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 2^nd 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)