Atul Auto - Q2 FY14 Result Update - CMP Rs.277 - Maintain HOLD - Increased Target Price of Rs.325 - Sushil Finance

Atul Auto Ltd. (AAL) released its Q2 FY14 performance on October 28, 2013. Following are the highlights from the quarterly results and the conference call.

Q2 FY14 Result Highlights

- During Q2 FY14, the top-line grew 26.7% YoY to Rs.1,087.2 mn driven by record volumes. The Company sold 9,576 vehicles as compared to 7,578 vehicles in Q2 FY13 and 7,567 vehicles in Q1 FY14. The growth was primarily driven by strong volume growth as the blended realizations for the quarter recorded muted improvement.

- On the profitability front, the EBITDA margin declined from 11.0% in Q2 FY13 to 10.5% primarily due to higher other expenses and staff costs, as a percentage of revenues. On sequential basis, the margin improved from 8.4%.

- The moderate pressure at the operating level was further carried down to the net level. The bottom-line registered an increase of 18.9% YoY to Rs.73.8 mn as the net margin contracted from 7.2%% in Q2 FY13 to 6.8% in Q2 FY14. On sequential basis, the net profit improved 70.8% from Rs.43.2 mn in Q1 FY14.

- The adjusted Q2 FY14 EPS stood at Rs.6.59 as compared to Rs.5.54 in Q2 FY13 and Rs.3.86 in Q3 FY14.

Other Updates

- The Board of Directors has recommended an interim dividend of Rs.4 per share (40%).

- Recently launched Atul Gemini registered sales of 690 units in Q1 and 1,000 units in Q2.

- During October 2013, the Company achieved highest sales volume with 4,050 units as against 3,332 units in October 2012 and 3,366 units in September 2013.

- The dealer network enhanced to 176 dealers and is expected to reach 200 by the end of current fiscal. The Company will now focu on eastern states such as Orissa, Bihar and Jharkhand for dealer network expansion. The Company currently has footprints in 16 Indian states and expects to have a Pan-India presence over the next few quarters.

- During H1 FY14, the 3W industry has witnessed a volume de-growth and the major players such as Bajaj Auto and Piaggio de-grew in sales volume. Nevertheless, AAL registered a growth of 18.9% YoY to 17,144 units.

- The Company is currently working on establishing a second plant in Gujarat which is expected to begin production in FY16; the new plant would also have a capacity of 48,000 units and would require an initial capex of Rs.800-1,000 mn which would primarily be funded through internal accruals.

- The Company expects to register a volume of 50,000 units in FY15 as against 32,040 units achieved during FY13 and 17,144 units in H1 FY14.

- The Company is awaiting for Government approval from Sri Lanka for setting up its 100% subsidiary; the planned initial capex for the project is Rs.200 mn.

- During H1 FY14, the Company sold 4,936 units of Atul Shakti, 553 units of Atul Smart, 9964 units of Atul Gem and 1,961 units of Atul Gemini.

OUTLOOK & VALUATIONS

The Company continued to outperform the 3W industry for yet another quarter and the Management maintained its earlier statement of an anticipated stronger second half. The Company's new product launches have proved successful and AAL has managed to enhance its capacity utilization even after doubling up the capacity during last couple of quarters. Going forward, the Company is going to explore new geographies coupled with new product offerings in the pipeline and anticipated increase in the capacities. In light of above factors, we maintain our positive outlook for the Company. In addition, the recent continued record sales and an increase in our revenue estimates have encouraged us to enhance our target multiple for the Company. Accordingly, we maintain our HOLD rating for the stock for an increased target of Rs.325 (10x FY15 estimated EPS of Rs.32.5).

Source : Equity Bulls

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