Whiz-Kid Prashant Jain’s HDFC MF Buys Atul Auto

The big news today is that Prashant Jain’s HDFC Mutual Fund has bought 300,000 shares of Atul Auto from Vijay Kedia for a consideration of Rs. 615 per share.

This news is significant because Prashant Jain is a very savvy stock picker. He doesn’t pick a stock if he is not convinced about its long-term prospects and reasonable valuations.

Atul Auto offers the prospect of long-term growth and reasonable valuations.

ICICI-Direct’s research report explains the charms of Atul Auto in succinct terms. It points out that Atul Auto’s growth trajectory has been impressive with volumes growing at ~40 percent CAGR in FY09-14 even as the domestic three-wheeler segment has grown at ~7 percent CAGR over the same period. Volumes have been improving on the back of added dealerships and increasing geographic presence along with market share gains in existing markets. Atul’s volumes have grown in both the passenger and goods carrier segments where Atul has benefited from the launch of its rear-engine vehicle Atul Gem in 2009, which has helped to serve a wider audience.

The report also points out that currently, Atul is present in nearly all states barring Tamil Nadu and West Bengal. Also, the dealer network comprises 190 primary dealers and ~110 sub-dealers across the country. The management has guided that the number of primary dealerships will rise to ~240 by the end of FY15E. This is likely to help meet the management target of 20 percent volume growth for FY15E.

ICICI-D adds that Atul has attained a pan-India presence over the past three or four years, establishing its brand in these new markets and gaining market share, which has grown from 2.0 percent in FY09 to 7.7 percent in FY14.

The report further points out that one of the major shortcomings of Atul has been the lack of petrol engine products, which is more in use in urban areas. With the management guiding that the new petrol engine product will be launched in the next nine to 12 months, Atul’s volumes are likely to remain on the uptrend. The petrol product is also likely to boost export volumes with the management expecting exports to grow exponentially on a low base.

The report adds a bullish tone by emphasizing that Atul Auto’s specialized focus has clearly paid rich dividends as evidenced by market share gains. It claims that with further capacity addition and new petrol product launch, Atul can efficiently tap export markets along with urban market in India and, thereby, continue the strong growth momentum.

The report also points out that while Auto Auto is not cheap by any standards, the present valuations of about 9.5x FY16E EPS is attractive looking at the strong growth potential coupled with strong balance sheet and robust return ratios.

So, there you have it. I already have a chunk of the stock that I bought at the time that Raamdeo Agrawal bought it. I intend to add more on dips. If you don’t have any, you need to seriously consider it.

Another auto stock that you can look at is Force Motors which comes highly recommended by Dharmesh Kant. Dharmesh has given very convincing reasons why Force Motors is a compelling buy.