IndiaNivesh
Atul Auto (Buy)
CMP: ₹510
Target: ₹540
Atul Auto Ltd is a leading three wheeler manufacturing company in Rajghat. The company’s origins lie in the 1970s, when Jagjivanbhai Chandra sought to modify motorcycles to make transport to meet the needs of rural areas of Saurashtra, and adapted the engines from golf carts scrapped by the Maharaja of Jamnagar. The company was incorporated in 1986, and production began in 1992.
The management expects double digit volume growth for FY17E. During FY16, overall volumes of the company grew by 5.5 per cent y-o-y (vs flat 3W industry growth) to 33,893 units. Domestic volumes registered growth of 5.5 per cent y-o-y (vs 1.03 per cent growth of domestic three-wheeler industry). We believe Atul Auto is likely to benefit from increase in rural income and spending on the back of good monsoon expected in this year.
EBITDA margins expanded in FY16 mainly due to operational efficiencies and lower input cost. The company recorded highest ever EBITDA margins (14 per cent) in FY16 and expects 50-100 margin expansion in the next two years due to benefit of operating leverage.
Atul Auto has recently launched the alternative three-wheeler variant (gasoline/petrol variant) in the domestic and export market, which has been well accepted by the consumers.
Published on June 8, 2016
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