RESULTS REVIEW 4QFY17 16 MAY 2017

Atul Auto
BUY
INDUSTRY AUTOS Rural uptick holds the key
CMP (as on 15 May 2017) Rs 424 ATUL Autos (AAL) 4Q EBITDA at Rs 103mn (-41% Highlights of the quarter
YoY, -45% QoQ), was in line with estimates. The Market share trend: AALs domestic market share in
Target Price Rs 528 the 3W cargo segment decreased 400bps YoY (flat
EBITDA margin dropped 347bps to 9.9%. Net revenue
Nifty 9,445 at Rs 1.04bn (-20% YoY, -23% QoQ) was led by a 20% QoQ) to 16.6%. In the PC segment, market share
Sensex 30,322 dipped 50bps YoY (flat QoQ) to 4.6%. Management is
drop in volumes. APAT at Rs 62mn (-43% YoY, -50%
confident of expanding its market share, on the back of
KEY STOCK DATA QoQ) came in slightly lower than estimates, owing to incremental volumes from gasoline 3Ws and a revival
Bloomberg ATA IN lower other income. in rural demand. The company witnessed a significant
No. of Shares (mn) 22 pick-up in volumes in the export market in FY17 (+50%
We believe all negatives (disruption in demand YoY).
MCap (Rs bn) / ($ mn) 9/145
owing to demonetisation) are priced in. The future Focus on network expansion: AAL is increasing its
6m avg traded value (Rs mn) 18
performance of the company will be driven by (1) penetration by expanding its dealership network. It
STOCK PERFORMANCE (%)
Revival in rural demand, backed by the governments aims to add 30 to 40 new dealers in FY18E (currently
52 Week high / low Rs 520/391 ~200 primary dealers and 120 secondary). AAL is
increased focus on this sector, (2) Pan-India launch of
3M 6M 12M
gasoline and electric 3Ws in FY18, (3) Expansion of currently selling its gasoline 3Ws in only four states
Absolute (%) 1.1 2.7 (9.7) (Gujarat, Rajasthan, Haryana, and Punjab), and is
AALs geographical presence (especially in semi-rural awaiting STA approvals from others. Management is
Relative (%) (6.6) (12.5) (28.6) and rural areas), (4) A pick-up in exports, owing to confident of tapping all the states in FY18E. The
SHAREHOLDING PATTERN (%) the introduction of gasoline vehicles and (5) A lower company has also launched a 3W electric vehicle in
Promoters 52.70 base. April-17.
FIs & Local MFs 11.88 Near-term outlook: 1QFY18 numbers are expected to
FIIs 5.20
We value AAL at Rs 528 (17xFY19E earnings). be strong, owing to rural demand revival and a lower
Maintain BUY. base last year, owing to the Gujarat VAT issue.
Public & Others 30.22
Source : BSE Financial Summary
(Rs mn) 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%) FY16 FY17P FY18E FY19E
Net Sales 1,041 1,297 (19.8) 1,348 (22.8) 5,310 4,753 5,835 7,055
Abhishek Jain EBITDA 103 173 (40.6) 189 (45.4) 763 599 852 1,058
abhishekkumar.jain@hdfcsec.com APAT 62 109 (42.9) 123 (49.6) 474 373 537 691
+91-22-6171-7320 Diluted EPS (Rs) 2.8 5.0 (42.9) 5.6 (49.6) 21.6 17.0 24.5 31.5
P/E (x) 19.7 25.0 17.4 13.5
Sneha Prashant EV / EBITDA (x) 12.1 15.4 10.8 8.7
sneha.prashant@hdfcsec.com RoE (%) 34.4 22.3 26.9 28.5
+91-22-6171-7336 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 ATUL AUTO: RESULTS REVIEW 4QFY17

Quarterly Financials Snapshot

Particulars (Rs mn) 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%)
AALs revenue was in line Volumes (in units) 8385 10521 (20) 11043 (24)
with expectations. Volume Net ASP (Rs/veh) 123172 122678 0 121127 2
de-grew by 20% YoY in 4Q. Net Sales 1,041 1,297 (20) 1,348 (23)
Material Expenses 786 935 (16) 969 (19)
Domestic volume de-grew by Employee Expenses 85 91 (6) 100 (15)
23% led by 22% de-growth in Other Expenses 67 98 (32) 90 (26)
EBITDA 103 173 (41) 189 (45)
PC segment and 24% in cargo
Depreciation 14 13 10 13 8
segment impacted by
EBIT 89 160 (45) 175 (49)
demonetisation Other Income 1 1 (23) 13 (92)
Interest Cost 1 1 50 1 29
The company has inventory PBT 89 161 (45) 188 (53)
of ~2500-3000 units BS3 Tax 27 52 (49) 65 (59)
vehicle which will be sold RPAT 62 109 (43) 123 (50)
post conversion into BS4 EO Items (Adj For Tax) - - - - -
vehicle APAT 62 109 (43) 123 (50)
EPS 2.83 4.95 (43) 5.61 (50)
Gross margin hit by 348bps Source: Company, HDFC sec Inst Research
at 24.4% on account of
increase commodity prices, Margin Analysis
the Company has taken price 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%)
hike in the range of 3-4% in Material Expenses % Net Sales 75.6 72.1 348 71.9 368
April-17 Employee Expenses % Net Sales 8.2 7.0 118 7.4 73
Other Expenses % Net Sales 6.4 7.6 (120) 6.7 (31)
EBITDA Margin (%) 9.9 13.4 (347) 14.0 (411)
EBITDA margin at 9.9%(- Tax Rate (%) 30.1 32.6 (247) 34.6 (449)
347bps YoY) was dragged APAT Margin (%) 6.0 8.4 (241) 9.1 (316)
down by fall in GM and Source: Company, HDFC sec Inst Research
negative operating leverage

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 ATUL AUTO: RESULTS REVIEW 4QFY17

Key Assumptions
FY14 FY15 FY16 FY17 FY18E FY19E
Volume expected to revive PV-Domestic 21,122 22,416 22,398 18,365 21,671 25,138
YoY Growth % 24% 6% 0% -18% 18% 16%
from FY18 on the back of
Cargo-Domestic 15,850 17,718 19,963 18,142 21,770 25,689
demonetisation ebbs, revival
YoY Growth % 8% 12% 13% -9% 20% 18%
in rural demand and
Total Domestic 36,972 40,134 42,361 36,507 43,441 50,827
incremental sales of gasoline YoY Growth % 16% 9% 6% -14% 19% 17%
vehicle in urban and export PV's Proportion 57% 56% 53% 50% 50% 49%
market
PV-Exports 518 1,331 1,333 2,053 2,566 3,208
YoY Growth % 137% 157% 0% 54% 25% 25%
Cargo-Exports 67 133 199 235 294 367
YoY Growth % 123% 99% 50% 18% 25% 25%
Introduction of electric Total Export 585 1,464 1,532 2,288 2,860 3,575
vehicle from April-17 will YoY Export Growth % 135% 150% 5% 49% 25% 25%
also add volume PV's Proportion 89% 91% 87% 90% 90% 90%
Total Volume 37,557 41,598 43,893 38,795 46,301 54,402
YoY Growth % 17% 11% 6% -12% 19% 17%
Source: Company, HDFC sec Inst Research

Management is targeting
double digit volume growth
in FY18 for domestic market

The company is also looking

to achieve 30K+ volume for
export market in next 3-4
years

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 ATUL AUTO: RESULTS REVIEW 4QFY17

Demonetisation Hits Volumes Improvement In Export Mix

Q4 volumes were severely Volume - LHS YoY (%) Domestic Volume Export Volume
14,000 Rs mn % 10.0 Rs mn
impacted owing to 14,000
disruption in rural demand 12,000 5.0 12,000
10,000 0.0 10,000
8,000 -5.0 8,000
6,000 -10.0 6,000

4,000 -15.0 4,000

2,000 -20.0 2,000

0 -25.0 0
Export demand is picking up

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17
4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17
owing to incremental sales
of gasoline vehicles and
foray into new geographies Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Margin Contracted Owing To Commodity Cost APAT Margin Contracted

EBITDA - LHS EBITDA Margin (%) APAT APAT Margin (%)
Rs mn (%) 180 Rs mn % 12.0
300 18.0
16.0 160
250 10.0
14.0 140
200 12.0 120 8.0
10.0 100
Margin contraction was 150 6.0
8.0 80
mainly on account of
100 6.0 60 4.0
negative operating leverage 40
4.0
50 2.0
2.0 20
0 0.0 0 0.0

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17
4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 ATUL AUTO: RESULTS REVIEW 4QFY17

Peer Valuation
Mcap CMP Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%)
Reco TP
(Rs bn) (Rs/sh) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Maruti Suzuki 2,043 6,763 BUY 7,070 242.9 272.4 353.3 27.8 24.8 19.1 19.6 17.0 13.0 23.2 22.4 26.3
Tata Motors 1,452 427 BUY 516 34.5 49.3 54.2 12.4 8.7 7.9 6.7 4.7 3.6 13.6 16.9 15.9
Bajaj Auto 868 2,998 BUY 3,400 134.8 154.0 172.4 22.2 19.5 17.4 16.4 13.7 11.7 29.9 30.5 29.8
M&M 811 1,373 BUY 1,551 56.6 75.8 86.4 24.2 18.1 15.9 13.6 11.4 9.0 14.4 17.5 17.7
Eicher Motors 799 29,469 BUY 31,934 624.3 804.9 1,010.0 47.2 36.6 29.2 34.5 27.2 22.0 39.4 38.9 39.3
Hero Motocorp 692 3,464 BUY 3,740 161.4 184.2 202.8 21.5 18.8 17.1 14.5 12.4 10.8 37.3 36.9 36.0
Ashok Leyland 246 87 BUY 97 3.7 4.9 6.3 23.6 17.5 13.7 12.7 10.2 8.4 18.1 21.9 24.9
Force Motors 61 4,618 BUY 5,350 131.2 192.9 254.7 35.2 23.9 18.1 21.8 14.2 10.8 11.0 14.4 16.4
SML Isuzu 19 1,329 BUY 1,498 50.2 61.2 82.0 26.5 21.7 16.2 16.6 13.3 10.1 19.8 20.9 23.8
Atul Auto 9 425 BUY 528 17.0 24.5 31.5 25.0 17.4 13.5 15.4 10.8 8.7 22.3 26.9 28.5
Source: Company, HDFC sec Inst Research

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 ATUL AUTO: RESULTS REVIEW 4QFY17

Income Statement Balance Sheet

Year ending Mar (Rs mn) FY15 FY16 FY17 FY18E FY19E Year ending Mar (Rs mn) FY15 FY16 FY17P FY18E FY19E
Net Revenues 4,928 5,310 4,753 5,835 7,055 SOURCES OF FUNDS
Growth (%) 14.6 7.8 (10.5) 22.8 20.9 Share Capital - Equity 112 112 112 112 112
Material Expenses 3,722 3,849 3,457 4,182 5,036 Reserves 1,099 1,434 1,695 2,071 2,554
Employee Expenses 324 373 390 431 522 Total Shareholders Funds 1,211 1,546 1,807 2,183 2,666
Other Expenses 303 326 307 369 440 Total Debt - - - - -
EBITDA 579 763 599 852 1,058 Long-term Provisions & Others 57 55 66 66 66
EBITDA Margin (%) 11.8 14.4 12.6 14.6 15.0 TOTAL SOURCES OF FUNDS 1,268 1,601 1,873 2,249 2,732
EBITDA Growth (%) 27.6 31.7 (21.5) 42.3 24.2 APPLICATION OF FUNDS
Depreciation 56 53 53 62 66 Net Block 794 870 903 941 1,065
EBIT 523 710 546 790 992 CWIP 5 5 - - -
Other Income (Incl. EO Items) 75 13 25 40 50 Investments 10 10 78 78 78
Interest 6 8 6 0 0 LT Loans & Advances 33 39 20 24 30
PBT 593 715 565 830 1,043 Other Assets 74 47 40 40 40
Tax (Incl Deferred) 187 241 192 293 352 Total Non-current Assets 915 971 1,041 1,083 1,213
RPAT 406 474 373 537 691 Inventories 260 347 362 430 517
EO (Loss) / Profit (Net Of Tax) 11 0 0 0 0 Debtors 322 764 478 762 921
APAT 394 474 373 537 691 Other Current Assets 3 5 3 3 3
APAT Growth (%) 32.4 20.2 (21.2) 43.9 28.6 Cash & Equivalents 274 128 571 721 981
Adjusted EPS (Rs) 18.0 21.6 17.0 24.5 31.5 Total Current Assets 859 1,244 1,414 1,916 2,423
EPS Growth (%) 32.4 20.2 (21.2) 43.9 28.6 Creditors 267 360 360 432 519
Source: Company, HDFC sec Inst Research Other Current Liabilities & Provns 239 254 223 320 385
Total Current Liabilities 507 614 582 751 904
Net Current Assets 353 630 832 1,165 1,519
TOTAL APPLICATION OF FUNDS 1,268 1,601 1,873 2,249 2,732
Source: Company, HDFC sec Inst Research

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 ATUL AUTO: RESULTS REVIEW 4QFY17

Cash Flow Statement Key Ratios

Year ending Mar (Rs mn) FY15 FY16 FY17P FY18E FY19E FY15 FY16 FY17P FY18E FY19E
Reported PBT 581 715 565 830 1,043 PROFITABILITY (%)
Non-operating & EO items 0 0 0 0 0 GPM 24.5 27.5 27.3 28.3 28.6
Interest expenses 6 8 6 0 0 EBITDA Margin 11.8 14.4 12.6 14.6 15.0
APAT Margin 8.0 8.9 7.9 9.2 9.8
Depreciation 56 53 53 62 66
RoE 36.6 34.4 22.3 26.9 28.5
Working Capital Change (150) (429) 264 (187) (99) RoIC (or Core RoCE) 45.9 39.4 26.9 37.8 41.7
Tax Paid (187) (241) (192) (293) (352) RoCE 35.0 33.4 21.8 26.1 27.7
OPERATING CASH FLOW ( a ) 306 105 696 412 657 EFFICIENCY
Capex (323) (128) (86) (100) (190) Tax Rate (%) 31.5 33.7 34.0 35.3 33.7
Free cash flow (FCF) (17) (23) 610 312 467 Fixed Asset Turnover (x) 4.8 4.2 3.5 4.0 4.4
Investments 4 (0) (68) 0 0 Inventory (days) 24.2 28.8 37.5 37.5 37.5
INVESTING CASH FLOW ( b ) (319) (128) (154) (100) (190) Debtors (days) 16.8 37.3 47.7 47.7 47.7
Debt Issuance/(Repaid) (31) 24 18 0 0 Other Current Assets (days) 0.3 0.3 0.3 0.2 0.2
Payables (days) 22.6 25.2 31.6 31.6 31.6
Interest Expenses (6) (8) (6) 0 0
Other Current Liab & Provns
FCFE (53) (7) 623 312 467 17.0 19.8 20.9 19.9 21.4
(days)
Share Capital Issuance 0 0 0 0 0 Cash Conversion Cycle (days) 1.7 21.4 32.9 33.9 32.3
Dividend (129) (139) (112) (161) (207) Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0
FINANCING CASH FLOW ( c ) (166) (122) (99) (161) (207) Net D/E (x) (0.2) (0.1) (0.3) (0.3) (0.4)
NET CASH FLOW (a+b+c) (179) (145) 442 151 260 Interest Coverage (x) 88.7 91.0 N.A. N.A. N.A.
EO Items, Others PER SHARE DATA (Rs)
Closing Cash & Equivalents 274 128 571 722 981 EPS 18.0 21.6 17.0 24.5 31.5
Source: Company, HDFC sec Inst Research CEPS 20.5 24.0 19.4 27.3 34.5
Dividend 5.0 5.3 5.1 7.3 9.4
Book Value 55.2 70.5 82.3 99.5 121.5
VALUATION
P/E (x) 23.6 19.7 25.0 17.4 13.5
P/BV (x) 7.7 6.0 5.2 4.3 3.5
EV/EBITDA (x) 15.9 12.1 15.4 10.8 8.7
EV/Revenues (x) 1.9 1.7 1.9 1.6 1.3
OCF/EV (%) 3.3 1.1 7.6 4.5 7.1
FCF/EV (%) (0.2) (0.3) 6.6 3.4 5.1
FCFE/Mkt Cap (%) (0.6) (0.1) 6.7 3.3 5.0
Dividend Yield (%) 1.2 1.2 1.2 1.7 2.2
Source: Company, HDFC sec Inst Research

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 ATUL AUTO: RESULTS REVIEW 4QFY17

RECOMMENDATION HISTORY
Date CMP Reco Target
Atul Auto TP
700
31-May-16 490 BUY 643
650
10-Aug-16 393 BUY 569
600
15-Nov-16 465 BUY 566
550
5-Dec-16 428 BUY 510
500
6-Feb-17 425 BUY 507
450
13-Apr-17 454 BUY 528
400
16-May-17 424 BUY 528
350 Rating Definitions
300 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
Aug-16

Apr-17
Jan-17
Jul-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

May-17
Dec-16

Mar-17
Oct-16

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 8
 ATUL AUTO: RESULTS REVIEW 4QFY17

Disclosure:
We, Abhishek Jain, MBA & Sneha Prashant, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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 ATUL AUTO: RESULTS REVIEW 4QFY17

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Institutional Equities
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Board : +91-22-6171 7330 www.hdfcsec.com

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