Quarter-I (FY 2015-16) Analysis Report: Atul Auto Limited (BUY; Estimated Price: Rs. 495)

Atul Auto Limited, which began its operations in 1992 at Rajkot, Gujarat, manufactures 3 wheeler auto rickshaws and their spare parts. It gets major competition from Bajaj Auto and Piaggio. The company recently expanded its production capacity from 48,000 units to 60,000 units at its Rajkot plant in July 2015. In the meanwhile, it has also been working on its Greenfield expansion in Ahmedabad. The company expects to be able to set up this facility by FY2016-17 or early FY2017-18. The capacity would be 60,000, which is likely to come up in two stages; 30,000 plus 30,000. The capacity utilized in FY 2014-15 was 86.6% with 41,598 units sold.

Although the company had been doing well for the past 5 years, its sales growth has come down as can be seen in Exhibit I. The number of vehicles sold in June quarter 2015 increased by 4.8% to 8838 from 8433 in June 2014. Even though operating revenue grew by 7.03% in the same corresponding quarters, PAT decreased by 26.5%. This was mainly due to the other income component which boosted the total income by a significant Rs. 5.56 crores in June 2014 quarter as compared to a meagre Rs. 0.39 crores in July 2015 quarter.

Recently, Atul Auto established strategic tie-ups with leading banks and NBFC’s to provide retail financing for Atul Auto’s vehicles. These tie-ups are aimed at benefiting all the 200-plus dealers of Atul Auto Limited spread across India. Under this arrangement, banks will finance 100 per cent of the invoice amount with nil margins to registered dealers of Atul Auto Limited for purchases made from the company. Federal bank is one of these banks. Given Federal Bank’s competitive products and wide reach across India, the tie-up should help create a value addition to the dealers and customers of Atul Auto Limited. This will help boost sales and revenues for the company. 

The company is still debt free and is confident of maintaining that status despite the extensive capital expenditure requirement for doubling its production capacity to 120,000 units in the coming years. The current market price of Atul Auto is Rs, 459.45. Using the discounted cash flow method, we project the stock price of Atul Auto to be around Rs. 495.

Exhibit I

Income Statement for the last 5 Quarters

(Rs In Crores)	Jun-14	Sep-14	Dec-14	Mar-15	Jun-15
No of Vehicles Sold	8433	11088	11817	10260	8838
INCOME FROM OPERATIONS
Net Sales (Net of excise duty)	99.17	130.74	138.41	121.75	105.94
Other Operating Income	0.57	0.51	0.92	0.73	0.82
Total Income from Operations (Net)	99.74	131.25	139.33	122.48	106.76
Other Income	5.56	0.89	0.78	0.52	0.39
TOTAL REVENUE	105.3	132.14	140.11	123	107.15
EXPENSES
Costs of Materials Consumed	76	102.02	106.04	89.52	78.44
Purchase of Stock in trade	0	0	0	0	0
Changes in inventories of finished goods, WIP	-0.08	-2.55	-1.08	2.33	-0.03
Employee Benefit Expenses	7.96	8.19	8.12	8.09	9.29
Other Expenses	6.31	7.83	8.57	7.61	7.17
EBITDA	15.11	16.65	18.46	15.45	12.28
Depreciation & Amortization	1.54	1.36	1.33	1.35	1.33
Operating Margin (EBIT)	13.57	15.29	17.13	14.1	10.95
Finance Costs	0.11	0.23	0.11	0.15	0.11
Exceptional items	0	0	0	0.24	0
PBT	13.46	15.06	17.02	13.71	10.84
Tax Expenses	3.8	4.09	5.71	5.08	3.74
PAT	9.66	10.97	11.31	8.63	7.1

Exhibit II

Price Performance

About the Author

This report has been prepared by Sanyam Mittal. He is pursuing MBA from Institute of Management, Nirma University located in Ahmedabad, India.

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