Recommendation From Agrochemical Sector
HERE IS WHY
Robust financial performance
Capacity expansion
Rising exports
Atul Ltd
BREWING THE CONCOCTION OF GROWTH!
Atul is an integrated chemical company. Atul manufactures around 1350 products and formulations and has state-of-art facilities. The company has established subsidiary companies in the US, UK, China, Brazil and the UAE to serve its customers. It serves 27 diverse industries. Atul has a portfolio of products internally classified into life science chemicals and performance and other chemicals segment.
On a consolidated basis, the total income from operations rose by 14 per cent to Rs. 1040.55 crore in Q1FY20 from Rs. 912.78 crore in Q1FY19. The EBITDA grew by 59 per cent to Rs. 240.25 crore in Q1FY20 from Rs. 151.12 crore in Q1FY19 due to appreciating performance of life science chemicals and performance chemicals. EBITDA margin stood at 23 per cent in June quarter of FY20 as against 16.55 per cent in the same quarter of FY19. Net profit climbed 79.6 per cent to Rs. 148.74 crore in Q1FY20 from Rs. 82.81 crore in Q1FY19 due to decreased cost of material consumed and power and fuel used for production.
The EPS grew 56.33 per cent to Rs. 145.64 in FY19 from Rs. 93.15 in FY18. The company sells its products in 92 countries. The sales outside India increased by 27 per cent from Rs. 1,478 crore to Rs. 1,874 crore mainly due to higher prices as compared to the previous year. Atul Ltd posted steady financial growth for the June quarter of FY20. On a consolidated basis, the total income from operations declined by 1.5 per cent to Rs. 1040.55 crore in Q1FY20 from Rs. 1058.04 crore in Q4FY19. Due to 2 per cent decrease in materials consumed and decline in other expenses, the net profit for June quarter of FY20 stood at Rs. 148.74 crore as against Rs. 113.22 crore in the previous quarter, posting 31.4 per cent growth. Atul is executing capex worth Rs. 400 crore, which includes 30 per cent expansion in aromatic compound with capacity of 36,000 tonnes, where the company commands more than 40 per cent market share. The aromatic compound has applications in the fragrance and anti-oxidant industries.
The company recently expanded its phosgene capacity by five times and is now working towards vertical integration of the phosgene value chain. The management has approved a caustic-chlorine project, which will supply chlorine used in the manufacture of phosgene.
The performance of Atul Ltd in Q1FY20 posted positive top-line and bottom-line growth. It is also increasing its production capacity, which implies the demand outlook for the future is strong, which will help the company to grow financially. The slowdown in domestic and international demand for endmarkets will be a key risk to monitor. Presently, the promoters' holding stands at 44.7 per cent, of which 4.52 per cent is pledged. However, efforts are being made to bring down the proportion of pledged shares. The stock is trading at 159.85 times of its price-to-earning (FY19), which might look expensive. We believe the earnings multiple of the company will improve further, supported fundamentally by growth in sales and profits.
