Buy Atul Ltd for the Target Rs.8,975 by Motilal Oswal Financial Services Ltd
Performance segment leads the recovery
* Atul (ATLP) reported in-line revenue at INR14.78b (+12% YoY) in 1QFY26. Revenue of the Performance & Other Chemicals segment increased 14% YoY, while the Life Science Chemical segment posted 6% YoY growth. EBITDA increased 5% YoY to INR2.35b, and PAT increased 18% YoY to INR1.32b.
* We broadly retain our estimates for FY26/FY27. We estimate a revenue/ EBITDA/PAT CAGR of 13%/16%/23% during FY25-27. The stock is trading at ~27x FY27E EPS of INR256 and ~16x FY27E EV/EBITDA. We value the stock at 35x FY27E EPS to arrive at our TP of INR8,975. Reiterate BUY.
EBITDA in line; PAT miss due to lower-than-expected other income
* ATLP’s revenue was INR14.78b (+12% YoY). Life Science Chemicals’ revenue stood at INR4.49b (+6% YoY), while Performance Chemicals’ revenue was INR10.67b (+14% YoY) during the quarter.
* Gross margin was 48.7% (-140bp YoY) and EBITDA margin was 15.9% (- 100bp YoY). EBIT margin expanded for Performance and Other Chemicals but contracted for Life Science Chemicals on a YoY basis. Life Science Chemicals margin at 15.2% (-150bp YoY); EBIT at INR684m. Performance Chemicals' margin was 9.4% (+30bp YoY); EBIT stood at INR1b.
* The company’s EBITDA came in at INR2.36b (est. of INR2.4, +5% YoY), and PAT stood at INR1.32b (est. of INR1.4b, +18% YoY).
* The Life Science segment was muted in 1QFY26; the EBIT margin contracted 150bp YoY/650bp QoQ. The Performance segment continued to do well in terms of revenue and margins. We remain bullish on both segments.
* The Life Science Chemicals’ contribution to EBIT decreased to 40% (from 44% in 1QFY25), whereas the contribution of Performance & Other Chemicals to overall EBIT increased to 59% (from 53% in 1QFY25).
Valuation and view
* The company is undertaking various projects and initiatives aimed at improving plant efficiencies, expanding its capacities for key products, debottlenecking its existing capacities, capturing a higher market share, and expanding its international presence.
* The stock is trading at ~27x FY27E EPS of INR256 and ~16x FY27E EV/EBITDA. We maintain our earnings and reiterate our BUY rating on the stock. We value the stock at 35x FY27E EPS to arrive at our TP of INR8,975. The upside risk could be a faster-than-expected ramp-up of new projects and products. Downside risks include weaker-than-expected revenue growth and margin compression amid teething issues in new projects.
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