Have Rs 150cr capex plan; to maintain 20% growth: Atul Auto

Below is the transcript of Jitendra Adhia’s interview with Reema Tendulkar & Sumaira Abidi on CNBC-TV18.Reema: Your realisations of the average selling price had gone up for the last two quarters at least. Is this on account of a better product mix or has the company increased pricing and can this realisation keep increasing?A: At the moment this overall improvement is on account of better product mix. There were no scope for price reason in the current fiscal. We expect that this product mix will keep on improving our realisation as well as our margin. Sumaira: For the last few years you all have been growing at compound annual growth rate (CAGR) of 40 percent. Do you think you have sort of reached the top or is this run rate still sustainable for you going forward?A: We expect that since we got enough room available in the domestic market this diesel three-wheeler industry as got enough market size wherein we are hardly at somewhere between 11-12 percent market stake. We expect that with a better product positioning we can have deeper penetration and this momentum can continue in next few years as well.

Reema: You said that you expect the realisations as well as the margins to go up. Currently your margin stands at 12 percent. What is the incremental upside in your margin? How soon can it hit that 15 percent mark?A: It is difficult to confirm the perfect figures at the moment but with a scale improvement it can keep on improving somewhere between 50 basis point to 100 basis points year-on-year.Sumaira: You are also planning some capex in Gujarat to cater to the export markets. So, what kind of volumes are you targeting in terms of exports from there? Also I believe this entire Rs 150 crore capex is via internal accrual so how much cash you will be left with once this is complete?A: As far as export market is concerned it is a really a promising opportunity for any three-wheeler manufacturer because the economy which is similar to India or little weaker than India where this kind of economic transport solution has got its own way one. So, there is a definitely a very lucrative opportunity and we would like to explore that market fully. However at this point in time since we are yet to launch the product I would like to say that we would continue this 20 percent growth momentum year-on-year what exactly we have targeted to medium to long–term.As far as capex is concerned this Rs 150 crore capex we are going to fund it through internal accrual part of it. Land has been acquired the major cash outflow is already over and that has been funded through our internal accrual. Still company is left with some surplus and in addition to that we expect that this particular project may take another two years. So, we got enough time available to generate that much revenue from our current business operation.

Reema: What is the current export contribution to your revenues and what is the target contribution?A: At the moment this is little insignificant in away because these diesel three-wheelers are not so popular in overseas market. So, we are waiting for a correct product to be launched and that is gasoline in three-wheeler. Once this is been introduced we can definitely explore it in a big way. Let’s wait for more time and we can come out with our perfect strategy what numbers we are targeting for overseas market as well.Sumaira: So this petrol engine that you are talking about would the launch be in 2015 and how much would just this product add for you?A: We expect it in near future most probably either in a last quarter of the current fiscal or in a first quarter of the next year that is what exactly we are expecting. Initially we would be targeting moderate market stake, not a very big market stake is been targeted. We will definitely ramp up the sales in gradual manner.

Reema: Any numbers, what kind of volumes can we expect or is the company targeting from your petrol engine in FY16 for sure it will be launched as well as for FY17. What are the internal targets that you have setout in terms of volumes for your petrol engine?A: At the moment our base is small one so without focusing on our single product platform we would be targeting overall growth volume of say 20 percent. So, may it be contributed by diesel or petrol? Initially in a medium-term we would be targeting 20 percent growth.Sumaira: Are you planning any fresh primary dealerships catering to this petrol engine. How much do you hope to scale it up by in the next year?A: At the moment we are available all across India where we got almost 200 primary dealerships and in this trade generally dealership is awarded for each district so there is enough room available it can go up to 600 numbers as we got 600 districts in India, in addition to 6 overseas distributors. So, there is enough room available and with petrol three-wheeler we would be able to target urban market in addition to overseas market.Reema: Since the stocks are, is at a lifetime high is the company looking at any kind of a capital market action, any fund raising; any placements?A: Not exactly that is not on our cards at the moment. We can fund the proposed expansions through our internal accruals itself and since we are enjoying debt free status we may explode the conventional route at the first attempt and then we may think depending upon the requirement for going into capital market.Reema: Any acquisition that you are looking at?A: Not at the moment.