Atul Auto. Institutional Equities. Management Meet Update ACCUMULATE. Sector: Automobile CMP: Rs445 Target Price: Rs489 Upside: 10% 23 August 2017
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1 Management Meet Update Atul Auto 23 August 2017 Reuters: ATUL.BO; Bloomberg: ATUL IN We had a meeting with the management of Atul Auto (AAL) recently to gauge its performance in the aftermath of a relatively challenging environment in FY17. The key takeaways from the meeting are as follows: Market share trend: The management believes that with the uncertainty surrounding the previous financial year behind, AAL can regain its lost market share by launching new vehicles in the coming quarters. Compared to overall three-wheeler industry volume contraction of 8.9% in 1QFY18, AAL posted 18% YoY growth. AAL s domestic sales volume improved 12% YoY against 25% industry decline. AAL s cargo vehicle segment registered 23% YoY jump in volume which enabled it to regain its position as the second-largest player in this space. Its YTD FY18 market share in the domestic cargo segment stands at 17.1% versus 16.5% in FY17, while in the domestic passenger space it remained flat at 4.7%. New vehicle launches: AAL has introduced its petrol three-wheeler model in five states including Gujarat, Karnataka, Haryana, Punjab and Rajasthan and will do a pan-india launch by the end of this year. The launch has been delayed by six months as it had to develop its own engine and it was followed by the transition to BS-IV emission norms which prolonged the launch time. The management has given guidance of double-digit volume growth for FY18 with domestic volume expected to grow in the range of 6% - 8%. Electric vehicle update: The company sees potential for electric three-wheelers in India with the market size for e-rickshaws estimated at close to 120,000 vehicles per year. Most players dominating the landscape are unorganised vendors who import parts from China and assemble the same locally. The selling price for the same is in the range of Rs80,000- Rs150,000 per vehicle. AAL is looking to price its model at ~Rs140,000/vehicle (on-road price) and will be tying up with financers to facilitate purchase by end-users. The vehicle will run on four batteries which have an average life span of months and a replacement cost of Rs20,000-Rs25,000 for a set of four batteries. Average charging time is between seven-eight hours, enabling the vehicle to run for 70km-80km on a single charge. The batteries fitted into the vehicle will be higher life cycle lithium ion batteries as against lead acid batteries and will be sourced from Amara Raja Batteries and Exide Industries. The company does not see export potential for its electric vehicles and it will disclose future growth outlook after a full-scale launch in 2HFY18. Retains export focus: Currently, the company caters to eight export geographies comprising three countries in Latin America, four in Africa and also Nepal. The June 2017 quarter witnessed a sharp 50% jump in demand from the Latin American region whereas Africa continues to experience sluggish growth owing to limited availability of forex. Demand from Bangladesh has been impacted because of a government ban on plying of threewheelers on highways, while sales volume to Sri Lanka has been affected because of local import duty. The company still sees a substantial jump in export volume in the current year and expects a rising share of export contribution to total sales in the coming years. In 1QFY18, its exports more than doubled to 865 vehicles on a low base compared to 25% YoY industry export growth. Realisation from exports is usually at a premium of 4%-5% (excurrency) over domestic realisation owing to government incentives. Ahmedabad plant expansion: Ahmedabad unit s capacity expansion has been put on hold and the management is likely to take a decision on it in 2HFY18. It has incurred capex of Rs450mn on the plant with a further Rs1,000mn being put on hold. Commercial rollout of vehicles from the plant will take around 18 months and once completed, will add an incremental 60,000 vehicles/annum to its capacity. Impact of Goods and Services Tax or GST/BS-IV emission norms: The management does not expect GST implementation to aid in volume recovery, although it has revised downwards the price of its vehicles by 2%. It will now pay at the rate of 28% instead of ~30% earlier (12.5% excise duty + 2% Central Sales Tax + 15% Value Added Tax). AAL currently does not have BS-III vehicle inventory. Near-term outlook: Driven by healthy rural demand following a good monsoon, AAL expects 2QFY18 (a seasonally good quarter) performance to be better than the year-ago period and the same will aid in expanding margins at operating level. It has given EBITDA margin guidance in the range of 12%-14% for FY18. We are participating in AsiaMoney s Brokers Poll We would be pleased if you vote for us as the feedback helps us align our equity research offerings to meet your requirements. Click Here ACCUMULATE Sector: Automobile CMP: Rs445 Target Price: Rs489 Upside: 10% Gaurant Dadwal Research Analyst gaurant.dadwal@nirmalbang.com Vivek Sarin Research Associate vivek.sarin@nirmalbang.com Key Data Current Shares O/S (mn) 21.9 Mkt Cap (Rsbn/US$mn) 9.9/ Wk H / L (Rs) 512/389 Daily Vol. (3M NSE Avg.) 46,199 Price Performance (%) 1 M 6 M 1 Yr Atul Auto Nifty Index (1.5) Source: Bloomberg
2 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Exhibit 1: Key financials Revenues 4,928 5,310 4,753 5,359 6,228 YoY (%) (10.6) EBITDA % of sales Adj. PAT YoY (%) (21.3) Adj. EPS (Rs) RoE (%) RoCE (%) P/E (x) P/BV (x) Exhibit 2: P/E chart (x) Exhibit 3: EV/EBITDA chart (x) PE Mean 1sd -1sd Source: Nirmal Bang Research EV/EBITDA Mean 1sd -1sd Source: Nirmal Bang Research 2 Atul Auto
3 Financials Exhibit 4: Income statement Net sales 4,928 5,310 4,753 5,359 6,228 % growth (10.6) Raw material costs 3,722 3,849 3,457 3,908 4,516 Staff costs Other expenses Total expenditure 4,350 4,547 4,155 4,594 5,294 EBITDA % growth (21.5) EBITDA margin (%) Other income Interest costs Gross profit 1,206 1,462 1,296 1,450 1,712 % growth (11.3) Depreciation Profit before tax % growth (21.0) Tax Effective tax rate (%) Net profit % growth (21.3) EPS (Rs) % growth (21.3) DPS (Rs) Payout (%) Exhibit 6: Balance sheet Equity Reserves 1,099 1,434 1,695 1,898 2,196 Net worth 1,211 1,546 1,807 2,010 2,308 Net deferred tax liabilities LT liabilities/provisions Total loans Liabilities 1,268 1,601 1,873 2,075 2,374 Gross block 1,170 1,272 1,380 1,880 2,380 Depreciation Net block ,330 1,739 Capital work-in-progress LT Investments Other long-term assets Inventories Debtors Cash Cash and cash equivalents Other bank balances Other current assets Total current assets 876 1,283 1,434 1,224 1,184 Trade payables Other current liabilities/provisions Total current liabilities Net current assets Total assets 1,268 1,601 1,873 2,075 2,374 Exhibit 5: Cash flow EBIT (Inc.)/dec. in working capital (205) (406) (22) Cash flow from operations Other income - 1 (25) (41) (46) Other expenses 2 (1) Depreciation Tax paid (165) (254) (192) (243) (293) Net cash from operations Capital expenditure (364) (100) (108) (500) (500) Free cash flow (83) Other investment activity Cash from financial activities (111) (139) (45) (241) (241) Opening cash balance Closing cash balance Change in cash balance (194) (130) 443 (107) (76) Exhibit 7: Key ratios Y/E March FY15 FY16 FY17 FY18E FY19E Profitability & return ratios EBITDA margin (%) EBIT margin (%) Net profit margin (%) RoE (%) RoCE (%) Working capital & liquidity ratios Receivables (days) Inventory (days) Payables (days) WC days Current ratio (x) Quick ratio (x) Valuation ratios EV/Sales (x) EV/EBITDA (x) P/E (x) P/BV (x) Growth (%) Sales (10.6) EBITDA (21.5) PAT (21.3) Atul Auto
4 Apr-15 May-15 Jun-15 Jul-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Rating track Date Rating Market price (Rs) Target price (Rs) 30 December 2015 Buy January 2016 Buy February 2016 Buy June 2016 Buy August 2016 Buy November 2016 Buy February 2017 Acc February 2017 Buy May 2017 Buy August 2017 Accumulate Rating track graph Not Covered Covered 4 Atul Auto
5 Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is published by Nirmal Bang s Research desk. Nirmal Bang group has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. Reports based on technical and derivative analysis may not match with reports based on a company's fundamental analysis. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication. Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited. NBEPL has registered with SEBI as a Research Entity in terms of SEBI (Research Analyst) Regulations, (Registration No: INH to ). NBEPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst. NBEPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBEPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Atul Vitha Dealing Desk atul.vitha@nirmalbang.com / Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai Board No. : /1; Fax. : Atul Auto
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