Stock Review: Atlas Cycles

This is one stock that attracted me for one simple ratio that is market cap to sales, with a management that is thrusting on improving their net profit margin. The company is going to do a top-line of close to Rs 800 crore. The company brand Atlas is available for a market cap of Rs 72 crore, I am not looking at it from PE significance. I am not buying into the stock at current levels because I think the stock is trading at a median PE of close to 14-14.5 times.

Here lies the catch, if I see the three year plan for the company, I think the company can easily clock sales of Rs 1300 crore plus because they have been foraying into South Africa markets and they have been doing well with the exports. But their net profit margin is ranged between 0.5 to just 1% which the management has actually backward integrated and restructured their process into their Gurgaon Power Plant. Apart from this the company owns plants in Sonepat, Rasoi, and Sahibabad. So, I think going forward basis the company can have 1.5-2% of net profit margins, but that will take some time to stabilise for their backward integration process.

So, a company that will clock close to Rs 1300 crore for FY14 and is going to clock 1.5-2% net profit margin that means Rs 30 crore odd profit on the bottom-line is available on a market cap of Rs 72 crore. I think this stock would definitely be re-rated in the longer-term.

But right now one can definitely accumulate the stock around that Rs 210-220 market for a target of Rs 260-270. This has been a significant trading range for the stock for quite some time and we feel this will persist for at least next eight-ten months because we do not see huge re-rating in terms of PE for the stock at current levels. But this stock can be a potential multi-bagger because the management is thrusting on improving their net profit margin backed by robust sales performance that the company has been doing over last few years and promises to continue doing the same by foraying into new virgin markets.