Accumulate Atul Auto; target of Rs 561: CD Equisearch

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CD Equisearch's research report on Atul AutoAtul Auto Ltd. is one of the youngest players in the 3 wheelers business with humble beginning in 1992 that started with manufacturing of Chhakaras (Rural Transportation Vehicle- RTV). It produces auto rickshaw under various product names- Atul Shakti, Atul Smart, Atul Gem and Atul Gemini-DZ. The stock trades at a currently trades at 21.9x FY16e EPS of Rs 23.18 and 20.0 x FY17e EPS of Rs 25.42. Aided by higher operating margins (14.7% vs 11.6%), earnings advanced by a spectacular 21.6% in the first three quarters of current fiscal. AAL’s three wheeler volumes in FY16 have grown at the lowest rate (5.5%) in last four years, goading us to cut next year EPS estimate by 8.9%. Yet there exists high chance of revival in the Indian automobile sector in the near term. We, therefore, assign ‘accumulate’ rating on the stock with revised target of Rs 561 (previous target: Rs 586) based on 22x FY17e earnings (peg ratio:1; on FY15-FY17 earnings growth), over a period of 6-9 months; forward P/E justified not least due to high probability of dramatic improvement in volumes. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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