SP Tulsian is bullish on Atul Auto and Autoline Industries. He sees these stocks posting better returns ahead.
Below is the verbatim transcript of Tulsian's views.
On Atul Auto
This is a Rajkot-based company that makes three wheelers, which run on diesel, compressed natural gas (CNG) and piped natural gas (PNG). The company has been performing well. Its capacity on a single shift basis is about 24,000 vehicles per annum. For FY13, the company operated at a plant capacity of about 135 percent. Its sales performance for the first two months ie: during April-May saw a 10 percent growth, against comparable period of the previous year.
Going by financial performance, it has an EBITDA margin of close to about 11 percent. For FY13, it had EPS of about Rs 24, with profit after tax (PAT) of Rs 26 crore, against Rs 16 crore posted for FY12, which indicates a 60 percent jump in PAT. One may not see a similar kind of jump in its bottomline for FY14, but they have performed well.
It has strong brand loyalty for its vehicles. The company has presence in and around the state of Gujarat only. In Rajkot and nearby areas, it operates with light commercial vehicle. It is a debt-free company available at a price-earnings (PE) multiple of 8. Taking all this into account, this share has seen corrections, I don’t think automobiles can be so much affected going ahead. So, the correction seen in the stock can be used at the current level of Rs 180, with expectation of about Rs 210 in six months or so.
On Autoline Industries
I am impressed by the corporate move having initiated by Mahindra Ugine. They have sold their land to M&M and realised a huge amount of money. In fact, the same kind of theme lies here also. This is an auto ancillary company and has eight plants in Pune, two in South Korea and US and three are in Pantnagar, Dharwad. The company has been looking to monetise some of their surplus land at Pune.
The company is expecting a part of the Pune land to fetch them about Rs 150 crore. As per the company’s debt position, it is close to about Rs 220 crore in the company's books. The company may use a large chunk of the money raised to retire debt and can virtually become debt free.
It has a very strong portfolio of products of about 250 products, with topline of close to about Rs 800 crore. Right now, because of high interest burden of about Rs 40 crore per year it is unable to make much on the bottomline. Its contribution to bottomline was not very high for FY13 also. It had an exceptional income of about Rs 7 crore, hence managed to post EPS of close to about Rs 7. I am quite hopeful going forward.
Whenever we see a share price correction, it will take support at around Rs 75 or so, which seems to be the support level now. It is currently ruling at Rs 79-80. So this seems to be its bottom and whenever it starts going up, it will swiftly go to Rs 120-125 level. I am giving a price target of Rs 100 for the next six months or so.The Great Diwali Discount!
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