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REGISTER NOW OR LOGINDetails About Atul Auto Limited
Atul Auto Limited emerged as only player having complete range of 3-wheeler products across fuel range - Diesel, Petrol, CNG, LPG and Electric. The company has been categorized as fastest growing 3-wheeler company in India, having presence across 21 states with 200 primary and 130 secondary networks. Its dealership, sales, service, and spare parts network spans over 600 touch points across the globe. Opposed to industry veterans, Atul Auto is one of the youngest & fastest growing companies. R&D team keeps constant check on routine production and works on developing innovations.
Growth Enablers of Atul Auto
Opportunities to Capitalize On: Whole automobile industry is transforming and focuses on greater safety and greener environment. Given importance of automobile industry to the economy, potential for generating job opportunities and its backward and forward linkage with other sectors, Government has been supportive. Government is pursuing plan for electrification of vehicle fleet and it announced FAME II policy. Industry has been gearing up for meeting this challenge on technology and product fronts. Given required technology support and R&D strength, Atul Auto is moving forward to have electric 3-wheeler with Lithium-ion battery.
Stable Liquidity Resources Should Support Capital Needs: Atul Auto maintained debt-free status till fiscal 2020. As a result of increased investment for installation of Ahmedabad plant, liquid assets saw a reduction from INR1892 lacs on March 31, 2019 to INR106 lacs as on March 31, 2020. Atul Auto has sanctioned working capital facilities of INR1500 lacs from IDBI Bank, working capital facilities of USD 3.50 Million and term loan of INR9000 lacs from Export - Import Bank of India which have not been used as on March 31, 2020. Complete availability should help meet future business needs.
R&D Activities Provide Earnings Growth Visibility: The company saw a busy year for R&D activities as norms for transition from BS IV to BS VI emission were carried out before implementation date, which was April 01, 2020. Development activities were running in full swing so that business opportunities in e-vehicle can be grabbed. Strong foundation of R&D provides the company an edge over its competitors.
Sound Ratings Profile: CRISIL has reaffirmed Atul Auto’s rating as CRISIL A with stable outlook for cash credit facility of INR15 Crores by IDBI Bank Limited and term loan of INR90 Crores by Exim Bank. Further, rating agency has assigned rating of CRISIL A1 for pre and post-shipment credit in forex of USD3.50 million by Exim Bank. Rating showcases the company’s above- average financial risk profile, low gearing, above-average debt protection metrics, improvement in market share, well-established distribution network and sound working capital management.
Strong Domestic Strength: India is one of the largest manufacturers for 3 wheelers, producing volume of ~12,50,000 units p.a. and should grow at 6-8% p.a. in medium term. Potential in Indian market can be seen as 3-wheeler is categorised as an important element of transportation of goods in this country. Atul Auto is having strong domestic strength with network spanning across 220 primary dealerships, 35 satellite dealerships and 88 sub-dealerships. The company’s presentation claims that export markets include developing and under-developed countries like Bangladesh, Sri Lanka, Indonesia, African countries and Latin American countries.
Favourable Industry Dynamics Should Lend Support: Domestic production of automobiles saw ~2.36% CAGR between FY16–FY20, with 26.36 million vehicles manufactured in India in FY20. Domestic sales of automobiles exhibited 1.29% CAGR between FY16–FY20, with 21.55 million vehicles sold out in FY20. Automobile exports reached 4.77 million vehicles in FY20, showcasing CAGR of 6.94% during FY16-FY20. Two wheelers accounted 73.9% of vehicles exported, followed by passenger vehicles at 14.2%, 3 wheelers at 10.5% and commercial vehicles at 1.3%. Sales of EV, excluding E-rickshaws, saw a 20% growth and reached 1.56 lakh units in FY20. Industry attracted Foreign Direct Investment worth USD24.21 billion between April 2000 and March 2020, per Department for Promotion of Industry and Internal Trade.
Unwavering Government Support Should Help Revive Automobile Sector: Government of India encourages foreign investment in automobile sector. It allowed 100% foreign direct investment under automatic route. As per Union Budget 2019–20, Government decided to provide additional income tax deduction of INR1.5 lakh on interest paid on loans taken for purchasing EVs. Government has plans to develop India as global manufacturing centre and R&D hub.
Lower Valuations Provide Investment Opportunities
Atul Auto is having a market capitalisation of ~INR34,747.06 lakhs and a free float market cap of ~INR16,325.96 lakhs. Its stock is trading at ~88.47% below its 52-week high. The company compounded its total revenues at ~4.24% between FY16-FY20 and its PAT at ~2.53%. It has compounded its EPS at ~2.54% over FY16-FY20. In coming periods, this growth should further increase, with sound balance sheet, network expansion and increased presence in domestic market acting as primary growth enablers. Atul Auto has emerged as a powerful company with 3-wheeler vehicles across entire fuel range – petrol, diesel, CNG, LPG and electric. Strong presence across entire country has been targeted by leveraging large 3-wheeler brand portfolio. Planned strategies have helped it expand its reach globally.
With new range of alternate fuel 3W (Petrol/ CNG/ LPG) and economic activities being recovered, Atul Auto expects having deeper penetration in existing markets and entering into new countries so that international business can see expansion. At price of ~INR158.35, stock of Atul Auto is trading at ~6.63x of FY20 EPS, which is at a deep discount to sectoral average of 11.12x. Going long on Atul Auto should be considered given its strong foundation of R&D, supportive industry dynamics, market share and sound ratings profile. Khushbu Auto Finance Limited has been revived and supports products of Atul Auto for retail finance to end users.
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