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Informist, Monday, Oct. 7, 2024

 

--Atul Auto official: Expect sales to reach pre-COVID levels by FY26

--CONTEXT: Atul Auto official Jitendra Adhia's comments in an interview

--Atul Auto official: See return on capital employed above 30% in FY25

--Atul Auto official: See good earnings recovery from FY25

--Atul Auto official: Took cautious approach in electric 3-wheeler sales

--Atul Auto official:Lack of charging infra, standard chargers hurt EV sales

--Atul Auto official: Cos in dilemma over battery technologies for EV units

--Atul Auto official: Low lithium prices may aid growth of EV units

 

By Sunil Raghu and Darshan Nakhwa

 

AHMEDABAD/MUMBAI – Atul Auto Ltd. expects its three-wheeler sales to reach pre-COVID-19 levels by financial year 2025-26 (Apr-Mar), Jitendra Adhia, the company's president of finance, told Informist in an interview last week. The Gujarat-based company expects better availability of finance, softening raw material prices, and government subsidies to help it reach its FY19 annual sales of 50,049 units.

 

In the ongoing financial year, the three-wheeler manufacturer's sales were up 47% on year at 15,418 units till September. "Ideally, in the first half of the financial year, sales are 35-40% of overall sales, while the second half contributes to 60-65% of total sales," Adhia said. "This year, I can see things falling in place."

 

From FY25, the company expects to see a good recovery in earnings. "We expect to start recovering the shortfall that was created over the last few years. We expect to generate a good topline and bottomline," Adhia said. "The internal rate of return has been decent so far this year, at around 22% on average. The return on capital employed is expected to be above 30% this year."

 

In terms of operating margin, the Apr-Jun quarter was good for the company and Jul-Sept is likely to be better, Adhia said. In the second half of FY25, he expects the operating margin to improve further. For Apr-Jun, the company had reported an operating margin of 6.9%; for FY24, the figure was 7%.

 

During the first few years since the COVID-19 pandemic, Atul Auto reported a dip in earnings, as its sales dwindled. However, from FY23, it has reported an uptick in sales and earnings. In FY23, the company reported healthy growth in sales at 25,539 units, albeit on a low base of the previous year. In FY24, it saw modest year-on-year improvement in sales at 26,039 units, and the company has started FY25 on a strong note. A similar trend has been seen in the overall three-wheeler industry's sales for the last few financial years.

 

On the earnings front, the company has seen a steady recovery from FY23. In FY22, its revenue from the operation was INR 2.86 billion, followed by a sharp jump in FY23 at INR 4.67 billion, and INR 4.75 billion in FY24. In terms of the bottomline, the company had reported a loss of INR 248.7 million in FY22, followed by a net profit of INR 44 million in FY23 and of INR 134.7 million in FY24.

 

The company reported a similar trend in its operating margin. In FY22, it reported a negative operating margin of 7%, followed by a healthy margin of 5% in FY23 and a further improvement to 7% in FY24.

 

Atul Auto is the fourth-largest three-wheeler maker in India. It has two manufacturing facilities in Gujarat – one in Rajkot and the other near Ahmedabad. The overall manufacturing capacity at these plants is 120,000 units a year. The company offers its three-wheelers through 200 dealerships across the country. It sells diesel, petrol, compressed natural gas, and liquefied petroleum gas-powered cargo and passenger carrier three-wheelers. Other than these conventional energy variants, the company also offers electric three-wheelers.

 

FINANCING CHALLENGE

Speaking about the factors that constrained the growth in three-wheeler sales, Adhia said financing vehicles has been one of the major challenges. The three-wheeler clientele is different compared to customers that seek finance for two- and four-wheelers – three-wheelers are generally bought to earn a livelihood, and most of these buyers do not have a credit history. The possibility of defaults is high in such cases and, as a result, only a few financiers provide loans to buy three-wheelers.

 

In the three-wheeler financing business, the default ratio is around 10-15%, Adhia said. "If we fund 100 vehicles, we have to consider that about 8-10 vehicles would be returned and required to be sold later.

 

"In the case of three-wheeler financing, the other issue is about classification of a non-performing asset. The norms defining non-performing assets by the Reserve Bank of India make it difficult for non-banking finance companies. The money lent would not be lost, but the books do not appear to look good to the one seeing them," he said. "Now, if I want to grow the business, I definitely need to extend credit to the buyer of my three-wheeler."

 

Atul Auto has a non-banking financing subsidiary, Khushbu Auto Finance Ltd, which is in the business of financing three-wheelers of Atul Auto and two-wheelers of various brands. In FY23 and FY24, the financier's earnings from financing activities grew nearly 10%, according to the company's FY24 annual report. Its net bottomline fell compared to FY22 and FY23, with a major reason being heavy provisions on stressed and delinquent assets.

 

Other than availability of finance, factors such as an increase in the cost of the vehicle due to changes to emission norms and loan defaults weighed on three-wheeler sales over the last few years. With the transition from Bharat Stage-4 to Bharat Stage-6 phase-1 and then to phase-2, prices of three-wheelers went up. Simultaneously, defaults on loan payments resulted in finance companies seizing vehicles and offering them at throwaway prices. This hurts the saleability of new vehicles, Adhia said.

 

ELECTRIC 3-WHEELERS

On the delay in introduction of electric three-wheelers in India, Adhia said that between complying with new emission norms and developing alternative fuel-powered technologies, the company could not keep up with a transition to electric vehicles.

 

When it comes to electric vehicles, it is all about setting the right platform, according to Adhia. Currently, Atul Auto sells electric three-wheelers with an option of a fixed battery or a swappable battery. It also offers single- and dual-battery models. The dual battery model is developed to quell concerns about range and target e-commerce operators who run the vehicle for 15 or 16 hours a day. The company manufactures three-wheelers with fixed batteries, and for swappable batteries, it has a tie-up with Japanese manufacturer Honda Motors India Ltd.

 

"In electric three-wheelers, the acquisition cost is also very important. The vehicles were initially expensive as lithium ion prices were high. So, when we did introduce an electric vehicle, we decided not to be aggressive with marketing and grow at a slow pace. Now, I believe that this year, with lithium prices low, substantial growth is there. It is a perfect business case for Atul Auto to implement growth schemes," he said.

 

On challenges to electric three-wheelers sales, Adhia said limited charging infrastructure and lack of standard chargers are some of the barriers. Also, manufacturers are in a dilemma over battery technologies – whether they should back lithium ion or sodium ion, or any other technology. Another hurdle is the high input tax of around 22% on electric three-wheeler manufacturing, compared to an output tax of 5%.

 

"We are all testing the waters. We are all taking baby steps. No one has big-ticket investments so far. The consumer, too, is confused – whether to opt for conventional fuel, alternate fuel or a pure electric three-wheeler," he said.

 

Currently, western India, especially Gujarat, contributes the most to Atul Auto's three-wheeler sales, followed by eastern, northern and southern parts of the country. The company also exports its vehicles to Africa, Latin America and to some countries in Europe. Overall, exports contribute nearly 10% to overall sales.  End

 

Edited by Avishek Dutta

 

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