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CD Equisearch
Atul (Buy)
CMP: ₹3,929.55
Target: ₹4,663
Atul 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).
The stock currently trades at about 18.8x FY20e EPS of ₹201.84 and 16.3x FY21e EPS of ₹233.15. Despite no small base, earnings growth would barely show signs of waning — though largely boosted by recently cut corporate tax rate. Shifting manufacturing bases to India and domestic chemical industry shifting from unorganised to organised sector would scarcely have minuscule structural effect. But this beneficial dynamics are often attended with increasing regulatory compliance and oversight, a not so puny hurdle for manufacturers of developing economies.
With improved outlook overall, we revise upwards post tax earnings for current fiscal by some 26 per cent. On balance we maintain our BUY rating on the stock with revised target of ₹4,663 (previous target: ₹4,169) based on 20x FY21e earnings.
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