atul ltd

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CREDIT ANALYSIS & RESEARCH LIMITED 1

ATUL LTD.

Long-term bank loans/facilities 'CARE A-'

Short-term bank loans/facilities 'PR1'

Rating

CARE has retained the 'CARE A-' [Single A minus] rating

assigned to the long-term bank loans/facilities of Atul Ltd.

(Atul). This rating is applicable to facilities having tenure

of more than one year. Facilities with this rating are

considered to offer adequate safety for timely servicing

of debt obligations. Such facilities carry low credit risk.

Further, CARE also retained 'PR 1' [PR One] rating

assigned to the short-term bank loans/facilities of Atul.

This rating is applicable to facilities having tenure of up

to one year. Facilities with this rating would have strong

capacity for timely payment of short-term debt obligations

and carry lowest credit risk. Within this category, facilities

with relatively better credit characteristics are assigned

PR1+ rating.

CARE assigns '+' or '-' signs to be shown after the

assigned rating (wherever necessary) to indicate the

relative position within the band covered by the rating

symbol.

Facilities rated by CARE aggregate to Rs.485.49 crore,

including outstanding/sanctioned term loans of Rs.155.49

crore, fund based working capital limit of Rs.200 crore

and sanctioned non-fund based limit of Rs.130 crore.

The ratings continue to factor in wide experience of

promoters and competent management, established track

record and strong position of the company in the chemical

industry with diversified product portfolio, strong R&D

setup, established customer base and improving financial

profile characterized by moderate gearing levels,

improving profitability and comfortable liquidity position.

The ratings, however, continue to remain constrained due

to weak end-use industry scenario marked by stiff

competition from unorganized sector, high operational

overheads, exposure to raw material price fluctuations

with global linkages and foreign exchange fluctuation.

Company's ability to improve its profitability through better

raw material price-risk management, control over

operational overheads and improvement in gearing levels

are the key rating sensitivities.

Company Background

Atul was originally promoted by Late Shri Kasturbhai

Lalbhai in 1947 as Atul Products Ltd. as a step towards

backward integration of their cotton textile business. In

1996, it was renamed as Atul Ltd. It has one of the biggestintegrated chemical complexes in Asia, manufacturing a

wide variety of dyes & dye intermediates, bulk chemicals

& intermediates, agrochemicals, polymer & pharma

intermediates and aromatics. The over three hundred

products manufactured by the company, find wide usage

in industries like - textile, paints, agriculture, fragrance &

flavours, tyre, paper, pharmaceutical, aerospace,

construction, etc.

Operations

Atul's operations are divided into six Strategic Business

Units (SBUs) viz.: Colours/Dyes (contributing to 22% of

FY09 net sales), Aromatics (26%), Bulk chemicals and

Intermediates (7%), Crop Protection (21%),

Pharmaceuticals & Intermediates (6%) and Polymers

(16%). While Aromatics division is located in Ankleshwar

(Gujarat), all the other divisions are located in Valsad,

Gujarat. Atul sells its products both in the domestic as

well as international markets with exports contributing

nearly 50% of the sales during FY09.

Some of the major contributing products include p-cresol, p-anisic aldehyde, p-anisic alcohol, p-cresidine,

epoxy resins, sul fones having wide range of

applications in different industries including personal

care, pharmaceuticals, dyestuff, paper, tyre, textile,

agriculture, aerospace etc. Atul enjoys fair amount of

market share in many of these products segments

around the world.

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CAREVIEW2

Major raw materials for its products are mainly toluene,

phenol and methanol. Atul also manufactures some of

the intermediate products at its some divisions which are

raw material for its other divisions. The raw materials are

largely procured from domestic market and only 26%during FY09 was procured from abroad. Raw materials

are largely crude oil derivatives which expose the

company to raw material price risk.

Financial Performance

Atul's total income has grown at CAGR of 12% over the

past three years till FY09 primarily driven by growth from

crop protection, aromatics and pharmaceutical divisions.

Atul's total operating income grew by 17% during FY09

on standalone basis, primarily driven by growth from

across almost all the divisions.

PBILDT margin improved significantly during FY09 due

to improvement in sales realization coupled with decline

in raw material prices and spreading of overhead costs

over larger production base.

With improvement in PBILDT margin, PAT margin also

improved during FY09 despite increase in interest and

depreciation costs and other extraordinary losses

pertaining to exchange rate fluctuations.

Long-term debt equity ratio, though increased marginally,

remained comfortable at 0.65 times as at Mar.31, 2009.

However, the overall gearing ratio improved and stood

at 1.02 times as at Mar.31, 2009 compared to 1.31 times

as at Mar.31, 2008, due to accretion of profits to networth

and repayment of term loans. With the improvement in

profitability margins, interest coverage ratio improved to

2.95 times during FY09.

Current ratio improved to 1.60 times as at Mar.31, 2009

from 1.37 times as at Mar.31, 2008 mainly due to

reduction in bank borrowings for working capital anddecline in the level of sundry creditors for expenses.

Atul's overall operating cycle improved during FY09 to

52 days compared to 64 days during FY08 due to

decrease in collection period.

Results for H1FY10: During H1FY10, Atul reported a PAT

of Rs.33 crore on a total income of Rs.544 crore as

against the PAT of Rs.18 crore registered on total income

of Rs.650 crore during H1FY09. PBILDT margin of

13.27% during H1FY10 was higher than its FY09 levels.

Industry Scenario

Dyestuff:

The global dyestuff industry (dyes and pigments) has

witnessed a gradual shift of manufacturing facilities from

the developed countries to Asia, particularly China and

India due to environmental considerations, availability of

trained and inexpensive manpower and the relocation of

the end-user industries mainly textile and leather to the

Asia-Pacific region.

The Indian dyestuff industry is widely fragmented between

the organised and unorganised sectors. There are

approximately 950 dye manufacturing units in India of

which 50 units are in the organised and 900 in the

unorganised sector. The two western States of

Maharashtra and Gujarat account for over 90% of the

total dyestuff production in the country.

India has emerged as a global supplier of dyestuffs and

dye intermediates, particularly for reactive, acid, vat and

direct dyes. The Indian dyestuff industry meets more than

95% requirement of the domestic market and has

gradually also made a dent in the global market. The

worldwide demand for organic colourants is estimated at

USD 10.6 billion in 2008. India accounts for 6.80% of the

world dyestuff production. It faces stiff competition in the

international market from China and some south-east

Asian countries.

At present, vat, disperse and reactive dyes and pigments

are manufactured mainly by the organised sector as these

are very capital intensive. Disperse dyes have maximum

share in the total domestic demand followed by acid and

direct dyes.

Others Products:

Resorcinol, a chemical intermediate, is the essential

component of an adhesive system used in the tyre

manufacturing process and other fibre-reinforced rubber

mechanical goods. INDSPEC Chemical Corporation is

the world's largest producer of resorcinol, having global


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Financial results

(Rs.crore)

For the period ended / as at Mar.31, 2007 2008 2009(12m, A) (12m, A) (12m, A)

Working ResultsNet Sales 920 1028 1202

Total operating income 924 1037 1224

PBILDT 68 60 154

Depreciation 31 30 32

Interest 29 31 41

PBT 20 31 50

PAT [after deferred tax] 19 29 40

Gross cash accruals 49 56 74

Financial Position

Equity capital 30 30 30

Networth 292 312 344

Total capital employed 678 758 731

Key Ratios

Growth

Growth in total income (%) 5.51 12.33 17.98

Growth in PAT [after deferred tax] (%) -79.47 47.71 39.97

Profitability (%)

PBILDT / Total operating income (%) 7.38 5.79 12.59

PAT / Total income (%) 2.10 2.76 3.27

ROCE (%) 5.68 4.69 16.41

Average cost of borrowing (%) 8.11 7.73 10.36

Solvency

Long-term debt equity ratio (x) 0.64 0.66 0.65

Overall gearing ratio (x) 1.21 1.31 1.02

Interest coverage (x) 1.28 1.09 2.95

Term debt / GCA (years) 4.96 4.92 4.26

Liquidity

Current ratio (x) 1.41 1.37 1.60

Quick ratio (x) 0.92 0.87 1.00

Turnover

Capital turnover ratio (x) 1.40 1.45 1.64

Working capital turnover ratio (x) 2.81 2.87 3.35

Avg. collection period (days) 85 81 66

Avg. inventory period (days) 95 86 81

Avg. creditors period (days) 106 103 95

Total operating cycle (days) 74 64 52

A: AuditedNote:Shri S.M. Datta, the Director of Atul Ltd, is one of CARE's Rating

Committee members. He did not participate in the rating processnor the Rating Committee while assigning the rating for bankfacilities of the company.

market share of above 50%. In India, Atul has

approximately 40% share of the domestic resorcinol

market, whereas the balance requirement is met mainly

through imports. With Atul's plan to increase the resorcinol

manufacturing capacity, the company will be able to meetthe domestic consumer's requirements.

Agrochemical industry plays a vital role in ensuring food

security and economic benefits to the farmers. Domestic

consumption of agrochemicals grew at a CAGR of 8.67%

during the five year period ending FY07. Domestic

consumption in FY 07 stood at Rs.4,463 crore, an

increase of 7.72% compared to previous year. The growth

for two consecutive years viz. FY06\FY07 was due to

good monsoons, good support prices of crops, pro

agricultural policies by the GoI and higher agricultural

produce. Insecticides constitute the largest proportion of

agrochemicals consumption in India. Exports grew at a

CAGR of 15.84% in last five years ending FY08 valued

at Rs.3,143 crore. The increased export focus is due to

better export realizations, global outsourcing due to low

cost production, low or nil credit periods in export markets

and tax sops.

Atul is the leading manufacturer of p-cresol (aromatic

division) in India, having almost 30% domestic market

share. The balance demand is being met mainly through

imports. Atul has almost 80% domestic market share of

p-anisic aldehyde which is used mainly as an intermediate

in the synthesis of other compounds important in

pharmaceuticals and perfumery.

Prospects

Overall growth of Atul would be driven by the initiatives

taken by it for technological up-gradation, innovation of

new products and mitigating risk related to fluctuation in

input costs by moving towards more value added

products. The prospects would also be driven by the

overall improvement in the performance of its colors

division and agrochemicals division and other divisions'

performance being stable.

Disclaimer

CARE's ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bankfacilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to beaccurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is notresponsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bankfacilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

December 2009


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CARE is headquartered in Mumbai, with Offices all over India. The office addresses and contact numbers are given below:

HEAD OFFICE: MUMBAI

Mr. D.R. Dogra Mr. Rajesh Mokashi

Managing Director Dy. Managing Director

Cell : +91-98204 16002 Cell : +91-98204 16001

E-mail : [email protected] E-mail: [email protected]

Mr. P N Sathees Kumar Mr. Ankur Sachdeva

Exective Vice President - Marketing Vice President - Marketing (SME)

Mobile: +91-9820416004 Cell : +91-9819698985

E-mail : [email protected] E-mail: [email protected]

Mr. Vivek Palan

Manager - Banking & Finance

Cell : +91-98206 06406

E-mail: [email protected]

4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway,

Sion (East), Mumbai 400 022 Tel.: (022) 67543456 Fax: (022) 67543457

Website: www.careratings.com

OFFICES

Mr. Mehul Pandya

Regional Manager

32 TITANIUM,

Prahaladnagar Corporate Road,

Satellite,

Ahmedabad - 380 015.

Tel - 079 4026 5656Mobile - 98242 56265


Mr. Pradeep Kumar

Regional Manager

Unit No. O-509/C, Spencer Plaza,

5th Floor, No. 769, Anna Salai,

Chennai - 600 002.

Tel: 044 2849 7812/2849 0811

Mobile - 98407 54521


Mr. Sukanta NagRegional Manager

3rd Floor, Prasad Chambers

(Shagun Mall Building),

10A, Shakespeare Sarani,

Kolkata - 700 071.

Tel - 033 2283 1800/1803

Mobile - 98311 70075

E- mail: [email protected]

Mr. Sundara Vathanan

Regional Manager

Unit No. 8, I floor, Commander's

Place No. 6, Raja Ram Mohan Roy Road,

Richmond Circle,

Bangalore - 560 025.

Tel - 080 2211 7140Mobile - 98803 60878


Mr. Ashwini Jani

Regional Manager

401, Ashoka Scintilla,

3-6-520, Himayat Nagar,

Hyderabad - 500 029.

Tel - 040 40102030

Mobile - 91766 47599


Ms. Swati AgrawalRegional Manager

710 Surya Kiran,

19 K.G. Road,

New Delhi - 110 001.

Tel - 011 2331 8701/2371 6199

Mobile - 98117 45677



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