Atul Auto : 18% upside
Call & Research Report by Anand Rathi Research
Report Date: 17 November 2021
CMP Rs. 233, Target Rs. 275
Target Period : 2 Quarters
For Atul Auto, we continue to expect strong growth for three-wheelers in FY22 on the back of recovery in demand, improvement in business activity and passenger traffic. We believe volumes would come as the financing environment improves. Also, its versatile product range and expected products on the EV front would support volumes in the long
term. We maintain a Buy rating at a higher TP of Rs275 (12x FY24e)
Sequential recovery in volumes. For the quarter, volumes grew 10% y/y, 164% q/q, to 4,592units. Revenue grew 7% y/y, 154% q/q, to Rs798m. Demand is strong in domestic markets, and similarly for exports as passenger movement rises globally. Volumes for Oct’21 grew 14% m/m to 2,141 units and we believe retail momentum would improve further in subsequent months as the financing situation eases. Three-wheeler financing was not easily available, a concern for the industry. As business activity and passenger traffic grows, we expect strong replacement demand for three-wheelers.
On the EV front, we expect it to launch a new product in H1 CY22. Accordingly, we expect revenues to grow 26% in FY22, and 53% in FY23.
Margins to remain under pressure. In Q2 FY22, the gross margin contracted 346bps y/y, 6bps q/q, to 19%. The company continued to face severe RM cost pressures, for which it had raised priced 4-5% cumulatively
across products. There still is under recovery of ~7% and we believe the company would raise prices 3-4% in subsequent quarters. Therefore, margins would be squeezed in FY22. Accordingly, we expect 3.2% margins in FY22.
Introducing FY24e. We expect FY24 revenue to grow 20% y/y, margins to expand to 11%; and earnings to grow 22% y/y to Rs502m.
Valuation. We expect a 32% CAGR in revenue over FY21-24, leading to an EPS of Rs23. We maintain a Buy rating, at a higher TP of Rs275 (12x FY24e).