Atul Ltd is an integrated chemical company serving about 5,700 customers belonging to 31 industries across the world. The Company has established subsidiary companies in the USA (1994), the UK (1996), China (2004), Brazil (2012) and the UAE (2015) to serve its customers and thus enhance breadth and depth of its business.
Atul established successful joint venture companies with world-renowned multi-national companies namely American Cyanamid Company (now a part of BASF AG and Pfizer Inc) in 1947, Imperial Chemical Industries plc (now a part of Akzo Nobel and Astra Zeneca plc) in 1955 and Ciba-Geigy Ltd (now a part of BASF AG and Huntsman Corporation) in 1960.
Atul was founded on September 15, 1947, exactly a month after India became independent. It is one of the largest integrated chemical companies of India and amongst the first five manufacturers of its chosen chemicals in the world. The Company serves about 5,700 (2014-15) customers belonging to the Adhesives, Agriculture, Animal Feed, Automobile, Chemical, Composites, Construction, Cosmetic, Defence, Dyestuff, Electrical and Electronics, Flavour, Food, Footwear, Fragrance, Glass, Home Care, Horticulture, Hospitality, Paint and Coatings, Paper, Personal Care, Pharmaceutical, Plastic, Polymer, Rubber, Soap and Detergent, Sports and Leisure, Textile, Tyre and Wind Energy industries (2014-15). The Company sells about 1,380 (2014-15) diverse products and formulations, placed under 41 (2014-15) product groups.
Financials (FY16): A Bird’s View
- Revenue = 2459 Crore
- Operating Profit = 424 Crore
- Net Profit = 268 Crore
Financials (Historical Trends): Some Insights
o Compounded Annual Sales Growth Rate has been as below –
- 3 Years = 7%
- 5 Years = 10%
- 7 Years = 11%
- 10 Years = 12%
Company has shown a consistently high rate of growth in sales, but has experienced headwinds recently.
o Profit After Tax has grown by a CAGR of 28% for last ten financial years
o Operating Profit Margin has gradually grown from 7% in FY07 to 17% in FY16
Growth in Sales has been accompanied by commensurate growth in not only profits but profit margins as well.
o Tax Outgo has been a little volatile been varying between 28-32% for last five financial years
o Return on Capital Employed is more than 18% for last three financial years
o Except for one FY, Return on Equity has been > 23% for last five financial years
Company is regularly generating good level of profits for its shareholders
o Company’s Receivable Days has come down from 97 in FY’08 to 64 in FY’16
o Except for last FY, there is a consistent rise in Fixed Turnover Ratio, 2.78 in FY’10 to 5.14 in FY’15
Alongwith financial parameters , operational parameters are also improving with each FY.
o Share Capital is constant for last ten years
o Dividend Payout Ratio is more than 10% for last five financial years
Management /Promoters are honest and committed towards retail and non-promoter shareholders
o Total Debt has come down from 428 crores in FY’08 to 303 crores in FY’16
o Debt/Equity Ratio has come down from 1.3 in FY’08 to 0.2 in FY’16
o Interest Coverage i.e. ability to serve interest has grown from 1.2 in FY’08 to 12.1 in FY’16
Company has an excellent ability to serve its debt in addition to bringing down debt regularly
o Price to Earnings ratio has increased from 4.8 in FY’08 to 19 in FY’16
o For Every Rupee of Retained Earnings of last 10 years, company’s market cap has increased by 6.05
Atul Ltd : Shareholding Pattern
o With promoter family’s holding of more than 35% (44%) , promoters family has big commitment towards the company
o Mutual Fund houses have a substantial shareholding of around 18%, they have also started increasing their exposure in last quarter
o All major small cap mutual funds (SBI Small Cap, Franklin India Smaller Companies, DSP Blackrock Micro Cap and Reliance Small Cap) have exposure towards the stock, a very rare feat (only stock to have such diverse acceptance)
o One very unique feature about the stock is the huge holdings by small investors (holding value upto 2 lakhs INR). Such investors have around 15% of the total stock of the company
o Foreign Portfolio Investors hold another 6.5% of the shareholding
Atul Ltd : SWOT Analysis
- First Mover’s Advantage – Atul is one of the earliest players in Indian Chemical Industry. It is also one of the biggest player of the domain
- Broad product range – present across all major chemical classes viz aromatics, intermediates, colour and dye, pesticides , tissue culture and pharmaceuticals
- Economy of scale – world’s largest manufacturer in many of the product ranges that it operate in
- Exceptional financial and operation efficiencies
- Sales Growth to Capex Ratio of 0.2 – low growth in sales for every penny invested in assets
- High Receivable days of 64
- Indian Government’s strong emphasis on Make in India and exports should benefit the company in the form of incentives from the government
- The Government had proposed to set up of a technology up-gradation fund of USD 80 Million in the 12th five year plan for chemicals.
- Proposal to establish an autonomous USD 100 Million chemical innovation fund by securing 10% of the total inclusive national innovation fund set up by the National Innovation Council to encourage commercialization efforts for innovations generating inclusive growth
- Good monsoon forecast for next year which is expected to result in better agriculture produce and hence more demand for agro-chemicals
- Foreign Currency Movements – Due to dependence on exports
- Cheap imports – dumping by Chinese producers in the Indian market
Stock has excellent financial, operational and market dynamics. Company currently has market cap of around 5100 crore INR and hence belongs to Small Cap category. Company has a very strong conviction of institutional investors, which is manifested in the form of holding by almost all major mutual fund houses. Atul Ltd’s P/E value of ~22 provides a very good opportunity of investments as growing and robust small caps generally have at least 30-35 P/E if not more. Company is market leader in the Indian Chemical industry (which is 7th largest in the world). Company provides an excellent buying opportunity provided it manages to boost its level of growth while maintaining efficiency demonstrated till now.