Buy Atul Ltd for the Target Rs 8,400 by Motilal Oswal Financial Services Ltd
Robust performance led by performance chemicals Strong beat on earnings led by operating leverage
* Atul (ATLP) reported a strong performance in 1QFY27 as revenue grew 25% YoY to INR18.5b, led by 34% YoY revenue growth in the Performance & Other Chemicals segment, while the Life Science Chemical segment’s revenue rose 4% YoY. EBITDA grew 67% YoY to ~INR4b and adj. PAT increased 92% YoY to INR2.5b.
* ATLP’s 1Q earnings beat our estimates, supported by operating leverage. Considering the strong performance, we increase our FY27/FY28 earnings estimates by 15%/14%.
* The stock is trading at ~21.2x/18.5x FY27E/FY28E EPS of INR297.2/INR335.5 and ~13.9x/12.1x FY27E/FY28E EV/EBITDA. We value the stock at 25x FY28E EPS to arrive at our TP of INR8,400. Reiterate BUY
Strong beat on earnings due to operating leverage and growth in performance chemicals
* ATLP’s revenue grew 25% YoY to INR18.5b, led by 34% revenue growth in Performance Chemicals to INR14.2b and 4% YoY growth in Life Science chemicals to INR4.7b.
* Gross margin stood flat at 48.7% (vs. 48.7% in 1QFY26), and EBITDA margin expanded 540bp YoY to 21.3% (est. 16.2%).
* Consolidated EBITDA grew 67% YoY to ~INR4b (vs. our est. of INR2.8b.), and adj. PAT grew 92% YoY to INR2.5b (est. INR1.6b).
* Life Science Chemicals’ EBIT margin stood at 19.8% (+450bp YoY), while EBIT stood at INR928m. Performance Chemicals' EBIT margin stood at 16.8% (+740bp YoY), and EBIT came in at INR2.4b.
* ATLP has proposed a capex of INR1.67b for the manufacturing facility of Mecoprop-p with a capacity of 1,000tpa and 2-methyl4- chlorophenoxyacetic acid with a capacity of 750tpa to expand portfolio and strengthen its position in the Phenoxy herbicides and produce valueadded downstream products of o-Cresol and MCA ( used in agrochemicals).
* The facility is expected to commence operations after 67 weeks.
Valuation and view
* We expect ATLP to continue 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) launching in-house developed novel products in the crop protection segment
6) expanding market reach to new geographies.
* The stock is trading at ~21.2x/18.5x FY27E/FY28E EPS of INR297.2/INR335.5 and ~13.9x/12.1x FY27E/FY28E EV/EBITDA. We value the stock at 25x FY28E EPS to arrive at our TP of INR8,400. Reiterate BUY.
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