Atul Auto Ltd Management Discussions.


The business environment for Indian companies and trade has been challenging over the last three years. Although India continues to be one of the fastest growing largest economies in the world, FY 18 begun with stiff challenges for business community. Structural changes like demonetisation and transformative changes like the Goods and Services Tax (GST) had an impact across all the sectors. The year witnessed the implementation of GST across the country on from 1st July, 2017, followed by the second round of GST slab reductions implemented by the Government in November. This was a year of uncertainty in the market and hence, there was a careful sentiment in trade. While your Company was prompt and smooth in transitioning to the new tax regime, given the framework of this large transition that the country experienced, the functional environment for your Company during the year remained challenging.

The result of these two reforms was evident as the Gross Domestic Product (GDP) growth came crashing down to a three-year low of 5.7 per cent in the first quarter of 2017-18. It was largely because of pre-GST jitters and lingering effects of demonetisation.

The Indian economy seems to have started on the road to recovery from second quarter. GDP increased to 6.5 per cent in the second quarter and to 7.2 per cent in the third quarter. The second advance estimate of national income released by the Central Statistical Organisation (CSO) of the Government of India on February 28, 2018 has pegged Indias real GDP growth for 2017-18 at 6.6% - which represents a deceleration of 50 basis points compared to 7.1% of the previous year. World Bank and International Monetary Fund (IMF) had also projected Indias economy to grow a tad higher at 6.7 per cent for 2017-18. So, the growth for 2017-18 should to be around the figure projected by second advance estimates, depending on the fourth quarter GDP numbers.

This has been exacerbated with the Twin Balance Sheet problem in Indian Economy. As on December 31, 2017, gross non-performing loan assets (NPAs) of all banks in the country amounted to Rs.8,40,958 Crore. Of this, gross NPAs on loans to industry were at Rs.6,09,222 Crore which is 20.4% of the gross advances. Provisioning for these loans in line with increasingly stringent prudential norms prescribed by the Reserve Bank of India (RBI) has severely affected bank profits, eroded balance sheets and led to a state where most, if not all, banks are reluctant to offer term loans as well as working capital advances. This has choked off funding for many companies which, in turn, has compromised growth.

The rise in GDP from the second quarter of 2017-18 suggests that the initial negative impact of the GST and Demonetisation may be waning.


The Indian automotive industry accounts for more than 8% of the countrys GDP. The three-wheeler segment is the second fastest growing industry after two-wheeler. India has emerged as the largest three-wheeler industry with a large domestic market and export base on the back of strong demand from local as well as international markets. Moving in positive direction and opposite to economy growth trend in the year 2017-18, domestic 3 Wheeler sales grew by 24.19% to end the fiscal with the sale of 6,35,698 units as against 5,11,879 units sold in FY 2017. This was a much needed shot in the arm after a 4.9% decline in domestic sales in FY 2017. Moreover, exports were at 3,81,002 units during fiscal 2018 as against 271,894 units, recording a whopping growth of 40.13%. Riding high on the export front, the total three-wheeler industry ended FY 2018 with a 29.72% growth by hitting million units marks. The growth has been majorly led by surge in sales of passenger application. Passenger 3Wheelers grew @ 33.26% to end the fiscal with 8,94,234 units (6,71,189 units in FY17), the goods carrier saw a growth of 8.78% only to end at 1,22,466 units (1,12,584 units in FY17)

Geographically, Tier-II cities accounted for the highest revenue share of three wheelers as the major sales of e-rickshaw and CNG powered three wheelers are growing significantly in Tier-II cities. Tier-III cities and rural India are the most opportunistic and fastest growing markets and are expected to dominate the market in coming years.

In urban markets, replacement demand has also been an important growth driver where in improving network of CNG fuel stations is driving replacement of older petrol or diesel powered 3Ws with ones based on CNG. Despite the fact that the usage of CNG is only mandatory in limited urban part of the country, the acceptance for CNG-based 3Ws has caught up in other cities as well primarily on back of favorable operating economics. The cargo variants face tough competition from small CVs but certain attributes like ease of operating and low cost operating economy support their sales.

The reason behind export boom was higher demand for the last-mile connectivity in emerging markets of Africa and Southeast Asia.

The Chart A shows the growth in 3Wheeler Industry vis-a-vis growth in performance of the Company.


It gives us great pleasure to share with you an update on the performance of your Company for the year 2017-18. It was a transformative year with the introduction of the Goods and Services Tax (GST), an important development that has created a single national market and will benefit both consumers as well as the industry. While trade conditions remained volatile during early implementation, they have since stabilised and there is an improvement in overall demand.

In this challenging business environment, your Company delivered a strong performance, could deliver the double digit growth as committed. Our various initiatives have made us more agile, customer centric and responsive to the diverse and rapidly evolving marketplace. Leaving behind negative impact of previous fiscal, in the FY 2017-18 we have attained both topline growth and margin improvement. In the year under review, our business turnover on comparable basis, grew by 16.73 % driven by volume growth of 10.18 % (42744 vehicles in FY 18 against 38795 vehicles in FY 17). EBITDA margin on a comparable basis, expanded by 21.23 % (Rs. 7512 lacs in FY 18 as against Rs. 6196 in FY 17). EBDITA Margin of the Company remained 13.51%. Profit after tax grew by 24.67% to Rs.46.19 crores. The strong track record of cash generation was sustained. The Board of Directors have proposed a final dividend of Rs.2.50 per share, subject to the approval of the shareholders at the Annual General Meeting. Together with an interim dividend of Rs.2.75 per share, the total dividend for the financial year ended March 31,2018 amounts to Rs. 5.25 per share. Each of our businesses and functions played an important role in delivering these strong results. In alternative fuel three wheelers, we accelerated our growth momentum and further strengthened our competitive position. Export volume delivered outstanding performance driven by volume growth. Number of vehicles exported reached to 3411 vehicles as against 2288 vehicles in FY 17.

We also continued to innovate and invest behind emerging categories like electric 3 wheelers with excellent results. We have continued focus on strong brand and market building initiatives. Our sales and distribution system, with national presence across urban and rural channels, remains a key competitive advantage. We continued to expand our direct coverage and leverage technology and intelligent analytics to significantly enhance our customer service. The Company also continued to make significant investments in building capabilities to expand its product range and distribution channels for the future and substantial progress. Savings in costs and cash helped the business to invest behind growth and still deliver a healthy margin improvement. We remain committed to drive growth and at the same time, create overall positive impact.


As per International Monetary Fund (IMF) data, the global economy grew at an average of 3.7% (2017) as compared to 3.2% (2016), and is expected to accelerate to 3.9% in 2018 and 2019. Amongst developed economies, there is a significant upward projection for US economy (2.7% in 2018 as compared to 2.3% in 2017), 2.2% growth in Euro zone and 1.2% in Japan. Emerging Asia as a group is unchanged at around 6.5% in 2018, broadly the same as 2017. Growth in Middle East & North Africa region is expected to remain subdued at 3.5% in 2018, while sub-Saharan Africa is expected to improve from 2.7% (2017) to 3.3 % (2018).

With increase of export sales from 2288 vehicles to 3411, the Company foresees that efforts seeded are in right direction and it as an important contribution for the future growth of the Company. As a part of long term approach we will continue to explore new locations as well as keep on penetrating deeply in the existing locations with proven strategies. During FY 2018, the Company could enter in newer locations like Ecuador, Guatemala, Ethiopia, Iraq, Somaliya, Afghanistan etc. with increasing its sales in existing markets like Nigeria, Mexico, Bangladesh, Kenya, Honduras, Peru etc.


Your Company continues to derive sustainable benefit from the strong foundation and long tradition of R&D which differentiates it from others. New products, processes and benefits flow from work done in various area of product development. With modern facilities and technology culture, we attracts the best talent to provide a significant technology differentiation to its products and processes.

Our continuous focus on developing and evolving various products and upgrading existing one which provides the resilience and agility that todays trading environment demands. This has helped the company to create a business that is more consumer and customercentric, faster, more efficient and empowered to enable faster decision-making. Given below are some of the key changes that are taking place and how your Company is preparing itself to turn them into opportunities.


1. Development of all new alternative fuel 3 wheelers

2. Small cargo carrier

3. New designed Front Engine 3 wheelers

4. E auto


1. Higher capacity gasoline engine

2. Preparing to meet with requirement for BS VI norms for entire range of product

With strong R&D support, the company has upgraded its manufacturing set up that can produce BS IV vehicles in FY 2017 and from fiscal year 2018, the Company has also made the required strategic tie-ups and firmly moving towards transforming the product compliant with BS VI norms. Understanding the feedback from the market and implement the learning is need of the hour, the Company has been improving its product on continuous basis.

The Company is also focused for improvement of Green 3wheeler run by electric energy which has been introduced last year. The Company is determined to explore this segment and believe that the electric vehicles are the future of automobile sector. The Board considers the introduction of Green 3Wheeler as beginning of new era for the industry as well as the Company.


Our success as an organisation depends on our ability to identify opportunities and leverage them while mitigating the risks that arise while conducting our business. Your Company is constantly aligning its products, processes and strategies to the changing market conditions to stay ahead of competition. The key thrust areas under the strategic pillar of continuous improvement are achieving profitable growth, improving customer service and quality, and building back-end capabilities to improve our processes.

In India, favorable demographics, rise in incomes, growing awareness due to technology, easier access to products & services, improvisation in legislation and changing lifestyles are contributing to major shifts in consumer behavior and offering immense potential for the auto industry. This presents significant opportunities and headroom for growth for your Company. Your Company has the benefit of a large portfolio that includes the economic pyramid with brands that have a relatively strong presence across the various category and type of the vehicles on 3 wheelers platform. Our brands are driven by a low cost operative economy, making them more relevant to the consumers. To harness the opportunities in India, your Company is making significant investments in the categories of the future.

Auto companies are subjected to strict environmental regulations in India. The Bharat Stage regulations are constantly upgraded in India and hence the companies have to constantly modify their products in order to fall in line with the regulations which need constant and continuous investment to upgrade. This may affect the bottom-line of the Company.

Rising pollution levels in Indian cities and target to become energy independent are the major factors for push towards greener mobility. The Union government extended the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) scheme by six months or till the time the second phase of the scheme is approved by it. The Government is yet to freeze the contours of phase-2 of the FAME. Further clarity on government policies in this sector is awaited. The time when the Company is ready with its Green Vehicles variants, the clarity in this matter will be positive for the Company.

The Company is committed towards green tomorrow. With support of strong R & D, Dealer Network and Proven Strategies, the Company would overcome the barriers to come in a way and would excel in the industry in coming years.


From a fundamental and medium-term perspective, automobile industry and within that 3 wheeler industry will continue to offer sizeable headroom for growth by increasing penetration as well as consumption. India continues to be one of the fastest growing economies in the world and this is expected to continue in financial year 2018-19, as per the latest economic survey. With GST having been successfully implemented, trade conditions have stabilised and we are witnessing a gradual improvement in demand. With announcement of budgetary allocation of Rs.14.34 Lakh Crores in the rural area for fiscal year 2018-19, the demand from rural sector will probably go up. We expect government spending plans such as increases to Minimum Support Price (MSP), provision of health insurance, etc. to bolster rural development and drive consumption. Normal monsoon, as forecasted, will help the overall economy. Crude oil led inflation, emerging global events and disruptions, if any, from state elections are potential headwinds which need to be managed carefully.

Considering the growth potential and downside risks, the government expects Indias GDP to expand at a growth rate between 7.0 - 7.5 per cent during 2018-19.

Your company, with its brands, talent and investment in capabilities, is well placed to leverage these opportunities. Your Companys strategy to lead market development while keeping the sustainable living plan its core, will enable it to create long-term value for all stakeholders.

Your company has a proven business model that supports long-term, compounding growth and sustainable value creation. Growing the core, evolving the portfolio and developing distribution channels are at the heart of our strategy to deliver long-term, compounding growth and sustainable value creation.


Crude prices have been rising over last one year and this trend is expected to continue in 2018. Rising commodity prices will put some cost pressures in the year 2018-19. In addition to that the intensifying competition with price led marketing actions remain concern for bottom-line. Any increase in interest rate may also affect the spending decisions of the buyer.


The Company has satisfactory internal control systems, which are continuously evaluated by professional auditors of repute. The company continues to improve the present internal control systems by implementation of appropriate policy and processes. The Company is focused on incorporating the controls and checks in ERP system of SAP. An increased emphasis has been laid on Internal Control Systems and Vigilance Systems to ensure efficacy and monitoring of the Companys operations.


Human Resource Development activity includes workforce planning, employee engagement, performance & compensation management, learning and development, career & succession planning and organization development. Towards sustenance and delivering improved results, these activities have a structured approach, policies and standard operating procedures which are reviewed and updated periodically. The Company is committed to nurturing, enhancing and retaining top talent through superior Learning & Organizational Development.

As on March 31, 2018, the number of employees working with the Company was 868.

Continuously, the Company maintains good industrial relations without any disruption in work.

Cautionary Statement

This document contains statements about expected future events, financial and operating results of Atul Auto Limited, which are forward-looking. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the assumptions, predictions and other forward-looking statements will not prove to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause assumptions, actual future results and events to differ materially from those expressed in the forward-looking statements. Accordingly, this document is subject to the disclaimer and qualified in its entirely by the assumptions, qualifications and risk factors referred to in the managements discussion and analysis of Atul Auto Limiteds Annual Report FY2018.