ATUL: Steady Growth in Revenues, Margins to Boost Profits

Inexpensive valuations, steady growth plans, improving margins and healthy financial numbers make Atul Limited a good long-term investment. Promoters raising their stake steadily adds to its attractiveness. 

BUSINESS Gujarat-based Atul is a Lalbhai group company manufacturing various types of chemicals such as agrochemicals, pharmaceuticals, dyestuff, epoxy resins and colorants. It also makes intermediate chemicals needed by various sectors like aromatics, cosmetics, construction, paints, textiles, polymers etc. 

GROWTH DRIVERS With rising demand for most of its products the company is looking at growing over 15% annually and aims to cross the 2,500-crore turnover mark in FY14.
The company's FY12 performance was dull as it couldn't fully pass on higher raw material costs. Forex fluctuations and interest costs also hurt, and fixed costs were higher. However, the impact of these factors is seen receding in FY13 and with incremental revenues profitability should take a boost. This was visible in its March and June 2012 quarters when profits more than doubled on modest sales growth.
The company is gradually growing its portfolio of value-added specialty chemicals in its portfolio, which earn better margins. During FY12, aromatics and pharmaceuticals — APIs and intermediates — were the fastest-growing businesses.
The company is expanding its capacity of para-cresol, a key product under the aromatics division, which can double the segment's turnover in FY13. 

FINANCIALS Atul's turnover has increased at a cumulative annualised growth rate (CAGR) of 14% in last five years while pre-tax profit has grown at a CAGR of 36%.
The company's return on capital employed has improved from 9.3% in FY08 to 27% in FY12. Its debt-equity ratio has been steadily declining in last few years and was 0.3 at FY12 end. It has steadily expanded its operating profit margins to 13.5% in June 2012 quarter. The company's promoters have consistently raised their stake over last three years from 39.43% in March 2009 to 50.21% at end June 2012. 

VALUATIONS The scrip is being valued at 8 times its profits for the trailing 12 months and 1.5 times its book value. This is in line with other comparable chemical companies like Sudarshan Chemicals, Aarti Industries etc.