Is This Vijay Kedia's Favourite Stock? (Hint: It's Not Tejas Networks or Greaves Cotton)

Stock market enthusiasts often share a common dream: to uncover the next big multibagger, one that delivers exponential returns of 5x, 10x, or even 20x.

However, identifying such opportunities requires more than just hope - it demands patience, strategy, and an eye for potential, qualities embodied by the most successful investors.

Vijay Kedia is one such stalwart in the world of Indian equity markets. Widely regarded as a market maestro, Kedia's reputation for selecting winning mid-cap stocks has made his portfolio a guidepost for market enthusiasts.

Having begun his stock market journey at the age of 19, Kedia's fascination with the financial world stems from his roots in a family of stockbrokers. By 33, he established Kedia Securities, cementing his place in the investment world.

Today, his portfolio, with over Rs 19 billion (bn) invested across 15 publicly disclosed stocks, is one of the most tracked in the Indian market.

In this article, we delve into one of his longest-held investments, Atul Auto.

About Atul Auto

Atul Auto is a renowned leading manufacturer of 3-wheeler commercial vehicles in Gujarat.

It has a broad-based presence across 3W segments, including 6-seater auto rickshaws, 3W auto pick-up vans, and chassis of passenger vehicles. It manufactures and sells vehicles under the Atul Auto brand, spares, components, and allied products.

It has 150 exclusive dealers, more than 100 sub-dealers, 14 regional and 3 training centres in 16 states of India.

It offers a range of fuel types for its products, including CNG, petrol, diesel, and electric (lead acid-based batteries).

It manufactures diesel three-wheelers like 6-seater auto rickshaws, pick-up vans for local transportation of goods and chassis of passenger vehicles. These vehicles are marketed under the Khushbu brand name.

Vijay Kedia's Holding in Atul Auto

Vijay Kedia has been a long-time investor in Atul Auto, as his stake in the company goes back to 2005 when Atul Auto shares were trading at a mere Rs 9 per share.

This investment proved to be a masterstroke, earning him the coveted "ace investor" tag on Dalal Street.

According to BSE data, the public shareholding pattern for the September 2005 quarter reveals that Kedia held approximately 428,462 shares, equivalent to an 8.01% stake in the company at the time. However, this figure is not adjusted for any stock splits or bonus issues.

By 2014, Kedia's stake in Atul Auto had significantly increased, with records showing him holding 1,083,998 shares or a 9.8% stake in the company.

This marked a period of notable growth for the stock, which had delivered a staggering 5,700% return within nine years of his initial investment.

The stock hit a major upcycle during 2014-15, reaching its previous all-time highs. Notably, Kedia reduced his stake soon after, lowering it to around 1.17% in what appears to have been near-perfect timing.

While we can't go back to 2003, here's how his holding in Atul Auto has varied since 2015.

Quarter Ending	Stake (%)
Sep-24	20.91
Jun-24	20.91
Mar-24	20.91
Dec-23	20.91
Sep-23	20.91
Jun-23	14.93
Mar-23	8.4
Dec-22	1.47
Sep-22	1.47
Jun-22	1.47
Mar-22	1.47
Dec-21	1.47
Sep-21	1.47
Jun-21	1.47
Mar-21	1.47
Dec-20	1.47
Sep-20	1.47
Jun-20	1.47
Mar-20	1.16
Dec-19	1.16
Sep-19	1.16
Jun-19	1.16
Mar-19	1.16
Dec-18	1.16
Sep-18	1.16
Jun-18	1.16
Mar-18	1.16
Dec-17	1.16
Sep-17	1.16
Jun-17	1.16
Mar-17	1.16
Dec-16	1.16
Sep-16	1.16
Jun-16	1.16
Mar-16	1.16
Dec-15	1.16

Source: Equitymaster

Since its peak in 2015, the stock has been underperforming, with a prolonged downtrend. However, it began showing signs of recovery in late 2022, rekindling interest among market participants.

Over the long term, the stock has risen by approximately 6,244.4%, climbing from Rs 9 in 2005 to Rs 571 as of 2 January 2025.

Why Did Atul Auto Shares Underperform Post 2015?

Atul Auto shares experienced a significant decline after hitting their peak in 2015, largely due to several challenges that impacted the company's performance.

Over the years, Atul Auto faced intense competition in the three-wheeler (3W) segment, gradually losing market share to both established players.

The company was slow to embrace the electric vehicle (EV) revolution, which allowed rivals, including cash-rich firms like Bajaj Auto, Piaggio, and Mahindra, to gain an edge in the growing EV space. Additionally, the 3W industry's low entry barriers further intensified competition.

Another factor contributing to Atul Auto's struggles was its high geographical concentration, with a significant portion of its revenues coming from Gujarat.

This over-reliance made the company vulnerable to regional market fluctuations. Before the pandemic, Atul Auto's annual sales were robust, averaging 45,000-50,000 units. However, the disruptions caused by the pandemic led to a sharp decline in sales during FY21 and FY22.

Despite these challenges, Atul Auto has been gradually recovering. The first nine months of FY23 showed marked improvement in sales and operations, which contributed to a recovery in its share price.

This leads to an intriguing question: What motivated Vijay Kedia to keep his stake in Atul Auto, despite its challenges and decline post-2015? What factors have driven him to maintain confidence in a company that has faced significant headwinds?

Reason for Optimism

One reason for optimism lies in Atul Auto's historical strength in the diesel three-wheeler (3W) segment, where the company has been a competitive player for years.

Additionally, Atul Auto's strategic diversification efforts have likely played a significant role in maintaining investor interest.

In 2001-02, Atul Auto acquired an additional 220,500 equity shares in Khushbu Auto Finance Pvt Ltd (KAFL), increasing its stake to 51% and making KAFL a subsidiary from 1 April 2002. Over the years, the company has consistently invested in KAFL, strengthening its foothold in financial services.

By 2024, Atul Auto made a substantial investment of Rs 200.3 m in KAFL through a rights issue, bringing its ownership to 100%.

KAFL now operates as a Non-Banking Financial Company (NBFC) exclusively financing Atul Auto's three-wheeler vehicles, creating a synergistic relationship that enhances customer affordability and drives sales.

Atul Auto has also taken bold steps to align with the evolving automotive landscape, particularly the electric vehicle (EV) revolution. In 2020, the company established Atul Greentech Private Limited, a wholly-owned subsidiary dedicated to manufacturing electric three-wheelers. This move marked a significant diversification effort, positioning Atul Auto as a player in the growing EV market.

Atul Greentech made a notable debut at Auto Expo 2023 in New Delhi, unveiling its electric three-wheelers, Atul Mobili and Atul Energie.

These vehicles represent a blend of advanced technology, high performance, and sustainability, reflecting Atul Auto's commitment to innovation. Notably, Atul Energie has emerged as a trailblazer, being the industry's first electric cargo three-wheeler equipped with a dual battery pack, offering an impressive range of 195 km.

These initiatives highlight Atul Auto's forward-thinking strategy to expand its market presence, innovate in the EV space, and enhance financial accessibility for its customers.

These factors, coupled with a long-term vision, could explain why an experienced investor like Vijay Kedia continues to back the company despite its past challenges.

Recent Developments...

In October 2024, Atul Greentech, the electric vehicle arm of Atul Auto, entered into a significant agreement with Exide Energy Solutions (EESL) to source lithium-ion battery packs.

Under the terms of the agreement, Atul Greentech will procure battery packs from EESL's manufacturing facility in Prantij, Gujarat, and will also source battery cells once EESL begins production at its new facility in Bangalore, Karnataka.

This partnership underscores the commitment of both companies to advance the electric vehicle sector by ensuring a steady and reliable supply of high-quality lithium-ion batteries and cutting-edge technology.

What Next?

Atul Auto is targeting sales of 40,000 units in 2024-25 (FY25) and 50,000 units in 2025-26 (FY26), according to Jitendra Adhia, the company's President of Finance.

Last year, the company sold 26,000 units. This year, it has been selling an average of 2,700-2,800 units per month. Further, the company is on track to achieve its target of 4,000 units per month by the January-March 2025 quarter (Q4FY25).

Atul Auto has also been aggressively expanding its dealer network in the domestic market with 40 new dealers added by November 2024.

The company plans to boost export contributions from the current 11% to about 15-20% within three years, supported by growing exports and repeat orders from existing markets.

Additionally, electric vehicles (EVs) currently account for 28% of Atul Auto's total sales, nearing one-third of the company's overall sales mix.

This will increase further as the company deepens its presence in the L3 and L5 EV segments. L3 and L5 are types of three-wheelers designed for transporting goods or passengers.

In Conclusion

Atul Auto stands as one of Vijay Kedia's longest-held stocks, with his investment in the company dating back to 2005. Alongside Atul Auto, Kedia has maintained significant holdings in other companies like Tejas Networks and Sudarshan Chemicals, which he has backed since 2015.

These companies have formed a key part of his investment strategy over the years.

In CY24, the majority of the stocks in his portfolio delivered impressive double-digit returns, with four stocks namely, Neuland Laboratories, Global Vectra Helicorp, Sudarshan Chemical and Siyaram Silk Mills emerging as multibaggers.

The mention of a stock favoured by experienced investors like Kedia often sparks a wave of interest on Dalal Street, reflecting the considerable influence they hold. However, while following the investment choices of such investors might seem appealing, it is crucial to recognize the risks involved.

An investor might end up purchasing a stock at a significantly higher price than the ace investor, who likely acquired it at a much earlier stage when it was undervalued.

This highlights the importance of conducting thorough research and understanding the right entry point.

Simply mimicking the investment strategies of successful investors, without considering market timing or valuation, could result in suboptimal returns.

Thus, the key takeaway is that investing based on the decisions of renowned investors should be done thoughtfully, with careful attention to market conditions and stock fundamentals.

Prospective investors should conduct thorough research into the company's financials and corporate governance practices to ensure the investment aligns with their financial goals and risk tolerance.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...