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ATUL Ltd – Multibagger from Anand Rathi

June 11, 2009

Atul Ltd is a diversified Specialty chemical company, engaged in manufacturing of – agrochemicals, Bulk chemicals, Dyes, intermediates and polymers. It is also undertaking toll manufacturing of herbicides & custom manufacturing of bulk drugs for large MNCs. Company is also increasing capacities of various products mainly by de-bottlenecking, so as to involve less capital expenditure. It is also expanding capacities of – bulk chemicals & Intermediates; Vat & Reactive dyes; Pharma & Intermediates and in polymers divisions. They will mostly go on stream in current year and thus lead to significant growth for company from current year onwards.

To add value, Atul is moving up from basic building block kind of chemicals to niche value added down stream products in each category. It is increasing the sales of branded products significantly.

Company is world’s largest manufacturer of – Para cresol, Para Anisic aldehyde, Para Anisyl alcohol and curing agent. It is also second largest manufacturer of – high performance colourant and Vat dyes. Its third largest manufacturer of – Indoxcarb insecticides and fourth largest for 2,4-D herbicides. [see details of products on next page.]

Company is technologically very advanced and has perfected a number of difficult chemical processes/technologies e.g. Phosgenation, Hydrogenation, Bromination and Sulfonation. The research led technology improvements and cost reduction in these processes, makes it quite competitive and quality producer of a number of key products.

Attractive Valuations:
Based on current year’s earnings outlook, which is quite robust, the stock is available at about 2.5X 2010 earnings.

If we go by Price to book value, stock is again available at less then half of the 2010 expected book value of about Rs 140/-.

If we go by sales to Mkt cap valuations, the stock is available at 1/6th of the valuation, while recent sale of Mfg assets of Gwalior Chem was valued at around 1:1 to sales.

Further if we value company’s Mfg assets, R&D assets and other non core assets [residential & land in Atul town] the total replacement costs may come to many times of present Mkt cap.

From the CMP of Rs 63, the stock can easily touch Rs 150 to Rs 180 within the next 18 months.

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