Atul Auto (ATUAUT) 666

Transcription

1 Company Update Rating matrix Rating : B uy Target : 800 Target Period : 12 months Potential Upside : 20% What s changed? Target Changed f rom 564 to 800 EPS FY16E Changed from 27.5 to 28.1 EPS FY17E Changed from 37.6 to 40 Rating Unchanged Quarterly performance ( Crore) Q3FY15 Q3FY14 YoY (%) Q2FY15 QoQ (%) Revenues EBITDA EBITDAM (%) bps bps PAT Key financials Crore FY14 FY15E FY16E FY17E Net Sales EBITDA Net Profit EPS ( ) Valuation summary FY14 FY15E FY16E FY17E P/E (x) Target P/ E (x) EV/EBITDA (x) P/BV (x) RoNW (%) RoCE (%) Stock data Particular Market Capitalization ( Crore) Total Debt (FY14) ( Crore) Cash & Investments (FY14) ( Crore) EV ( Crore) Amount Crore 0 Crore 45 Crore Crore 52 week H/L ( ) 722 / 132 Equity capital ( crore) 11 Crore Face value ( ) 5 Price performance 1M 3M 6M 12M Atul Auto Ltd Bajaj Auto Ltd TVS Motor Company Ltd Research Analyst Nishant Vass nishant.vass@icicisecurities.com Growth coupled with margin expansion! January 22, 2015 Atul Auto (ATUAUT) 666 Atul Auto s earnings came in largely on expected lines with topline at ~ 139 crore, up ~13% YoY, aided by ~10% YoY volume growth to ~11800 units. ASPs rose ~2.5% YoY on back of richer product mix Margins at 12.7% increased ~70 bps YoY, coming in higher than our estimates on the back of improving gross margins PAT at 11.4 crore was in line, up ~11% YoY, slightly lower thanhigher than estimated tax rate Volumes to rise as geographical reach, distribution network increase! Atul Auto s growth trajectory has been impressive with volumes growing at ~40% CAGR in FY09-14 even as the domestic three-wheeler (3-W) segment has grown at ~7% CAGR over the same period. Volumes have been improving on the back of added dealerships and increasing geographic presence along with market share gains in existing markets. Atul s volumes have grown in both the passenger and goods carrier segments where it has benefited from the launch of its rear-engine vehicle Atul Gem in 2009, which has helped to serve a wider audience. Currently, Atul is present in nearly all states barring Tamil Nadu and West Bengal. Also, the dealer network comprises 200 primary dealers and ~125 sub-dealers across the country. The management has guided that the number of primary dealerships will rise to ~300 by the end of FY17E. This would help meet Atul s aspiration of ~ 20% volume growth. New products lined up to cater to new market segments, aid market share Atul has attained a pan-india presence over the past three or four years, establishing its brand in these new markets and gaining market share, which has grown from 2.0% in FY09 to 7.7% in FY14. However, one of the major shortcomings of Atul has been the lack of petrol/alternate fuel engine products, which is ~40% of total domestic 3-W market. With the management guiding that the new petrol engine product will be launched in the next six months, we believe Atul s volumes are likely to grow faster. The petrol product is also likely to boost export volumes with the management expecting exports to grow exponentially on a low base. New capacity to come in H2FY17E, big export story leg remains intact! In a segment that offers little scope for product differentiation, Atul has been able to carve out a niche for itself focusing more on providing good after-sale service and product customisation. The continued volume growth and product acceptance is now expected to lead to doubling of capacity. This facility would be focusing on export demand, which the company expects to significantly rise as it competes with a complete diesel/petrol portfolio. The facility is likely to be fully operational by H2FY17E. Capex requirement for the project is likely to be ~ 150 crore, to be funded through internal accruals. Strong earnings growth, attractive PEG, robust ratios justify valuations We feel Atul s specialised focus has clearly paid rich dividends as evidenced by market share gains. We believe that with further capacity addition and new petrol product launch, Atul can efficiently tap export markets along with urban markets in India and, thereby, continue the strong growth momentum. The sharp rally in stock price over the past two years has reflected the same. However, looking at the strong growth potential coupled with strong balance sheet and robust return ratios (>40% RoCE), we believe valuations at ~17x FY17E EPS remain attractive relative to growth. We value Atul Auto at 20x FY17E EPS (~0.5x PEG CAGR FY14-17E) to arrive at a target price of 800 and maintain BUY. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY15 Q3FY15E Q3FY14 YoY (%) Q2FY15 QoQ (%) Comments Total Operating Income Performance in line with estimates driven largely by volume growth Raw Material Expenses Lower-than-expected RM costs leading to better margins Employee Expenses Other expenses EBITDA EBITDA Margin (%) bps bps Other Income Depreciation Interest Tax Reported PAT EPS Key Metrics ASPs ( '000s) 119, , , Continued rise in ASPs RM/Unit ( '000s) 94,661 96,086 87, , Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue New capacity to come on-stream in H2FY17E EBITDA Strong operating profits due to product mix enrichment better operating leverage and benign costs environment EBITDA Margin (%) bps bps PAT EPS ( ) Assumptions Current Earlier Comments FY14 FY15E FY16E FY17E FY16E FY17E Domestic volumes 37,007 41,814 49,724 60,753 51,526 63,022 Volumes to continue to grow on the back of increase in distribution network and new products Export volumes 550 1,543 2,978 4,289 2,839 3,876 Export volume growth assumed as per the management guidance ASPs ( ) 114, , , , , ,364 ASPs to trend higher as export contribution improves and improved product mix RM/vehicle ( ) 88,250 89,529 88,645 91,350 90,013 93,236 Likelihood of raw material prices to remain benign EBITDA/vehicle ( ) 12,086 14,190 16,705 18,563 15,814 17,542 Benefit of scale to start accruing as utilisation levels reach ~100% in FY16E before the new facility is commissioned ICICI Securities Ltd Retail Equity Research Page 2

3 Key conference call takeaways The management has maintained the guidance for strong double digit growth in the next couple of years. New capacity is likely to come on stream from H2FY17E onwards The management has guided that the dealer network expansion will continue with ~25-50 new dealers likely to be added till FY17E. The current touch points count stands at ~325 with primary dealers at ~200 For the new plant in Gujarat, land has been acquired and the project is expected to start by the end of Q4FY15E. The expected capex for the same is ~ 150 crore, which would be funded largely through internal accruals The management has indicated that the export segment is likely to witness strong volume growth in the coming years with six distributors established in Kenya, Mozambique, Bangladesh, etc. The management has highlighted the fact that the markets have shown good acceptance towards the Atul brand while the presence of petrol variant would add greatly to volume growth The management has guided that the new petrol engine product is going to have in-house developed petrol engine. They are moving away from supplier uncertainties The current facility can be expanded from 48,000 units to ~60,000 units by carrying out the de-bottlenecking activity while another 10% can be increased via extra shifts ICICI Securities Ltd Retail Equity Research Page 3

4 Company Analysis Revenues continue to grow as volumes remain on uptrend Atul Auto is the only pure play 3-W manufacturer in India. With ~17% share in the goods carrier segment and 5.5% share in the passenger carrier segment, Atul has reached a respectable size in the market. Atul has also gone pan-india with a presence across almost all states. We expect volumes to remain on the uptrend as the market share increases in newly launched markets. Also, the new petrol engine variant to be launched next year is likely to add incremental volumes as Atul targets urban markets for growth. We build in revenue growth at ~25% CAGR in FY14-17E as volumes grow at ~21% CAGR in the same period. Exhibit 1: Growth in revenues driven largely by volume growth ( crore) (%) 100 FY12 FY13 FY14 FY15E FY16E FY17E Net Sales Growth (%) - Exhibit 2: Passenger carrier segment volume break-up 800,000 (units) 700, , , , , , , FY09 FY10 FY11 FY12 FY13 FY14 Domestic Exports Exhibit 3: Goods carrier segment volume breakup (units) 120, ,000 80,000 60,000 40,000 20, FY09 FY10 FY11 FY12 FY13 FY14 Domestic Exports ICICI Securities Ltd Retail Equity Research Page 4

5 Atul s main forte has been the rural markets, especially Exhibit 4: Atul segmental volumes dominated by goods carrier segment the large diesel segment, which is a ~2.5-3 lakh strong market. Atul has a significant market share in the goods 40,000 carrier segment in which it is a strong player. The increase in dealerships across the country could propel faster volume growth (units) 30,000 20, , FY09 FY10 FY11 FY12 FY13 FY14 Passenger Carriers Goods Carriers Atul has constantly grown market share in its target Exhibit 5: Atul s market share movement over the years in domestic market market across the years. It is interesting to note that Atul has as of now only been able to target ~60% of domestic market due to absence of petrol variant. The entry into petrol segment, increasing capacity and footprint could lead to faster growth in market share in the coming years (%) (%) FY09 FY10 FY11 FY12 FY13 FY14 Passenger Carriers Goods Carriers 3 0 ICICI Securities Ltd Retail Equity Research Page 5

6 EBITDA margins to improve from current levels on operating leverage Despite continued volume growth, Atul s margins have remained largely subdued over the past two years as conversion costs have been high and the sluggish market scenario has prevented OEMs from passing on costs. Going ahead, we believe an improvement in volumes, better product mix and benign costs would lead to sharp gross margin expansion. Also, with a further improvement in utilisation levels, operating leverage benefits are likely to accrue and aid margins. Thus, we believe margins will trend higher and grow to 14.0%, 15.0% in FY16E, FY17E, respectively. Exhibit 6: Margins trends and forecasts ( crore) (%) FY12 FY13 FY14 FY15E FY16E FY17E EBITDA EBITDA Margin (%) 8 Atul is expected to witness product mix improvements in the coming years with the launch of petrol/alternate fuel versions coupled with an entry in export markets. Both these factors could aid in improving average realisations from present levels Exhibit 7: Net ASPs to trend higher as product/geography mix improves 140, , , , , , ,283 ( ) 121, , ,000 FY12 FY13 FY14 FY15E FY16E FY17E ASPs ( ) ICICI Securities Ltd Retail Equity Research Page 6

7 Profitability to improve as volumes and margins increase!!! Profitability is likely to remain on an uptrend as the management focus on growing profitably remains intact. With increasing volumes and an improvement in margins, profitability is likely to remain on an uptrend. We expect PAT to increase at ~35% CAGR in FY14-17E mainly as capacity utilisation improves leading to margin expansion. Exhibit 8: Increase in profitability as financial performance improves! ( crore) FY12 FY13 FY14 FY15E FY16E FY17E PAT Growth (%) (%) Capex to be funded by strong CFO generation Atul possesses strong balance sheet strength, with zero debt on the books. For the major capex planned in FY15E, FY16E, the management has guided at meeting the capex need by using existing cash as well as CFOs. We believe that in the next two years, with CFO generation likely to remain robust as the demand scenario improves, Atul s debt-free status is likely to sustain. Exhibit 9: Major capex to be funded by strong CFOs.to retain debt-free status ( crore) (20) (1) 10 FY12 FY13 FY14 FY15E FY16E FY17E Capex CFO Cash & Equivalents Return ratio improvement reflects overall improvement in financials Despite the planned capex in FY15E, FY16E, due to an improvement in profitability, return ratios are likely to remain on an uptrend. We believe return ratios are likely to remain at current levels and expect RoE, RoCE to remain above 40%, 30%for FY15E, FY16E, respectively. ICICI Securities Ltd Retail Equity Research Page 7

8 Exhibit 10: Return ratios to remain buoyant! (%) FY12 FY13 FY14 FY15E FY16E FY17E RoCE RoE Outlook & valuation We feel Atul s specialised focus has clearly paid rich dividends as evidenced by market share gains. We believe that with further capacity addition and new petrol product launch, Atul can efficiently tap export markets along with urban markets in India and, thereby, continue the strong growth momentum. The sharp rally in stock price over the past two years has reflected the same. However, looking at the strong growth potential coupled with strong balance sheet and robust return ratios (>40% RoCE), we believe valuations at ~17x FY17E EPS remain very attractive. We value Atul Auto at 20x FY17E EPS (~0.5x PEG CAGR FY14-17E) to arrive at a target price of 800 and maintain our BUY recommendation. The sustained improvement in performance has seen a re-rating of the multiples. We believe with increasing visibility of earnings, multiples are likely to remain on an upward trajectory Exhibit 11: Two-year rolling forward P/E ( ) Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Price 22x 19x 13x 1x 10x 7x Exhibit 12: Valuations Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY FY15E FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 8

9 Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15E FY16E FY17E Total Volumes (Units) 37,557 43,357 52,702 65,043 Total operating Income Growth (%) Raw Material Expenses Employee Expenses Other Expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Others Total Tax PAT Growth (%) EPS ( ) FDEPS ( ) Cash flow statement Crore (Year-end March) FY14 FY15E FY16E FY17E Profit after Tax Add: Depreciation (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Dividend paid & dividend tax Others CF from financing activities Net Cash flow Opening Cash Closing Cash Balance sheet Crore (Year-end March) FY14 FY15E FY16E FY17E Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total De bt Deferred Tax Liability Ot hers Total Liabilities As sets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Inventory Debtors Loans and Advances Other current assets Cash Total Current Assets Creditors Provisions Other current liability Total Current Liabilities Net Current Assets Other non-current assets Application of Funds Key ratios (Year-end March) FY14 FY15E FY16E FY17E Per share data ( ) EPS Cash EPS BV DPS Cash Operat ing R atios (%) EBITDA Margin PBT / Net sales PAT Margin Inventory days Debtor days Creditor days Retur n Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Auto & Auto Ancillary) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E Amara Raja (AMARAJ) Hold 14, Apollo Tyre (APOTYR) Buy 11, Ashok Leyland (ASHLEY) Hold 17, Bajaj Auto (BAAUTO) 2,459 2,833 Buy 71, Balkrishna Ind. (BALIND) Buy 6, Bosch (MICO) 21,689 18,500 Hold 68, Eicher Motors (EICMOT)` 15,344 15,000 Hold 41, Escorts (ESCORT)* Sell 1, Exide Industries (EXIIND) Buy 16, Hero Mototcorp (HERHON) 2,880 3,078 Hold 57, JK Tyre & Ind (JKIND) Buy 2, M&M (MAHMAH) 1,329 1,457 Buy 78, Mahindra CIE (MAHAUT)* Buy 7, Maruti Suzuki (MARUTI) 3,617 3,700 Buy 109, Motherson (MOTSUM) Buy 41, Tata Motors (TELCO) Buy 168, Wabco India (WABTVS) 5,099 4,750 Hold 9, ICICI Securities Ltd Retail Equity Research Page 10

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11

12 ANALYST CERTIFICATION We /I, Nishant Vass, MBA (Finance) Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Nishant Vass, MBA, Research Analyst of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analyst is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Nishant Vass, MBA, Research Analyst do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analyst nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. ICICI Securities Ltd Retail Equity Research Page 12