Atul Limited

Buy - ATUL

CMP (NSE) 15:29, 16 Sep

9,789.15 49.450.51%

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Chemicals

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Reco. Price

2,965

Period

1-Year

Target Price

3,590

upside

21.1%

Stop Loss

0

Last updated on

12 Jan, 2018

Atul Limited (Atul) is an integrated chemicals company having a diverse product portfolio across various business segments. Atul has executed major capex activity of ~Rs360cr over last three years. We expect the company to focus on ramping up the utilization levels of newly commissioned plants. Its pricing for key products would increase in near future owing to supply side issues arising in China. We expect revenue CAGR of 11% with EBITDA margin expansion of ~460bps to 21.6% and PAT CAGR of 18%, over FY17-20E. We recommend BUY with a target price of Rs3,590 (21x FY20E EPS). 

Utilization to improve as major capex ends: Atul has completed capex projects across business segments in FY17. It is now ramping up capacity utilization (CU) from newly commissioned capacities, majorly comprising crop protection (8% CU in FY17), specialty bulk chemical (3%) and specialty polymers (60-70%). Atul would witness higher utilization backed by increased global demand for Indian chemicals (Chinese government’s restrictions on highly polluting industries, has caused supply issues in China, giving an edge to Indian chemical manufacturers). We expect EBITDA margin expansion of ~460bps to 21.6% over FY17-FY20E. 

Earnings to rebound: Atul’s return ratios have suffered in the past, mainly due to below potential use of assets, adverse price trends in key products, GST related issues and ` appreciation vs US$ as Atul is net exporter. However, as most of these issues are fading, net operating margins are expected to improve leading to better return ratios. We expect RoCE & RoE at 24.4% & 19.2% in FY20E as against 20% & 16% respectively in FY18E. 

Outlook & Valuation: Atul’s major phase of capex investments are nearing an end. Further, owing to the nearly debt free position of the company, we expect Atul to generate free cash flows to equity over FY18E-20E. The company is currently priced at reasonable valuation of 17.4x FY20E EPS and looks attractive amongst its peers. 

Financial Summary

Consolidated Rs Cr.

FY16

FY17

FY18E

FY19E

FY20E

Revenue

2,595

2,834

3,237

3,548

3,860

YoY growth (%)

(2.33)

9.22

14.21

9.63

8.78

EBITDA Margin (%)

16.7

17.0

16.5

20.5

21.6

PAT

274.3

323.4

310.0

450.2

526.6

EPS (`)

92.5

109.0

101.1

146.7

170.8

RoE (%)

20.7

18.1

16.0

19.3

19.2

P/E x

16.7

23.2

29.3

20.2

17.4

EV/EBITDA x

9.9

12.8

16.8

12.3

10.7

Source: IIFL Research

Company Overview

Atul is a diversified chemicals company incorporated in 1947 and headquartered in Gujarat. Atul manufactures about 920 products and 460 formulations across six business divisions i.e. aromatics, dyes, pharmaceutical chemicals, crop protection chemicals, polymers and bulk chemicals. It owns more than 65 brands and services about 6,000 customers in over 68 countries. It has production facilities at three locations in India and wholly owned subsidiaries in several countries. It has also entered into date palm cultivation with the intent of import substitution and economic upliftment of arid regions in Rajasthan. The promoter group holds ~44% stake in the company.

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