Buy Atul; target of Rs 7100: Motilal Oswal

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • Atul Ltd. (ATLP) reported weak performance in 2QFY27 due to a decline in Life Science Chemicals segment, but Performance & Other Chemicals segment showed 23% EBIT growth.
  • The company is expected to regain its healthy momentum, led by: 1) capacity expansion for its key products, 2) new projects and unrealized revenue potential, 3) debottlenecking in existing capacities, 4) entry into value-added products, and 5) expansion of market reach to new geographies.
  • ATLP trades at ~20.4x/18x FY27E/FY28E EPS and ~13.2x/11.5x FY27E/FY28E EV/EBITDA. We value the stock at 23x FY28E EPS to arrive at our TP of INR7,100.

Thesis Validation Checklist

  • Over the next ~12 months, watch for: 1) revenue growth from capacity expansion and new projects, 2) improvement in EBITDA margin due to operating leverage, 3) growth in Performance & Other Chemicals segment, and 4) successful execution of debottlenecking and expansion plans.
  • Monitor the company's ability to maintain its market share in the Life Science Chemicals segment and its progress in entering new geographies.
  • Keep an eye on the company's debt levels and interest costs, as well as its ability to generate cash flows to fund its expansion plans.