Leading manufacturer for key crop protection and performance chemicals

Benefits from trend for India as a favoured destination for sourcing chemicals

Additional revenue potential based on capacity bandwidth

Strong results with margins aided by operating leverage

Atul Ltd (Market cap: Rs 9,906 crore), a leading integrated chemical manufacturer, deserves attention as it benefits from improved end markets, supply side reforms in China and growing reliance on India as a favoured destination for sourcing chemicals. While company’s foray into new products and available capacity bandwidth will keep it ready for meeting demand, efforts on backward integration and lower finance cost are expected to further aid bottom-line growth.

Strong presence in the performance chemicals

In the performance chemicals segment (~2/3rd FY18 revenue), company manufacturers chemical intermediates for the varied end markets. It is a market leader for aromatic compounds having applications in personal care and fragrance end markets.

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Further, company is among the largest manufacturer of vat and sulphur black dyes in the colour sub-segment, having applications for textile and paper industries. Atul also has a JV with the German company Rudolf, through which it offers full range of textile dyes.

Additionally, the company is a pioneer in the production of epoxy resins and its brands Polygrip and Lapox are known in end markets like furniture, auto and construction.

Key supplier for crop protection and APIs markets

Large part of the life science chemicals segment (~1/3rd of FY18 revenue) caters to crop protection end market wherein key products 2,4-Dichlorophenol (2,4-D) and Indoxacarb command significant market share globally.

In case of another life science chemicals sub segment – pharmaceuticals, Atul is involved in he production of various basic chemicals (Amino acids, phosgene derivatives) and APIs. The major API where company is a market leader is di-amino di-phenyl sulfone (Dapsone) which is used to treat skin disorders like Hansen’s disease.

Backward integration to aid margins

Atul has a JV with Akzo Nobel (50:50) in order to produce monochloro acetic acid (MCA), which in turn is used for the production of 2,4 D. Capacity under this JV is expected to reach 32,000 tonnes by Q4 FY19.

Strong balance sheet and cash flow visibility

The company repaid its debt last fiscal year which provides scope to fund capacity expansion program in future. Further, Atul’s return ratios and free cash flow are expected to improve on the back of economies of scale, improved pricing, better end markets and lower finance costs.

source: moneycontrol.com