Rating: Buy; Target Price: Rs800; CMP: Rs651; Upside: 23%
Operating performance remains strong; retain Buy
We retain Buy on Atul Auto (Atul) with revised TP of Rs800. Better
than expected operating performance reflects benefits arising from
operating leverage. 1QFY15’s EBITDA margins at 9.6% was better than
our estimate of 8.6%. The company continues to add dealership network
with total touch points now at 303. Given its current scale, we
believe that penetration will be largely done and focus would be on
optimizing new dealerships from FY16E. The petrol 3W project is on
track and the vehicle is likely to go for the Automotive Research
Association of India’s (ARAI) testing in the next 3-4 months. Based on
current status, the company is confident on its launch soon after ARAI
approval. The vehicle has already undergone testing and done well on
all parameters.
$ Operating performance remains strong: Atul’s growth momentum
continued with YoY revenue growth of 16% at Rs992mn. ASP remained
healthy at Rs117,598/unit registering a growth of 4%YoY and 1%QoQ.
EBITDA margins stood at 9.6% vs. our estimate of 8.6%, improvement of
113bps YoY, while EBITDA/unit stood at Rs11,325. Driven by strong
revenue growth and better operating performance, adjusted PAT stood at
59mn, beating our estimate by 10%. Reported PAT stood at Rs97mn, due
to higher other income (write back of bad debts).
$ Dealer expansion continues, consolidation phase from FY16E: Atul
continues to add touch points with primary dealers now at 193 vs. 180
in FY14 and secondary dealership at 110. The company now has 303 touch
points. Post the launch of the Petrol vehicle, the company plans to
penetrate Tamil Nadu and West Bengal (they currently account for only
5% of total domestic 3W industry volumes). The current expansion of
dealers is within the states in which it is present but is relatively
lower as compared to peers. By end FY15, the company is targeting
240/150 primary and secondary dealers, taking the total touch points
to 390.
$ Petrol project on track: Management indicated that the petrol 3W
project was on track and the vehicle will go for homologation test to
ARAI soon. The approval from ARAI will take 3-4 months and the vehicle
is likely to be ready for launch soon after ARAI’s approval.
$ Valuation and Recommendations: Retain Buy with a revised TP of
Rs800. We now value the company at 15x September’16E EPS as we believe
that strong earnings (FY14-FY16E earnings growth of 30% implying PEG
of 0.5x), healthy return ratios and the ability to generate free cash
flow can lead to further re-rating of the stock, with further market
share gains, if any, adding to the icing. Key risks to our thesis are
a) Delay/failure of petrol powered 3W b.) Delay in capacity addition.
Thanks & Regards,
��
Operating performance remains strong; retain Buy
We retain Buy on Atul Auto (Atul) with revised TP of Rs800. Better
than expected operating performance reflects benefits arising from
operating leverage. 1QFY15’s EBITDA margins at 9.6% was better than
our estimate of 8.6%. The company continues to add dealership network
with total touch points now at 303. Given its current scale, we
believe that penetration will be largely done and focus would be on
optimizing new dealerships from FY16E. The petrol 3W project is on
track and the vehicle is likely to go for the Automotive Research
Association of India’s (ARAI) testing in the next 3-4 months. Based on
current status, the company is confident on its launch soon after ARAI
approval. The vehicle has already undergone testing and done well on
all parameters.
$ Operating performance remains strong: Atul’s growth momentum
continued with YoY revenue growth of 16% at Rs992mn. ASP remained
healthy at Rs117,598/unit registering a growth of 4%YoY and 1%QoQ.
EBITDA margins stood at 9.6% vs. our estimate of 8.6%, improvement of
113bps YoY, while EBITDA/unit stood at Rs11,325. Driven by strong
revenue growth and better operating performance, adjusted PAT stood at
59mn, beating our estimate by 10%. Reported PAT stood at Rs97mn, due
to higher other income (write back of bad debts).
$ Dealer expansion continues, consolidation phase from FY16E: Atul
continues to add touch points with primary dealers now at 193 vs. 180
in FY14 and secondary dealership at 110. The company now has 303 touch
points. Post the launch of the Petrol vehicle, the company plans to
penetrate Tamil Nadu and West Bengal (they currently account for only
5% of total domestic 3W industry volumes). The current expansion of
dealers is within the states in which it is present but is relatively
lower as compared to peers. By end FY15, the company is targeting
240/150 primary and secondary dealers, taking the total touch points
to 390.
$ Petrol project on track: Management indicated that the petrol 3W
project was on track and the vehicle will go for homologation test to
ARAI soon. The approval from ARAI will take 3-4 months and the vehicle
is likely to be ready for launch soon after ARAI’s approval.
$ Valuation and Recommendations: Retain Buy with a revised TP of
Rs800. We now value the company at 15x September’16E EPS as we believe
that strong earnings (FY14-FY16E earnings growth of 30% implying PEG
of 0.5x), healthy return ratios and the ability to generate free cash
flow can lead to further re-rating of the stock, with further market
share gains, if any, adding to the icing. Key risks to our thesis are
a) Delay/failure of petrol powered 3W b.) Delay in capacity addition.
Thanks & Regards,
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