Tuesday, 7 February 2017

Results Update: Atlas Cycle and Tube Investments of India

Let me first come to Atlas Cycle which were picked at 250 in Sep-16. In no time it picked up great speed only to hit 700 few days back. Although I advised caution for the stunning run up which at times was looking stretched beyond fundamentals. Then due to corrections, it was trading around 500-520 range. But after its results on 2nd feb, it is continuously hitting lower circuits and today touched 466. Market has taken its result negatively. Some readers have sent worried messages over the recent fall.

But let me tell you one thing its results are not bad; in fact they are very good as per my understanding. This quarter, due to demonetization, is bad for all the consumer businesses especially those dealing with rural and small towns….and this is what Atlas is. Indian Bicycle companies still earn most of their revenues from small towns. Although premium cycle demand from big cities will pave the way for strong growth but that phase has just begun. So it was natural for Atlas to get badly impacted and report lower earnings this quarter…just in line with the big brother Tube investments. Tube has reported muted numbers for its cycling business. Topline is at 298 cr vs 288 cr…a growth of 3%. But operating profits are at just 70 lakh from 8.70 cr last year. But this is perfectly on the expected lines and stock prices were reflecting this degrowth.

However Atlas managed to show good growth in the top line this quarter. Its turnover is at 147 cr vs 135 cr…almost 10% growth which is commendable during this negative period. It has brought down its interest cost from 2 cr to 1 cr. So its net loss figure before tax was at 2.54 cr vs 2 cr last year which is also quite an achievement keeping in view the big fall in the margins of Tube investments.

So its results are not bad at all and I am sure that we’ll see high growth in the next quarter. Atlas’ premium bikes are still cheaper compared to other big brands like Hero or BSA Hercules although they are at par in quality. Also there is high growth of cycling clubs all over India and craze for Cycling is growing like anything.

So there is nothing to worry as far as Atlas is concerned. Its management is good and they were paying dividends regularly till 2013 when they were profitable. During bad times, they managed to avoid unnecessary debt (their debt has fallen to 60 cr from 80 cr in 2012); they didn’t waste the money in expensive capacity creations (their assets are at 191 cr from 175 cr in 2012). Their inventory levels and debtors figures were always under control. So it is wrong to place the management of Atlas Cycles amid the likes of other shabby companies.

I never pick a stock like Atlas cycles (which are at the crossroads of their life and fighting the most significant battle for the survival and growth) for a double. My focus is to find at least a 10 bagger and there is no stoppage before that…we deserve 10 times due to the risk we are taking. But we need not to care for small oscillations in between…just focus on the goal. I picked KRBL at 18 but it oscillated between 50 and 80 a number of times…but now it is at 380. LT foods was picked at 50 but it remained going up and down in the range of 90-150 for a long time and I added another big quantity at 100…it is at 470 now. So in picking a multibagger, first thing is to absorb the initial spikes. Recent spike in the price of Atlas meant nothing to me and I was not celebrating it as it was depriving me from adding more of Atlas at lower levels which I’ll be doing now if somehow we are lucky to see it falling below 400. Anything near 350 will be a bonus.

Now let’s move to Tube. Tube Investments’ standalone numbers are not much worthy due to de-growth in cycling division and other businesses due to demonetization. Its top line has been grown to 1041 cr from 941 cr with operating profit at 44 cr from 52 cr (mainly due to cycle division). But still it managed to post PBT figure at 37 cr from 21 cr due to lower interest cost of 15 cr vs 33 cr (lower debt due to last years’ sale of general insurance business stake for around 800 cr).

Its listed NBFC arm (47% shareholding) Cholamandalam Investment & finance ltd has shown a growth of 10% in its NP at 163 cr from 148 cr which is impressive in the wake of demonetization.

But its General insurance business has recorded strong growth of 22% in GWP from 614 cr to 751 cr. Its NP is at 47 cr vs 34 cr registering a growth of 38%. These numbers could have been more impressive had it not for demonetization. So we’ll see much better numbers in the next quarter. Continue to hold and add more around 600.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)


  1. Agreed Sir
    General insurance number quite promising --
    After demonetization effect over cycle business also will show remarkable increase in top line and bottom line

  2. Your view on BSE latest results?

    1. Dear Sir...if you could please share the link to the pdf version of the results. I tried but couldn't find. I am looking to buy more of BSE...results of this quarter don't matter that much in the grand schema i am expecting.

  3. dear sir
    kindly find the link

    1. Thanks...i didn't check the corporate announcement section at NSE. Will check and come back.

    2. Dear Sir,

      Results are good. Turnover growth at 9% looks just OK but when we see that Securities services segment has grown at 20% (at 82 cr from 62 cr). This I feel is mainly due to high growth in Mutual funds and currency options business. it starts looking much better. And if we further break it down; it shows around 300% growth in core transaction business at BSE from 10 cr to 30 cr. As I have mentioned in my IPO note, I am expecting BSE to do much better in Bonds SME, currency and mutual fund business. But as I have mentioned near term growth prospectus/results may take some more time to deliver as BSE is in reconstruction mode. So I think it is better to ignore the results of at least 3-4 quarters and wait for more information at execution of new business verticals. I am adding BSE regularly after IPO. Today also added more at 962.

      BSE looks lukewarm when people say that it is only having 15% share in equity segment. But there is another angle to it...this 15% was just 3% in 2009...its infrastructure was out-dated. But now it can process more than 5 lac order per second when NSE is at 150000. So this 15% share is almost 5 times of the lows of 3%. Its new CEO Ashish Chauhan is the one who was among the four member founding team for NSE in 1990's. He created the new team at BSE of seniors poached from NSE. This man has everything needed to put BSE back to the glory.

      But BSE is doing good business in SME (much bigger than NSE), Bonds, Mutual fund trading and currency derivative business. Also if we leave top 200 stocks, the liquidity and trading in the balance is very low at NSE and BSE. Cash segment is just 5% as NSE is focusing too much on derivatives. Option trading is highest in India globally due to the fact that short selling is not allowed in India (only Intraday). This low cash segment is hurting the most genuine section of stock exchange as price discovery, liquidity are the prime roles of exchanges. Retail investing is very low at 3% in India. Provident funds are investing now. So we can see high growth in equities.
      Recently NSE was accused of preferential access to some members and sudden exist of its CEO (She was also in the four member founder team with Ashish)...thus all of a sudden governance standards at NSE are at stake. NSE is also accused of high speculation in derivatives via HFT and co-location of servers of big institutional clients at NSE premises with no role of brokers. BSE can raise its regulations and transparency levels to attract more genuine investors/traders because NSE gained at the cost of BSE only due to this in 90's.

      We can see that all this is not that easy...but this is the reason we are getting BSE cheap. Still feel it is a bit risky...but worthy.


  4. Thank you very much for the elaborate reply sir....good insight into the business...much appreciated...