Sharekhan's research report on Atul
Atul Limited reported weak Q3FY2023 performance, with miss on all fronts. Revenue/EBITDA/PAT at Rs. 1,268/172/92 crores missed our estimates by 8%/22%/35% and was down 15%/33%/30% q-o-q. Operating profit of Rs. 172 crores was 22% below our estimate of Rs. 222 crores on account of miss in gross margin at 47.2% (versus our estimate of 48.9%) and impact of operating leverage. Both LSC and POC segments’ revenue at Rs. 492/828 crores declined by 14.4%/16.5% q-o-q, respectively. POC segment’s low EBIT margin of 2.6% was on account of low export demand and high input costs. EBIT margin of the LSC segment was high at 22.5% (up 1,125 bps y-o-y) on account of better price realisation and volume growth in the crop protection sub-segment. We expect near-term earnings to remain under pressure, given expectation of continued margin pressure in the POC segment. We have cut our FY2023/FY2024/FY2025 earnings estimates to factor lower POC revenue/margin assumption.
We maintain Hold on Atul Limited with a revised PT of Rs. 7,700, given near-term earnings headwinds due to global economic slowdown and valuation of 28x its FY2024E EPS provides limited upside from current levels.