BSE ID : 505029 NSE ID : ATLASCYCLE
RECOMMENDED PRICE 220.00
PEAK FROM RECO 347.00 57.73%
CURRENT PRICE 137.00 37.73%
Atlas presence has been nearly over 6 decades. The Company has enjoyed a position of leadership in the Bicycle industry. We recommend this stock to BUY at Rs 220 with a target price of Rs 270-330.
Atlas Cycle Industries
“If rural spend increases on good monsoon, Cycles a theme worth betting on”
Key Triggers :
a) Atlas Cycle closed its Malanpur loss making factory. Post the closure it has two plants, one plant at Sonepat Haryana and other at Sahibabbad in UP
b) Atlas to dispose the Malanpur factory land and generate cash according to media reports. It will become significantly low on debt post Land Bank Deal
c) Atlas Cycle has potential to do 700 odd crore of sales and a better sales mix will drive margin going forward. Cycle stocks will be strong rerating candidates based on spends and the stock has not been in limelight for last two years and last two years were definitely challenging for rural spend.
The market capitalization of Atlas is appx. 72 crore . Expected Sales 700 odd crores for next fiscal . Thus the stock trades at market cap to sales of 0.1 times. Given we all know what is Atlas Cycle as the brand its too low of Brand Equity market is paying. The stock used to be 350 rs stock when Monsoons were good and the decision to shut down loss making unit will curtail all the losses going forward.
Even if company does some 3% margin the ebitda of the company will be 21 odd crores. Foray into high range bicycle will mean better realizations. The enterprise value that we pegging post Land Bank sell should not be more than 120 crore ~ roughly 45 crore of debt and 75 crore of Equity . Thus translating into EPS of 12 rs and 16 rs for FY17 & FY18 .
Interestingly the company charges 6 crore of depreciation which results in appx 18 per share of Cash Charge per share. Technically one is getting the company doing Cash EPS of 30 rs at price of 220 with Brand Equity of Atlas Cycle a popular rural name.
We recommend this stock to BUY at Rs 220 with a target price of Rs 270-330.
Risk and Concerns
Cycle business so far has not seen great traction for investors as it has limited growth potential but when sentiments change for sector and there is expected turnaround such stocks tend to give quick returns. Though we maintain positive view on the stock would suggest to book half in the range of 260-270 and ride the rest for 330. Our recommendations of some decent brand equity likes of Mirza International, Lloyd , IFB others had similar concept either they were trading at dismal market cap to sales or had high potential earnings.
About the company
Atlas presence has been nearly over 6 decades. The name is synonymous with the cycling revolution in India. The Company has enjoyed a position of leadership in the Bicycle industry.
As per company, Atlas, Sahibabad unit has a huge manufacturing facility located at Sahibabad (Gaziabad). It has a production line capable of producing more than 4 million cycles per annum. In a very short span of time, Atlas, Sahibabad has developed its production unit into a hi-tech, state of the art facility with all the latest machine and instruments essential for producing sophisticated and high quality bicycles.
Atlas Cycle, Sahibabad exports cycles & cycle spares to over dozen countries worldwide like Denmark, Germany, Holland, Iraq, Kuwait, Bahrain, Qatar, Saudi Arabia, Oman, UAE, Srilanka, Bangladesh, Myanmar etc.
Disclosure (SEBI Registration Number for Aashish Tater : INA300001206)
Stock Ownership - No
Stock traded in Last 30 days ( No trading or investment activities done) - No
Stock Recommended to Clients - Yes
Remuneration/Benefits received from company in 12 months - No
Merchant Banking Market Making activities / projects - No
Any arrangement with co. to affect the report write up - No
Disclaimer: Aashish Tater is an investment adviser based in Kolkata, INDIA. At the time of writing this article, he, his firm and dependent family members have no position in the stocks mentioned above. The author invites readers to send him email and welcomes comments, feedback & queries at email@example.com. This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.