Atul Auto hits highest level since January 2020; stock zooms 58% in October

On October 4, the company's board approved preferential issue of Rs 115 crore worth of warrants to promoters and non-promoters of the company, including investor Vijay Kishanlal Kedia.

Shares of Atul Auto hit their 34-month high level of Rs 297.15 as the stock rallied 7 per cent on the BSE in Monday’s intra-day trade. The stock of commercial vehicles company has zoomed 58 per cent thus far in October and is trading at its highest level since January 2020. In comparison, the S&P BSE Sensex has gained 5.5 per cent during in October, data showed.

Atul Auto has continued at its northward movement after October 4, when the company’s board approved a preferential issue of Rs 115 crore worth of warrants to its promoters and non-promoters, including renowned investor Vijay Kishanlal Kedia.

The board had approved to issue up to 5.81 million warrants at Rs 198 per share each convertible into one equity share of the company within a maximum period of 18 months from date of allotment. The company said it will allot 5.05 million warrants to Vijay Kishanlal Kedia, and a total 757,575 warrant to promoters, Khushbu Auto Private Limited (656,565 warrants) and Jayantibhai Jagjivanbhai Chandra (101,010 warrants).

Meanwhile, the board has decided to call an Extra Ordinary General Meeting (EGM) of the Company on Saturday, November 05, 2022 through video conferencing or other audio visual means, to seek necessary approval of the members, for the aforementioned issue.

Atul Auto is a prominent Gujarat-based three-wheeler (3W) manufacturer with presence across segments and fuel types. That said, Crisil, the credit rating agency, had downgraded the long term and short term bank facilities of Atul Auto with a negative outlook in August. "The rating action reflects the moderation in AAL’s business profile with slower recovery in demand for three wheels amidst pandemic situation. Against the earlier annual vehicle sales in range of 40000-50000 units, Auto Auto’s sales volume dipped to 16295 vehicles in fiscal 2021 and estimated around similar levels in current fiscal," Crisil had said in its rating rationale.

Over the last couple of years, the three-wheeler industry has been worst affected automobile segment and Atul Auto’s total reliance on the segment has translated into sharply reduced scale and operating losses. Further, while Atul Auto’s quarterly sales has recovered to estimated average 5000 vehicles from sub-2000 vehicles (in Q1FY22), the company’s volume recovery to pre-covid levels may take a couple of years and restrain the business profile over medium term, the rating agency said.

However, the credit profile is supported by healthy capital structure with estimated net worth around Rs 270 crore and gearing around 0.3 times March 31, 2022. Atul Auto’s liquidity is supported by healthy cushion in bank limits, controlled working capital cycle and ongoing term loan moratorium period, the rating agency had said.

Meanwhile, Atul Auto’s Q1 3W volumes grew on better demand at the ground level, and is expected to improve as activity further picks up. Despite the high prevailing raw material prices, the gross margin expanded, aiding profitability. Also, near-term replacement demand is expected to kick in. This, and its 3W EV launch next month and swappable batteries augur well for long- term growth, analysts at Anand Rathi Share and Stock Brokers had said in June quarter results update.