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 3638 4301 5131 6234 7553 EBITDA 401 454 625 811 996 EBITDA Margin (%) 11.0 10.6 12.2 13.0 13.2 Adj. Net Profit 259 298 460 575 670 EPS (Rs.)* 11.8 13.6 21.0 26.2 30.5 RoE (%) 39.8 35.3 42.0 39.9 35.7 P/E (x) # 6.3 13.2 29.1 23.3 20.0 ; * Adjusted EPS, #P/E multiples for FY13 & FY14 are based on historic market price Recommendation (Rs.) HOLD CMP 611.2 Target Price 681 Previous Target Price 576 Upside (%) 11.4 *CMP as on Feb 3, 2015 Stock Information Mkt Cap (Rs.mn/US$ mn) 13430/218 52-wk High/Low (Rs.) 722 / 131 3M Avg. daily volume (mn) 0.5 Sensex/Nifty 28971 / 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 -10 54 87 335 Relative to Sensex -13 48 65 203 Performance 470 370 270 170 70 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 ATA Sensex Source: Bloomberg Analyst Contact Kaushal kumar Jaitliya 040-4467 7494 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
Exhibit 2: Q3 FY15 Financials YE Mar (Rs. Millions) Q2 FY15 Q3 FY15 QoQ % Q3FY14 YoY % Turnover 1313 1393 6.2 1231 13.2 Expenditure 1155 1217 5.3 1081 12.5 EBITDA 158 177 12.2 149 18.4 Depreciation 14 13 (2.2) 14 (1.5) Interest 2 1 (52.2) 1 83.3 Other Income 9 8 (12.4) 9 (13.3) PBT 151 170 13.0 144 18.0 Tax 41 57 39.6 48 20.0 PAT 110 113 3.1 97 17.1 PAT B/F EO Items 0 0 0 0 0 EBITDA (%) 12.0 12.7 5.7 12.1 4.6 EBIT (%) 11.0 11.7 7.0 11.0 6.3 Net profit (%) 8.3 8.1 (2.8) 7.8 3.6 Exhibit 3: Quarterly Revenue & Revenue Growth (QoQ) Exhibit 4: 9M Revenue & YoY Growth 1400 1200 1000 800 27% 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 Q3FY14 1126 Q4FY14 997 Q1FY15 1313 Q2FY15 13% 1393 Q3FY15 35% 30% 25% 20% 15% 10% 5% 0% Revenue growth (qoq) 4000 3 3200 2800 2400 24% 19% 3703 25% 23% 21% 19% 3176 17% 2667 17% 15% FY13 FY14 FY15 9M Revenue (Rs mns) Revenue growth (YoY) Exhibit 5: Quarterly EBITDA & EBITDA margin (%) Exhibit 6: 9M EBITDA & EBITDA margin (%) 1800 1500 1200 900 8.7% 674 11.0% 942 12.0% 1241 11.8% 1148 8.4% 724 10.5% 1143 12.1% 1493 10.5% 9.6% 1179 955 12.7% 12.0% 1576 1768 14% 12% 10% 8% 4300 3900 3500 3100 10.7% 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 (%) 2700 3358 4299 2857 10% FY13 FY14 FY15 9M EBITDA (Rs mns) EBITDA margin (%) 2
Exhibit 7: Quarterly Goods Carrier Volume Trend 5100 4780 4460 Exhibit 8: Quarterly Passenger Carrier Volume Trend 6500 0 5500 4140 3820 3500 4481 4480 3795 4442 5080 5000 4500 4000 6160 4929 4274 6564 6165 Goods carrier volumes Passenger carrier volumes Exhibit 9: Quarterly Exports Volume Trend Exhibit 10: Quarterly Domestic Vs Exports Volumes 400 200 0 123 240 364 82 572 11500 10 9700 8800 7900 7000 10641 123 364 240 9409 8069 11006 82 572 11245 700 500 400 300 200 100 0 Exports volumes Domestic Volumes (LHS) Export Volumes (RHS) Exhibit 11: Financials Summary YE Mar (Rs. Millions) Mar 15E Mar 16E Mar 17E Net Sales 5131 6234 7553 EBITDA 625 811 996 EBITDA margin (%) 12.2 13.0 13.2 Net profit 460 575 670 EPS(Rs.) 21.0 26.2 30.5 YoY growth (%) 54.4 24.8 16.4 3
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 176.8 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
Financials Exhibit 12: Income Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Revenue 3638 4301 5131 6234 7553 Growth (%) 21.8 18.2 19.3 21.5 21.2 Operating Expenses 3238 3848 4506 5423 6558 EBIDTA 401 454 625 811 996 Growth (%) 45.5 13.2 37.8 29.7 22.8 Depreciation & Amortization 44 52 59 66 80 Other Income 20 29 105 94 62 EBIT 356 402 566 744 915 Interest Expenses 4 3 4 5 6 PBT 372 427 667 834 971 Tax 113 130 207 259 301 Adjusted PAT 259 298 460 575 670 Growth (%) 66.3 15.0 54.4 25.0 16.4 Exhibit 13: Balance Sheet YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E Cash & Cash equivalents 381 451 280 338 347 Sundry Debtors 72 131 112 122 150 Inventory 229 234 277 334 411 Loans & Advances 54 79 69 94 57 Investments 12 12 12 12 12 Gross Block 686 834 954 1092 2754 Net Block 431 527 588 659 2242 CWIP 50 6 706 1206 6 Miscellaneous 1 6 6 6 6 Total Assets 1230 1446 2051 2771 3230 Current Liabilities & Provisions 442 440 543 654 770 Debt 0 0 0 0 0 Other Liabilities 45 61 261 479 350 Total Liabilities 487 501 804 1133 1120 Shareholders' Equity 112 112 112 112 112 Reserves & Surplus 631 833 1135 1526 1998 Total Networth 743 945 1247 1638 2110 Minority Interest 0 0 0 0 0 Total Networth & Liabilities 1230 1446 2051 2771 3230, NA: Not Applicable 5
Exhibit 14: Cash Flow Statement YE Mar (Rs. Million) FY13 FY14 FY15E FY16E FY17E PBT 372 427 667 834 971 Depreciation 44 52 59 66 80 Interest 2 2 4 5 6 Tax Paid 122 134 207 259 301 Inc/dec in Net WC 110 (41) 64 262 (117) Other Income 0 0 29 31 20 Other non cash items 0 0 (18) 245 (53) Cash flow from operating activities 407 307 541 1123 566 Inc/dec in capital expenditure 95 106 120 137 163 Inc/dec in investments 0 0 0 0 0 Others 0 0 (471) (751) (198) Cash flow from investing activities (95) (106) (591) (888) (361) Inc/dec in borrowings 0 0 0 0 0 Issuance of equity 0 0 0 0 0 Dividend paid 43 128 117 171 191 Interest paid 2 2 4 5 6 Others 0 0 0 0 0 Cash flow from financing activities (44 (131) (121) (176) (197) Net change in cash 267 71 (171) 58 9 Exhibit 15: Key Ratios YE Mar (%) FY13 FY14 FY15E FY16E FY17E EBITDA Margin (%) 11.0 10.6 12.2 13.0 13.2 EBIT Margin (%) 9.8 9.3 11.0 11.9 12.1 Net Profit Margin (%) 7.1 6.9 8.8 9.1 8.8 Dividend Payout ratio 25.4 27.6 28.6 26.7 22.9 Net Debt/Equity (0.5) (0.5) (0.2) (0.2) (0.2) RoE (%) 39.8 35.3 42.0 39.9 35.7 RoCE (%) 48.0 42.5 45.4 45.4 43.4 Exhibit 16: Valuation Parameters YE Mar FY13 FY14 FY15E FY16E FY17E EPS (Rs.) 11.8 13.6 21.0 26.2 30.5 DPS (Rs.) 3.0 3.8 6.0 7.0 7.0 BV (Rs.) 33.9 43.1 56.8 74.6 96.2 PE (x) * 6.3 13.2 29.1 23.3 20.0 P/BV (x) * 2.2 4.2 10.8 8.2 6.4 EV/EBITDA (x) * 3.1 7.7 21.0 16.1 13.1 EV/Sales (x) * 0.3 0.8 2.6 2.1 1.7, * represents PE, P/BV,EV/EBITDA, EV/Sales multiples for FY13 & FY14 are based on historic market price 6
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: 1800 425 8283 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 500 034. India. Tel: 91-40-23312454; Fax: 91-40-23311968 For More updates & Stock Research, visit www.karvyonline.com 7