Apr'25 View on Atul Ltd

Atul Ltd. is a diversified and integrated Indian chemical company (a part of Lalbhai Group, Gujarat). The products of the company are used in various Industries and come mainly under two segments, Life Science Chemicals and Performance and Other Chemicals under 9 Businesses. [1] Since its incorporation, the company has manufactured many products for the first time in India Dyes including Vat Dyes, crop care chemicals, Phosgene, Carbamite, 2,4-D Acid, para Cresol, tissue culture raised date palms. Rationale: • Q3FY25 earnings missed our estimates, with margins surprisingly dipping qoq. • This was despite favorable pricing movements in a few key products. • The outlook remains unclear, in our view. • The fate of margins dependent on Chinese behavior and US tariffs. • We cut EPS estimates by 4-10% and retain SELL; FV of Rs5,140 on a 20X FY27E P/E. (P/E= Price to earnings, LSC=Life Science Chemicals; EBITDA= Earnings before Interest, tax, depreciation & amortization) Q3FY25 Result Update: Positives: • Consolidated revenues topped KIE estimates, registering 25%/2% growth yoy/qoq. • Qoq improvement in LSC segment margins may be explained by rising prices of 2,4-D. Negatives: • Adjusted EBITDA—excluding a one-off expense—missed KIE by 6%, declining 1% qoq. • The proposed US tariffs on 2,4-D may spur dumping by China in non-US markets. • US considering antidumping duties on epoxy resins, where Atul has doubled capacities. • Prices of caustic soda—a total commodity—are anyway hard to predict. • Heavily dependent on products vulnerable to severe competition from China. • Subpar execution of growth projects has also consistently been a drag on growth.