Hold Atul; target of Rs 7060: Sharekhan

Sharekhan recommended Hold rating on Larsen and Toubro Finance Holdings with a target price of Rs 7060 in its research report dated May 02, 2023.

Broker Research

May 03, 2023 / 15:23 IST

hold

Sharekhan's research report on Atul

Earnings continued to disappoint us as the global economic slowdown hit demand from majority of the end user-industries. This is clearly visible in the 13% q-o-q decline in adjusted PAT to Rs. 80 crore (25% below our estimate). Revenue from LSC segment fell by 17% q-o-q to Rs. 409 crore as high channel inventories hit demand from crop protection business while EBIT margin remained steady at 22.2% (down 34 bps q-o-q). POC revenue was flat q-o-q at Rs. 830 crore but EBIT margin remained weak at just 1.9% (down 1023/67 bps y-o-y/q-o-q). POC segment was impacted by subdued demand from aromatics, colors and polymer divisions. The management has indicated at a revenue potential of Rs. 9,000 crore after completion of ongoing capex of Rs. 1400-1500 crore but remained cautious on demand (which is reflected in 1-2% y-o-y overall volume decline in FY23) amid weak global demand. We expect H1FY24 earnings to remain under pressure and thus have cut our FY2024/FY2025 earnings estimates sharply by 24%/18%.

Outlook

We maintain a Hold on Atul Ltd. with a revised PT of Rs. 7,060 given near term earnings headwinds due to global economic slowdown and valuation of 34/27x its FY2024E/FY2025E EPS provides limited upside from current levels given volatile earnings due to commodity nature of the business.

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