Buy Atul; target of Rs 9100: Motilal Oswal

Motilal Oswal's research report on Atul

They will rise from the ashes, but the burning comes first. For this part, they must bebrave.” ATLP has burned for three long years (FY22-24) and it is a classic case ofvaluations perched higher despite a significant decline in earnings. During FY22/FY23/ FY24, EBITDA declined 1%/15%/18% YoY and earnings declined 9%/15%/39% YoY.Margin contracted sharply by 11.1pp from the high of 24.6% in FY21. Weak demandin end-user markets and significant pricing pressure amid Chinese supplies were themain reasons for this downfall during FY22-24. Accordingly, the stock price tanked~48% (in absolute terms, as of May’24) from its peak in Oct’21.

Outlook

Wevalue the stock at 40x Jun’26E EPS (discount of 11% to five-year average of 45x)to arrive at our TP of INR9,100. We upgrade our rating to BUY on ATLP. Theupside risk could be a faster-than-expected ramp-up of new projects andproducts. Downside risks include weaker-than-expected revenue growth andmargin compression amid further delays in the commissioning of new projects.