Atul Q1 Results Review - Weak Performance Continues Due To Overall Lower Demand: Motilal Oswal

Motilal Oswal Report

Atul Ltd. reported inline revenue with a 14% QoQ decline in the life science chemicals segment and a 5% QoQ increase in the performance and other chemicals segment in Q1 FY24.

Gross margin came in at 46.5% (-200 basis points YoY), while Ebitdam expanded 290 bp QoQ to 15.4% during the quarter.

The life science chemicals segment’s contribution to Ebit dipped to 37% in Q1 FY24 (from 84% in Q4 FY23), whereas the contribution of performance and other chemicals to overall Ebit jumped to 62% in Q1 (from 15% in Q4 FY23).

Management highlighted that revenue remained weak due to lower realisation and weaker demand amid geopolitical headwinds. Profitability was also hit primarily by higher fixed costs coupled with declining sales volumes that resulted in fixed costs being inadequately absorbed during the quarter.

The crop protection business suffered due to subdued demand and lower realisations that resulted in weak performance of the life science chemicals segment. The performance and other chemicals segment was hit (down 17% YoY) by higher inventory and lower capacity utilisation at customers’ end, which resulted in lower sales for the company during the quarter. 

We expect revenue/ Ebitda/profit after tax of 6%/ 1%/ 1% during FY23-25. We largely maintain our estimates.

The stock is trading at 33.9 times FY25E earnings per share of Rs 206.7 and 22 times FY25E enterprise value/Ebitda.

We value the stock at 30 times FY25E EPS to arrive at our target price of Rs 6,200. On a one-year forward basis, Atul trades at 36.5 times. We maintain our 'Neutral rating on the stock.

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