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Weakness in life science chemicals offsets growth of performance chemicals

* Atul (ATLP) reported a weak performance in 2QFY27, as EBITDA declined 8% YoY to INR2.5b, led by a 35% EBIT decline in the Life Science Chemicals segment, which was primarily offset by 23% EBIT growth in the Performance & Other Chemicals segment.

* We reduce our FY27/FY28 earnings estimates by 6% each to factor in the weaker-than-expected operating performance.

* The stock trades at ~20.4x/18x FY27E/FY28E EPS of INR272.2/INR309.9 and ~13.2x/11.5x FY27E/FY28E EV/EBITDA. We value the stock at 23x FY28E EPS to arrive at our TP of INR7,100. Reiterate BUY.

Weak operating performance due to the Life Science Chemicals business

* ATLP’s revenue grew 21% YoY to INR18.7b, led by 31% revenue growth in Performance Chemicals to INR15b, while Life Science Chemicals’ revenue declined 3% YoY to INR4.3b.

* Gross margin stood at 40.3% (vs. 46.6% in 2QFY26), and EBITDA margin contracted 410bp YoY to 13.1% (est. 16.8%).

* Consolidated EBITDA declined 8% YoY to ~INR2.5b (vs. our est. of INR3b.), and adj. PAT declined by 13% YoY to INR1.6b (est. INR1.9b).

* Life Science Chemicals’ EBIT margin stood at 16.3% (down 660bp YoY), while EBIT stood at INR697m. Performance Chemicals' EBIT margin stood at 8.5% (down 60bp YoY), and EBIT came in at INR1.3b.

* For 1HFY27, ATLP’s revenue/EBITDA/Adj PAT grew 23%/27%/31% to INR37.2b/INR6.4b/INR4.1b.

* Gross debt stood at INR1.7b vs INR1.8b as of Mar’26. CFO stood at INR3.9b against INR5.1b as of Sep’25.

* The Board declared buy-back of shares for an amount not exceeding INR900m, at a maximum price of INR7,500 per equity share.

Valuation and view

* We expect ATLP to regain its healthy momentum, led by:

1) capacity expansion for its key products in aromatics and bulk chemicals

2) new projects and unrealized revenue potential from existing capacities

3) debottlenecking in existing capacities across all major segments

4) entry into value-added products in chemical intermediates

5) launch of in-house developed novel products in the crop protection segment

6) expansion of market reach to new geographies.

* The stock trades at ~20.4x/18x FY27E/FY28E EPS of INR272.2/INR309.9 and ~13.2x/11.5x FY27E/FY28E EV/EBITDA. We value the stock at 23x FY28E EPS to arrive at our TP of INR7,100. Reiterate BUY.

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