Atul Auto shares rise after ace investor Vijay Kedia raises holding

Shares of Atul Auto gained on Monday on the news of veteran investor and Director of Atul Auto, Vijay Kedia, raising his stake in the company to 8.4 percent.

The stock was trading at Rs 329 or 2.5 percent higher at 10am on the BSE today.

Kedia has converted warrants that were issued to him at Rs 198 per share in October 2022. This raised his holding by 7.05 percentage points from the 1.35 percent held through Kedia Securities.

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An exchange filing from March 15 stated that Atul Auto’s Securities Allotment Committee of Board of Directors had allotted 19,36,027 equity shares to three entities, including promoter (member of promoter group), pursuant to the exercise of conversion of 19,36,027 convertible warrants out of the total 58,08,080 warrants held by warrant holders.

Besides Kedia, who is a non-promoter, the other two allottees who are promoters were Khushbu Auto Private Ltd and Jayantibhai Jagjivanbhai Chandra. Kedia was allotted 16,83,502 units, while the other two were allotted 2,18,855 and 33,670 units respectively.

According to the shareholding pattern data on the BSE, as of March 15, his holding in the company now stands at 7.05 percent and 18.2 percent if he were to convert all of his convertible securities.

Kedia had first invested in the three-wheeler maker in 2005 for Rs 9 per share. Since then, the stock has appreciated by over 3500x.

Other positives

The three-wheeler manufacturer makes passenger and goods vehicles that run on various fuels, including CNG, LPG and electric power. It has a presence in over 21 states with 200 primary and 130 secondary networks, according to the company website. In Q3FY23, its revenue surged 32 percent on-year to Rs 1.24 billion. Its Ebitda increased to Rs 85 million from a loss of Rs 75 million in the year-ago quarter.

The company was recently selected as one of the suppliers by the government body Convergence Energy Services Limited (CESL) for its 100,000 units electric 3W tender.

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“Atul Auto continues its efforts towards: (1) increasing penetration in EV and CNG segments; (2) improving credit access via its captive finance arm; (3) strengthening presence in key export markets; (4) expanding its distribution reach; and (5) debt reduction, owing to equity infusion and better cash flow generation,” brokerage Emkay, which has a ‘buy’ call on the stock, wrote in its February 2023 report.

“We have built-in FY23 revenue growth at a robust 58 percent, and the uptrend is likely to endure with a FY23-25 revenue CAGR at 26 percent. Driven by better scale and improved net pricing, EBITDA margin is likely to expand from -7.3 percent in FY22 to 4.1 percent in FY23 and to 10.4 percent in FY25.”

They had given a target price of Rs 385, based on 20x its FY25 EPS (December 2024 EPS earlier) for the core business.

Analysts had given the key downside risks as delay in demand recovery in main geographies, failure of new products, increased competitive intensity, and adverse movement in commodity/currency rates.