Neutral Atul Auto Ltd For Target Rs.8627 - Motilal Oswal Financial Services Ltd
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Weak quarter led by Performance and Other Chemicals segment
* ATLP reported an in line revenue, with strong growth in the Life Science Chemicals segment, which grew by 18% QoQ and 65% YoY. Gross margin declined by 140bp QoQ, with EBITDAM down 100bp QoQ to 14.8%.
* Contribution from the Life Sciences segment to EBIT improved significantly to 67% in 2QFY23 (from 38% in 1QFY23), while the same for the Performance and Other Chemicals vertical fell to 34% in 2Q from 34% in 1QFY23.
* Given the underperformance in 1H and near-term headwinds, we cut our FY23 EBITDA/EPS estimate by 17%/20%, but marginally raise our revenue estimates due to the outperformance of the Life Science Chemicals segment. EBITDAM/gross margin hit a 21/17-quarter low.
* ATLP is implementing projects at a total investment of INR17.5b in Atul (parent company), Atul Products, Amal Specialty, and Atul Finserv. At full capacity, revenue is expected to touch INR60b.
* We build in a revenue/EBIDTA CAGR of 11%/12% over FY22-24. We value the stock at 35x FY24 EPS to arrive at a TP of INR8,627. On a one-year forward basis, ATLP trades at 34.6x. We maintain our Neutral rating due to limited upside in the stock.
Margin declines sequentially; Life Science Chemicals vertical outperforms
* Revenue stood in line at INR14.9b (up 19% YoY, but flat QoQ).
* Revenue from the Performance Chemicals stood at INR9.9b (up 7% YoY, but down 6% QoQ).
* Revenue from Life Science Chemicals stood at INR5.7b (up 65% YoY and 18% QoQ).
* Gross margin fell 140bp QoQ to 47.1%. EBITDA margin fell 100bp QoQ to 14.8%.
* EBIT margin expanded significantly for Life Science Chemicals, while it contracted for the Performance Chemicals segment.
* The margin in the Life Science Chemicals segment stood at 25% (down 800bp QoQ). EBIT stood at INR1.4b.
* The margin in the Performance Chemicals segment stood at 7% (down 500bp QoQ) – the lowest ever recorded. EBIT stood at INR730m.
* EBITDA stood at INR2.2b (flat YoY, but down 5% QoQ).
* PAT stood in line at INR1.5b (flat YoY, but down 9% QoQ), resulting in an EPS of INR50 in 2QFY23.
* Contribution from the subsidiaries turned negative (PAT at -INR202m in 2QFY23, v/s -INR27m/INR49m in 2QFY22/1QFY23).
* In 1HFY23, revenue stood at INR29.6b (up 27% YoY), EBITDA at INR4.5b (flat YoY), and PAT at INR3.1b (flat YoY).
* EBITDAM contracted to 15.3% in 1HFY23 as compared to 19.5% in 1HFY22.
* ATLP has declared a special interim dividend of INR7.5/share to commemorate the 75th anniversary of its incorporation.
Maintain our Neutral rating
* ATLP is implementing projects at a total investment of INR17.5b in Atul (parent company), Atul Products, Amal Specialty, and Atul Finserv. At full capacity, revenue is expected to touch INR60b.
* Return ratios of 11-14% are likely going forward. The stock is trading at 34x FY24E P/E, with an EPS of INR247 and 22x FY24E EV/EBITDA. We value the stock at 35x FY24E EPS to arrive at our TP of INR8,627. We maintain our Neutral rating.
To Read Complete Report & Disclaimer Click Here
For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412
Above views are of the author and not of the website kindly read disclaimer
