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Buy Atul Auto; target of Rs 320: Emkay Global Financial

Emkay Global Financial is bullish on Atul Auto has recommended buy rating on the stock with a target price of Rs 320 in its research report dated November 13, 2022.

November 14, 2022 / 09:54 PM IST
 
 
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Emkay Global Financial's research report on Atul Auto

Q2FY23 revenue increased by 39% YoY (3-yr CAGR at -13%) to Rs1.14bn, broadly inline with estimates. EBITDA turned positive post six quarters of losses and stood at Rs43mn (3-yr CAGR at -40%) vs. loss of Rs46mn in Q2FY22 and loss of Rs12mn in Q1FY23. EBITDA was above our estimate of Rs18mn due to better gross margin and lower other expenses. Gross margin is expected to further expand from Q3FY23, owing to commodity deflation benefits. Management has maintained robust FY23 volume guidance at 25,000 units vs. 16,000 units in FY22. We believe 3Ws are at the early stage of an upcycle, which should last over the next three years at least. EV subsidiary, Atul Greentech is planning the launch of a 3W with a fixed Li-ion battery in Q4FY23, and a 3W with swappable battery is expected to be launched in FY24. Government body, Convergence Energy Services Limited (CESL) has selected the company as one of its suppliers under its E-3W tender.


Outlook

Atul Auto continues its efforts towards: 1) increasing penetration in EV and CNG segments; 2) improving credit access via its finance arm; 3) strengthening presence in key export markets; 4) expanding its distribution reach in the domestic market; and 5) debt reduction, owing to equity infusion and better cash flow generation. We have built-in FY23E revenue growth at a robust 57%, and the uptrend is likely to endure with FY23-25E revenue CAGR at 25%. Driven by better scale and improved net pricing, we expect EBITDA margin to expand from -7.3% in FY22 to 3.1% in FY23E and to 10.1% in FY25E. We retain Buy with a TP of Rs320 (Rs240 earlier), based on 20x Dec-24E EPS (16x Sep-24E EPS earlier). Improving medium-term growth prospects are driving multiple upgrades. Key downside risks: Delay in demand recovery in main geographies, failure of new products, highly competitive intensity, and adverse movement in commodity/currency rates.

For all recommendations report, click here

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Atul Auto- 14 -11-2022 - emkay

Broker Research
first published: Nov 14, 2022 09:54 pm

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