Vijay Kedia Loves this Stock. Is it Right for You?

Learning from the best investors is invaluable, but blindly replicating their trades can be fraught with pitfalls.

Maybe this analogy will help put a little context in what I want to explain -

Consider your favourite player from a particular sport. For the basketball fan within me, my personal favourite is Steph Curry.

Now, my friends keep telling me that Curry has ruined the game because young players inspired by him just attempt 3-pointers these days. And fail at that big time.

A little background - Curry has mastered the 3-pointer game and in the process, made that his personal canvas with each passing week.

If mimicking Curry's prowess on the court often leads to disappointment when we look at the final score at the end of the game, why should we expect a different outcome when we try replicating the top investing gurus?

Right?

Oh, if only it was that simple.

My point is it works both ways. You need to find the perfect balance and how you could adjust that with your investing strategy.

While these legends present a fascinating world of high returns and dynamic strategies, it's crucial to understand their approach and costs.

Earlier this week, we looked at one of Rakesh Jhunjhunwala's favourite bets - Titan, and why he loved this stock.

This month, one of the top portfolio stocks of Vijay Kedia - Atul Auto has made strong moves and surged over 60% in a little under one month.

According to reports and filings made by his firm, Kedia had first invested in the company back in 2005 at Rs 9 per share.

As per the June 2023 shareholding of Atul Auto, Kedia held 3,569,024 shares or 13.7% stake in the company.

According to recent insider trades & SAST data, Kedia bought 430,000 shares of Atul Auto on 31 August 2023.

Let's do a complete analysis of why Kedia took a bold call on the auto stock and whether it's the right one for you.

Atul Auto's growth story

In January 2023, Co-head of Research at Equitymaster Rahul Shah wrote a detailed editorial on Atul Auto explaining the company's growth story.

Here's what he wrote -

• It won't be an understatement to say that Atul Auto was one of the top auto stocks in India between FY10 and FY20 when its topline grew by 5x and bottomline by an even more impressive 12x.
  
  This growth was backed by an aggressive strategy by the company's management to enter as many 3-wheeler segments as it can and to expand into multiple geographies.
  
  As you can surmise, the move paid off big time. The company recorded solid growth and won laurels and admiration galore.
  
  What about the share price performance though? Was it as good as the company's financial performance? Well, the answer is a resounding yes.
  
  Consider this. The stock closed the financial year 2010 at a price of Rs 12.7 per share. Ten years later i.e. by March 2020 and before the Coronavirus led crash, the stock had touched a high of Rs 370 per share.
  
  From Rs 12.7 per share to Rs 370 per share in 10 years translates into the stock being a whopping 30-bagger, an impressive appreciation whichever way you look at it.
  
  Therefore, the stock not just created wealth for its management as well as its employees, it created immense wealth for shareholders too.

Atul Auto's financial performance

FY21 and FY22 were years marred by Covid-19 led slowdown and muted vehicle sales for Atul Auto. Competition from bigger and established players like M&M and Bajaj Auto kept the company's shares at bay.

The company posted losses to the tune of Rs 80 million and Rs 250 million in the said period. It also added debt during both years.

Coming to recent numbers, the company was back to reporting profit in FY23.

In FY23, its business performance improved as demand picked up. And also because the company made strong inroads in the electric vehicle (EV) segment.

Financial Snapshot of Atul Auto

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Revenue	6,667.60	6,253.40	2,959.00	3,153.20	5,130.00
Growth (%)	19.90%	-6.20%	-52.70%	6.60%	62.70%
Operating Profit	883.2	738.5	-60	-149.9	350
OPM (%)	13.20%	11.80%	-2.00%	-4.80%	6.80%
Net Profit	550.2	531.4	-81.8	-249.4	30
NPM (%)	8.30%	8.50%	-2.80%	-7.90%	0.60%
Dividend (Rs)	4	1.5	0	0	0
Debt to Equity (x)	0	0	0.1	0.7	0.5

Data Source: Ace Equity

The company's management infused fresh equity capital in recent quarters to pare debt and for other purposes.

We'll once again look at what Rahul Shah wrote in his editorial -

• To be honest, the company's performance in both FY21 as well as FY22 hasn't really been up to the mark.
  
  On account of headwinds, both in the economy as well as the sector, the company has reported losses in both the years.
  
  However, the situation has improved in the current quarters.
  
  The volume guidance by the management is also encouraging and, in all likelihood, the company should return to strong profitability by the end of next fiscal.
  
  Now this is interesting.
  
  But if the company is likely to return to profitability in FY24, why has the stock price jumped up so much in recent times?
  
  If the recovery is more than a year away, what explains the current upmove?
  
  Well, the current upmove is undoubtedly due to the improving fundamentals of the company.
  
  However, it is also because of Vijay Kedia, one of the most influential investors in the country and also a big shareholder in Atul Auto, calling the company the Tesla of the 3-wheeler industry in India.

India's Tesla in the 3-wheeler space

Vijay Kedia believes that with all the work the company has put into launching an electric 3-wheeler, Atul Auto can very well be crowned the Tesla of this space.

In a recent interview with CNBC-TV18, Kedia said,

• I have a relationship with Atul Auto for the last 18-20 years, and found the management to be very honest and ethical. We had some problem just before Covid-19 and post that, the problem aggravated. But things are settling down even in three-wheeler as a whole and of course electric is a future. Since I knew them, and was comfortable, I took a stake in Atul Auto because of EV.

Atul Auto is carrying its EV operations through its subsidiary - Atul Greentech.

Apart from passenger and cargo vehicles, the company is also in the process of opening a swappable battery for which it has a tie-up with Honda.

The company is now looking to get back to pre-Covid levels when they used to sell around 4,000 vehicles.

How Atul Auto share price has performed recently

In the past one month, Atul Auto share price has rallied 63%.

On a YTD basis, the stock is up 108% in 2023 so far and in the past one year, shares are up 214%.

The stock has a 52-week high of Rs 627 touched on 31 August 2023 and a 52-week low of Rs 180 touched on 29 September 2022.

At the current price, the stock trades at a price to book (P/BV) multiple of 4.1x compared to its 5-year median average of 1.7x.

The company has posted a loss in the June 2023 quarter so TTM price to earnings multiple can't be factored in.

You could refer the table below for its historical valuations -

Historical Valuations of Atul Auto

	FY19	FY20	FY21	FY22	FY23
PE Ratio	13.7	5.8	0	0	78.4
Price/Book Value (x)	2.9	1	1.3	1.3	2.1
Dividend Yield (%)	1.2	1.1	0	0	0
Marketcap/Sales	1.1	0.5	1.3	1.1	1.5

Data Source: Ace Equity

Conclusion

So there you go...we've shared all the facts and given reading and analysis of the whole situation. Now it is up to you to come up with your own estimates and numbers.

Whatever you do, please do not base your decision on emotions or sentiments or what the other investors think.

Have a proper, independent rationale irrespective of whether it turns out to be right or wrong. This way, you will develop a sound framework which would hold you in good stead over the long term.

Happy Investing!

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...