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New product launches and adaptation to the modern age technologies to mark the survival in the sphere of mobility:

Atul Auto Ltd. (AAL) has consistently been making required investments in R&D to match pace with the changes in the mobility space - from Diesel / Petrol to LPG / CNG to e-Rickshaw.

The complete range of product portfolio and customized offerings with a strong brand value to benefit in the long run:

AAL is a key player in the Indian 3W industry, commanding ~7% of domestic market share. Over the decades, the company’s brand value has strengthened. Soon after the popular Chhakada of 1970’s, ‘Shakti’ was introduced followed by other cargo & passenger commercial 3W under the same brand name. The company introduced new models under new brand names ‘Gem’ & ‘Gemini’ in passenger & cargo segments. Recently, AAL launched products under the new names ‘Elite’, ‘Smart’ & ‘Rik’.

New capacities, focus on exports and push for electric rickshaws to drive volumes going forward:

The company just completed its capacity expansion program, under which it has doubled its capacity from 60,000 units to 1,20,000 units per annum. Recently, the commercial production at the new facility Bhayla has commenced on September 27, 2021.

Strong fundamentals to steer the company on a growth path:

With the operating history of more than three decades and a strong brand recall, the company has created a robust presence in the Indian 3W market and commands a leading market share. The company has recently expanded its capacity, and, thus, there is no need of any major capex in the coming years. AAL virtually remains debt-free and has consistently paid dividends barring FY21 which was affected by the pandemic.

OUTLOOK & VALUATION

AAL is a leading pure 3W player with ~7% market share. AAL offers a unique proposition of rear and front engine vehicles and nearly two dozens customized variants. The company is present across the complete range of variants: Petrol Diesel, LPG, CNG and Electric. Recently, the company has doubled its capacity from 60,000 units to 120,000 units by adding a greenfield facility at Bhayla (near Ahmedabad).

The company spent nearly Rs.250 cr on upgradation, modernization & expansion of capacities over the last 3-4 years. With anticipated uptick in volume driven by new launches (alternate fuel – RIK for urban areas), geographical expansion (foray into new countries) we expect the company to deliver an EPS of Rs.22.2 (lower than pre-covid levels) in FY23. Assigning a target multiple of 17x, we derive a target price of Rs.377 (+49% upside), thereby, recommending a BUY with an investment horizon of 18-24 months.

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