Atul Auto Ltd.

BSE: 531795

We mentioned Atul Auto Ltd. as one of our Muhurat picks, the conviction has grown with more research and feedback on the company. Atul Auto Ltd. looks very promising company with a strong and stable balance sheet.

Atul Auto is one of the leading 3 wheeler manufacturer and is based in Gujarat. They already have a lead in the state of Gujarat & Rajasthan and are now trying to replicate their success across new territories in India & abroad. The company is trying to enter new states and is appointing new dealers. Company has even entered into agreements to enter Bangladesh & Sri Lanka.

Atul Auto has grown @ 40-50% over the last 2 years and seems geared up to maintain good sales momentum going ahead. Here is a snapshot of financials of last 4 years:

Particulars FY 2008 FY 2009 FY 2010 FY 2011 6M FY 12 FY 12 Estimate
Sales 82.04 120.95 121.08 202.67 136.39 275
PBIDT 6.87 5.42 13.80 20.03 13.72 27.50
Tax .64 .13 2.61 4.64 4.03 7.00
PAT 1.27 .46 3.17 9.43 8.35 14.75
EPS 2.28 0.76 5.22 15.51 20.18

*All Financial figures are in crore rupees (except EPS).

Along with the growth over last 2 years the Balance Sheet side has become quite strong:

Particulars FY 2008 FY 2009 FY 2010 FY 2011 6M FY 12
Total Debt 33.83 31.73 23.17 6.00 3.75
Inventory 19.36 17.68 18.57 19.17 22.31
as a % of turn 24% 15% 15% 9% 8%
Debtors 3.96 3.52 4.52 5.41 8.47
as a % of turn 5% 3% 4% 3% 3%
EPS 2.28 0.76 5.22 15.51 12.22
Current Liabilities 11.56 14.63 17.90 23.84 36.95
Net Working Cap 11.76 6.57 5.19 0.74 (6.17)

Interestingly while more than doubling the turnover between 2009-2012E, the company has:

  • Become debt free, repaying a debt of about 32 Crores.
  • Reduced inventory levels from 15% of turnover to just 8%.
  • Debtors are negligible.
  • Become a negative working capital company thanks to the increasing dealer advances. Dealer advances in 2011 have increased to Rs.5.04 vs. Rs.1.24 Crores in 2010. As per 6 months FY 2012 Balance Sheet, the advances have further increased.
  • Paid dividend during tough time and increased it in good times.

So the good thing of this business model is that it becomes a cash cow at a certain stage.

Company seems to be getting traction in its markets and has some aggressive growth plans:

  1. They are in process of doubling their capacity from current 24,000 to 48,000 vehicles per-annum.
  2. Company plans to enter new territories and increase dealer network.
  3. Their tie-up with Bangladesh and Sri Lanka looks promising.
  4. Company intends to set up a 4 wheeler ultra low cost vehicle plant.

Financials:

Company Website | Atul Auto on Screener

  • Mayur

    Its a “T” Group company. Looks very Risky….

    • Ayush

      The group is decided by exchanges to safeguard against volatility.

      Till a week or so back the stock was in normal group.

  • Cadamani

    The financials are compelling….but as Mayur said, its a T group company…
    Ashwini Damani
    goldensilt.blogspot.com

  • Samir
    • Random Guy

      That’s funny 🙂

      • Ayush

        The co had discussed about some corporate updates and vision in Oct, 10. The document was posted on bse website by way of announcement by the co.

    • vishal

      lol

  • Abhishek

    How do you compare with say a Bajaj Auto or Piaggio? Ultimtely, it is with them that Atul will have to fight it out in the market…
    It will not be easy for an upstart company to take away market share from the incumbents, specially Bajaj…

    Abhishek
    http://valueinvstr.blogspot.com

    • Ayush

      Yup, that challenge remains but if one goes through their history, they are not an upstart co. They have been in this business for more than 30 years and have come to these levels from scratch. Their autos have been selling very well in Gujarat for quite some time.

      In yr 2001 their turnover was just 14 Cr…they have grown well from there and in FY 12 may be close to 300 Cr turnover now. Plus look at the valuations and balance sheet comfort we are getting…if the co indeed keeps growing at even 15-20%+, the stock should do well.

  • Mayur

    Promoters are exiting from the stock….

    • Ayush

      Promoter’s holding is stable at close to 60% + 17% of the other holding seems to be held by associates.

      Please share your source for the above.

      • SabkeBaap

        Your previous picks (Piccadily, OCCL) are down in the dumps… & you are giving more picks..
        Stop this non-sense…
        Dig further on your old picks.. find whether they are buy/ hold / sell now. & why….

        • Ayush

          In stock market, one can’t be 100% right on all his ideas. Most of our stock ideas have still done quite well and are trading firm in this market carnage. We have outperformed the markets.

          Because of these reasons, we diversify are portfolio and keep looking for more promising ideas.

          Have a look at this article – http://www.thehindubusinessline.com/todays-paper/tp-investmentworld/article1680144.ece

          Would also like to know your credentials and investing background.

          • SabkeBaap

            What Outperformance? Atleast update ur performance sheet to reflect latest prices to tell where you stand..

            What matters more than my credentials & Investing background are market facts.
            Wouldn’t you have been richer by holding FDs??? 🙂

            Pica & OCCL & NESCO— BUy, Hold, Sell???

          • Ayush

            First of all, performance shouldn’t be judged over a short period. In short term it also depends on sentiments, economic scenarios and various other factors. If one looks at last 1-2 yr, then yes, FDs have been better but If one looks at past say 5, 10+ years, then selected equities give much better returns. FDs don’t even beat inflation. To be rich, one needs to do much better than just inflation.

            Falling prices/panic/correction times should be seen as an opportunity to accumulate quality stocks and build a strong portfolio, which will definitely create wealth when normalcy will return in the markets.

            Equities by nature are volatile & cyclical and such downturns may continue for long periods also. One needs to understand and be prepared for these related risks.

            For many risk averse people yes FDs and other options are better and they must opt for it if they are comfortable. Therefore Risk profiling and knowing the investor background is important.

          • Neeraj

            Pretty mature replies Ayush..
            cheers!

          • satyakee sen

            not sure why you would refer tht article, market scenario was very different in the 1980s-mid1990s whn bulk of so called value investors made their money, comparedto now ..

            value investors atleast in the west (US-europe) have been taken to the cleaners over the past decade …. i think india is catching up to this phenomena right now ..

            mid 2000s way of picking stocks when there is some lull in what was essentially a secular bull market trend and making money are gone, unfortunately most of of the so -called value investor blogs in india are still stuck in that mid 200s mindset while we are now in secular bear market and still recommending highly risky companies ..

          • Sameer

            Agreed that we need to learn history of a century. Various high quality books available on speculation of centuries in various regions of world.Everybody is waiting for next bull market like sharp bull market from 2003 to 2008. Although its OK to buy such companies in small quantities, its better to allocate larger portion of equity portfolio to fronline companies.

          • Ayush

            In our experience, quality small/mid cap cos move up faster than broader markets.

          • Sunil Deshmukh

            ha ha ha sabke baap u exit this blog u do not understand investing

          • Sunil Deshmukh

            ayush u r very good no doubt sabke baap is ignorable do keep writing

  • Icy Hot

    Dear Ayush

    I hope you don’t get deterred by such comments, seems they are immature so-called investors. Lets take them as critics and I really like your placid responses to them. Please keep sharing your fabulous stock analysis that you do. In the long run, there are more people who will benefit by your quality research by the way of this informative blog.

    I have been a student of Prof. Sanjay Bakshi who is a renowned value investor. And I have found your stock research to be almost at par with the kind of analysis he does, which is why I got hooked to your blog out of so many other sites which are out there.

    I am also invested in some of his ideas as well as some of your ideas for long term. for example I picked up Nesco, OCCL and Guj Industries, Wellspun Syntex. Some of his interesting picks I gathered from his recent lectures were Bajaj electricals, IL&FS investment, Bajaj Holdings, Crompton Greaves, Nestle, Nesco, Tak GVK and Hotel Leela Ventures. Would love to know your thoughts on the same.

    Thanks
    IcyHot

    • Suhail

      Well said IcyHot. Regarding your picks from Prof Bakshi lectures, haven’t seen these names apart from Nesco. Did he discuss in his lectures or what? You have any analysis/writeups/presentations for them?
      Ayush, really impressed with your level-headed responses. Keep the analysis coming. And great article too. The last line was a revelation 🙂“When companies have problems they often like to have their annual meetings in cities and states where there are not too many stockholders.”

      In your experience, have you seen any Indian companies indulging in similar practice?

      • Ayush

        Hi Suhail,

        Not much idea, as we are based out of Lucknow, we are not able to attend many AGMs.

    • Mayur

      I would like to be in touch with you…. can you provide me your email id….

    • Ayush

      Hi,

      Thanks for the encouragement. We are ourselves followers of Prof. Bakshi and have lot to learn from him.

      Provide me your contact details, will be great to get in touch.

  • Sameer

    Agreed with Satyakee Sen
    that we need to learn history of a century. Various high quality books available on speculation of centuries in various regions of world.Everybody is waiting for next bull market like sharp bull market from 2003 to 2008. Although its OK to buy such companies in small quantities, its better to allocate larger portion of equity portfolio to fronline companies.

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  • Prasasd

    Hi Ayush,
    Went through entire thread of Atul.Market cap as on today is close to 90cr.Ayush
    how much is total three wheeler sale in India per year?What rate it is growing?
    How much is Atul’s share?Wheather it is growing or falling?What are their profit
    margins and how they pare with competators?OPMS are rising or falling yoy?
    How their models compare with competators both quality and price wise?
    thanks in advance–

    • Ayush

      Hi Prasad,

      In India total 3 wheelers manufactured last year 10-11 were 7.99 lac. Of this 2.70 lac were exported. For last 2 years the growth in production of three wheelers has been about 25% p.a. but over last 5 year, the CAGR growth is about 10%.

      Atul’s market share across India would be just about 3%. The interesting point to note here is that earlier the co’s presence was limited to mainly Gujarat & Rajasthan and there they have a market share of about 45% & 30% respectively. And since last 3 years the co is trying to expand across India and their new product – Atul Gem is already a hit.

      Atul’s market share has been growing and so are it’s OPMs. Atul claims to be having a bit better mileage than competitors with better support and service etc. Product is priced similar to the competitors.

      Ayush

  • Ashish

    >>Company intends to set up a 4 wheeler ultra low cost vehicle plant.
    That’s one thing i wish company doesn’t do. They are going well right now.

    • Ayush

      Hi Ashish,

      Its both a risk as well an opportunity.There is a huge market for low cost commercial vehicle and if successful, the co will enter the big league.

      But as investors, yes, it does remains a risk as the co is small as of now and the capex is big of about 200 Cr.

  • Aksh

    Hi Ayush,

    This one is definitely in my list and would like take position at appropriate price. Do you have any competition analysis data on this?

    Thanks.
    Aksh

    • Ayush

      There are some research reports etc, available on the co. May be that can help

  • Prabeesh

    An Excellent pick from you.Wish i invested right away when i saw this post last year :-). No grudges as i finally went on to hold about 12% of my folio now

    • Ayush

      Thanks, Prabeesh

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