CESL's electric three-wheelers tender is a big growth opportunity for Atul Auto: Jitendra Adhia, President (Finance)

Jitendra Adhia, President (Finance), Atul Auto, talks about the consistent improvement in monthly sales, launch pipeline, electric vehicles and expectation from the government's tender in the domain, acquisition of NBFC 'Khushbu Auto Finance Limited', CapEx, Bhayla plant and margins among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

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Q: There has been a consistent growth in your monthly sales. What is your preparation for the festive season and what are your expectations from it?

A: As far as the future is concerned, obviously there is a positive movement and we are quite excited. After a wait of around one-and-a-half years, it seems that things are setting up and business parameters are coming back to normal. A small suspicion is there about the situation of the third wave, however, we are confident that the products that we have and the type of pent-up demand in the market gives a sense that the future will be good for the company as well as industry. As far as the three-wheeler industry is concerned, as you said, that there is a positive movement in the auto sector, we are still waiting and expect that there will be a gradual revival in the three-wheeler market. Atul Auto has done well on a month-on-month basis and with the start of the festival season, it seems that gradually we will move to the pre-COVID levels. 

Q: What is your product launch pipeline to cash in this demand? In electric vehicles, particularly, what are your plans as the government has released the world's largest tender in three-wheeler via CESL and what would be your participation in it? How bullish you are about the space and participation in the same?

A: First of all, if we will talk about the products of Atul Auto then we are uniquely placed. In the three-wheeler segment, products are available on both platforms. About the fuel choice, we have every choice, namely diesel, petrol, CNG, LPG and now electric is also included in our product portfolio. As far as the application is concerned then apart from branded cargo and passenger, we also have several customized applications on three-wheelers. In terms of electric vehicles (EV), we are equally keen, although, the market will take its time to mature and things will ramp up gradually. An immediate shift is not visible at present and we will wait and see how the market will move in the next one to three quarters. But as far as Atul Auto is concerned, Atul Auto's Rajkot existing plant is running with a capacity of 60,000 and the new capacity developed at the Ahmedabad plant also has a capacity of 60,000. Interestingly, the EVs of both types, LC and L5 categories, can be manufactured at both plants. Recently, we have launched alternative fuel and were addressing the rural and the semi-urban markets. With the introduction of Atul Rik, we expect that we will be able to address the urban part of the market that we were not being able to address. At the same time, the export in which around 90% is running at Gasoline and has not been able to contribute any volume to us. but with Atul Rik, we will be able to bring good export numbers in the future, as well. 

Q: Currently, what is the total number and what could be the EV contribution in it in the future? What role will you play in the tender that the government has opened for the electric three-wheelers? 

A: 100%, we are there and we have also participated in it. First of all, I would like to inform you that it is a tender for one lakh vehicles and it is in the process. The entire product range is available with us and Atul Auto in the recent past has formed its 100% owned subsidiary which is going to engage in the manufacturing of the Lithium-ion battery. So, we are completely geared up. As soon as we get this big opportunity, I expect that it will increase our visibility in the market. 

Q: Recently, you acquired Khushbu Auto Finance Limited, an NBFC. What will it mean for you and is auto financing will emerge as a big area for you, if yes, what will be its contribution to total revenue?

A: Three-wheeler is considered a micro-commercial vehicle and around 90-95% of the sales happen through retail finance. There are very few independent financiers who have a pan-India presence. To continue our growth momentum, we needed in-house support and Khushbu Auto Finance will work in that particular area. However, Khushbu is not going to take the entire sales of Atul Auto but wherever Atul Auto needs support and there is a need to create visibility and population, there this captive purpose finance company will definitely work as a catalyst for Atul Auto Limited to continue its growth momentum. 

Q: Can you share information about the kind of CapEx you are lining above and over what you have already done and how it will be funded? Also, the commercial production at the company's Bhayla Plant for manufacturing three-wheelers has commenced on September 27, 2021. What's the current capacity utilisation here and what are your expectations from it?

A: There is no such big CapEx recently. We have already done the big CapEx that we had to do. We have created a capacity of 60,000 units per annum at Bhayla, Ahmedabad, and you have rightly said that we have commenced commercial production at the plant on September 27, 2021. Going forward, the capacity utilisation will happen gradually as demand is under pressure due to the COVID but we are hopeful that the way the vaccination program is going on across the country and we can also sense the economic revival. If the trend continues then very soon we will be able to utilize both the plants completely. As far as the product range is concerned, recently, we have launched Atul Rik which has potential in domestic and overseas markets. Along with this, we are also bringing products of the L5 category in electric. With an eye on both, it is difficult to provide a figure at present, but we expect decent utilisation of capacity at both the plant in the medium term. 

Q: What will be your outlook on the margins?

A: Margins are under pressure due to commodity prices and I think, going forward, it will resolve a bit. However, it is a limited fare industry, so, whatever it can be passed on the market, definitely, over the period, we will try to do that. I expect that Atul Auto with a higher scale will be able to improve upon our EBITDA margin as well. In the current year, we will post reasonable numbers and it is difficult to say that what kind of improvement can happen but let's see what numbers are created in the festival season. I think, by the end of the third quarter, we will be having a more clear picture on the margin side as well.