Atul - Rising Like A Phoenix: Motilal Oswal

Motilal Oswal Report

Atul Ltd. has burned for three long years (FY22-24) and it is a classic case of valuations perched higher despite a significant decline in earnings. During FY22/FY23/ FY24, Ebitda declined 1%/15%/18% YoY and earnings declined 9%/15%/39% YoY.

Margin contracted sharply by 11.1% from the high of 24.6% in FY21. Weak demand in end-user markets and significant pricing pressure amid Chinese supplies were the main reasons for this downfall during FY22-24.

Accordingly, the stock price tanked ~48% (in absolute terms, as of May-24) from its peak in Oct-21.

During this time, the management has been berated on multiple occasions by the investor community on capital misallocation for setting up commodity chemical capacities instead of specialty ones after it generated a record amount of free cash flow (Rs 9 billion) during FY20-21. However, the management has reiterated several times that these are sound investments and will be beneficial for the overall business.

That said, with the capex cycle (Rs 19.7 billion during FY22-24) almost over and teething problems in some capacities put to rest, we believe that Atul is ready to make a comeback in the next two-three years, glimpses of which we have seen in Q1 FY25 earnings. Investments are set to be supported by a gradual recovery in the sub segments that Atul operates in and the management’s efforts to expand its capacities for key products and for debottlenecking the existing ones.

We upgrade our rating to Buy.

Click on the attachment to read the full report: 

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.