well as passenger carrier in 0.5 Tonne segment. This has happened with established distribution network, increase in capacity and launch of new products. The company might face difficulties in procuring raw material at competitive prices because of its size as compared to its competitors such as Bajaj Auto and Piaggio. The bargaining power of suppliers is high in this segment. The government has not laid down any minimum investment criteria for the automobile industry. FDI limit in this sector is 100% under the automatic route. It is a fully delicensed industry and free imports of automotive components are allowed.

Financial Analysis

Atul Auto has shown tremendous growth in the past 5 years. Its total assets have almost doubled during the last five years. Its total assets increased by 17.55% from Rs. 123.01 crores in the previous year to Rs. 144.60 crores in 2013-14 whereas total liabilities increased by 2.93% only, from Rs. 48.70 crores to Rs. 50.13 crores. Atul Auto has zero debt and its reserves and surplus has increased from Rs. 63.10 crores in the previous year to Rs. 83.27 crores in 2013-14. Current assets have increased from Rs. 69.86 crores to Rs. 85.08 crores. Zero debt and high working capital reflect strong positioning of Atul Auto.

Balance Sheet of Last 5 Years

(Rupee in crores)	2009-10	2010-11	2011-12	2012-13	2013-14
EQUITY AND LIABILITIES
Share capital	6.08	6.08	7.55	11.20	11.20
Reserves and surplus	27.56	34.27	48.54	63.10	83.27
Non-current liabilities	28.62	9.03	4.72	4.68	6.38
Trade payables	8.89	10.81	15.68	23.46	27.16
Other current liabilities	6.21	14.46	20.14	20.56	16.59
TOTAL	77.36	74.65	96.63	123.01	144.60
ASSETS
Fixed assets	41.77	42.46	39.97	43.07	52.70
Other non-current assets	7.61	3.31	7.39	10.08	6.83
Inventories	18.57	19.17	29.82	22.95	23.37
Trade receivables	4.52	5.41	6.08	7.15	13.07
Cash and cash equivalents	1.65	2.84	11.37	38.07	45.15
Other current assets	3.24	1.47	2.00	1.69	3.49
TOTAL	77.36	74.65	96.63	123.01	144.60

Atul Auto has been growing phenomenally. Revenue from operating activities has increased by 18.22% from Rs. 363.84 crores in the previous year to Rs. 430.13 crores in 2013-14. Net profit has increased by 15.0% during the same period, from Rs. 25.92 crores to Rs. 29.79 crores. Such figures indicate a healthy growth rate for the company.

Profit & Loss Statement for Last Five Years

(Rupee in crores)	2009-10	2010-11	2011-12	2012-13	2013-14
INCOME
Total Operating Revenue	119.85	202.04	298.82	363.84	430.13
Other income	1.23	0.62	0.59	1.98	2.92
Total Revenue	121.08	202.65	299.42	365.82	433.06
EXPENSES
Operating Expense	106.87	182.60	271.28	323.76	384.75
Depreciation and amortization expense	3.89	4.25	4.26	4.44	5.21
Other Expenses	3.16	1.83	0.89	0.40	0.35
Tax Expenses	2.61	4.54	7.65	11.30	12.95
Total Expenses	116.54	193.23	284.08	339.90	403.26
Profit for the year	4.54	9.43	15.33	25.92	29.79

Cash conversion cycle of Atul Auto has decreased from 15.41 days in 2012-13 to 6.23 days in 2013-14. Return on Working Capital was 85.94% in 2013-14.

Operating revenue has increased by 13.23% from Rs. 123.05 crores in December quarter of financial year 2013 to Rs. 139.33 crores in 2014. This again shows that there is consistent growth in Atul Auto.

Profit & Loss Statement of last Two December Quarters

(Rs In Crores)	Dec, 2013	Dec, 2014
No of Vehicles Sold	10764	11817
REVENUE
Net Sales (Net of excise duty)	122.89	138.41
Other Operating Income	0.16	0.92
Total Income from Operations (Net) (1)	123.05	139.33
Other Income (2)	0.9	0.78
Total Revenue (1) + (2)	123.95	140.11
EXPENSES
Costs of Materials Consumed	95.71	106.04
Changes in inventories of finished goods, WIP	-1.15	-1.08
Employee Benefit Expenses	7	8.12
Other Expenses	6.56	8.57
Operating Expense (3)	108.12	121.65
Depreciation & Amortization (4)	1.35	1.33
Other Expenses (5)	0.06	0.11
Total Expenses (3) + (4) + (5)	109.53	123.09
Profit Before Tax	14.42	17.02
Tax Expenses	4.76	5.71
Profit After Tax	9.66	11.31

This industry has a bright future as per our analysis and understanding. Given Atul Auto’s growth history, this forecasted bright future of this industry should only propel this company forward.

The current market price of Atul Auto is 568.00. Using the discounted cash flow method, we project the stock price of Atul Auto to be around Rs. 980.  

Projected Balance Sheet for Next 5 Years

(Rupee in crores)	2015	2016	2017	2018	2019
EQUITY AND LIABILITIES
Share capital	11.20	11.20	11.20	11.20	11.20
Reserves and surplus	120.96	168.88	229.62	306.39	403.21
Non-current liabilities	6.38	6.38	6.38	6.38	6.38
Trade payables	31.85	39.82	49.77	62.21	77.77
Other current liabilities	16.59	16.59	16.59	16.59	16.59
TOTAL	186.98	242.87	313.56	402.77	515.15
ASSETS
Fixed assets	54.71	57.17	60.10	63.50	67.42
Other non-current assets	6.19	6.19	6.19	6.19	6.19
Inventories	29.03	36.29	45.36	56.70	70.88
Trade receivables	12.75	15.94	19.92	24.90	31.13
Cash and cash equivalents	80.17	123.16	177.87	247.35	335.41
Other current assets	4.12	4.12	4.12	4.12	4.12
TOTAL	186.98	242.87	313.56	402.77	515.15

Projected Income Statement for Next 5 Years

(Rupee in crores)	2015	2016	2017	2018	2019
INCOME
Total Operating Revenue	541.32	676.65	845.82	1057.27	1321.59
Other income	0.00	0.00	0.00	0.00	0.00
Total Revenue	541.32	676.65	845.82	1057.27	1321.59
EXPENSES
Operating Expense	484.21	605.26	756.58	945.72	1182.15
Depreciation and amortization expense	5.41	5.66	5.95	6.28	6.67
Other Expenses	0.44	0.54	0.68	0.85	1.06
Tax Expense	13.57	17.26	21.88	27.65	34.88
Total Expenses	503.63	628.73	785.08	980.51	1224.76
Profit For the Year	37.69	47.93	60.74	76.77	96.83

Price Performance

About the Author

This report has been authorized by Mridul and Sanyam Mittal. Both are pursuing MBA from Institute of Management, Nirma University, Ahmedabad, Gujarat, India. 

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