Atul Auto (ATUAUT)
Atul Auto is a Rajkot-based three-wheeler manufacturer primarily
catering to the non-urban market providing mobility and logistic
solutions. The company differentiates itself with customised product
offerings, low maintenance, and strong after-sales service to buyers in
form of service warranties of 24-months.
Highlights:
• An undiscovered OEM with “rural” play. Atul Auto is one of the
few listed OEMs, which has grown well in the last couple of years
but has remained away from the market eye. This despite it being
attached with the rural theme, which remained much in favour
• Expansion plans to help market share gains. The company is in
the process of doubling the capacity to ~48,000 units by FY14E.
This would lead to strong market share gains (~6% currently) as
the order book remains healthy with export target also opening
up.
• Decent margins/strong RoEs/zero net debt/good dividend yield.
On the financials front, EBITDA margins have remained well
above 9% in a challenging environment for the past three years.
RoEs of 25%+ coupled with dividend yield of ~5% and negligible
debt makes this an attractive company in financial terms on a
longer term as well.
• Topline/EPS CAGR (FY12-14E) at ~17%/26%. We believe the
company would improve on its volume growth (~17% CAGR12-
14E) aided by fresh capacity expansion coming on-stream. The
margin profile is expected to remain on the up considering lower
input costs and a better operational performance.
• The three-wheeler segment is a tale of urban vs. rural demand,
which is a tale of two halves with the former weak and the latter
strong. Atul Auto remains poised to improve its market share
driven by its rural focus and new products in passenger as well as
goods segment. This is coupled with attractive valuations of PEG
~0.1x (CAGR FY12-14E) and 1.1x PBV/dividend yield of ~5%. This
stock ticks all the right boxes for long term investors.
Key risks to investing in Nano stocks
• Nano stocks may not be in the limelight and inherently being micro cap in nature will have a high
risk return profile
• We advise clients to be disciplined in investing at all times. Allocate only a small proportion of your
investible income to these stocks and diversify well
• Try to diversify your exposure within the Nano stocks as well by investing equal proportions in
several picks
• These stocks may have low volumes and trade infrequently
• Micro cap stocks the world over are, to a large extent, affected by the “Pump and Dump”
phenomenon of inflated price buying and depressed price selling
• As explained above, the clients should be patient and trade only through limit orders on any side of
the trade.
• The risk of volatility remains in such micro cap stocks as they can move up or down with large
buy/sell orders
• The fair value of Nano stocks are subject to expected growth potential in the future. Though due
diligence has been done to a fair extent, the actualisation of growth still has a degree of uncertainty
attached to it
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Very Informative Article
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