Buy Atul; target of Rs 7,990: Sharekhan

Sharekhan's research report on Atul

Q1FY2025 Performance Demonstrates a 12% y-o-y and 9% q-o-q Increase in Topline, with Operating Profit of Rs. 223 Crore and Adjusted PAT of Rs. 112 Crore surpassing our estimates, attributed to margin enhancements in LSC and PoC. Both LSC and POC segments experienced revenue growth y-o-y and q-o-q. While EBIT Margins Expanded for LSC both on y-o-y and q-o-q note, POC saw some margin pressure y-o-y. We are seeing a recovery in key financial metrics such as Revenue, EBITDA, and Margins, signaling an end to the downturn triggered by the China inventory issues. Both LSC and POC segments have demonstrated signs of revival both in terms of revenue growth and EBIT, prompting an upgrade to our earnings estimates for FY25 and FY26 to reflect this positive trend in both revenue and margins.

Outlook

We are upgrading our rating on Atul Ltd. from HOLD to BUY, with a revised price target of Rs. 7,990, driven by the significant improvement in key financial metrics. The current valuation at 42x FY25E EPS and 34x FY26E EPS, which indicates substantial upside potential, we have observed a gradual easing of margin pressure over time, signaling signs of a revival. Given these factors, along with the company’s overall financial health and recent performance improvements, we believe a more positive outlook is warranted.