Atul Auto Ltd. - Q4 FY14 Result Update - CMP Rs.384 - Rating Changed To Buy For Increased Target of Rs.469- INVESt VISTa

Atul Auto Ltd. (AAL) released its Q4 FY14 performance on May 20, 2014. The Board of Directors recommended a final dividend of Rs.3.50 thereby, making total dividend of Rs.7.50 for FY14. The FY14 top-line and bottom-line were in line with our estimates. Following are the highlights from the quarterly results and the conference call.

Q4 FY14 Result Highlights

- During Q4 FY14, the top-line grew 15.9% YoY to Rs.1,123.1 mn driven by strong volumes. The Company sold 9,649 vehicles as compared to 8,448 vehicles in Q4 FY14 and 10,764 vehicles in Q3 FY14. The top-line growth was driven by strong volume growth and the blended realizations for the quarter improved marginally by 1.5%.

- The EBITDA grew 2.7% YoY and fell 21.0% QoQ to Rs.117.9 mn. On the profitability front, the EBITDA margin decreased from 11.8% in Q4 FY13 and 12.1% in Q3 FY14 to 10.5% in Q4 FY14 primarily due to higher employee benefit expenses and other expenses, as a percentage of revenues.

- The bottom-line registered an increase of 11.8% YoY to Rs.84.5 mn as the net margin stood at 7.5% in Q4 FY14 as compared to 7.8% in Q4 FY13 due to weak operating level performance. On sequential basis, the net profit declined 12.5% from Rs.96.6 mn in Q3 FY14 at 7.9% margin. The fall in the net margin was largely resulted from weak performance at the EBITDA level, partially offset by lower tax-expenses.

- The adjusted Q4 FY14 EPS stood at Rs.7.54 as compared to Rs.6.75 in Q4 FY13 and Rs.8.63 in Q3 FY14. There were no extra-ordinary or non-recurring items recognized during the quarter.

Other Updates

- During the year ended March 31, 2014, the company sold 37,557 vehicles as compared to 32,040 vehicles in previous year; of these, only 580 vehicles were exported during the current fiscal.

- The Company is currently present in only Diesel based vehicles which has an annual sales of roughly 250,000-300,000 units in the industry. The Petrol based product is currently being developed by the company and it has a market size much bigger than the diesel based three-wheelers, roughly 1,500,000 units, globally.

- The preliminary work on the second plant in Gujarat is processing well; the land has been located near Ahmedabad; the facility is expected to commercialize in FY17; the new plant would have a capacity of 60,000 vehicles and would require a capex of Rs.1,500 mn. The capacity would be installed in two phases of 30,000 units each.

- The Management stated that the current capacity would be exhausted during FY15; by FY17 the total installed capacity would increase to 108,000 (excluding Sri Lanka).

- The Company is still awaiting the Sri Lankan's Government approval for setting up its 100% subsidiary; the facility would be having the capacity of 12,000 vehicles and the planned initial capex for the project was Rs.150-160 mn.

- The Company is now present pan-India (excluding Tamil Nadu and West Bengal).

- The Petrol Model Vehicle is currently under the evaluation process and is expected to launch commercially in the coming 2-3 quarters.

OUTLOOK & VALUATIONS

AAL has continued to outperform the industry which is facing demand related challenges amidst economic slowdown. The Company has not only been able to maintain healthy performance at the top-line but at the profitability front as well. Though the significant part of the current top-line growth was largely contributed from the volume growth, we expect realizations to improve as well, going forward. The Company expects to exhaust the increased capacity by next fiscal. In addition, the geographical expansion plans and wider product-line which are like to materialize over the period of 4-8 quarters are likely to result into robust financials for the Company. In addition, the Company is working on a significant expansion of installed capacities from 48,000 units to 1,08,000 vehicles by 2017 which can be seen as a major driver. The project for Sri Lanka is still under consideration but the opportunities are huge. In light of all the above developments and good fundamentals, we upgrade our rating for the from HOLD to BUY and we also increase our target price from Rs.325 to Rs.469.

Shares of ATUL AUTO LTD. was last trading in BSE at Rs.460.15 as compared to the previous close of Rs. 450.15. The total number of shares traded during the day was 7874 in over 606 trades.

The stock hit an intraday high of Rs. 470 and intraday low of 440. The net turnover during the day was Rs. 3605683.

Source : Equity Bulls

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