Sharekhan has given Buy recommendation for Atul with a target price of Rs. 7540 in its research report issued on Jan 29, 2021
Sharekhan’s research report on Atul
Atul Limited’s (Atul) Q3FY2021 operating profit/adjusted PAT at Rs. 243 crore/Rs. 191 was above our estimate due to sharp 160 bps beat in OPM at 25.5% and substantially higher other income. Strong margin performance was led by 304 bps y-o-y improvement in gross margin to 55.3%. Revenue declined by 8.5% y-o-y, due to lower revenue from performance and other chemicals (POC) and life science chemicals (LSC) segments. POC’s EBIT margin was up 180 bps y-o-y to 23.9% and that of LSC was largely stable y-o-y at 17.7%. High capex intensity and favourable dynamics of specialty chemicals to drive sustained growth. We expect EBITDA/PAT CAGR of 16%/13% over FY2021E-FY2023E. Share buyback program is small at Rs. 50 crore with buyback price of Rs. 7,250/share (13.7% premium to CMP).
We maintain Buy on Atul with an unchanged PT of Rs. 7,540, given strong growth tailwinds for the specialty chemical space and robust balance sheet with RoE of ~17.5%. At the CMP, the stock trades at 23.9x FY2022E EPS and 21.9x FY2023E EPS.
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