Atul picks up growth momentum

After A Poor FY08 And FY09, Co’s FY10 Net Profit Jumped 50% Y-o-Y

THE scrip of the Gujarat-based specialty chemicals company, Atul, gained more than 16% on Monday to close at its lifetime high of . 200.3. The stock has gone up almost three times in the past one year, against the 25% growth of BSE’s Sensex.
Atul’s results for the September 2010 quarter were hardly exciting. The company posted a 20.6% profit growth on a 41.4% growth in net sales. The company’s operating margins weakened and a fall in other income restricted its growth numbers.
The rise in the stock price had more to do with the growth momentum the company has picked up over the past one year, and the momentum is likely to continue.
After stagnating in FY08 and FY09, the company picked up growth momentum in FY10. Its FY10 net profit jumped 50% compared with the previous fiscal. In the first half of FY11, the company’s net profit at . 50 crore is almost 90% of what it clocked in the whole of FY10.
This is mainly due to an overall improvement in business climate in most of the industries it operates in. The company operates in several verticals related to the chemicals industry with a 40 MW captive power plant. It is a world leader in the production of some chemicals like p-Cresol and p-AA.
The company is increasing its focus on branded goods. It recently acquired Polygrip, an established brand in rubber and polyurethane-based adhesive. It has obtained the exclusive marketing rights of multi-purpose product WD40 in India. It is also expanding its emphasis on branded products in its agrochemicals division.
The company is gearing up for a stable growth. It is planning to introduce more value-added products while maintaining the cost and volume leadership in its existing products. In the colours division, which is the single-largest segment for the company with a 25% share in total revenues, it is planning to increase the product range and also move into finished products that can be directly sold to the textile industry.
The company is growing its capacities mainly through de-bottlenecking wherever necessary. This includes resorcinol, pharma intermediates, epoxy resins as well as agrochemicals. Its deleveraged balance sheet — current debt-to-equity at 0.6 — and strong cash flows from operations means this can be easily funded.
The company’s current market capitalisation is . 594 crore, of which 30% is the market value of its investments in several listed companies such as Wyeth, Novartis and Arvind Mills.
The company’s profits for the trailing 12-month discount the current valuation 8.4 times, which doesn’t appear too high despite the latest run-up in the scrip.