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Atul Auto strikes big with dream run in smaller cities

Atul Auto’s stock has been outperforming the benchmark BSE auto index. The stock gained 51% last year, when the BSE auto index moved up by just 17 per cent.

, ET Bureau|
Feb 28, 2014, 04.00 AM IST
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Atul Auto’s stock has been outperforming the benchmark BSE auto index. The stock gained 51% last year, when the BSE auto index moved up by just 17 per cent.
Atul Auto’s stock has been outperforming the benchmark BSE auto index. The stock gained 51% last year, when the BSE auto index moved up by just 17 per cent.
Atul Auto, one of India’s leading three-wheeler makers, was struggling to maintain its monthly run rate of 1,000 units till 2009, and was dismissed as a fringe player, whose presence was largely restricted to Gujarat.

But it all changed for the company after it started making rear mounted engines for three wheelers and focused on tier-II and -III cities. The company now commands a market share of 7.3 per cent as on November 2013 against less than 1 per cent five years ago, and has posted an average volume growth of 17 per cent in trailing four quarters compared with industry’s 2 per cent.

“We are expecting volume growth of 20-25 per cent for the next year, while the industry growth will be around 6-8 per cent y-o-y. The low base effect, reaching out to untapped markets, and increasing dealer footprints would drive our volume growth,” said JJ Chandra, CMD of Atul Auto. “We are increasing our dealer base to 250 by FY15 end from 179 now, and new dealers are largely going to focus on markets beyond Gujarat and Rajasthan.”


Atul Auto strikes big with dream run in smaller cities
With the bigger players catering to urban markets, Atul Auto saw opportunity in tier-II and -III cities and built its strategy around them. For instance, it customized its products to meet the expectations of smaller cities and rural areas. The customization included capacity to bear overloading, higher mileage of 35 a litre and a warranty of 24 months against 14-16 months offered by competition.

The strategy worked for Atul Auto as sales started trickling in from other states other than Gujarat – the western state now contributes 40 per cent to its sales compared with 100 per cent about five years ago. States like Kerala and Assam contribute 7 per cent to its sales now, and the company is planning to make inroads into West Bengal and Tamil Nadu.

Atul Auto invested Rs12 crore to increase its installed capacity to 48,000 units a year from 24,000 units a year in Rajkot. It is now building a new facility in Ahmedabad with an investment of Rs 100 crore, which would add another 60,000 units a year which will be ready in the next 18-24 months. The capital expenditure would be funded by internal accruals and the balance sheet is likely to remain debt free.

“Our target is to sell 100,000 units in the next 3-4 years and expand our margins,” said Chandra. Atul Auto would be launching petrol-based 3-wheelers in the next six months to tap growth in urban markets as several new permits are likely to issued to markets like Mumbai and New Delhi. Post the Ahmedabad facility, the company is exploring the opportunity to increase its export share, where realisations are higher. The company is in discussions with several distributors in Africa.

Atul Auto’s stock has been outperforming the benchmark BSE auto index by wide margin. The stock gained 51 per cent last year, when the BSE auto index moved up by just 17 per cent.
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