Bloomberg Code: ATA IN

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1 Auto OEM: 3-Wheelers Atul Feb Auto 03, 2015 Ltd India Research Stock Broking Bloomberg Code: ATA IN Stable quarter led by surge in exports volumes (TP revised ) : Operating revenue, EBITDA and PAT grew (yoy) by over 13.2%, 18.4% and 17.1% respectively during Q3FY15 which was in line with our estimates. EBITDA margins increased to 12.7% in this quarter from 12.1% in the same quarter last year led by increase in average blended capacity utilization levels to 98% from 90%. Company has sold 11,245 vehicles in the domestic market and 572 vehicles in exports during this quarter as against 10,461 vehicles in domestic market and 123 vehicles in exports during the same quarter last year. New production capacity expansion to come on stream in CY17E: Company s ongoing capacity expansion for 60,000 units near Ahmedabad is expected to come on stream by Q4FY17E/Q1FY18E. We expect the company to register during FY14-FY17E, sales CAGR of over 20.6% to Rs 7,553 mn, EBITDA CAGR of 29.9% to Rs 996 mn and PAT CAGR of over 31.0% to Rs 670 mn in FY17E. This is on account of increase in production capacity and capacity utilization levels, penetration in semi-urban and rural areas and expanding geographical reach. Delay in the launch of petrol/cng variant 3-wheeler auto: Although CNG/petrol version of 3-wheeler auto launch got delayed by another 1 quarter, this is expected to provide a big opportunity, as petrol/cng compact segment constitute around 65% of the market. We expect with further push on exports as witnessed in Q3FY15 numbers, petrol variant engine vehicle will provide a big opportunity for the company to grow its revenues in the coming years. Valuation and Outlook with its strong balance sheet and robust return ratios is the fastest growing 3-wheeler company along with consistent gains in market share in the domestic 3-wheeler industry. We expect good performance from the company to continue in the coming years as well and this will help the company to register robust growth in its revenues and profitability along with higher return ratios. We introduce FY17E financials and value the company at 22.3x FY17E EPS with a revised target price of Rs 681 from earlier target price of Rs 576 based on FY16E estimates. Key Risks Further delay in ramp up of the petrol version 3-wheeler segment will have a negative impact on the sales revenue growth. Exhibit 1: Valuation Summary (Rs. Mn) YE Mar FY13 FY14 FY15E FY16E FY17E Net Sales EBITDA EBITDA Margin (%) Adj. Net Profit EPS (Rs.)* RoE (%) P/E (x) # ; * Adjusted EPS, #P/E multiples for FY13 & FY14 are based on historic market price Recommendation (Rs.) HOLD CMP Target Price 681 Previous Target Price 576 Upside (%) 11.4 *CMP as on Feb 3, 2015 Stock Information Mkt Cap (Rs.mn/US$ mn) 13430/ wk High/Low (Rs.) 722 / 131 3M Avg. daily volume (mn) 0.5 Sensex/Nifty / 8757 O/S Shares(mn) 21.9 Shareholding Pattern (%) Promoters 52.7 FIIs 3.3 DIIs 9.0 Others 35.0 Stock Performance (%) 1M 3M 6M 12M Absolute Relative to Sensex Performance Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 ATA Sensex Source: Bloomberg Analyst Contact Kaushal kumar Jaitliya kaushal.jaitliya@karvy.com For private circulation only. For important information about Karvy s rating system and other disclosures refer to the end of this material. Karvy Stock Broking is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters 1

2 Exhibit 2: Q3 FY15 Financials YE Mar (Rs. Millions) Q2 FY15 Q3 FY15 QoQ % Q3FY14 YoY % Turnover Expenditure EBITDA Depreciation (2.2) 14 (1.5) Interest 2 1 (52.2) Other Income 9 8 (12.4) 9 (13.3) PBT Tax PAT PAT B/F EO Items EBITDA (%) EBIT (%) Net profit (%) (2.8) Exhibit 3: Quarterly Revenue & Revenue Growth (QoQ) Exhibit 4: 9M Revenue & YoY Growth % 773 Q1FY13 14% 860 Q2FY13 30% 1035 Q3FY13 17% 971 Q4FY13 11% 857 Q1FY14 27% 19% 16% 16% 20% 1090 Q2FY14 Qtrly Revenue (Rs mns) 1231 Q3FY Q4FY Q1FY Q2FY15 13% 1393 Q3FY15 35% 30% 25% 20% 15% 10% 5% 0% Revenue growth (qoq) % 19% % 23% 21% 19% % % 15% FY13 FY14 FY15 9M Revenue (Rs mns) Revenue growth (YoY) Exhibit 5: Quarterly EBITDA & EBITDA margin (%) Exhibit 6: 9M EBITDA & EBITDA margin (%) % % % % % % % % 9.6% % 12.0% % 12% 10% 8% % 10.6% 11.6% 12% 12% 11% 11% Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 6% Qtrly EBITDA (Rs mns) Qtrly EBITDA margin (%) % FY13 FY14 FY15 9M EBITDA (Rs mns) EBITDA margin (%) 2

3 Exhibit 7: Quarterly Goods Carrier Volume Trend Exhibit 8: Quarterly Passenger Carrier Volume Trend Goods carrier volumes Passenger carrier volumes Exhibit 9: Quarterly Exports Volume Trend Exhibit 10: Quarterly Domestic Vs Exports Volumes Exports volumes Domestic Volumes (LHS) Export Volumes (RHS) Exhibit 11: Financials Summary YE Mar (Rs. Millions) Mar 15E Mar 16E Mar 17E Net Sales EBITDA EBITDA margin (%) Net profit EPS(Rs.) YoY growth (%)

4 Key Takeaways from Conference Call Revenue Analysis Company has seen revenue growth of over 13.2% in Q3FY15, driven by volume growth of 9.8% in this quarter. Company has registered an increase of 13.4% in goods carrier segment to 5,080 vehicles, whereas passenger carrier segment remained flat at 6,165 vehicles from 6,160 vehicles. Management has guided for a double digit growth in its revenue in the coming years. We introduce FY17E numbers and expect the company to register sales CAGR of over 20.6% during FY14-FY17E. Increase in EBITDA and EBITDA margins Company has seen an increase of 18.4% in its EBITDA to Rs mn in this quarter along with improvement in EBITDA margins to 12.7% in Q3FY15E from 12.1% in Q3FY14. Its average blended capacity utilization increased to 98% from 90%. We expect the EBITDA to register CAGR of 29.9% during FY14-FY17E and EBITDA margins to increase to 13.2% in FY17E. Surge in Exports Company has seen a sharp increase in its exports volume to 572 vehicles from 123 vehicles. Management was optimistic about the fact that company s products are well appreciated in foreign countries. This is likely to increase their share of exports in total sales in the coming years. Delay in the launch of CNG/Petrol version CNG/Petrol version of 3-wheeler auto which was expected to be launched during Q4FY15E will be delayed by another 1 quarter and is likely to be launched during Q1FY16E. New petrol engine product will contain the company s in-house developed petrol engine. Expanded production capacity near Ahmedabad It is expected that new production capacity near Ahmedabad being developed with a cost of around Rs 1,500 mn is likely to come on stream by CY17E. Around Rs 700 mn will be incurred in FY15E and the balance amount is likely to be incurred in the coming 2 years. Financing requirements for the project is likely to be met from internal accruals. Our View Company has positioned itself as a niche player in the 3-wheeler auto segment with increasing market share gains in the last few years on account of its diversified product mix, improvement in capacity utilization levels amid increasing penetration in semi-urban and rural areas and expanding geographical reach. Petrol variant will be the next growth trigger for the company and is expected to be launched in Q1FY16E, we expect further increase in the company market share and surge in exports volumes as petrol/cng compact segment constitutes over 65% of the total market. We expect good performance from the company to continue in the coming years as well. 4

5 Financials Exhibit 12: Income Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Revenue Growth (%) Operating Expenses EBIDTA Growth (%) Depreciation & Amortization Other Income EBIT Interest Expenses PBT Tax Adjusted PAT Growth (%) Exhibit 13: Balance Sheet YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Cash & Cash equivalents Sundry Debtors Inventory Loans & Advances Investments Gross Block Net Block CWIP Miscellaneous Total Assets Current Liabilities & Provisions Debt Other Liabilities Total Liabilities Shareholders' Equity Reserves & Surplus Total Networth Minority Interest Total Networth & Liabilities , NA: Not Applicable 5

6 Exhibit 14: Cash Flow Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E PBT Depreciation Interest Tax Paid Inc/dec in Net WC 110 (41) (117) Other Income Other non cash items 0 0 (18) 245 (53) Cash flow from operating activities Inc/dec in capital expenditure Inc/dec in investments Others 0 0 (471) (751) (198) Cash flow from investing activities (95) (106) (591) (888) (361) Inc/dec in borrowings Issuance of equity Dividend paid Interest paid Others Cash flow from financing activities (44 (131) (121) (176) (197) Net change in cash (171) 58 9 Exhibit 15: Key Ratios YE Mar (%) FY13 FY14 FY15E FY16E FY17E EBITDA Margin (%) EBIT Margin (%) Net Profit Margin (%) Dividend Payout ratio Net Debt/Equity (0.5) (0.5) (0.2) (0.2) (0.2) RoE (%) RoCE (%) Exhibit 16: Valuation Parameters YE Mar FY13 FY14 FY15E FY16E FY17E EPS (Rs.) DPS (Rs.) BV (Rs.) PE (x) * P/BV (x) * EV/EBITDA (x) * EV/Sales (x) * , * represents PE, P/BV,EV/EBITDA, EV/Sales multiples for FY13 & FY14 are based on historic market price 6

7 Stock Ratings Absolute Returns Buy : > 15% Hold : 5-15% Sell : <5% Connect & Discuss More at For further enquiries please contact: research@karvy.com Toll Free: Analyst certification Disclosures Appendix The following analyst(s), who is (are) primarily responsible for this report, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer The information and views presented in this report are prepared by Karvy Stock Broking Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Stock Broking nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies are required to disclose their individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures nor other derivatives related to such securities. Karvy Stock Broking Limited Karvy Centre, Avenue-4, 2nd Floor, Road No: 10, Banjara Hills, Hyderabad India. Tel: ; Fax: For More updates & Stock Research, visit 7