Atul Auto Analysis , Volumes are strong
Call & Research Report by Anand Rathi Research
Sector : Automobile
CMP Rs. 159, Target Rs. 256 ( 61% upside)
Target Period : 12 Months
Atul Auto’s 3W off-take was tepid and higher raw material costs arrested margins. Volumes are expected to be strong in the near to medium term as Covid-related issues are now behind. Schools, colleges and offices operating at full capacity and improving rural sentiment would aid volume growth in subsequent quarters. The expected launch of L5 lithium-ion 3W EVs augurs well for volume growth. Accordingly, we maintain a Buy at a higher TP of Rs256 (12x FY24e).
Expected strong volume growth. Q4 volumes slid 9% y/y, 12% q/q, to 4,562 units. Revenues declined 6% y/y, 8% q/q, to Rs839mn. FY22 volumes were down 1.4% y/y to 16,061 units, ~10% from the newly launched L3 category of electric 3Ws. The company expects to launch the L5 lithium-ion electric 3Ws in Aug’22, with two options, fixed and swappable batteries, which would help reduce the cost of ownership. We expect strong volume growth in the near to medium term as most Covid-related tailwinds are behind. Schools, colleges and offices are expected to operate at normal capacity and drive demand for 3Ws. Retail sales have improved significantly and wholesale continues to pick up as well (Apr’22 volumes were up 74% y/y to 1,593 units), while the company has received a positive response for its recent launches on the Rik platform, said management. Accordingly, we expect strong, 73%, growth in FY23 and 35% in FY24.
Margins to improve. The Q4 FY22 gross margins expanded 134bps q/q to 18.3%. The company raised prices 2% in Apr’22. With expected strong volume growth, subsequent price increases and the expected decline in RM costs, we expect margins to expand to 7% in FY23 and 10.6% in FY24.
Valuation. We expect a 53% revenue CAGR over FY22-24, leading to an EPS of Rs21.3. We maintain a Buy rating, at a higher TP of Rs256 (12x FY24e).
Risks. Competition in the evolving 3W space, ICE and EV.
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