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ATUL LTD.

COMPANY DESCRIPTION Incorporated in 1947, Atul Ltd is a member of Lalbhai Group, one of the oldest

business houses of India, with interests mainly in textiles and chemicals. Atul Ltd became the first private sector company of India to be inaugurated by

Jawaharlal Nehru, the first Prime Minister of the country. The company thus commenced its business with just a few dyestuffs, the know-how of which was brought from foreign companies.

The company operates in six divisions: Agrochemicals; Aromatics; Bulk

Chemicals and Intermediates; Colors; Pharmaceuticals and Intermediates; and Polymers.

Atul’s manufacturing facilities are present in Gujarat (Valsad and Ankleshwar)

and Maharashtra (Tarapur). The company has a base in China, Germany, UK and USA through 100%

subsidiary companies. The Company is aiming to increase its presence in Africa, Europe, North and

South America. It manufactures over 700 products and markets 69 brands in crop protection and

polymers divisions and serves more than 2,500 customers worldwide. Atul serves various industries, such as aerospace, agriculture, automobile,

construction, flavor and fragrance, paint and coatings, paper, personal care, pharmaceutical, textile and tire.

On June 18, 2010, the Company acquired Rubber and Polyurethane Adhesives

business and brand Polygrip.

CMP Rs.190 TARGET PRICE Rs.250-280 INVESTMENT HORIZON 8-12 Months RECOMMENDATION Buy DATE 06/01/2011

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BUSINESS DIVISIONS

Segments Description Products Agrochemicals

In 1967, Atul Limited started manufacture of phenoxy herbicides and in subsequent years added more products to the range, including urea & sulfonylurea herbicides, triazole fungicides and carbamate; neonicotinoid; organophosphorus and pyrethroids insecticides. Phosgene, a vital raw material is manufactured by the division

Herbicides, Insecticides, Fungicides, and other intermediates

Aromatics

Atul’s Aromatics Division is one of the world’s largest manufacturers of para anisic aldehyde, para cresol and para anisic alcohol, supplying its products to diverse industries, including cosmetics, flavours and fragrances, bulk drugs, dye intermediates; and plant and animal micro-nutrients

p-Cresol,p-Anisic aldehyde, p-Anisic alcohol and Others

Bulk chemicals

and intermediates

The Bulk Chemicals and Intermediates division manufactures a variety of bulk chemicals and semi-speciality intermediates. Drawing on its strong research base and flexible manufacturing capabilities, the division now manufactures numerous intermediates for dyes and semi-speciality chemicals for customers world-wide.

Resorcinol Caustic, Chlorine, Chlorsulphonic acid, and Sulphuric acid

Colors

The Colors division is the largest business division of Atul Ltd, manufacturing a wide range of dyestuffs for the textile, leather, paper, wool and silk industries. The division is the largest supplier of dyestuffs in India and exports nearly 40% of its production to more than 40 countries worldwide. With state-of-the-art manufacturing facilities, stringent quality control systems and an efficient pool of skill-sets, the division is in the forefront of exploiting market opportunities and providing optimum solutions to its customers.

Textile dyes, Paper dyes, Pigments and Others

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Pharmaceuticals

and intermediates

A separate Division of Atul, Pharmaceuticals Intermediate has diversified into a wide range of specialty intermediates and APIs. Atul is the world leader in Dapsone, an anti-bacterial drug. The Division has recently launched a range of new products based on phosgene chemistry namelyvarious Chloroformates, Isocyanates, NCA, Carbonates & Dicarbonate, Chlorides, Ureas & other products.

Active pharmaceutical ingredients, and fine chemicals and intermediates.

Polymers

Lapox Epoxy Resins and Hardener system are manufactured and marketed by Polymers division of Atul Ltd.

Epoxy Resins, and Others

Floras

Floras were started with a view of productive utilizing of large land holdings of Atul Ltd. Its objective is to give genuine herbal extracts which are obtained from scientifically grown crops.

Patchouli Oil, Henna, Basil, Safed Musli

PERFORMANCE CHART

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2005 2006 2007 2008 2009 2010

Sales EBITDA PAT

The sales for the September 2010 quarter witnessed a healthy jump of 41.39% to Rs. 395.89 crores as compared to Rs. 281.78 crores during the corresponding quarter last year. Net Profit recorded in the quarter ended September 2010 moved up to Rs. 29.48 crores compared to Rs. 24.44 crores in corresponding quarter last year.

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Operating profit Margin for the quarter ended September 2010 rose to Rs.57.87 crores as compared to Rs.49.21 crores of corresponding quarter ended September 2009.

Y-O-Y REVIEW (Rs. In crores)

Description 200603 200703 200803 200903 201003

No. of Months 12 12 12 12 12 Net Sales 830.4 910.8 1013.7 1187.1 1197.7

Growth% 9.68 11.3 17.11 0.89

Total Income 841.3 926.3 1043.3 1195.7 1203.7 Total Expenditure 749.5 835.2 942.1 1077.3 1061.1 PBIDT 91.8 91.1 101.2 118.4 142.6 Growth% -0.76 11.09 17 20.44 PBIT 113.2 55.5 70.2 86.7 105.3 PBT 83.0 26.4 37.5 45.7 79.8 PAT 84.3 25.7 34.8 35.6 52.8 Growth% -69.51 35.41 2.3 48.31 Cash Profit 113.0 56.2 64.3 67.3 90.1

QUATERLY ANALYSIS (Rs. in crores)

Shares held 201009 201006 201003 200912 200909 200906 200903 200812 Net Sales 395.9 332.8 331.0 315.0 281.8 263.9 247.0 284.0 Total Expenditure 339.3 298.8 293.0 291.0 237.3 231.6 225.0 240.0 PBIDT (Excl OI) 56.6 33.9 38.0 24.0 44.5 32.3 22.0 44.0 PAT 29.5 20.0 16.0 50 24.4 12.3 40 15.0 PBIDTM%(Excl OI)

13.48 9.58 10.95 7.12 15.18 11.73 8.53 14.67

PBIDTM% 13.79 12.71 11.82 7.12 16.8 11.92 9.3 12.67 PATM% 7.03 5.65 4.61 1.48 8.35 4.45 1.55 5 EPS (INR) 9.94 6.74 5.33 1.67 8.24 4.13 1.33 5

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FUTURE OUTLOOK

AROMATICS The world demand of p-Cresol, p-Anisic Aldehyde and p-Anisic Alcohol is about 63,000 mt, 13,000 mt and 2000 mt respectively. The demand of these products is steadily increasing with the growth in Flavour & Fragrance, Personal Care and Pharmaceutical industries and the Aromatics division of the company has been strengthening its global leadership by cost reduction, expansion, and introduction of new value added products. Thus the company’s aromatics division is expected to sustain a healthy growth rate in the foreseeable future.

COLORS

The world market for dyestuffs and auxiliary chemicals for textiles is estimated to be USD11 bn and is growing at an average of about 2%. The demand of these products continues to move to Asia and South America with the shift in manufacturing of textile to countries such as India, China, Brazil, Bangladesh, etc. Even as the rate of growth for the industry may not be significant, the shift in manufacturing of dyestuffs from Europe to Asia will help the company’s color Division to grow faster in its existing as well as new products.

BULK CHEMICALS & INTERMEDIATES

The internal demand for bulk chemicals such as Caustic Chlorine, Sulphuric Acid, etc will grow with the expansions in Aromatics, Colors, Crop Protection, Pharmaceuticals & Intermediates and Polymers. The demand for Resorcinol is also expected to rise as Automobile industry expands. The Bulk chemical division of the company on the back of improving manufacturing, introduction of value added products, cutting down on waste will strongly add to the performance of the company.

POLYMERS The world market for epoxy resins and hardeners is about USD20 bn and is growing at the rate of about 1% per year. The world leaders, generally, are backward integrated and manufacture their own Epichlorohydrin and Bisphenol. Even though the world market for epoxy resins and hardeners is not growing significantly, the demand in India is good being amongst the fastest growing economies of the world. The consuming industries particularly Automobile, Construction and Paint & Coatings are growing rapidly. The polymer division of the company is expanding its manufacturing capacities of epoxy resins and hardeners, endeavoring to grow its brand sales; hence the outlook in foreseeable future is good.

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RISKS AND CONCERNS

More than 50% of the Atul's revenues are derived from exports and therefore its profitability is impacted by rupee-dollar fluctuations.

Raw material price fluctuation could affect Atul’s profitability. However, value addition and fixed rate supply contracts help it to mitigate this risk to some extent.

Inability to utilize the existing and new capacities coming on stream could impact profitability.

The Company is in the business of chemicals; prices of some of these chemicals are cyclical and remain low for long periods.

INVESTMENT RATIONALE

Atul Ltd. is a diversified company which manufactures colors, specialty

and other chemicals and sells it to industries such as aerospace, agriculture, automobile, construction, flavour & fragrance, paints & coatings, paper, personal care, pharma and textiles.

The company has a good track record of paying regular dividend in the past

The recent acquisition of Polygrip-India’s leading Rubber & PU (Polyurethane) based adhesive brand, by Atul Ltd. is going to double its capacity which is an additional benefit for the company.

There has been news in the stock for last six months that the promoters are likely to monetise the land that is available, free hold land available in Atul in the Gujarat based area. This will give them a cash flow of close to Rs.200-250 crores. Consequently the promoters have increased their stake in the company from 41% to 43%.

RECOMMENDATION: BUY ATUL LTD.

The company trades at a P/E multiple of 4.89 of its FY10 EPS, far cheaper than its peers and the industry average, a good Balance Sheet and a consistent dividend paying history of the company make the stock a value Buy. Based on relative valuation, we expect the stock to trade at a multiple of 7.32 times its FY11E earnings; hence for investors entering at the current levels have a good chance of making 30-40% return and we expect the stock to touch levels of Rs.250-280 in short-medium term period. Disclaimer: The research reports provided is for the personal information for the authorized recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. The information provided in the research documents is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data. Investors should not solely rely on the information contained in the research documents and must make investment decisions based on their own investment objectives, risk profile and financial position.

CFS FINANCIAL SERVICES RESEARCH DESK