Atul Auto’s Q3FY18 performance was below our expectations. With AAL’s sales volume declining ~10% YoY (down 19% QoQ) to 9.9K units, its revenues de-grew by ~4% YoY to ~Rs1.3bn and EBITDA margin was lower 190bps YoY (down 480bps QoQ) at 12.1%. Absolute EBITDA de-grew ~17% YoY to Rs156mn leading to net profit decline of ~21% YoY to Rs97mn (below our expectations at Rs107mn).
While the company continues to launch new products and enter more markets, it has not been able to time its products right and get the desired market share improvement (currently at ~7% of the overall 3W space). Absence of its alternate fuel vehicle till now in many states including Maharashtra (approval received for Cargo 3W in Q3FY18 but not for passenger 3W), where competitors have captured the space, has restricted market share gains for the company, especially in the passenger 3W segment. ATA’s Electric 3W is also not witnessing much traction currently, though with government initiatives in this direction and expected GST impact on the unorganised sector in this segment, the company is hopeful about Erickshaws going ahead. Exports too have not yet started contributing significantly to revenues (forming 5.5% of FY17 net revenues), however, the company is targeting export contribution of ~10% in overall revenues by FY19. Over the near term, the company is expected to record decent volume growth (management has guided for ~10% YoY growth in FY19E) on the back of the anticipated rural recovery and vigorous network expansion by ATA.
We maintain ‘Accumulate’ with a price target of Rs453 (earlier Rs452), based upon 19x Mar’20E EPS. AAL currently trades at PE of 19.8x FY19E and 17.7x FY20E EPS.
* For Q3FY18, AAL reported a volume de-growth of ~10% YoY (post just two consecutive quarters of YoY growth after previous four quarters of decline). With realisations improving ~6% YoY, AAL’s net sales declined by ~4% YoY (down 20% QoQ) in Q3FY18 to ~Rs1.3bn (in-line with PLe).