Buy Atul Auto; target of Rs 385: Emkay Global Financial

Emkay Global Financial's research report on Atul Auto

Q3 revenue increased by 32% YoY to Rs1.24bn, slightly below our estimate of Rs1.28bn, owing to lower-than-expected realizations. EBITDA stood at Rs85mn above our forecast of Rs55mn, mainly due to better gross margin. We have increased our FY24-25E EPS estimates by 2-4% due to increased margin assumptions. 3W volumes are seeing robust growth and upcycle is expected to continue for the next three years at least. EV subsidiary, Atul Greentech’s E-3W with a fixed Li-ion battery is expected to be launched across the country shortly, and a 3W with swappable battery is expected to be launched in FY24. Government body, Convergence Energy Services Limited (CESL) has selected the company as one of its suppliers under its large 100,000 units E-3W tender. Atul Auto continues its efforts towards: 1) increasing penetration in EV and CNG segments; 2) improving credit access via its captive finance arm; 3) strengthening presence in key export markets; 4) expanding its distribution reach; and 5) debt reduction, owing to equity infusion and better cash flow generation. We have built-in FY23E revenue growth at a robust 58%, and the uptrend is likely to endure with a FY23-25E revenue CAGR at 26%. Driven by better scale and improved net pricing, EBITDA margin is likely to expand from -7.3% in FY22 to 4.1% in FY23E and to 10.4% in FY25E.

Outlook

We retain Buy with a TP of Rs385 (Rs320 earlier), based on 20x its FY25E EPS (Dec-24E EPS earlier) for the core business. We also ascribe a value to the captive finance arm at Rs29/share, based on 1x its FY22 P/E.

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