1

Y/E Mar (Consol.)

Revenues(Rs. mn)

RPAT(Rs. mn) 

NPM (%) 

REPS*(Rs.) 

PER(x) 

ROCE(%) 

ROE(%) 

P/BV(x)

FY12 2,988.2 155.9 5.2 14.2 12.3 38.8 27.8 3.4FY13E 3,896.0 208.6 5.4 19.0 9.2 41.0 28.9 2.7FY14E 4,943.6 272.3 5.5 24.8 7.0 40.8 29.5 2.1

SHARE HOLDING (%)Promoters 56.62FII 4.56FI/Bank ‐Body Corporate 11.19Public & Others 27.64

Atul Auto Ltd. (AAL)Market Cap. 52 Week H/L  Recommended Price1 CMP Target Price

Rs. 1,925 mn Rs. 181/67  Rs. 160 Rs. 175 Rs. 218

December 18, 2012

STOCK DATA

Recommendation BUY

Reuters Code Bloomberg Code

ATUL.BO ATA IN

BSE CodeNSE Symbol

531795N/A

Face Value Rs.  10 

Shares  Outstanding* 10.97 mn

Avg. Daily  Volume  (6m)

31,597 shares

Price Performance (%)1M 3M 6M22 74 51

200 Days EMA Rs. 112* On fully diluted equity Shares

This report based on Techno Funda Research and our View / Target Price has been derived accordingly. Please refer to the disclaimer on the last page. 

Capacity expansion to drive the volumes: The company is under the process of enhancing theirproduction capacity from 24,000 units per annum to 48,000 units per annum. Additionally, thiscapacity can be further enhanced to 54,000 units by several streamlining and de‐bottleneckingprocesses which are being taken. The company expects this additional capacity to be used up byFY14. On account of significant capacity additions and upcoming projects in Bangladesh and SriLanka which is likely to be followed by another one planned for Africa, the company has set salestarget of ` 10,000 mn by FY16 as against ` 2,988 mn in FY12.Enhanced product offerings to benefit: Earlier, AAL was present only in diesel engine segment butthe company recently enhanced its offerings by introducing CNG based vehicles. The company isnow present in all the segments including petrol and LPG based engine vehicles. Moreover, thecompany also introduced rear‐engined vehicle in 2009 to their front‐engined vehicles. Furthermore,the biggest competitor of this segment which devoured a major chunk of 3W users were light 4WCVs. The company in order to compete with them is now foraying into light 4W CV segment.Geographical expansions to catalyze top‐line growth: The company is extending their operations toother countries including Bangladesh and Sri Lanka. These countries are in developing stage andprovides wide opportunities to various industries. In Bangladesh, AAL is aiming at reaching fullcapacity utilization of 12,000 units during the current year and expects an annual business of `1,500 mn. Following the Bangladesh project, similar kind of crucial projects are likely to come up inSri Lanka and Africa. In addition, the Management expects the key growth driver of sales would beexports. The company is also enhancing their distribution network of dealers from 120 to 250 innext two years.Strong fundamentals: AAL is virtually a debt‐free company; growing at a rate much higher than theindustry; negative working capital cycle; healthy return on equity track record. These factors arelikely to provide a strong support space to the company during the expansion phase and the growthtrajectory. The company has also paid dividend during the tough times; and has consistently beenpaying dividends for consecutive seven years. We had recommended1 a BUY rating for the stock at`160 on December 11th, 2012 for the target of ` 218. (*Bonus Adjusted‐Calculated)

2

Company Overview

Founded by Lt. Mr. Jagjivanbhai Karsanbhai Chandra in 1986, Atul Auto Ltd. (AAL), an Atul Group company is indulged in manufacturing 3‐wheeler commercial vehicles and has been a leader in this space for a couple of decades now. The company has strong foothold in thestates of Gujarat, Rajasthan with nearly 45% and 31% market shares, respectively and also in parts of Madhya Pradesh, Haryana and Punjab.In 2009, the company extended its geographical reach to other states including Kerala, Karnataka, Chattisgarh, Assam and Jammu &Kashmir. Now, the company is also present in most of the remaining states such as Maharashtra, Bihar, Jharkhand and Andhra Pradesh. Thecompany which launched its four types of diesel and CNG‐run ‘Atul Gem’ in Bangladesh last year is now in the process of extending itsgeographical presence further to Sri Lanka.The company has a manufacturing facility at Shapar, Gujarat having production capacity of 24,000 units per annum. The company is underthe process of doubling up this capacity. The company also has a R&D facility based in Pune which has a team of over a dozen experts fromautomobile sector having wide experience in the field of product development and improvement. The company which had a dealer networkof 120 during the last year is also working aggressively on taking this number higher. Additionally, the company also has dealers in Nigeria,Kenya, Egypt, Tanzania and a few other African countries. The company is also engaged in the generation of electricity with wind turbinegenerator at Soda Mada, Rajasthan and at Gandhavi, Gujarat.Earlier, during the 90s, the company had pioneered this space with the launch of Khushbu, a multipurpose vehicle which played a key role inconnecting the rural and urban areas, thereby, assisted in growing the economy. Now, the company is once again going innovative with theidea of coming out with the ultra‐low cost 4W commercial vehicle (that can be placed between low‐cost 4W commercial vehicles andcurrent 3W).Last year, when Government controlled Scooters India Ltd. announced for divestment, AAL showed its interest as the Management believesthat the acquisition would generate great synergies. Scooters India also manufactures 3W and holds almost equal market share to AAL.However, there has been no development on this front as the company awaits guidelines from the central government. Moreover, there hasbeen news that the company is, as a part of growth strategy and business expansion, considering to expand its business in the agriculturalmachines sector. AAL is now looking for expanding the product basket as the existing product‐line has been stabilized and well accepted inthe market.

December 18, 2012

Atul Auto Ltd.

3

Product‐PortfolioThe company manufactures 3‐wheelers in the ‘below 1.0 ton segment’ targeting both, the passenger segment and the cargo segment. Inpassenger segment, the company manufactures the diesel powered carrier for carrying 3 to 6 passengers and has also added CNG, LPGand Petrol driven vehicles in the recent times. In the cargo segment, the company manufactures vehicles with a rated carrying capacity ofup to 0.50 tonnes. The company also has special purpose vehicles under its offerings. The company’s existing products include varioustypes of front engine and rear engine 3‐wheelers under the brand names ‘Atul Shakti’, ‘Atul Gem’ & ‘Atul Smart’. Atul Smart is an upgradedversion of Atul Shakti which was a very successful product. It was then followed by first rear‐engined Atul Gem, which was launched in2009 and is the key driving force behind the company’s robust top‐line. Going forward, the additional growth driving products would thenew 0.35 ton vehicle (AAL making a foray in this segment) which is currently dominated by Bajaj with almost half of the market. Currently,the company sources all the engines from Greaves Cotton Ltd. (Greaves Ltd.) while the gearboxes are produced in‐house. The companyholds nearly 5% of the 3W market and almost 15% of the 0.5 ton 3W.

Atul Auto Ltd.

December 18, 2012

Atul Shakti

Pick‐up Van Standard, Delivery Van, Pick‐up Van High‐deck, Pickup Van Standard CNG, Delivery Van CNG, Pickup Van High‐deck CNG, 3+1 Passenger Carriers, 6+1 Passenger, CNG Passenger, LPG Passenger, Chicken Carrier, Tipper, Water Tank Carrier, Soft Drink Carrier, Mobile Shop, Hopper, Bio Hazard and Vegetable Vending Vehicles.

Atul Gem

Gem Cargo, Gem Cargo XL and Gem Paxx     

Atul Shakti Smart

CNG Passenger, 3+1 Passenger Carriers and Pick‐up Van Standard.    

Atul Shakti33%

Atul Gem58%

Atul Smart6%

Spares3%

Revenue Break‐up FY12

Atul Shakti

Atul Gem

Atul Smart

Spares

Revenue fromWindmill

4

Industry OverviewAfter registering robust growths for two consecutive years, the demand for automobiles in India softened during FY12 largely on accountof broad‐based slowdown. During the last fiscal, the cumulative production of vehicles stood at 20.37 mn registering an year‐on‐yeargrowth of 13.8%. Of these, nearly 3% of the vehicles are 3 wheelers. Though, the 3W domestic sales recorded a decline of 2.4% whileother segments including 2W, Commercial Vehicles (CVs) and Passenger Vehicles (PVs) registered a growth of 14.2%, 18.2% and 4.7%,respectively. Nevertheless, the 3W exports were encouraging during the same period. The 3W exports stood at 34.4% as against 14.2%,25.2% and 27.1% registered by PVs, CVs and 2W.

According to industry reports, India is the leading manufacturer, consumer and exporter of 3W. During FY12, the industry registered salesof 0.51 mn units in the domestic markets and 0.36 mn units in the overseas market. The 3W plays a very significant role in the rural as wellas the urban transportation; passenger as well as the cargo segments. In 2006, this segment of the Indian automobile industry was badlyimpacted with the launch of 4W small commercial vehicles (such as Tata Ace, Tata Magic IRIS & Mahindra's Maximo Mini Van) therebyredefining the industry forces. This has forced the Indian 3W manufacturers to shift their focus to other nearby geographies, hence, drivingthe exports.

The other key players in this space are Bajaj Auto, Piaggio, Mahindra & Mahindra, Scooters India, TVS while a crucial entry of HeroMotocorp is expected. Bajaj Auto and Piaggio holds leading market share in passenger and cargo segments respectively and constitutesmore than 80% of the overall 3W sales volume.

Atul Auto Ltd.

December 18, 2012

 ‐

 200,000

 400,000

 600,000

 800,000

 1,000,000

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

3W‐Domestic 3W‐Exports

Over the last decade, the 3W sales in the domestic markets have increased at a CAGR of 10% while the exports have grew at a CAGR of 37% 

5

Atul Auto Ltd.

December 18, 2012

Industry Overview.. contd.During FY12, just 2.95% of the vehicles in India constituted 3W while Passenger Vehicles, Commercial Vehicles and Two Wheelers consistsremaining 15.07%, 4.66% and 77.32%, respectively. The country is set on a new auto boom to begin and the domestic 3W industry which hasbeen growing at a CAGR of 10% for last ten years is expected to continue to grow at a CAGR of 7‐8% over the next few years. Hence, the keygrowth driver for this segment is likely to be the exports. Indian markets have historically witnessed robust growth in the 3W industries onaccount of lack of affordable 4W transportation, rising population, rising disposable income, improving infrastructure, urbanization,improving per capita income, etc. The similar situations in African, South‐East Asian and Latin American countries are likely to repeat. Hence,the players are enhancing their capacities to extend their foothold in the overseas markets.

During the past few years, the low cost and affordable 4W small commercial vehicles from branded players have emerged as a biggest threatto the 3W industry. Over the next few years, the small commercial vehicles will continue to be a threat for the 3W industry. Nevertheless, theaffordability, better mileage, requirements in the passenger segment (specially in the fastest growing states like Karnataka and Tamil Nadu)and export demand will support the survival of this industry. In addition, 3W players will have to step up to compete with the 4W segment byadding value propositions and new products to their offerings. They will also have to find new markets for their products. On the one side,where 4W makers have entered into the 3W manufacturing, the 3W manufacturers have started foraying into their space.

15.07% 4.66%2.95%

77.32%

Passenger Vehicles Commercial Vehicles

Three Wheelers Two Wheelers

6

Growth DriversIncreased capacity to drive the volumes: The company has a manufacturing facility located at Shapar (18 kms away from Rajkot, Gujarat).This plant has a production capacity of 24,000 vehicles per annum o a single shift basis. As mentioned earlier, the company is under theprocess of enhancing their production capacity from 24,000 units per annum to 48,000 units per annum by the end of FY13. Additionally,this capacity can be further enhanced to 54,000 units by some streamlining and de‐bottlenecking processes. The company expects thisadditional capacity to be used up by FY14. On account of significant capacity additions and upcoming projects in Bangladesh and SriLanka which is likely to be followed by another one planned for Africa, the company has set sales target of ` 10,000 mn by FY16 asagainst ` 2,988 mn in FY12.Enhanced product offerings to benefit: Earlier, AAL was present only in diesel engine segment but the company recently enhanced itsofferings by introducing CNG based vehicles. The company is now present in all the segments including petrol and LPG based enginevehicles. Moreover, the company also introduced rear‐engined vehicle in 2009 to their front‐engined vehicles. Furthermore, the biggestcompetitor of this segment which devoured a major chunk of 3W users were light 4W CVs. The company in order to compete with themis now about to foray into light 4W CV segment. The investment required for this project would nearly be ` 1,500 mn and the project islikely to be based at or near Ahmedabad (Gujarat). With these measures in the pipeline, the management estimates the volumes to growat 40% over the next five years.Geographical expansions to catalyze top‐line growth: As mentioned above, the company is extending their operations to other countriesincluding Bangladesh, Sri Lanka and Africa. These countries are in developing stage providing wide opportunities to various industries.AAL is aiming at reaching full capacity utilization of 12,000 units during the current year and expects an annual business of ` 1,500 mn.Following the Bangladesh project, similar kind of crucial projects are likely to come up in Sri Lanka and Africa. In addition, theManagement expects the key growth driver of sales would be exports. The company is also enhancing their distribution network ofdealers from 100 in 2011 to 250 in next two years. The Management expects to have an incremental market share on the back of allthese developments.Strong financials to support on the growth path: AAL is virtually a debt‐free company; growing at a rate much higher than the industry;negative working capital cycle; healthy return on equity track record. These factors are likely to provide a strong support space to thecompany while on the expansion spree and growth trajectory. The company has also paid dividend during the tough times; and hasconsistently paid dividends for last consecutive seven years. Debt‐free status and strong returns will also prove beneficial in case ofinorganic growth. The company has been in talks to acquire Scooters India Ltd for last couple of years now.

Atul Auto Ltd.

December 18, 2012

7

Outlook & ValuationOver the past four years, AAL has been registering a top‐line growth of ~39% and the net profits have grown at a CAGR of ~87% duringthe same period. Currently, the company is undertaking capacity expansion and also reaching newer and high‐growth markets likeBangladesh and Sri Lanka. The company has also introduced new products to its portfolio and is now offering almost all kinds ofcombinations such as LPG, CNG, Petrol and Diesel based vehicles; both rear and front engined automobiles. The extending dealernetwork is also likely to benefit the company in high demand states like Tamil Nadu and Karnataka. Moreover, the exports being the keygrowth driver is being focused by the Management for the next few years. With all these developments in the company which is virtuallya debt free company and a shareholder friendly Management seems to be a good investment opportunity for the long term. At currentprice of ` 175, the company is trading at 5.6x its FY15 EPS of ` 31.2. By allocating a target multiple of 7.0x to its FY15 EPS, we derive atarget price of ` 218 for the stock.

Atul Auto Ltd.

December 18, 2012

Positives

Strong brand recognitionLeadership in states such Gujarat & RajasthanComfortable financial positionGrowing presence in high growth marketsWide customer‐baseIncreasing capacitiesForay into 4W small commercial vehiclesNegative working capital cycle

Negatives

Dependence on single supplier for enginesIntensifying competitionEntry of new players in the segment

8

FINANCIAL OVERVIEW (Consol.)

December 18, 2012

Atul Auto Ltd.

803.9 

1,174.8 

1,198.5 

2,020.4 

2,988.2 

3,890.7 

4,820.5 

5,770.2 

46.1%

2.0%

68.6%

47.9%

30.2%23.9%

19.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

 ‐

 1,000.0

 2,000.0

 3,000.0

 4,000.0

 5,000.0

 6,000.0

 7,000.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Revenue (Rs. mn) YoY Growth22

130

194

275

374

482

600

1.9%

10.8%9.6% 9.2% 9.6% 10.0%

10.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

 ‐

 100.0

 200.0

 300.0

 400.0

 500.0

 600.0

 700.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15

EBITDA EBITDA Margin

5 45

94

156

215

286

3600.4%

3.8%

4.7%5.2% 5.5%

5.9% 6.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

 ‐

 50.0

 100.0

 150.0

 200.0

 250.0

 300.0

 350.0

 400.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Net Profit Net Profit Margin

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

25.0%27.0%29.0%31.0%33.0%35.0%37.0%39.0%41.0%43.0%

FY11 FY12 FY13 FY14

RoCE RoE

9

PROFIT & LOSS  STATEMENT (Consol.) (Rs.mn) BALANCE SHEET STATEMENT (Consol.) (Rs.mn)

Source: Company, Sushil Finance Research Estimates

December 18, 2012

Atul Auto Ltd.

Y/E Mar. FY11 FY12  FY13E  FY14E 

Net Sales 2,020.4 2,988.2 3,896.0 4,943.6

Material cost 1,584.8 2,375.6 3,109.0 3,945.0

Staff cost 116.0 164.8 210.4 262.0

Other  costs 125.3 172.4 214.3 257.1

Total Expenditure 1,826.0 2,712.7 3,533.7 4,464.1

EBITDA 194.4 275.5 362.3 479.5

Interest 18.3 7.6 4.7 7.4

Depreciation 42.5 42.6 42.8 56.0

Other Income 6.2 5.9 6.0 8.0

Exceptional Items ‐ (1.3) ‐ ‐

PBT 139.7 232.4 320.9 424.6

Tax 45.4 76.5 112.3 148.6

RPAT 94.3 155.9 208.6 276.0

As on 31st Mar. FY11 FY12  FY13E  FY14E 

Share Capital 60.8 75.5 75.5 75.5

Reserves & Surplus 342.7 485.4 646.6 856.2

Net Worth 403.6 560.9 722.1 931.7

Total Loan funds 30.0 38.9 57.8 102.9

Deferred Tax 54.1 46.6 46.6 46.6

Trade Payables 108.1 155.1 191.3 233.0

Other Long Term Liabilities 16.8 20.5 20.5 20.5

Current Payables 85.9 63.0 82.0 99.9

Provisions 48.2 81.4 81.4 81.4

Fixed Assets 424.6 415.4 528.5 694.9

Non‐current Investments 33.1 58.2 58.2 58.2

Sundry Debtors 54.1 60.8 97.4 151.1

Cash & Bank Bal. 28.4 47.9 53.0 62.4

Current Investments ‐ 65.2 65.2 65.2

Inventory 191.7 298.2 378.8 466.9

ST Loans & Advances 12.3 19.4 19.4 19.4

Other Current Assets 2.4 1.2 1.2 1.2

Total Assets 746.5 966.3 1201.6 1519.2

10

CASH FLOW STATEMENT (Consol.) (Rs.mn) FINANCIAL RATIO STATEMENT (Consol.)

December 18, 2012

Atul Auto Ltd.

Y/E Mar. FY11 FY12  FY13E  FY14E 

Profit 94.3 155.9 208.6 276.0

Depreciation & Amortization 42.5 42.6 42.8 56.0

Chg. in Working Capital 142.9 (181.6) (61.9) (82.2)

Cash Flow from Operating 279.7 16.9 189.4 249.8

(Incr)/ Decr in LT Investments ‐ 10.7 ‐ ‐

(Incr)/Decr In Fixed Assets (38.9) (33.4) (155.8) (222.5)

Cash Flow from Investing (38.9) (22.7) (155.8) (222.5)

(Decr)/Incr in Debt (201.7) 8.9 18.9 45.1

(Decr)/Incr in Share Capital ‐ 14.6  ‐ ‐

Dividend & Related Taxes (20.4) (36.2) (47.3) (63.1)

Cash Flow from Financing (222.1)  (22.7) (28.4) (18.0)

Cash at the End of the Year 28.4  47.9 53.0 62.4

Y/E Mar. FY11 FY12  FY13E  FY14E 

Growth (%)Net Sales  68.6 47.9 30.4 26.9

EBITDA  49.8 41.7 31.5 32.3

Reported Net Profit  107.7 65.4 33.8 32.3

Profitability (%)EBIDTA Margin (%) 9.6 9.2 9.3 9.7

Net Profit Margin (%) 4.7 5.2 5.4 5.6

ROCE (%) 35.0 38.8 41.0 40.8

ROE (%) 23.4 27.8 28.9 29.5

Per Share Data (Rs.)EPS (Rs.) 8.6 14.2 19.0 25.2

CEPS (Rs.) 12.5 18.1 22.9 30.3

BVPS (Rs)  36.8 51.1 65.8 85.2

ValuationPER (x) 20.4 12.3 9.2 7.0

P/BV (x) 4.8 3.4 2.7 2.1

EV/EBITDA (x) 9.8 6.9 5.3 4.0

P/ Sales  (x) 1.0 0.6 0.5 0.4

TurnoverDebtor Days 10 7 9 11

Creditor Days 160 128 125 120

Inventory Days 34 36 35 34

Gearing RatioD/E 0.1 0.1 0.1 0.1

Source: Company, Sushil Finance Research Estimates

11December 18, 2012

Stock Review Reports:These are Soft coverage’s on companies where Management access is difficult or Market capitalization is below Rs. 2000 mn. Views and recommendation on such companiesmay not necessarily be based on management meeting but may be based on the publicly available information and/or attending Company AGMs. Hence Stock Reviews maybe just one‐time coverage’s with an occasional Update, wherever possible.

Disclaimer:This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, re‐circulated, published in any media, website or otherwise, in anyform or manner, in part or as a whole, without the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or publicdissemination of information contained herein is prohibited. This report is to be used only by the original recipient to whom it is sent.

This is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken inpreparing the above, we claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors arerequested to use the information contained herein at their own risk.

This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete descriptionof the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to bereliable, but we have not independently verified such information and we do not guarantee that it is accurate or complete. All expressions of opinion are subject to changewithout notice.

Sushil Financial Services Private Limited and its connected companies, and their respective directors, officers and employees (to be collectively known as SFSPL), may, fromtime to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained hereinprior to the publication thereof.

ANALYSTSaurabh Jain| +91 22 4093 4004saurabh.jain@sushilfinance.com

Atul Auto Ltd.