November 06, 2018

INITIATING COVERAGE REPORT

ATUL LTD.

2

Y/E Mar Revenue (Rs. Mn)

EBITDA (Rs. Mn)

PAT (Rs. Mn)

NPM (%)

REPS (Rs.)

P/E (x)

P/S (x)

P/BV (x)

FY18 31,475.6 4,724.7 2704.1 8.59 91.16 38.17 3.28 4.70 FY19 39,158.1 7,361.9 4286.4 10.95 144.51 24.08 2.64 3.90 FY20E 44,432.7 8,827.7 5420.7 12.20 182.64 19.05 2.32 3.30 FY21E 48,371.0 10,303.0 6311.3 13.05 212.78 16.35 2.13 2.81

Atul Ltd. Market Cap. (in Mn) 52 Week H/L CMP Target Price

Rs. 1,03,218 2,830/4,160 3,480 4,424

Please refer to the disclosure on last page

OUTLOOK & VALUATION Going forward we expect the company to grow at a rate of 13.5% in FY20 and 8.9% in FY21 and the EPS for FY20 and FY21 is expected to be Rs. 182.64 and 212.78 respectively. The growth will be majorly backed by increase in the volumes in the business with stable prices rather than the increase in prices in the previous year. The company is expected to realize the unrealized sales potential of Rs. 5,440 mn in the next 12-16 months which was as a result of debottlenecking of plants and increasing the existing capacities. We have valued Atul Ltd on both EV/EBITDA 13x of FY21x, P/S valuation of 2.75x of FY21 sales and P/E valuation of 20x of FY21E EPS and arrived at an average target price of INR 4,424 with a 27.1% upside wrt the closing price on 29-Aug-19 and recommend a BUY rating on the stock.

Diversified Business model with high market share and strong market presence. Atul Ltd classifies its business in two major heads; (A) Life Science Chemicals (32% of Revenue) which covers i) crop protection and ii) Pharma & aromatics-I and (B) Performance & other chemicals segment which covers i) Aromatics 2, ii) Bulk Chemicals, iii) Colors & iv) Polymers. The company has more than 6,000 customers operating in around 27 industries with significant market share in each of the business sub segments it operates in. Atul Ltd operates in more than 90 countries with its 1,350+ products and formulations. Tapping the unrealized sales growth can lead to double digit revenue growth. Atul Ltd in FY2019 had undertaken capex for debottlenecking and expanding the existing capacity of the company in a gradual manner in various segment and posses an un realized revenue potential on Rs. 5,440 Mn over the next 12-16 months. In the last year the company has achieved growth mainly due to higher realization and increase in prices due to China Debacle but we expect the prices to stabilize and major growth is expected to come on the back of higher volumes. Robust return ratios, positive cash flows and strong balance sheet. A debt free balance sheet backed by strong free cash flow to firm (6,934 over FY17-FY19) despite capex is a strong sign of active sincere management with an intention to grow their business. Strong RoCE of 20.5%, 18.5% & 24.7% in FY17, FY18 & FY19 respectively and working capital days around 70 during the same period speaks efficiency in all parameters.

STOCK DATA

Recommendation BUY

Reuters Code Bloomberg Code

ATLP.BO ATLP IN

BSE Code NSE Symbol

500027 ATUL

Face Value Rs. 10

Shares Outstanding*

29.7 Mn

Avg. Daily Volume (6m)

20,384 shares

Price Performance (%)

1M 3M 6M

(4) (11) 4

200 Days EMA Rs. 3610

* On fully diluted equity Shares

SHARE HOLDING (%)

Promoters 44.7

FII 7.5

FI/Bank 22.9

Body Corporate 2.6

Public & Others 22.3

3

ATUL Ltd.

August 30, 2019 August 30, 2019

Founded in 1947 by Mr. Kasturbhai Lalbhai , Atul Ltd has panned out to be one of the most integrated chemical company catering to more than 27 industries with 6,000+ customers with 1,350 products and formulations. Atul Ltd was the first private sector company to be inaugurated by the first Prime Minister of India and the company was also one of the few companies to manufacture specialty chemicals for the first time in the country.

Over the 70+ years since incorporation the company has built itself prominently as a global player in the specialty chemicals manufacturer in the country. Currently the company has 3000+ employees working around the world with presence in 90+ countries with its 900+ products and 400+ formulations.

COMPANY OVERVIEW

Source: Company, Sushil Finance Research

1952-1971 1972-1991 1992-2011 2012-2015 2015 Onwards

KEY MILESTONES

• Inaugurated by Prime Minister Jawaharlal Nehru on March 17, 1952.

• Commenced the manufacture of dyes (including Vat dyes) for the first time in India.

• JV with Imperial Chemical Industries plc (50%) to manufacture dyes.

• JV with Ciba Geigy Ltd (35%) to manufacture epoxy resins and curing agents.

• JV with American Cyanamid (65%) to manufacture crop care chemicals.

• Commenced the manufacture of Phosgene for the first time in India.

• Commenced the manufacture of Carbamite and 2,4-D Acid for the first time in India.

• Constructed a central effluent treatment plant.

• Acquired Gujarat Aromatics Ltd.

• Commenced the manufacture of para Cresol for the first time in India.

• Modernized epoxy plant and expanded Vat dyes manufacturing unit.

• Formed Atul USA Inc, Atul Europe Ltd and Atul China Ltd.

• Merged Atic Industries Ltd and Cibatul Ltd.

• Acquired 88% stake in DPD Ltd (UK) to conduct research on tissue cultured date palm | to import the tissue cultured date palm technology.

• Established a subsidiary company, Atul Bioscience Ltd to manufacture Active Pharmaceutical Ingredients (APIs) and their intermediates.

• JV with Rudolf GmbH (Germany) to manufacture textile chemicals

• Expanded para Cresol manufacturing facility – the world’s largest.

• Established a 22,000 sq ft research facility to build the business of APIs and API intermediates.

• Decreased (liquid) effluent in 41 products by 79% on an average.

• Converted Ankleshwar site into a ‘zero liquid effluent discharge’ facility.

• Developed 67 new products and formulations in R&D.

• Achieved zero liquid effluent discharge in 1 key product.

• Replaced mercury based caustic | chlorine plant with an environment-friendly, membrane based plant.

• Introduced 65 products and 19 formulations.

• USFDA approval received for Dapsone manufacturing plant.

• Established a JV with Nouryon (called ANAVEN LLP) to manufacture MCA in India.

4

ATUL Ltd.

August 30, 2019

BUSINESS OVERVIEW Atul Ltd caters to more than 27 industries with a base of more 6,000 customers which provides great diversification to the

company reducing the dependence of the company on any one customer(s). Atul Ltd is a Value based company giving priority to processes and operating seven dissimilar sub segment of which two have both retail and non retail verticals. The company has long term contracts with almost all of its customers which ensures stable revenue stream for the future as well.

The company works with 2,250 distributors and retailers across India and has its own sales force of 431 professionals and subsidiary companies in Brazil, China, the UAE, the UK and the USA. The company has 13 subsidiaries and 2 joint ventures through whom the customers and suppliers operate on long term basis. The company being backward integrated and with new capacities being added the fixed cost per unit of the products decrease.

The company classifies its business operations into two segments namely Life Science Chemicals segment & Performance & other Chemicals segment which are further segregated as given below.

Life Science Chemicals Performance & Other Chemicals

Crop Protection (20% of TR)

Pharma & Aroma-I (11% of TR)

Aromatics-II (16% of TR)

Bulk Chemicals & Intermediaries

(5% of TR)

Colors (14% of TR)

Polymers (26% of TR)

PR

OD

UC

TS

IND

UST

RIE

S

Herbicides, Insecticides, Fungicides.

API Intermediaries, Active Pharmaceutical

Ingredient.

Intermediaries, Perfumery.

Bulk Chemicals, Adhesion

Promoters.

Textile Dyes, Pigments, Paper

Dyes, Inks, Textile Chemicals

Epoxy Resins, Curing Agent,

Reactive Diluents, Sulfones,

Polyurethane, etc.

Agriculture, Crop Protection

Pharmaceuticals Fragrance,

Personal Care. Cosmetic,

Dyestuff, Tyre. Textile, Paints, Coating Paper.

Aerospace, Automobiles,

Cosmetics, Construction,

Defense, Electrical Equipment etc.

*TR-Total Revenue

5

ATUL Ltd.

August 30, 2019

INVESTMENT RATIONALE- Segmental/Product Diversification

A) LIFE SCIENCE CHEMICAL SEGMENT This segment constitutes ~34% of the total sales of the company and is further divided into two sub segments:- 1) Crop Protection

Segment (20% of Total Revenue) & 2) Pharmaceuticals & Aromatics segment (11% of Total Revenue). The segment has reported revenue of Rs. 13,177 Mn in FY19 showing a CAGR of 18.1% over FY 16-19 period with share in total

sales constant at 33.7%. In the coming years we believe the life science chemicals segment to grow by 17.6% and 14.5% in FY 20 and FY21 respectively.

The company reported EBIT of Rs. 2,170 Mn in FY19 and margins of 16.5% compared to Rs. 1,200 Mn in FY18 and margins of 11.3%.

8,005 8,650 10,623 13,178 15,500 17,747

FY16 FY17 FY18 FY19 FY20E FY21E

Total Revenue

6

ATUL Ltd.

August 30, 2019

1) CROP PROTECTION BUSINESS The products falling under these products group are used by customers belonging to Agriculture and Crop Protection Chemicals industries. The product groups comprise about 60 products and formulations. 2,4-D, Indoxacarb, Isoprothilane, Propoxur and sulonl urea herbicides are some of the key products. Crop Protection constitutes ~20% of total sales and 63% of revenue from Life science segment.

4,220 4,550 6,510 7,540

FY16 FY17 FY18 FY19

SALES

690 830 1,260 1,710

970

700

1060 920

FY16 FY17 FY18 FY19

Bulk Sales

Brand sales

1,660 1,530 2,320 2,630

2,560 3,020

4,190

4,910

FY16 FY17 FY18 FY19

Domestic

Exports

Product Market Share ( As on FY18)

2,4-D & Downstream Products 16% (World)

Indoxacarb 7% (World)

Number of products- Technical: 20, Formulations: 40

Unrealized Sales Potential Rs. 590 Mn

The size of the world Agriculture, Forestry and Fisheries industry is estimated at US$ 3.2 Tn and is growing at about 3%. The size of the world Crop Protection Chemicals industry is estimated at US$ 56 Bn and is growing at about 5%. The Food and Agribusiness forms a larger US$ 5 Tn world industry. If the current trend continues, caloric demand will increase by about 70% and crop demand for human consumption and animal feed will nearly double by 2050.

7

ATUL Ltd.

August 30, 2019

2) PHARMACEUTICALS AND AROMATICS – I These products group are used by customers belonging to Pharmaceutical industry for various therapeutic categories, such as anti-depressant, anti-diabetic, anti-infective, anti-retroviral and cardiovascular. The product groups comprise about 80 products catering to approximately 100 customers. Carbonates, chloroformates, isocyanates and organic ureas are some of the key classes of products. The company’s revenue grew by a CAGR of 34.3% within the period between FY 16-19.

3,110 3,420 6,510 7,540

FY16 FY17 FY18 FY19

SALES

1,630 1,780 2,180 2,930

1,480 1,640 1,490

2,330

FY16 FY17 FY18 FY19

Domestic

Exports

Product Market Share ( As on FY19)

APIs & API Intermediaries Insignificant (World)

Dapsone 50%

Phosgene Chemicals Insignificant (World)

Unrealized Sales Potential Rs. 1,500 mn (in 2 years)

Atul Bioscience Ltd (ABL), a 100% subsidiary company, acquired manufacturing facilities of Polydrug Laboratories Private Limited at MIDC, Ambernath. Sales of ABL for 2018-19 increased by 37% from Rs. 76 Cr to Rs. 104 Cr, primarily because of volume; it completed 2 debottlenecking projects and undertook 2 projects for implementation.

The size of the world Pharmaceutical industry is estimated at US$ 1.75 Tn, of which the conventional pharmaceutical segment is estimated to be US$ 1.3 Tn. Of this, the size of the world API industry is estimated to be US$ 160 Bn. Biologics is estimated to contribute about 52% of sales of top 100 products by 2022, while Oncology will remain the largest therapy area in sales growing at about 12.7% CAGR. Worldwide Pharmaceutical R&D spend is estimated to grow by 2.4% CAGR to about US$ 181 bn in 2022, with about US$ 4 bn R&D spend per New Molecular Entities (NME) over the last 10 years.

8

ATUL Ltd.

August 30, 2019

B) PERFORMANCE & OTHER CHEMICALS This segment of the company consists of 4 sub segments namely: • Aromatics –II • Bulk Chemicals & Intermediaries • Colors • Polymers The segment has recorded a topline growth of by 13.2% over the period between FY 16-19 and we expect the segment to grow by 10.4% in FY20 and 6% in FY21.

19,460 21,559 22,791 28,252 31,187 33,058

FY16 FY17 FY18 FY19 FY20E FY21E

Total Revenue

9

ATUL Ltd.

August 30, 2019

1) AROMATICS –II The products falling under these products group are mainly used by customers belonging to Fragrance and Personal Care industries. The product groups comprise about 20 products. para Cresol, para Anisic Aldehyde, para Anisyl Alcohol and para Cresidine are some of the key products. The company caters to 367 customers with the 38 product offerings it has in the sector. The revenue in this segment grew at a rate of 32% in FY19 majorly due to growth in the volumes by 7%.

4,690 5,370 5,390 7,110

FY16 FY17 FY18 FY19

SALES

1,390 1,230 1,500 2,250

3,300

4,140 3,890

4,860

FY16 FY17 FY18 FY19

Domestic

Exports

Product Market Share ( As on FY19)

p-Cresol (P&OC) 42%

p-Cd (P&OC) 20%

p-AA (LSC) 75%

p-AAI (LSC) 95%

Unrealized Sales potential Rs. 1,010 Mn

The size of world fragrance industry is ~US$ 12.5 Bn and is growing at ~4% every year and personal care ingredients segment is ~US $21 Bn which is also growing by 4%. The world market for “para Cresol” ATUL’s key product, is expected to be at 64,000 MT and is estimated to grow at 2% annually. To capitalize on the steady demand in coming years, ATUL ltd has planned to: 1) Develop a project for manufacturing fragrance

intermediate 2) Commercialization of products developed in Kilo lab. 3) Commercialize higher end products from p-MPAA. 4) Develop capacities for cosmetic ingredients.

10

ATUL Ltd.

August 30, 2019

2) BULK AND CHEMICAL INTERMEDIATES This segment consists mainly for customers belonging to the to Cosmetic, Dyestuff, Pharmaceutical and Tyre industries and it is also used for internal consumption. The product basket consists of 24 products catering to the needs of 197 customers. Resorcinol, Resorcinol formaldehyde raisins, 1,3 –Cyclohexanedione, Anisole, Sulphur Tri oxide, Chlorosulphuric Acid & Caustic Soda are some of the key products. The Tyre industry is expected to grow further because of increasing population in one place and increasing standard of living of Individuals on the other hand. The company is also expanding its manufacturing capacities for various products which can lead to increase in internal consumption of bulk chemicals.

1,040 1,380 1,750 2,490

FY16 FY17 FY18 FY19

SALES

610 890 1,120 1,500

430 490

630

990

FY16 FY17 FY18 FY19

Domestic

Exports

Product Market Share ( As on FY19)

Resorcinol Significant (India)

Insignificant (World)

Resorcinol Formaldehyde Resins

Insignificant (under qualification at

major customers)

CSA Significant (India)

Unrealized Sales potential Rs. 1,360 Mn

Going forward the world market for Resorcinol is estimated at US$ 426 Mn and is growing at about 2.5% also Chlor-alkali industry is estimated at US$ 44 Bn which is growing at about 3.2%. Demand from the Auto industry is expected to pick up in H2FY20 leading to the healthy demand for tyre companies. The dye-stuff industry has been witnessing a rough patch for couple of years; however demand scenario in this industry is anticipated to remain sluggish. Atul Ltd aims to grow by: • Enhancing its market share in the product offerings and expanding into

new geographical locations. • Increasing the operations efficiency of the manufacturing facilities by

debottlenecking and also expanding the existing capacities. • Introducing new and innovative products to cater to the client needs in an

efficient manner.

11

ATUL Ltd.

August 30, 2019

3) COLORS In this segment the company manufactures a range of products for its clients such as Pigment Red 168, Sulphur Black 1, Vat Green 1 etc for the dyestuff, pigment, dye-Intermediaries and textile chemical industry. The company is one of the largest manufacturers of Vat dyes globally and the largest manufacturers of Sulphur black in the country. The company has around 587 products servicing around ~298 customers globally. The company reported increase of revenue by 21% in FY19 to Rs. 5,470 Mn where the company has completed 5 projects. Rudolf chemicals a JV company formed in 2011-12 reported a sales growth of 14% to Rs. 830 Mn primarily due to increase in volumes.

3,940 4,070 4,520 5,470

FY16 FY17 FY18 FY19

SALES

2,200 2,240 2,360 2,850

1,740 1,830 2,160

2,620

FY16 FY17 FY18 FY19

Domestic

Exports

Product Market Share ( As on FY19)

Textile dyes Significant (India)

Insignificant (World)

HP pigments Insignificant (World)

Unrealized Sales potential

Rs. 980 Mn

Project Under Implementation

Textile Dye 1-Rs. 2,500 Mn Intermediaries- Rs. 450 Mn

The size of the world Dyestuff industry is estimated at US$ 6.1 Bn and is growing at about 3.5% China being the largest manufacturer of dyes followed by India. The world market for high performance pigments is estimated at US$ 5.2 Bn and is growing at about 4.0%. The main user industries viz. Textile, Paper, Paint & coating are expected to continue their growth trajectory for the future as the population increases and the standard of living of the people also increases. The Sector does also have certain risks like the foreign exchange risk and the availability of raw material which may impact sales realization. Treatment cost are expected to remain high given that the manufacture of dyes and pigments generate significant pollutants.

12

ATUL Ltd.

August 30, 2019

4) POLYMERS The products falling under these products group are used by customers belonging to Aerospace, Automobile, Composites, Construction, Defence, Electrical and Electronics, Footwear, Paint and Coatings, Paper, Sport and Leisure and Wind Energy industries. The product groups comprise about 96 synthetic products and 300 formulations. B11, P62 and P101 are some of the key products. During the FY 2018-19 the company showed a growth of 22% with revenue clocking at Rs. 10,480 Mn mainly due to 5% increase in volumes.

6,990 7,500 8,580 10,480

FY16 FY17 FY18 FY19

SALES

4,450 4,620 5,800 7,110

2,540 2,880 2,780 3,370

FY16 FY17 FY18 FY19

Domestic

Exports

6,120 6,650 4,870 5,930 870 850 930 1,180

FY16 FY17 FY18 FY19

Bulk Sales

Retail Sales

Product Market Share ( As on FY18)

Epoxy Resins | Curing agents Significant (India)

Sulfones Significant (World)

Epoxy, Polyurethane, Rubber formulations

Significant (India)

Projects under Implementation Rs. 2,910 Mn

The world market for Epoxy Raising and Curing agents is estimated at US$ 7.3 Bn growing at about 2% and the Indian market if is estimated at US$ 285 mn growing at 6%. There are only 7 companies globally dominating the world market. The world market for Sulfones is estimated at US$ 367 mn and is growing at about 5%. Polymers is a very competitive industry due to cheap imports and new entrants and this may also keep the margins under pressure. Two main raw material namely Bisphenol-A and Epichlorohydrin are imported and fluctuation in the exchange rate may impact the margins of the company.

13

ATUL Ltd.

August 30, 2019

GEOGRAPHICAL DIVERSIFICATION

50.0%

20.0%

12.0%

11.0%

4.0% 3.0% FY 2018-19

India

Asia( Exc. India)

Europe

North America

South America

Africa

50.0%

18.0%

14.0%

12.0%

4.0% 2.0% FY 2017-18

50% 52% 51% 50% 47% 50% 50%

50% 48% 49% 50% 53% 50% 50%

19,640 23,070

25,100 24,030 26,390

30,520

38,450

-

15,0 00

30,0 00

0%

20%

40%

60%

80%

100 %

120 %

140 %

160 %

180 %

FY13 FY14 FY15 FY16 FY17 FY18 FY19

Domestic Exports Total Sales

14

ATUL Ltd.

August 30, 2019

INVESTMENT RATIONALE- Tapping unrealized sales growth can lead to double digit revenue growth over FY19-21

Atul Ltd reported a growth of 24.4% in FY19 where the topline stood at Rs. 39,158.1 Mn and the growth in the PAT was 58.5% standing at Rs. 4,286.4 Mn. The growth was mainly driven by higher realization and growth of ~24% in the performance and other chemicals business. We expect the company to continue its double digit growth trajectory with a growth rate of 11.14% between the period FY19-21.

26,521 28,483 31,476 39,158 44,433 48,371

2,745 2,853 2,704

4,286

5,421

6,311

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

10,000

20,000

30,000

40,000

50,000

60,000

FY16 FY17 FY18 FY19 FY20 FY21

SALES PAT

The growth will be largely driven by higher volume growth as the prices are un-likely to spike from current levels. Additionally company’s ability to penetrate into export markets, launching of new products, timely expansion of capacities, along with expectation of hardships being faced by Chinese chemical companies to continue should lead the company to achieve its target of INR 50,000 Mn turnover. Atul ltd with its expansion projects completed in past year possesses an unrealized sales potential of ~INR 5,440 Mn.

Category of products Investments (Rs. Mn) Sales (Rs. Mn)

Existing products (debottlenecking)

190 390

Existing products (expansion)

3,700 9,500

Safety 100 -

Environment 770 -

Total 4,760 9,890

15

ATUL Ltd.

August 30, 2019

Q1-FY20-PERFORMANCE

Source: Company, Sushil Finance Research

8,881

10,074 10,195 10,008

10,406

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

TOTAL INCOME (INR Mn)

32.3% 33.4% 30.6% 31.1% 32.1%

67.7% 66.6% 69.4% 68.9% 67.9%

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

Life Science Chemicals Performance & Other Chemicals

SEGMENTAL BREAKUP

EBITDA & EBITDA M(%)

1,420 1,900 2,114 1,928 2,403

16% 19% 21% 19%

23%

0%

5%

10%

15%

20%

25%

-

500

1,00 0

1,50 0

2,00 0

2,50 0

3,00 0

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20EBITDA Margin (%)

PAT & PAT M(%)

842 1,190 1,169 1,085 1,477

9% 12% 11% 11%

14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-

200

400

600

800

1,00 0

1,20 0

1,40 0

1,60 0

Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20

PAT Margin (%)

Total income of the company grew by 4% on a QoQ basis and 17.2% on a YoY basis.

Life Science chemical segment de grew by 7.2% on a QoQ basis and grew by 14.3% on a YoY basis. Performance & other chemicals segment de grew by 2.6% on a QoQ basis and grew by 15.0% on a YoY basis

EBITDA of the company grew by 24.6% on a QoQ basis and 69.2% on a YoY basis.

PAT of the company grew by 36.0% on a QoQ basis and 75.4% on a YoY basis.

16

ATUL Ltd.

August 30, 2019

INVESTMENT RATIONALE- Strong Balance Sheet & Increasing Financial Strength

14.9% 12.3%

16.2%

20.5% 18.5%

24.7%

FY17 FY18 FY19

RoE RoCE

647.58 740.87

893.26

96.18 91.16 144.51

-

50.0 0

100 .00

150 .00

200 .00

250 .00

300 .00

-

200 .00

400 .00

600 .00

800 .00

1,00 0.00

1,20 0.00

FY17 FY18 FY19

BVPS EPS

Subsidiary & associate companies

570

760

1,040

120 140

130

-

500

-

200

400

600

800

1,00 0

1,20 0

FY17 FY18 FY19

190 210 230

60 50

40

(2 00)

300

-

50

100

150

200

250

FY17 FY18 FY19

Atul Bio Science ltd DPD Ltd

260 320 330

90 100 100

(1 00)

400

-

50

100

150

200

250

300

350

FY17 FY18 FY19

Amal

650 730 830

150 140

150

(1 00)

400

-

100

200

300

400

500

600

700

800

900

FY17 FY18 FY19

Rudolf Atul Chemicals

17

ATUL Ltd.

August 30, 2019 August 30, 2019

INCOME STATEMENT Amounts in INR Mn

Y/E March FY18 FY19 FY20E FY21E

Revenue 31,475.6 39,158.1 44,432.7 48,371.0

Cost of Material 17,332.5 20,577.2 22,598.8 23,943.7

Power, Fuel & Water 3,362.6 3,915.1 4,217.6 4,546.9

Employee Benefit Expenses 1,813.4 2,185.7 3,041.1 3,337.6

Other Expenses 4,242.4 5,118.2 5,747.5 6,239.9

EBITDA 4,724.7 7,361.9 8,827.7 10,303.0

EBITDA M(%) 15.01% 18.80% 19.87% 21.30%

Depreciation 1,047.8 1,119.9 1,001.8 1,282.9

Finance Cost 89.0 36.6 75.2 77.4

Other Income 384.6 313.6 331.2 338.6

PBT (as reported) 3,972.5 6,519.0 8,081.9 9,281.4

Tax 1,268.4 2,232.6 2,661.2 2,970.0

RPAT 2,704.1 4,286.4 5,420.7 6,311.3

APAT 2,704.1 4,286.4 5,420.7 6,311.3

PAT M(%) 8.59% 10.95% 12.20% 13.05%

REPS 91.16 144.51 182.64 212.78

AEPS 91.16 144.51 182.64 212.78

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ATUL Ltd.

August 30, 2019 August 30, 2019

BALANCE SHEET Amounts in INR Mn

PARTICULARS FY18 FY19 FY20E FY21E PARTICULARS FY18 FY19 FY20E FY21E

Share capital 296.8 296.8 296.8 296.8 Current Liabilities 5,566.8 5,300.5 5,870.3 6,055.8

Reserves and surplus 21,678.6 26,198.8 30,941.9 36,401.2 Trades payable 4,704.7 4,181.0 4,744.5 4,883.2

Net Worth 21,975.4 26,495.6 31,238.7 36,698.0 Other Financial Liabilities 551.8 680.9 687.3 734.0

Contract Liabilities - 81.5 81.5 81.5

Long term borrowings - - - - Other current liabilities 146.6 63.1 63.1 63.1

Short term borrowings - - - - Short term provisions 83.6 292.2 292.2 292.2

Total Borrowings / Debt - - - - Current Tax Liabilities (net) 80.1 1.8 1.8 1.8

Capital Employed 21,975.4 26,495.6 31,238.7 36,698.0 Net Current Asset 7,237.8 10,522.6 12,072.5 14,847.1

Gross Fixed Assets 9,916.6 9,913.8 11,484.0 12,099.6 Non Current Assets 6,470.3 7,721.9 9,306.3 11,472.7

Property, Plant & Equipment 9,188.7 9,178.4 10,498.6 10,664.2 Investments 5,948.1 7,286.8 8,746.8 10,495.6

Capital WIP 695.6 703.1 953.1 1,403.1 Loans 50.3 - - -

Investment Property 32.2 32.2 32.2 32.2 Other Financial Assets 24.8 22.2 22.2 22.2

Intangible Assets 0.1 0.1 0.1 0.1 Deferred Tax Assets(Net) - - - -

Income Tax Assets (Net) 6.7 37.4 37.4 37.4

Current Assets 12,804.6 15,823.1 17,942.8 20,902.9 Other Non Current Assets 440.4 375.5 499.8 917.5

Inventories 3,789.5 4,278.1 4,553.9 4,960.8

Investments - 1,976.4 2,499.1 3,486.3 Non Current Liabilities 1,649.3 1,662.7 1,624.1 1,721.4

Trade receivables 7,176.8 7,621.8 8,643.1 9,674.2 Other Financial Liabilities 225.7 250.0 250.0 250.0

Cash and cash equivalents 221.7 286.2 297.3 473.5 Long Term Provisions 177.1 187.0 187.0 187.0

Loans 20.4 49.2 51.7 55.3 Other Long Term Liabilities 1,246.5 1,225.7 1,187.1 1,284.4

Other Financial Assets 319.4 174.5 179.7 197.7

Other Current Assets 1,276.8 1,436.9 1,718.1 2,055.1 Capital Employed 21,975.4 26,495.6 31,238.7 36,698.0

Source: Company, Sushil Finance Research Estimates

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CASH FLOW STATEMENT

Particulars FY18 FY19 FY20E FY21E Particulars FY18 FY19 FY20E FY21E

Cash Flow from Operating Activity Cash Flow from Investing Activity

Profit before tax & Extraordinary Items 3,972.5 6,519.0 8,081.9 9,281.4 (Incr)/ Decr in Gross PP&E (927.4) (894.8) (2,322.0) (1,448.5)

Depriciation & Amortization 1,047.8 1,119.9 1,001.8 1,282.9 (Incr)/Decr In Work in Progress (325.7) (7.5) (250.0) (450.0)

Finance Cost 89.0 36.6 75.2 77.4 (Incr)/Decr In Investments - (1,976.4) (522.7) (987.2)

Provision for Taxes (1,268.4) (2,232.6) (2,661.2) (2,970.0) Other Adjustments 385.5 (102.4) (351.0) (465.0)

Changes in Working Capital Cash Flow from Investing (867.6) (2,981.1) (3,445.7) (3,350.7)

(Increase)/Decrease in Current Assets (2,346.8) (948.8) (1,583.5) (1,793.0)

Trade Receivables (2,106.2) (445.0) (1,021.3) (1,031.1) Cash Flow from Financing Activity

Inventory (110.6) (488.6) (275.8) (406.9) (Decr)/Incr in Debt (1,340.0) - - -

Other Financial Assets (68.2) 144.9 (5.2) (18.0) (Decr)/Incr in Share Capital - - - -

Other Current Assets (61.8) (160.1) (281.2) (337.0) Interest Paid (89.0) (36.6) (75.2) (77.4)

Increase/(Decrease) in Current Liabilities

1,757.3 (524.2) 62.5 (568.2) Dividend (330.7) (397.4) (677.6) (852.0)

Trade Payables 1,414.1 (523.7) 563.5 138.7 Other Adjustments (476.0) (602.8) (654.0) (854.0)

Other Financial Liabilities 89.2 129.1 6.4 46.7 Cash Flow from Financing (2,235.7) (1,036.8) (1,406.8) (1,783.4)

Other Current Liabilities (241.0) (83.5) - -

Current Provisions 7.4 208.6 - - Incr/(Decr) in Balance Sheet Cash

148.1 (48.0) 124.2 176.2

Other Adjustments 487.6 (254.7) (507.3) (753.7) Cash at the Start of the Year 73.0 221.1 173.1 297.3

Cash Flow from Operating 3,251.4 3,969.9 4,976.7 5,310.3 Cash at the End of the Year 221.1 173.1 297.3 473.5

Source: Company, Sushil Finance Research Estimates

Amounts in INR Mn

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ATUL Ltd.

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FINANCIAL RATIOS

Ratios FY18 FY19 FY20E FY21E Ratios FY18 FY19 FY20E FY21E

Growth (%) Valuations (x)

Revenue 10.51% 24.41% 13.47% 8.86% P/E 38.17 24.08 19.05 16.35

EBITDA 0.15% 55.82% 19.91% 16.71% P/BV 4.7 3.9 3.3 2.81

EBIT -3.65% 61.41% 24.43% 14.73% P/Sales 3.28 2.64 2.32 2.13

PAT -5.22% 58.51% 26.46% 16.43% EV / EBITDA 21.8 13.98 11.66 9.97

EPS -5.22% 58.52% 26.39% 16.50% EV / Net Sales 3.27 2.63 2.32 2.12

Mcap / Net Sales 3.28 2.64 2.32 2.13

Profitability (%)

EBITDA Margin 15.01% 18.80% 19.87% 21.30% Turnover Days

EBIT Margin 12.90% 16.74% 18.36% 19.35% Debtors Days 71 69 71 73

PAT Margin 8.59% 10.95% 12.20% 13.05% Inventory Days 60.6 55.2 55.7 56.9

Creditors Days 64.8 60.8 58 56

Per Share Data WC Cycle 66.7 63.4 68.7 73.9

EPS 91.16 144.51 182.64 212.78

BVPS 740.87 893.26 1,053.17 1,237.22 Others

Sales per share 1,061.15 1,320.16 1,497.98 1,630.76 Current Ratio 2.3 3 3.1 3.5

Quick Ratio 1.6 2.2 2.3 2.6

Gearing Ratio Interest Coverage 45.6 179.1 108.4 120.9

Debt/Equity - - - - Fixed Asset Turnover 3.2 3.1 3.1 3.1

Amounts in INR Mn

Source: Company, Sushil Finance Research Estimates

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ATUL Ltd.

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OUTLOOK & VALUATION Going forward we expect the company to grow at a rate of 13.5% in FY20 and 8.9% in FY21 and the EPS for FY20 and FY21 is expected to be Rs. 182.64 and 212.78 respectively. The growth will be majorly backed by increase in the volumes in the business with stable prices rather than the increase in prices in the previous year. The company is expected to realize the unrealized sales potential of Rs. 5,440 mn in the next 12-16 months which was as a result of debottlenecking of plants and increasing the existing capacities. We have valued Atul Ltd on both EV/EBITDA 13x of FY21x, P/S valuation of 2.75x of FY21 sales and P/E valuation of 20x of FY21E EPS and arrived at an average target price of INR 4,424 with a 27.1% upside wrt the closing price on 29-Aug-19 and recommend a BUY rating on the stock.

KEY RISKS FLUCTUATION IN RAW MATERIAL PRICES & AVAILABILITY

Although the company has shown strong execution in the past, it still faces the risk of margin pressure due to foreign currency fluctuation which can make the price of raw material volatile thus impacting the bottom line of the company. The availability of the raw may also be impacted due to pressure from the Chinese markets. Rebound in the Chinese market in the future may be a risk to the company’s business as it may create a highly competitive scenario for the company.

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SALES Devang Shah | +91 22 4093 6060/62 devang.shah@sushilfinance.com

Research Associate Dhruvin Upadhyay | +91 22 4093 4082 dhruvin.upadhyay@sushilfinance.com

Rating Scale

This is a guide to the rating system used by our Institutional Research Team. Our rating system comprises of six rating categories, with a corresponding risk rating. Risk Rating

Risk Description Predictability of Earnings / Dividends; Price Volatility

Low Risk High predictability / Low volatility

Medium Risk Moderate predictability / volatility

High Risk Low predictability / High volatility

Total Expected Return Matrix

Rating Low Risk Medium Risk High Risk

Buy Over 15 % Over 20% Over 25%

Accumulate 10 % to 15 % 15% to 20% 20% to 25%

Hold 0% to 10 % 0% to 15% 0% to 20%

Sell Negative Returns Negative Returns Negative Returns

Neutral Not Applicable Not Applicable Not Applicable

Not Rated Not Applicable Not Applicable Not Applicable

Please Note • Recommendations with “Neutral” Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses). • ** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we have enhanced our return criteria for such stocks by five

percentage points. • Stock Review Reports: These are Soft coverage’s on companies where Management access is difficult. Views and recommendation on such companies may not

necessarily be based on management meeting but may be based on the publicly available information and/or attending Company AGMs. Hence Stock Reviews may be just one-time coverage’s with an occasional Update, wherever possible.

…

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