Stock Market

Emkay Global has retained a buy rating on Atul Auto, with a target price of Rs 250 (Rs 360 earlier), based on 10 times FY22E EPS (12 times earlier).

Recovery is expected to be gradual in the three-wheeler segment in domestic and export segments.

Management efforts will support market share gains in domestic and export markets over the medium term. The share price moved down by -0.12 per cent from its previous close of Rs 162.20.

The last traded price is Rs 162.

Incorporated in 1986, Atul Auto has a market cap of Rs 352.19 crore. Investment RationaleSince there are multiple catalysts to support medium term growth, the brokerage has maintained its positive view on potential volume triggers over the medium term and inexpensive valuations.

In the near term, volume pressure is expected to continue, but management continues its efforts to strengthen presence in both domestic and overseas markets through: 1) increasing market penetration in major countries in Africa, Asia and Latin America; 2) strengthening presence in alternative-fuel vehicles (petrol, CNG and LPG) and electric vehicles; 3) improving credit access through group finance arm – Khusboo Finance; and 4) network expansion in the domestic market.

The brokerage expects revenue growth of 6 per cent CAGR over FY20- 22E, led by gradual pickup in demand and launches in alternative-fuel and lithium-based electric vehicle segments.

The earnings estimates have been reduced by 30 per cent/17 per cent for FY21E/F22E to factor in near-term volume pressures.

Valuations have notably corrected, with FY21E P/E at 9 times, vs.

historical average of 13 times.

FinancialsFor the quarter ended December 31, 2019, the company reported consolidated sales of Rs 190.74 crore, up 11.94 per cent from last quarter sales of Rs 170.40 crore and up 3.18 per cent from last year's same quarter sales of Rs 184.86 crore.

The company reported net profit after tax of Rs 19.54 crore in the latest quarter. Promoter/FII HoldingsPromoters held 52.7 per cent stake in the company as of the third quarter ending December 31, 2019,, while FIIs held 0.0 per cent, DIIs 18.8 per cent and public - others 28.5 per cent.





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