SMC Global Institutional Equities
Atul Ltd
Link To Report:
Result Update: Q3 FY20
CMP: INR 4,918
Target Price: INR 5,394
Up Side: 10%
Rating: ACCUMULATE
Result:
· Atul Ltd’s standalone revenue stood at INR 978 Cr reporting de-growth of 3.5% QoQ and 4.1% YoY. The revenue was below our expectations majorly on the back of lower than expected growth in Life science chemicals which reported a de growth of 4.9%/3.8% YoY/QoQ respectively.
· EBIDTA came in at INR 232 Cr registering a growth of 9.6% YoY and 8.3% QoQ. EBIDTA margins stood at 23.7% which was higher than our expectations of 21.4%. The EBIT margins of Life Science segment and Others segment came in at 17.9%/22.3% respectively.
· Net profit surged by 36.7% YoY and declined by 23.3% QoQ to INR 160 Cr majorly on the back of lower taxes paid in previous quarter. Net profit margins came in at 16.3% vs 11.5% in Q3FY19.
Key Investment Rationale:
· Steady top-line growth:
· Profitability to remain strong on the back of expansion in EBIDTA margins:
Valuations & View:
We remain positive on ATUL ltd and expect company’s Revenue/EBIDTA/PAT to grow at 10%/17.4%/22.2% CAGR respectively over FY19-FY21E. Also healthy balance sheet, superior return ratios and company’s ability to generate free cash flows despite capex also backs our investment rationale. We have increased our EPS expectations from INR 193 / INR 225 in FY20E / FY21E respectively to INR 222 / 250 in FY20E / FY21E respectively. At CMP the company trades at P/E(X) of 22.1X/19.7X on FY20E/FY21E EPS respectively. We continue to value the company at 22X P/E on FY21 EPS and continue to value it at 14X on FY21E EBIDTA to arrive at target price of INR 5,394 (vs. earlier target of INR 5,038) implying an upside of 10%. Thus we change our rating from “BUY” to “Accumulate” on the stock.
Analyst name:
Siddharth Purohit
Associate name:
Akshaya Shinde