Atul Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Chemicals

Company

Atul Ltd

Reco Price
Rs. 910
Price Target (3 Months)
Rs. 1450
Upside
59.34%

Date

02 July 2014
Sensex
25841.21
CNX Nifty
7725.15

Exchange

Code

NSE
ATUL
BSE
500027

Well-established Global presence, with dominant positioning in many of its product-offerings and further capex of Rs 100 crores will act as catalyst for stock

Diversified Business Model:
Atul Ltd. has a well-diversified product portfolio, serving wide range of customers in sectors like Aerospace, Agriculture, Automobile, Construction, Flavour & Fragrance, Paint & Coatings, Paper, Personal Care, Pharmaceutical, Textile, etc. The diversified revenue stream ensures that down-turn in one particular sector doesn’t affect its overall performance.

Strong Divisions:
Its color division it is the largest supplier of dyestuffs in India and exports nearly 42% of its production to more than 40 countries worldwide, while its aromatic division is one of the world’s largest producer of p-cresol , p –anisic aldehyde, p –anisic alcohol , which are used mainly by flavor & fragrance , personal care and pharma industries. In crop protection division it is among the world’s five leading manufacturers of 2.4 D range of chlorophenoxy derivatives with close tp 9 % market share, while in bulk chemicals & intermediates division, the company has a leadership position in India like resorcinol with 36% market share & Chlorosulphonic acid with 16% market share.

Constant Value Addition:
Atul started out as a dyestuffs manufacturer and as such has a long history in commodity chemicals; however, over the years, the company has steadily added newer, higher-margin products leading to improved profitability. It now produces almost 1000 products and sells to more than 4000 customers worldwide, opening up cross selling opportunities for newer products. In several of its products, it occupies strong positions globally due to its low-cost manufacturing advantage and long experience. Hence company is in continuous process of adding its value to its products.

Strong Outlook for coming years:
Management is targeting a 15%+ revenue CAGR in coming years with improving profitability due to continuous efforts to launch higher-margin products, improve internal efficiencies (via automation, etc), as well as due to operating leverage. Over the long term, management has an aspiration of nearing the profitability levels of best-in-class peers, which make 19-22% operating margins.

Proactive Measures:
China is imposing strict regulation for chemical companies so as to protect environment and which is providing benefit not only to Atul Ltd but also entire chemical industries. Sooner or Later Indian government will also impose restriction to protect environment. Company has taken measure to make it zero discharge units.

Capex:
Company has plans for capex in FY 15 of Rs. 100 crores, which will help management to focus on improvement in margin and working capital. Hence company in on right track for taking initiatives for improving its business efficiency.

Dominant Player:
Atul Ltd. has a well-established Global presence, with dominant positioning in many of its product-offerings. The Company is the largest manufacturer of p-Cresol & perfumery grade p-Anisic aldehyde in the world. Apart from this, it is also the largest manufacturer of p-Cresidine and one of the leading manufacturers of p-Methoxy phenyl acetic acid, p-Anisyl nitrile and other compounds. Steadily increasing global presence enabling efficient geographical diversification in revenue and strategic positioning in emerging markets is a key positive for the company.

Growing Industry:
The Chemicals industry is one of the steadily growing sectors in the Indian economy. The current low per capita consumption (7 kgs for polymers in India as compared to world average of 25 kgs) suggests that the demand potential is yet to be realized. Moreover India has an improving outlook for the key end user industries. Hence, going ahead the demand of chemical products is expected to surge steadily at 10-11 % p.a.

Stock Data

CMP (Rs)
922.1
Face value (Rs)
10
52 Week Range (Rs)
943 - 286
Market cap (Rs Crores)
2736.58
Price To Book Value (x)
3.26
P/E Ratio (x)
12.48
EV/EBIDTA (x)
9.04

One Year indexed Stock Performance

Atul LtdSensex
Atul Ltd
Performance (%)
1m
6m
12m
Absolute
10.77
107.56
182.69
Sensex
4.68
14.59
32.76

Shareholders

(in %)
31-Mar
Promoter
50.62
FII
1.45
DII
6.25
Others
41.68
Total
100

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Industry Overview

Agrochemical a contraction of agricultural chemical is a generic term for the various Chmeical products used in agriculture. In Most cases, Agrichemical refers to the broad range of pesticides including insecticides, herbicides and fungicides. It may also include synthetic fertilizers, hormones and other chemical growth agents and concentrated stores of raw animal Manure. Agriculture is the key to economic growth and prosperity. Moreover, every year, significant amount of crop yield is lost due to non usage of crop protection products. This necessitates the use of pesticides. So in order to and improve agricultural productivity in the country and provide livelihood for majority of farmers living in rural areas, many countries use of agrichemicals is highly regulated. Government-issued permits for purchase and use of approved agrichemicals, with this the Companies continues to bring in a number of novel and effective solutions to the farmers in the field of crop protection in order to keep pace with the ever-changing and dynamic scenario. The 40 leading global companies account for 90% of the global agrochemical industry.

Profile

Atul Ltd is one of the oldest business houses of India and a member of Lalbhai Group. Incorporated in 1947 and became the first private sector company of India to be inaugurated by Jawaharlal Nehru, the first Prime Minister of the country. Atul Ltd formerly Atul Products Ltd was founded by Kasturbhai Lalbhai with interests mainly in textiles and chemicals and make India self reliant in chemicals, generate employment on a large-scale and create wealth for the society. The Company thus commenced its business with just a few dyestuffs, the know-how of which was brought from foreign companies. Now the Company profile has changed and diversity. The company has started presenting its businesses under two new Segments, namely Life Science Chemicals and Performance & Other Chemicals.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
FY 2012
FY 2013
FY 2014
FY 2015E
FY 2016E
Income:-
  • Sales
  • Growth
  • Total Expenditure
  • EBIDTA
  • EBIDTA (Margin %)
  • Other Income
  • Operating Profit
  • Interest
  • Profit Before Depreciation & Tax
  • Depreciation
  • Profit Before Tax
  • Tax
  • PAT
  • Adjusted (EPS)
  • 1792.40
  • -
  • 1604.41
  • 187.99
  • 10.49
  • 29.41
  • 217.40
  • 43.31
  • 174.09
  • 44.02
  • 130.07
  • 35.03
  • 95.04
  • 30.71
  • 2042.88
  • 13.97
  • 1793.77
  • 249.11
  • 2.19
  • 16.62
  • 265.73
  • 33.37
  • 232.36
  • 51.37
  • 180.99
  • 58.30
  • 122.69
  • 40.38
  • 2457.75
  • 20.31
  • 2094.02
  • 363.73
  • 14.80
  • 36.27
  • 400.00
  • 33.44
  • 366.56
  • 58.26
  • 308.30
  • 88.09
  • 220.21
  • 73.90
  • 2950.00
  • 20.03
  • 2475.00
  • 475.00
  • 16.10
  • 51.50
  • 526.50
  • 33.50
  • 493.00
  • 59.50
  • 433.50
  • 121.38
  • 312.12
  • 104.74
  • 3450
  • 16.95
  • 2850.00
  • 600.00
  • 17.39
  • 68.50
  • 668.50
  • 32.50
  • 636.00
  • 64.50
  • 571.50
  • 160.02
  • 411.48
  • 138.09
Source: Stockaxis Research, Company Data

Outlook

Considering its well-established Global presence, with dominant positioning in many of its product-offerings, company is set to achieve strong growth in next few years. Also capex of Rs. 100 crores in FY 15 will help management to focus on improvement in margin and working capital improving its quality of financial statements. This will help to re rate the stock in next few months.

Hence we assign the valuation of 10.50 x to FY 2015E earning where stock is reasonably priced indicating the target price of Rs 1450 in next three months.

 

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