Stock idea:-(December 12,2012)
Scripscan:Atul Auto Ltd
Bse code:531795
Cmp:169
Target:204
Percentage return:20%
Duration:3-4 months
3-5yr CAGR return:30-40%
Quote:Atul auto was recommended at 111rs couple of months back for a target of 160 odd rs(http://www.arunthestocksguru.com/2012/11/akcapital-services-ltdthangamayil.html).Not only it achieved its target within much time to spare but also attracted lot of HNI' attention from all corners.I feel there's still lot of action left in the counter and members who may have previously missed out can opt for it, hoping for a cool 20% return in the next 3-4 months.Also on a longer term basis this stock is a must in one's core portfolio.I haven't change my estimates for the counter much but it looks like the company would beat my estimates pretty easily which could result in further price upgrades.
The hunch of finding a potential multibagger gives a special feeling folks.The feeling of satisfaction,the thought of owning something which would steadily multiply with time.If its a midcap, I kinda murmur not bad but you can do it better fella.A smallcap or say a probable "bud of the oak tree" really really turns me on.Atul auto just falls under that smallcap fraternity which stands tall to qualify as a big future winner.A true extremely undervalued,overlooked masterpiece..Why?Read on.
Auto Limited engages in the manufacture and sale of three wheeler auto rickshaw vehicles (passenger/loading) and spare parts.The company offers a range of three wheeler diesel auto rickshaws, CNG auto rickshaws, and PNG auto rickshaws, such as pickup and delivery vans; passenger carriers; and chicken carriers, tippers, water tank carriers, soft drink carriers, mobile shop vehicles, hopper vehicles, bio hazard vehicles, and vegetable vending vehicles. It produces auto rickshaw vehicles under Atul Shakti and Atul Gem brand names. The company exports its products to Nigeria, Kenya, Egypt, and Tanzania, as well as other African countries. It is also involved in the generation of electricity with wind turbine generators at village Soda Mada, Rajasthan and village Gandhavi, Gujarat.Atul auto differentiates itself with customised product offerings, low maintenance, and strong after-sales service to buyers in form of service warranties of two years which other larger players like Bajaj Auto and Piaggio do not provide.The company has been able to grow 25% and 20% respectively as far its sales and profits growth are concerned over the past five years(08-12).So the consistency stuff which we all crave for is here folks that too it showcased when we had the vagaries of recession,the uncertain inflationary environment.The industry itself had a de-growth where it operates in.Surprise surprise an auto play with cash equivalent(11crs) superior to its net debt(4crs).Thus, I present to you a de-leveraged bet with consistency and ethics where minority shareholders are well treated too(company has issued bonus twice in the last decade).The company has been a leader in its existing territory – Gujarat (approx. 45% market share) & Rajasthan (approx. 30% market share), the company is now trying to go Pan India by entering new territories(Kerala & Assam are its next big markets).The company has grown its domestic market share in the goods carrier segment from 5% in FY09 to 12% in FY12 while growing at a CAGR of 44%. In FY13 till date its market share was 15% in this segment.Atul Auto’s share in the domestic carrier space has increased three-fold from 2% in FY09 to 6% in FY13.EBITDA margins have remained well above 9% in a challenging environment for the past three years.I happened to have a sound chat with with Mr. J V Adhia, Vice President, Finance – Atul Auto.In his words,"Current dealer network is about 120 dealers. A year back we had 100 dealers but only 30-40% were active! Now more than 80% are active. Plan to have 250 dealers in 2 years.As of now the company is seeing a very strong demand and there is a waiting period of about 10 days. As per policy the company is taking orders on advance basis only. Hence the high advances on Balance Sheet.We are in process of doubling our capacity from 24,000 to 48,000 vehicles p.a. This expansion is being done at our existing plant and we have sufficient space.We are expanding capacities by ongoing de-bottlenecking exercises. We are already at 20-25% higher production and the rest of the de-bottlenecking increases should happen over next 3-6 months. We have options of introducing a double shift, as and when deemed necessary.We do envision to be 1000 Cr company by 2015-16". (Co did 298 Cr turnover in 2012 and around 400 Cr is expected for FY 13).On the exports front, as expansion comes in full by December 2012, the company is working on restarting exports in the South East Asian/Saarc markets like Bangladesh and Sri Lanka in the immediate term along with newer African markets.The NPM too(5 % odd) is expected to remain on the rise considering lower input costs and a better operational performance.It ended fy12 with a PAT of 15crs which should comfortably cross 22-23crs in the current fiscal.On an equity base of 11crs that translates into an EPS of 20rs.At present market price of 169rs the same gets discounted by a PE multiple of a tad less than 8.5.PE expansion gradually would take place and at some point of a time it would quote at a forward PE of around 10,which gives you your target price of 204rs(20rs*10.2).For a growing company with consistency,ROE and ROCE of over 25%,dividend yield of nearly 4%,ethical and visionary management,huge exports potential coupled with the most sought after tag of "domestic consumption play"-I mean whats missing here?Nothing at all.A great buy.
Quote:People looking for positional call professional service may rush a mail at my mail id
arunsharemarket@gmail.com to know more about it.
btw:After thorough meticulous research only the paid calls are been provided to the members.The open site(http://www.arunthestocksguru.com/) is meant to provide outlook and not recommendations.Paid site is meant for recommendations with target/duration/complete story and updates.Scrips where am most bullish would be posted on the paid site.
Regards,
ARUN