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CD Equisearch
Atul (Buy)
CMP: ₹1,160.15
Target: ₹1,600
Atul Ltd manufactures value added chemicals by blending basic chemicals and natural resources for diverse industries — agriculture, construction, textiles, pharmaceuticals and automobiles — from its plants in Valsad, Bharuch (Gujarat) and Thane (Maharashtra). Atul’s net sales declined 12.1 per cent to ₹606 crore last quarter as sale of life science chemicals slid 23 per cent to ₹151 crore. Performance and other chemicals though reported marginal increase in sales. Moderation in financial expenses and taxes helped contain fall in net profit to 13 per cent last quarter.
Given uncertainty in crude oil market, we expect Atul to report another year of modest growth. Despite some stress in the polymer and crop protection businesses in the short term, other businesses such as colours and aromatics would stay the course. Sparked by robust growth in high performance pigments, digital printing inks and textile chemicals, the colours business would report sales growth in mid to high teens over the next few years. For the pharmaceutical business, Atul has chalked out a multi-pronged strategy: grow sales in Japan and select European countries; enter new markets such as Russia, Iran and Korea; boost CRAMS business with strategic customers; resort to inorganic route to expand business.
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