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Foraying into new segments in order to reduce dependence on a single segment:

Autoline Industries Ltd (AIL) has been making continuous efforts to add new revenue streams, with a separate focus on the non-auto sector, in order to reduce dependence on the auto sector. AIL has diversified into the EV business by launching its own E-Cycle brand called E-Speed, along with more variants. The company is focused on gaining traction in the EV 2-wheeler, 3-wheeler, and 4-wheeler component business, and has added numerous customers. The company has also forayed into the E-scooter space as its variants have met the ‘FAME-2’ regulations. The increased adoption of EVs presents a major opportunity for AIL as presently, Tata Motors (AIL is a major supplier to Tata Motors) is one of the leading players in the EV segment in India

Tailwinds for the Auto and Auto-Ancillary Sector:

The sector accounts for 49% of India’s manufacturing GDP. Riding the green mobility wave, India has seen a rapid increase in the electrification of vehicles. India saw an increase in EV sales of more than 200% in FY2022 compared to FY2021. By 2030, the government wants to have a 30% market share of the passenger car market. Other significant elements bolstering this momentum are efforts like PLI (Production Linked Incentive) Scheme, FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, and the worldwide push for supply chain diversification. The Scrappage policy for automobiles older than 20 years was a significant announcement in the Union Budget. It will increase the demand for new cars, serving as a kind of stimulus to boost sales. The desire for new cars will in turn increase demand for components as OEMs scramble to produce more cars in order to satisfy rising orders

OUTLOOK & VALUATION

AIL has been consistently improving their margins in the current business, as well as continuously penetrating additional sectors in the last few years. Factoring the various positive triggers for the stock, we expect revenue at Rs.803.2 cr, EBITDA at Rs.78.1 cr at an EBITDA margin of 9.7% and Adjusted PAT of Rs.29.4 cr. Given the strong growth outlook, we estimate FY25E EPS at Rs.7.5, and assign a PE multiple of 14x to arrive at a target price of Rs.105, which is an upside of ~48.6% from its last closing price of Rs.71. We re-instate coverage on Autoline Industries Ltd. with a BUY rating, over an investment horizon of 24-30 months.

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