Q2FY18 marked a much improved performance for Atul Auto (AAL), both on a YoY and QoQ basis. While AAL’s sales volume grew ~4% YoY (up 36% QoQ) to 12.2K units, its revenues increased by 11.4% YoY to ~Rs1.6bn and EBITDA margin was higher 150bps YoY (up 640bps QoQ) at 16.8%. Absolute EBITDA grew ~22% YoY to Rs269m leading to net profit growth of ~23% YoY to Rs170m (ahead of expectations at Rs123m).
While the company continues to launch new products and enter more markets, it has not been able to time its products right and get the desired market share improvement (currently at ~7% of the overall 3W space). Absence of its alternate fuel vehicle till now in many states including Maharashtra (expected to be launched by Feb-Mar’18), where competitors have captured the space, has restricted market share gains for the company, especially in the passenger 3W segment.
ATA’s Electric 3W is also not witnessing much traction currently, though with government initiatives in this direction and expected GST impact on the unorganised sector in this segment, the company is hopeful about E-rickshaws going ahead. Exports too have not yet started contributing significantly to revenues (forming 5.5% of FY17 net revenues), however, the company is targeting export contribution of ~10% in overall revenues by FY19. Over the near term, the company is expected to record decent volume growth on the back of the anticipated rural recovery, supported by the extremely low demonetisation impacted base of last year.
We maintain and reiterate ‘Accumulate’ with a price target of Rs452 (earlier Rs491), based upon 20x Mar’19e EPS. AAL currently trades at PE of 21.2x FY18e and 18.9x FY19e EPS.
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