India is one of the largest manufacturers for three-wheelers producing volumes in excess of 9,50,000 units per annum with a robust domestic market of around 5,50,000 units per annum. Three-wheelers have been an integral element of goods transportation in the country providing last mile connectivity in the metro and urban markets where entry of large commercial vehicles into the city limits is increasingly getting restricted. It is also a cost effective mode of personal and mass transportation plus the most widely used mode for goods transportation in rural and semi urban market. There are many positives for this industry both in the cargo and passenger segments with the government’s renewed focus on improvement in rural road infrastructure. The backbone of this business is infrastructure which empowers it to create and deliver superior quality and world class three-wheelers. This mode of transportation is ideal for the growth of key user industries like pharma, FMCG, retail and construction. Moreover, with the government getting more liberal in giving new permits for fuels like CNG/ LPG driven vehicles, the three-wheeler industry is seeing a huge surge in sales. Atul Auto is a midsized three-wheeler company based at Rajkot in Gujarat with an installed capacity to produce 60,000 units per annum. It is the fastest growing player in the three-wheeler industry in the country growing at a whopping CAGR of 25% for the last five years. The company caters to a diverse customer base, both in the cargo and passenger segment, serving on platforms of both 350 kg and 500 kg payload capacity. Looking at the growth momentum in times to come, Atul Auto is considering further expansion with an additional capacity of 60,000 units per annum at a new facility in Ahmedabad. Considering the changes in market trends, it has ambitious future plans with the introduction of micro commercial vehicles to carry 750 kg payloads, manufacture a range of electric commercial vehicles and a four-wheeler one tonner light commercial vehicle in the next few years. Atul Auto has an individual market share of 18% and 5% in the cargo and passenger segment respectively. In the total domestic industry the company has a market share of slightly over 8%. It has been continuously introducing new products suitable for the Indian customer like the Atul Gem Cargo and Delivery van, Atul Shakti pick up, delivery tipper and chicken van, Atul Smart passenger carrier and Atul Gemini CNG vehicle. The response has been very good comparable to its peers in the industry like Mahindra & Mahindra and Bajaj Auto. The fundamentals and corporate governance of the company are impeccable with an impressive history of dividend and bonus payouts. With virtually no debt on its books, the Atul Auto stock, currently quoting on the bourses at Rs 520, is a solid fundamental buy with a price target of Rs 750 in the next 18-months time horizon.
Equity markets this week were largely lacklustre as the F&O expiry series came to an end and the new financial year trading started on a weak note. The focus is shifting completely towards the upcoming RBI policy next week for further direction. The Bulls seem to be in control for now with foreign investors also preferring to go long in the stock market. While frontline shares have seen a major run-up action last month, there may be a shift towards interest rate sensitive mid-cap stocks going forward.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.