Equity | India | Automobile | Two-Three Wheelers

Ratio &
Company
Analysis
CMP (`)

Atul Auto Ltd.

Drive on the clear way.

Made By- Mohit Kanjwani(2015PGP137)

Company Snapshot

Face Value

396
52Week Low

August 10, 2015

5
52 Week High

328

721

Market Info (as on July 08, 2015)

BSE Sensex
Nifty S&P

25,622
7.788

Sector Overview

Stock Detail
BSE Group

BSE Code

531795

NSE Code

ATULAUTO

Bloomberg Code

ATA IN

Market Cap (`Crore)

868

Free Float (%)

47%

Avg. Daily Volume

(BSE)
Div. per share (`)
Shares Outstanding
(mn)
Shareholding Pattern (in %)

Atul Auto Ltd. (Atul) is the Gujarat based small sized three wheeler manufacturing company. It
is one of the youngest players in the 3 wheeler business with humble beginning in 1992. It has
well diversified product portfolio of 45 models and is inventor of the most popular rural
transport vehicle Chakkada. It has been growing continuously at 19.5% for last 5 years.
Company has market presence in 16 states of India with 200 primary dealers & 120 secondary
dealers along with overseas presence in market like Bangladesh, Tanzania, Kenya, South Africa,
Nigeria & Jamaica. Company has 8% market share in total domestic industry.

111939
5.00
21.94

Fast growing industry provide an edge, with huge demand abroad

Strong initiatives taken by central government like rural transport and infrastructure
development will help to boost the volumes. 3-wheelers are an important element of goods
transportation in the country. India is one of the largest manufacturers for 3-wheelers
producing volume of ~ 950,000 units p.a. and growing at 6-8% p.a. Having a domestic market of
~ 550,000 units p.a. And is also a cost effective mode for personal and mass transportation.
Export markets include developing and under-developed countries like Bangladesh, Sri Lanka,
Indonesia, African countries and Latin American countries. 3-wheelers are an important
element of goods transportation in the country. It is the ideal and most widely used mode for
goods transportation in rural and semi urban markets. It provides last mile connectivity in
the metro and urban markets where entry of large commercial vehicles into city limits is
increasingly getting restricted.

The ROCE of the company has also grown from 29.96% in 2011 to 55.26% in 2015. This creates a
great investment opportunity for the investor.

Shareholding Pattern (in %), 2015

Promoters

FIIs

DII

52.70 6.06

Others

8.46

32.78

Share Price Performance

280
260
240
220
200
180

Equity | India | Automobile | Two-Three Wheelers

160
140
120
100
May-15Jun-15Jun-15

Mar-15Apr-15Apr-15

Dec-14Jan-15Feb-15Feb-15

Sep-14Oct-14Nov-14Dec-14

Jul-14Jul-14Aug-14Sep-14

80

Returns
Period.

Atul Auto
(%)
Sensex (%)

1Mth 3 Mths 6Mths

14.5 (17.6) (27.4)

5.24 (1.21) 4.69

1Yr

72.2
7.94

Source: Capitaline.com,Bloomberg Database,

Economictimes.com, Company Annual reports

Favorable economic conditions like Make

in India and increasing rural disposable
income

As India is capitalizing more and more

on this Make in India initiative, it
facilitates more and better production
capacities with improved technology
as well as the increasing rural
disposable incomes leads to some
great investment opportunities in this
sector. Also with the falling crude
price leading to cuts in the petrol
prices in India, the demand for such
public transport will increase.

A key summary of ratios which makes

Atul Auto a safer bet
Atul auto is having very healthy balance
sheet. The company has maintained the
operating margins instead of making the
strong volume growth. This shows the high
operational efficiency in the business.
EBITDA margin has grown from 9% in FY11
to 12% in 2015 in the span of five years.
Whereas operating margins has grown from
8% in FY10 to 12% in FY15. The company
has strong ROE which makes company
more lucrative. ROE for 2011 stood at
25% which has grown to 37% in 2015.

Strong Distribution Network

Atul auto has strong distributing network across the country. Atul auto has 17 regional
offices in the country including almost all the major states. The company also has three
training centers at Gujarat, Chhattisgarh, and Andra Pradesh. Atul auto has strong
dealers network ensures the consistent sales over geographical splits. The Company has
200 primary dealers across the territories including rural and urban parts of the country.
The company also strengthens its network with 120 secondary dealers. This makes
company business structure more strong. Now company has started its business
overseas, the company has presence in the countries like Bangladesh, Kenya,
Tanzania, South Africa, Nigeria, and Jamaica. This also creates a huge business
opportunity overseas.

it has increased, but hasnt out beaten the industry average and this raises a question why
is the book value of company less than industry average, if it has beaten it in almost all
other aspects? The split in shares for 1:2 leading to lesser book values as for the earlier
years, established companies like bajaj auto enjoy higher book value nearly 369 leading
to higher average.
With good operating margins, i.e. 12% in 2015 as compared to 6% compared with
industry average, there is a good investment opportunity.

Market share
Market share
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 of overall 8%
share in the market. Atul has also
gone pan-India with a presence
across almost all states. The
company in its management
discussion
portion
mentions
volumes to remain on the uptrend
as the market share increases in
newly launched markets. Also as
the new petrol engine variant to
be launched next year is likely
to add incremental volumes as
Atul targets urban markets for
growth
Comparison with the index(PE &
PB ratio)
At the CMP of `396, Atul Auto Ltd. is
having a PE of 32.45, Compared to the
PE ratio of the CNX 40 Automobile
benchmark peers at 22. Although Atul
auto limited has only 8% market share
as compared to its peers, where
majority of players are private ones.
As for the book value of the company,

Comparison with the index(Share Price of Atul Auto Vs Index Value)

At the CMP of `396, Atul Auto Ltd. is having a PE of 32.45, Compared to the PE ratio of the CNX 40 Automobile
benchmark peers at 22. Although Atul auto limited has only 8% market share as compared to its peers, where
majority of players are private ones. As for the book value of the company, it has increased, but hasnt out
beaten the industry average and this raises a question why is the book value of company less than industry
average, if it has beaten it in almost all other aspects?

With good operating margins, i.e. 12% in 2015 as compared to 6% compared with industry
average, there is a good investment opportunity.

Profitability Ratio
While the market has discounted the company positively, with its share
price increasing continuously, with continuously rising PBIDTM, ROCE,
RONW and ROE till 2013, the financial year, 2013-14 witnessed a decline
as the entire industry witnessed a problem of slowdown which was
explained as because of rising petrol and diesel prices as well an
inflation. However inspite of the same a capex infusion of 150 Crore
was done next year in the new Gurjat plant which is expected to be
operational by December 2015
Sales & other income
While income coming from other sources rose almost by 200% in 2015,
this was a result of a provisions of nearly 3 crores written back and also
misclleneous income of nearly 2 crores, the same happened because
Also net sales have witnessed a 21% CAGR Atul Auto is the only pure play
3-W manufacturer in India and has also reached a respectable size in the
market. With the volumes to increase as Atul has also gone pan-India
with a presence across almost all states as well as new geographic
penetration shall also foster such sales.
Foreign Currency Earnings
The earnings as well as expenses from foreign operations is continuously
rising after 13 but there has been a sudden jump in the same after March
14, and this calls for a peek into companies annual report for the same
year and the management discussion explains, six distributors were
established
ShareFlows
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petrol engine product vertical integration so as to moving away from
supplier uncertainties

Some fluctuations in the liability items

The total net worth of the shareholders has been continuously increasing.
As we know a promoter can make money via several ways, but the
management quality and quality of its earnings has been continuously
increasing as visible from the contribution to the reserves. Also the
management believes in great expansion prospects abroad.

Debtor & Creditors Velocity

The amount of creditors in absolute terms has been decreasing with their
velocity increasing. However the opposite trend can be seen in case of
debtors whose value has been continuously increasing with their velocity
decreasing over period of time. Such an increase and decrease is an
outcome of good management practices and the belief of its debtors
and creditors in the management and doing business with it.

Working Capital Analysis

The working capital has been continously increasing as against the
industry trend of negative working capital. This is because of current
assets, growing at a higher pace of CAGR 15% as compared to current
liabilities at the rate of 8% year over year. With more expansion plans
the working capital requirement of the company is high and such a
requirement
is met internally as the company has also written of its
ROCE
debt.
Comparing with the general trend of the industry, the return on capital
employed has been decreasing with changing its trend after 2014.
However for Atul Auto, the trend has been opposite and it defies the
general slowdown the industry has been witnessing. The company is a
premier in diesel auto and enjoys huge premium in the same.

RONW
With the net worth of the company increasing, the RONW has still been
increasing as the profit of the company has been increasing over the
years as well as the trend has been opposite as of the industry. One of
the factors which allows the company to enjoy a premium as compared
to rest of the industry is 0.5 ton Atul smart fe which is more of a
loading truck as well as a commercial atuo of the model enjoy a
monopoly in this segment.
Current Ratio
The current ratio of the company is more than one, and beat the industry
average for continuously 5 years and the margin between the two is
continuously increasing. This has been possible with current assets
growing from 28 crore to 89 crore in 5 years and current liabilities
increasing from 20 crore to 50 crores, making a current asset growth
rate of CAGR of 15% while CAGR of liabilities being only 8% .

Interest Coverage Ratio

The interest coverage ratio has been almost in tandem during all 4 years
and beat the industry in 2014. However the ratio declined in 2015. This
phenomena can be explained by rising net profit till 2013 and reduced
interst expenses till 2013 as the company paid off its debt in 2013 and
became a debt free company.

Inventory Turnover Ratio

There is a divergence in the year 2013 which has primarily been because
of the slowdown in the industry. The company believes the high interest
rates in the economy were a dominant factor which were a major
reason of the high inventory in the economy. For the company, its cogs
has been decreasing over time as a result of higher operational efficiency
as well as the vertical integration the company has been targeting. Also
Fixed
Turnover
ratio
as theAsset
company
enjoys
a good monopoly in its products, its inventory
stock is quite low as compared to the industry.
The fixed asset turnover ratio is showing some strange trends with earlier
decreasing and then increasing over period of time. The reason is the
continuous expansion investments in the fixed assets capacity for the
year. The company expanded its production capacity from 30,000
units to 40,000 units and additionally its new plant in Rajkot is
expected to increase the capacity to 60,000 units and investment in
the plant has been predominantly in year 2012-13.

Dividend Payout Ratio

The payout ratio for the industry has been very much fluctuating,
showing the variation in the earnings and in payment of dividends over
period of time. However in case of Atul auto, the payout has been
constant and nearly 30%. The company is able to write off its debt as well
as well as pay a constant dividend. Such a consistency has led to a good
fundamental company perspective in the minds of investors which is
reflected even in the share price.