Atul Auto Ltd has reported decrease in its operating revenues to Rs. 930 mn in Q1FY17 Vs Rs. 1,068 mn in Q1FY16 and Rs. 1,297 mn in Q4FY16. Decrease in the company’s volumes was majorly on account of VAT issue in the state of Gujarat till May 19, 2016 and some registration issues in the state of Punjab. Exports volumes for the quarter stood at 336 vehicles as against 567 vehicles in the same quarter of last year. This was mainly due to the unfavourable conditions in terms of product approvals and currency deterioration in its export countries. Considering good prospects of monsoon and the festive season in Q2FY17E and Q3FY17E, We expect the company to register volume growth of 7.0% in FY17E to sell 46,966 vehicles and around 10.0% volume growth in FY18E to sell 51,662 vehicles. Accordingly, we expect the company to register operating revenue CAGR of around 10.0% during FY16-FY18E to reach Rs. 5,688 mn in FY17E and Rs. 6,426 mn in FY18E.

Valuation Outlook: The company’s optimism in maintaining the growth rate for the year despite dismal performance in Q1FY17, considering the company’s performance in the last 5 years, we expect the company to gain further market share in 3-wheeler segment. We reiterate our “BUY” recommendation, however lowering from our previous target price by valuing it at 20.7x of its FY18E EPS of Rs. 25.8, which is forward mean P/E over its last 5 years for a target price of Rs. 533.