Sharekhan's research report on Atul
Atul Limited’s (Atul) Q4FY2022 PAT of Rs. 126 crore sharply missed our estimates due to weaker-than-expected OPM and lower other income, offsetting strong revenue growth of 23% y-o-y. Revenue grew strongly by 29%/18% y-o-y from POC/LSC segments; however, EBIT margin disappointed with a steep decline of 1,030 bps/240 bps y-o-y to 12.1%/14.1% due to contraction in gross margin and higher operating cost. Atul has done cumulative capex of Rs. 913 crore over FY2021-FY2022 to augment capacities of key products (like sulphur black dyes, para-cresol, para-cresidine). Ramp-up of capacities, price hikes, and likely normalisation of energy/logistics cost should drive strong earnings growth (expect 31% PAT CAGR over FY22-24E) on a low base of FY22 (PAT de-growth of 8% y-o-y).
Atul is expected to be a key beneficiary of structural growth tailwinds (China plus One strategy) for Indian specialty chemicals space and sustained capex to augment capacities would result in long runway for earnings growth. Hence, we maintain a Buy on Atul Ltd with an unchanged PT of Rs. 11,000.
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