CMP 1600.85

Target Price 1760.00ISIN: INE100A01010

DECEMBER 22nd 2015

12th h, 2013

ATUL LIMITEDResult Update (PARENT BASIS): Q2 FY16

BUY

Index Details

Stock Data

Sector AgrochemicalsBSE Code 500027Face Value 10.0052wk. High / Low (Rs.) 1805.00/1034.35Volume (2wk. Avg.) 3189Market Cap (Rs. in mn.) 47481.21

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY15A FY16E FY17E

Net Sales 25556.50 26220.97 28003.99EBITDA 3910.30 4777.35 5287.58Net Profit 2174.20 2762.05 3098.55EPS 73.30 93.12 104.47P/E 21.84 17.19 15.32

Shareholding Pattern (%)

(QUARTERLY) As on Sep-15 As on Jun-15

PROMOTER 50.83 50.72

FIIs 6.86 6.98

DIIs 13.57 13.45

OTHERS 28.74 28.85

1 Year Comparative Graph

ATUL LIMITED S&P BSE SENSEX

SYNOPSISAtul Ltd is one of the largest integrated chemicalcompanies of India and amongst the first fivemanufacturers of its chosen chemicals in the world.The company’s net profit stood at Rs. 844.60 millionfor the 2nd quarter of the FY 16 as against Rs. 590.70million in the corresponding quarter of the previousyear.In Q2 FY16, Net sales stood at Rs. 6449.50 millioncompared to Rs. 6624.10 million in Q2 FY15.The company has reported its Operating profit ofRs. 1394.00 million in Q2 FY16 against Rs. 1055.30million in Q2 FY15. An increase of 32.10% y-o-y.Profit before tax (PBT) at Rs. 1209.70 million in Q2FY16 compared to Rs. 861.30 million in Q2 FY15registered a growth of 40.45% y-o-y.Revenue from Life Science Chemicals Segment stoodat Rs. 2153.50 million, an increase of 20% y-o-y inQ2 FY6 as compared to Rs. 1790.30 million in Q2FY15.Operating Profit for the half year ended of FY16stood at Rs. 2460.50 million, rose by 16.68% ascompared to Rs. 2108.80 million for the half yearended of FY15.In H1 FY16, the company’s net profit grew by21.68% of Rs. 1445.10 million as compared to Rs.1188.50 million in H1 FY15.Net Sales and PAT of the company are expected togrow at a CAGR of 9% and 23% over 2014 to 2017Erespectively.PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Atul Ltd 1600.85 47481.21 73.30 21.847 4.67 85.00

UPL Ltd 430.60 184728.40 14.28 30.18 5.24 250.00

PI Inds Ltd 543.45 278510.90 11.77 46.16 11.85 290.00

Rallis India Ltd 175.00 33905.70 6.45 27.03 4.25 250.00

QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY16,

Rs. In million Sep-15 Sep-14 % Change

Net Sales 6449.50 6624.10 (2.64)

Net profit 844.60 590.70 42.98

EPS 28.48 19.92 42.98

EBITDA 1394.00 1055.30 32.10

Atul Ltd Net Sales stood at Rs. 6449.50 million for the 2nd quarter of the financial year 2015-16 as against Rs.6624.10 million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs.1394.00 million against Rs. 1055.30 million. In the same quarter, net profit stood at Rs. 844.60 million against Rs.590.70 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 28.48for the 2nd quarter as against an EPS of Rs. 19.92 for the corresponding quarter of the previous year.Break up of ExpenditureDuring the quarter, total expenditure decreased by 8% per cent mainly on account of Cost of Material Consumedby 10%, Purchase of stock in trade by 34%, power, fuel & water by 11%, are the main impact of decrease ofexpenditure when compared to corresponding quarter of previous year. Whereas Employee Benefit Expenses8% Depreciation & Amortization Expenses rose by 8% and along with other expenditure by 5%. Totalexpenditure in Q2 FY16 stood to Rs. 5351.50 million as against Rs. 5791.10 million in Q2 FY15.

Break up of Expenditure(Rs. millions)

Q2 FY16 Q2 FY15

Cost of Material Consumed 3244.3 3618.1

Purchase of stock in trade 55.4 84.1

Employee Benefit Expenses 415.6 383.6

Depreciation & AmortizationExpenses

147.9 136.7

Power, Fuel & Water 671.5 751.4

Other Expenses 915.1 869.7

Segment Revenue

COMPANY PROFILEAtul Ltd. is one of the largest integrated chemical companies of India and amongst the first five manufacturers ofits chosen chemicals in the world. The Company serves about 5,700 (2014-15) customers belonging to theAdhesives, Agriculture, Animal Feed, Automobile, Chemical, Composites, Construction, Cosmetic, Defence,Dyestuff, Electrical and Electronics, Flavour, Food, Footwear, Fragrance, Glass, Home Care, Horticulture,Hospitality, Paint and Coatings, Paper, Personal Care, Pharmaceutical, Plastic, Polymer, Rubber, Soap andDetergent, Sports and Leisure, Textile, Tyre and Wind Energy industries (2014-15). The Company sells about1,380 (2014-15) diverse products and formulations, placed under 41 (2014-15) product groupsIndustries served

Business Areas

In order to enhance focus, the company has placed the products belonging to the two Reporting Segments,namely Life Science Chemicals and Performance & Other Chemicals under seven Businesses, namely, Aromatics,Bulk Chemicals, Colors, Crop Protection, Floras, Pharmaceuticals and Polymers.Subsidiary and Joint Venture CompaniesThe Company has established subsidiary companies in the USA (1994), the UK (1996), Germany (1998), China(2004), Brazil (2012) and the UAE (2015) to serve its customers and thus enhance breadth and depth of itsbusiness. The Company has nine subsidiary companies namely, Atul Bioscience Ltd, Atul Rajasthan Date PalmsLtd, Atul USA Inc, Atul Europe Ltd, Atul Deutschland GmbH, Atul China Ltd, Atul Brasil Quimicos Ltda and AmeerTrading Corporation Ltd.Atul established successful joint venture companies with world-renowned multi-national companies namelyAmerican Cyanamid Company (now a part of BASF AG and Pfizer Inc) in 1947, Imperial Chemical Industries plc(now a part of Akzo Nobel and Astra Zeneca plc) in 1955 and Ciba-Geigy Ltd (now a part of BASF AG andHuntsman Corporation) in 1960.

FINANCIAL HIGHLIGHTS (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at 31st March, 2014-2017E. FY-14A FY-15A FY-16E FY-17E

I SOURCES OF FUNDS

A) Shareholder's Funds

Share Capital 296.80 296.80 296.80 296.80

Reserves and Surplus 9119.10 9861.00 12276.95 14793.72

Sub-Total Net worth 9415.90 10157.80 12573.75 15090.52

B) Non Current Liabilities

long term borrowing 1133.60 540.80 400.19 304.15

Deferred Tax Liability (net) 353.90 444.10 532.92 610.19

Other Long term liabilities 178.00 201.30 233.51 259.19

Long term Provisions 151.60 158.60 168.75 177.19

Sub-Total -Non Current liabilities 1817.10 1344.80 1335.37 1350.72

C) Current Liabilities

Short term borrowings 1842.70 1641.40 2642.65 2959.77

Trade payables 3190.10 2626.30 3230.35 3559.84

Other Current liabilities 1159.30 1422.20 1459.18 1488.36

Short term Provisions 332.40 425.60 204.29 153.22

Sub-Total-Current Liabilities 6524.50 6115.50 7536.47 8161.19

Total Liabilities (a + b + c) 17757.50 17618.10 21445.58 24602.43

II APPLICATION OF FUNDS

1) Non-Current Assets

Fixed Assets

Tangible assets 5196.00 4740.50 5612.75 6342.41

Intangible assets 0.00 2.10 2.20 2.28

Capital Work in Progress 529.80 1040.80 1498.75 1918.40

Total- Fixed Assets 5725.80 5783.40 7113.70 8263.10

Non Current Investments 1364.70 1488.20 1607.26 1703.69

Long Term loans and advances 312.00 448.20 681.26 831.14

Other non-current assets 643.10 541.30 584.60 643.06

Sub-Total- Non-Current Assets 8045.60 8261.10 9986.82 11440.99

2) Current Assets

Inventories 3757.50 3496.50 4387.11 5045.18

Trade receivables 4472.60 4391.90 5094.60 5807.85

Cash and Bank Balances 88.00 64.00 195.20 245.95

Short-terms loans & advances 1025.40 1074.60 1439.96 1698.19

Other current assets 368.40 330.00 341.88 364.27

Sub-Total Current Assets 9711.90 9357.00 11458.76 13161.44

Total Assets (1+2) 17757.50 17618.10 21445.58 24602.43

Annual Profit & Loss Statement for the period of 2014 to 2017E

Value(Rs. mn) FY14A FY15A FY16E FY17E

Description 12m 12m 12m 12m

Net Sales 23654.50 25556.50 26220.97 28003.99

Other Income 396.20 153.10 346.01 442.89

Total Income 24050.70 25709.60 26566.98 28446.88

Expenditure -20223.20 -21799.30 -21789.63 -23159.30

Operating Profit 3827.50 3910.30 4777.35 5287.58

Interest -314.30 -236.40 -245.86 -266.51

Gross profit 3513.20 3673.90 4531.49 5021.07

Depreciation -542.30 -552.80 -602.55 -650.76

Profit Before Tax 2970.90 3121.10 3928.94 4370.31

Tax -843.00 -946.90 -1166.90 -1271.76

Net Profit 2127.90 2174.20 2762.05 3098.55

Equity capital 296.60 296.60 296.60 296.60

Reserves 8095.10 9861.00 12276.95 14793.72

Face value 10.00 10.00 10.00 10.00

EPS 71.74 73.30 93.12 104.47

Quarterly Profit & Loss Statement for the period of 31st Mar, 2015 to 31st Dec, 2015E

Value(Rs.in.mn) 31-Mar-15 30-Jun-15 30-Sep-15 31-Dec-15E

Description 3m 3m 3m 3m

Net sales 6190.40 5873.60 6449.50 6552.69

Other income 13.70 82.20 148.10 77.01

Total Income 6204.10 5955.80 6597.60 6629.70

Expenditure -5383.30 -4889.30 -5203.60 -5396.14

Operating profit 820.80 1066.50 1394.00 1233.56

Interest -54.90 -52.70 -63.10 -66.00

Gross profit 765.90 1013.80 1330.90 1167.56

Depreciation -142.00 -141.00 -147.90 -153.22

Exceptional Items 0.00 0.00 26.70 0.00

Profit Before Tax 623.90 872.80 1209.70 1014.34

Tax -175.30 -272.30 -365.10 -299.23

Net Profit 448.60 600.50 844.60 715.11

Equity capital 296.60 296.60 296.60 296.60

Face value 10.00 10.00 10.00 10.00

EPS 15.12 20.25 28.48 24.11

Ratio Analysis

Particulars FY14A FY15A FY16E FY17E

EPS (Rs.) 71.74 73.30 93.12 104.47

EBITDA Margin (%) 16.18 15.30 18.22 18.88

PBT Margin (%) 12.56 12.21 14.98 15.61

PAT Margin (%) 9.00 8.51 10.53 11.06

P/E Ratio (x) 22.31 21.84 17.19 15.32

ROE (%) 25.36 21.40 21.97 20.53

ROCE (%) 37.11 33.54 33.88 31.99

Debt Equity Ratio 0.40 0.31 0.26 0.23

EV/EBITDA (x) 13.27 12.93 10.59 9.59

Book Value (Rs.) 282.93 342.47 423.92 508.78

P/BV 5.66 4.67 3.78 3.15

Charts

OUTLOOK AND CONCLUSION

At the current market price of Rs. 1600.85, the stock P/E ratio is at 17.19 x FY16E and 15.32 x FY17Erespectively. Earning per share (EPS) of the company for the earnings for FY16E and FY17E is seen at Rs.93.12 andRs.104.47 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 23% over 2014 to 2017Erespectively. On the basis of EV/EBITDA, the stock trades at 10.59 x for FY16E and 9.59 x for FY17E. Price to Book Value of the stock is expected to be at 3.78 x and 3.15 x respectively for FY16E and FY17E. We recommend ‘BUY’ in this particular scrip with a target price of Rs.1760.00 for Medium to Long terminvestment.

INDUSTRY OVERVIEW

Crop Protection

The size of world Crop Protection Chemical industry is estimated at US$ 56 b and is growing at about 3.5%.There are about 60 major companies which dominate the world marketplace. The size of world Agricultureindustry is estimated at US$ 3.02 t and is growing at about 1.50%.The main user industries, namely Crop Protection Chemicals and Agriculture, are growing well because of theneed to feed a growing population under constraints of related resources. The Company will participate in thisgrowth by Building a strong sales and marketing organisation and broadening and deepening its presence in othercountries, particularly in Africa and South America, Promoting its brand sales Improving its manufacturing and working capital efficiencies, Generating and adding capacities and Introducing new products and formulations.Floods or famines may adversely affect the demand. Fluctuations in foreign exchange may impact salesrealisations. Given that some of these chemicals can be toxic, it is essential to take due care in their manufactureand use. Registration costs are high in certain countries.Pharmaceuticals

The products falling under these product groups are used by customers belonging to Pharmaceutical industry forvarious therapeutic categories, such as anti-depressant, anti-diabetic, anti-infective, anti-retroviral andcardiovascular.The size of world API industry is estimated at US$ 120 b and is growing at about 9.4%. There are about 20 majorcompanies which dominate the world marketplace. The size of world Pharmaceutical industry is estimated atUS$ 0.8 t and is growing at about 8%.The main user industry, namely, Pharmaceutical, is growing well because of increasing awareness about diseasesand health. The Company along with ABL will participate in this growth by i) widening its market reach, ii)increasing its manufacturing efficiencies, iii) generating and adding capacities and iv) introducing new products.It will also form long-term strategic alliances with other companies. The prices of some products may come downin a short time. Fluctuations in foreign exchange may impact sales realisations.

Aromatics

The products falling under these product groups are mainly used by customers belonging to Fragrance andPersonal Care industries.The main user industries, namely, Fragrance and Personal Care, are growing well because of improving standardof living. The Company will participate in this growth by i) broadening its market reach, ii) increasing itsmanufacturing efficiencies, iii) generating and adding capacities and iv) introducing new products.The prices of key raw materials which are derived from crude oil fluctuate almost monthly whereas thecustomers in the user industries expect the prices of the finished products to remain firm for a quarter or evenmore; on such occasions, it is possible to get affected adversely. Fluctuations in foreign exchange may impactsales realisations.Bulk Chemicals and Intermediates

The products falling under these product groups are used mainly for internal consumption and by customersbelonging to Cosmetics, Dyestuffs and Tyre industry.The captive consumption of bulk chemicals is expected to grow as the Company expands manufacturingcapacities of its various products. Tyre industry is expected to grow further because of increasing population onthe one hand and improving standard of living on the other. The Company will participate in this growth by i)widening its market reach, ii) increasing its manufacturing efficiencies, iii) generating and adding capacities andiv) introducing downstream products.The demand and prices of bulk chemicals are cyclical in nature. Fluctuations in foreign exchange may impactsales realisationsColors

The products falling under these product groups are used by customers belonging to Textile, Paint and Coatingsand Paper industries.The size of world Dyestuff industry is estimated at US$ 6 b and is growing at about 3.5%. China is the largestmanufacturer of dyes followed by India. World market for high performance pigments is estimated at US$ 4.3 band is growing at about 2.7%. The main user industries, namely, Paint and Coatings and Textile, will continue togrow because of increase in discretionary spending. The Company along with RACL will participate in thisgrowth by i) broadening its market reach in new geographies, ii) increasing its manufacturing and workingcapital efficiencies and iii) introducing new dyes, pigments and products for non-textile applications.

Fluctuations in foreign exchange and availability of raw materials may impact sales realisations. Treatment costsare expected to remain high given that the manufacture of dyes and pigments generates significant pollutants.PolymersThe products falling under these product groups are used by customers belonging to Aerospace, Automobile,Composites, Construction, Defence, Electrical and Electronics, Footwear, Paint and Coatings, Paper, Sports andLeisure and Wind Energy industries.World market for Epoxy resins and hardeners is estimated at US$ 6.3 b and is growing at about 2% and Indianmarket is estimated at US$ 236 m and is growing at about 5%. There are about 7 major companies whichdominate the world marketplace. World market for Sulphones (a hardener) is estimated at US$ 312 m and isgrowing at about 4%. The user industries, Construction, Defence, Electrical and Electronics, Paint and Coatingsand Wind energy are growing well, particularly in India. The Company will participate in this growth by i)widening its market reach, ii) increasing its manufacturing and working capital efficiencies, iii) generating andadding new capacities of Epoxy resins and hardeners and iv) introducing new products and formulations.Cheaper imports of Epoxy resins and hardeners may keep the contribution margins under pressure. Since thetwo main raw materials, namely Bisphenol-A and Epichlorohydrin, are imported, fluctuations in foreignexchange may impact margins.

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