Is Atul Auto a Multibagger Stock based on Warren Buffet Analysis?

Update: This stock really is Not a Multibagger up to date.  Since the Valuation change it is No Longer a Multibagger in our view.  You can check other stocks from our latest Multibaggers pack.

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Futurecaps is a SEBI Registered Research Analyst providing Multibagger service to Indian Stock Market.

Atul Auto Ltd.

NSE Code	ATULAUTO.NS
BSE Code	531795
URL	http://www.atulauto.co.in/
CMP	335.00
Free Report	Yes
Publish Date	Apr-13-2019

In this post I would like to Explore the Multibagger Potential of the company. This is based on a blog reader request.

Introduction

The company based in Gujarat founded in 1980s is into the business of Vehicle Manufacturing primarily in the 3-wheeler targeting Cargo & Passenger segments. Company maintains No.1 position in the Diesel 3-wheeler segment in Gujarat.

Earlier in 1970s, the company started with invention of ‘Chakkada’ which was a big success. The current CEO inherited the business from his father & currently have PAN India presence with 330+ primary & secondary networks of distribution centers across India.

The company also have Petrol/CNG variants with Overseas presence. The company has 850+ employees and 60000 production capacity.

CEO

The company CEO is Mr. Jayantibhai J Chandra. He performed previously as Managing Director of Khushbu Auto Finance Ltd. another subsidiary.

Positive Factors

Following are the Positive Factors identified:

Company has a Good Research Team. The company produces 3-wheeler in all Fuel range Petrol, Diesel, CNG, LPG and Electric. Electric Vehicles R&D on Card to accommodate Future trends.

Good Array of Products visible while ATUL Shakti is the new in array covering Passenger & Delivery segments.

FY18 had Sales Growth of 24% and Export growth of 40%. India three-wheeler market is projected to exhibit a CAGR of more than 15% by 20235.

Company does not have any Debt problems as it maintains Debt as Zero & Current Ratio above 1.8. CRISIL has reaffirmed rating as CRISIL “A” with stable outlook. HDFC Small cap & ADITYA BIRLA Mutual Funds are Invested.

Company has invested into the Green Vehicles Variant to curb the Vehicle Pollution issues. It owns a Subsidiary Atul Green Automotive to accommodate this Green Variants.

New plant in Bavla near Ahmedabad which supports Future Expansion aspirations.

Urbanization, India Growth Story, Green & Electrical Vehicle usage will be Boost to the company in coming years.

Concern Factors

Following are the Concern Factors identified:

Demonetization & GST has impacted the Sales of the company. Any such reforms in the future will Negatively affect the company.

The past FY 2015 seems to have the higher number of sales. The direct Competitor Bajaj Auto although seems to have higher sales in FY2018 too.

Cash Flow seems to be not steady. FY2017 seems to have provided the highest cash flow. Current year Net Cash Flow is negative due to Capex expenditure.

Few misalignments with Industry Growth also visible. In few years the company growth was lower than the industry growth. (In high growth companies this will be the opposite)

Crude Oil Price increase can adversely affect the company sales.

Management seems to be Immune to Debts. This affects the Leveraged growth & expansion of the company. The sluggish growth rate of 10% may be due to these factors.

Major competitor is Bajaj Auto which dominates the 3-wheeler industry. Other Competitors are Piaggio & Mahindra. The Penetration & Network of Atul Auto needs to be multifold increased for growing above these niches.

Sales & Profit Growth

Sales & Profit Growth is visible for the current year.

Warren Buffet, Value & Growth Checklist

Following are the Checklist parameters:

History of Consistently Increasing Sales, Earnings & Cash Flow	Yes. However the Rate of Growth is Not too Impressive.
Durable Competitive Advantage	Moderate. (compared with competitors)
Future Growth Drivers / Sectoral Growth	Yes. 15% CAGR Sector Growth forecasted for next 5 years.
Conservative Debt (long term debt < 3 Net Profit)	Debt is 0.
Debt Equity Ratio, Current Ratio	DER is 0. CR is 1.8. Both are Very Good.
Return on Equity must be Above Average	22%
Low CAPEX required to maintain current operations	Not.
Inventory Turnover Ratio, Debtor Days, ROCE	All 3 are decreasing for current 2 years but within range.
Management is holding / buying the stock	No changes.
Price is Under Valued (< intrinsic value), PEG Ratio	PEG is high.
Stock Price is consolidating (now)	Yes.
Stock Price is growing in past years along with EPS growth	Yes.
Consolidated PE, PB Ratio	2015 holds the highest price value.
Cash Flow Positive, Net Profit % greater than 8%	Yes.
Paying Dividends, Tax	Yes.
EPS Growth Rate	Yes.
Jump in Trailing Result EPS	Yes.
Jump in Quarterly Result EPS	Yes. 50%
Expected Gain in 5 Years	300%. (Not impressive expectation)
Price Movement Graph, 52 Week High & Low	Okay.
Volume Analysis	Low Volume. Good if Growth manifests.
Power of Brand	Moderate Brand compared with Big Peers.
Corporate Governance, Reputation of Leaders	Yes.
Fraud reported	Not in current search.

Summary

Based on the above analysis I would like to say that the company possess Multibagger properties but not in a Great Order. Hence be cautious about Investing in it.

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Disclaimer Futurecaps is an independent equity research team. Use of the information herein is at Investor’s own risk. This is not an offer to sell or solicitation to buy any securities and Futurecaps will not be liable for any losses incurred for the investment based on the advice.  The Investor is advised to do due diligence in the scrip mentioned.  None of Futurecaps Advisors hold 1% above Holdings of this company.