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* ATLP reported in-line revenue in 4QFY23, with a 17% QoQ decline in the Life Science Chemicals segment and a flat show in the Performance & Other Chemicals segment. Gross margin came in at 45.8% in 4QFY23, while EBITDAM declined 110bp QoQ to 12.5%.

* The Life Science Chemicals segment’s contribution to EBIT improved to 84% in 4QFY23 (from 82% in 3QFY23), whereas the contribution of Performance & Other Chemicals to overall EBIT fell to 15% in 4QFY23 (from 16% in 3QFY23).

* The management highlighted that demand was subdued in key end-user industries such as Fragrance, Personal care, Pharmaceuticals and Textiles, as many companies adopted a wait-and-watch policy, which led to lower capacity utilization at their plants and subsequently at ATLP’s plants.

* Due to delays in project implementation, ATLP was unable to achieve desired performance in product quality and sales volume. Finished goods prices, too, fell more than raw material prices and fuel prices remained high throughout the year, which led to margin pressure. Consolidated EBITDAM was the lowest in the past 22 quarters.

* Given the underperformance in FY23 and near-term headwinds, we cut our EBITDA/EPS estimates by 20%/19% for FY24 and by 18%/15% for FY25. The stock is trading at 33.5x FY25E EPS of INR205 and 22x FY25E EV/EBITDA. We value the stock at 30x FY25E EPS to arrive at a TP of INR6,150. On a one-year forward basis, ATLP trades at 33.1x. We retain our Neutral rating on the stock.

EBITDAM down QoQ; Performance & Other Chemicals continue to drag

* Revenue was in line with our estimate at INR12b (-13% YoY, -6% QoQ), missing the consensus estimate by 6%.

* Performance Chemicals revenue stood at INR8.3b (-21% YoY, flat QoQ).

* Life Science Chemicals revenue came in at INR4.1b (+11% YoY, -17% QoQ).

* Gross margin stood at 45.8% (-140bp QoQ) and EBITDA margin came in at 12.5% (-110bps QoQ).

* EBIT margin contracted further for the Performance Chemicals segment.

* Life Science Chemicals margin stood at 22.2% (-30bp QoQ); EBIT was INR906m.

*  Performance Chemicals margin was at 1.9% (-70bp QoQ), lowest ever recorded; EBIT came in at INR157m

* EBITDA came in at INR1.5b (our est. of INR1.2b, -27% YoY, -13% QoQ), missing the consensus estimate by 8%.

* PAT stood at INR922m (est. of INR804m, -32% YoY, -10% QoQ), resulting in EPS of INR31.1 in 4QFY23 (consensus miss by 19%). ? Adj. PAT stood at INR761m (5% miss), adjusting for claim of INR161m received against fire in one of its plants in 1QFY23.

* Contributions from the subsidiaries/JVs turned positive (PAT at INR38m in 4QFY23, v/s -INR120m/-INR340m in 4QFY22/3QFY23).

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