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MOSL: ATUL: Strong quarter led by the Life Science Chemicals segment (ATLP IN, Mkt Cap USD3.2b, CMP INR8655, TP INR8991, 4% Upside, Neutral)

 

• ATLP reported an in line revenue, led by strong growth in the Life Science Chemicals segment, which grew 32% QoQ and 38% YoY.
• Gross margin declined to 4% YoY due to higher raw material costs, while adjusted EBITDAM came in higher than our estimate at 18.1%. The company has written off the carrying value of the assets (~INR351m) destroyed by the fire on 20th Apr'22 by including it in other expenses.
• EBIT contribution from the Life Science Chemicals segment improved to 38% in 1QFY23 from 28% in 4QFY22, while the same from the Performance and Other Chemicals segment declined to 62% in 1QFY23 from 70% in 4QFY22.
• ATLP is implementing projects at a total investment of INR17.5b in the parent company, Atul Products, Amal Specialty, and Atul Finserv. At full capacity, revenue is expected to touch INR60b.
• We build in a revenue/EBIDTA CAGR of 10%/14% over FY22-24. We value the stock at 35x FY24E EPS to arrive at our TP of INR8,991. On a one-year forward basis, ATLP trades at 34x. We maintain our Neutral rating, given its rich valuations.

Margin expands; revenue growth led by the Life Science Chemicals segment

• Revenue grew 37% YoY and 8% QoQ to INR14.8b (in line).
• Revenue from Performance Chemicals grew 40% YoY to INR10.6b.
• Revenue from Life Science Chemicals grew 38% YoY and 32% QoQ to INR4.8b.
• Gross/EBITDA margin grew 100bp/80bp QoQ to 49%/15.8%. Adjusting for the write-off of INR351m, EBITDAM stood at 18.1%.
• EBIT margin expanded in the Life Science Chemicals segment, while it remained flat in the Performance Chemicals segment.
• The margin in the Life Science Chemicals segment grew 200bp QoQ to 16%. EBIT stood at INR795m.
• The margin in the Performance Chemicals segment stood at 12% (flat QoQ) - at multi-quarter lows. EBIT stood at INR1.3b.
• EBITDA grew 14% QoQ, but fell 1% YoY to INR2.3b. Adjusted EBITDA stood at INR2.7b.
• PAT grew 20% QoQ (flat YoY) to INR1.6b (8% higher than our estimate), resulting in an EPS of INR55.2 in 1QFY23.
• Contribution from subsidiaries turned positive. PAT stood at INR49m in 1QFY23 v/s INR91m in 1QFY22 and a loss of INR120m in 4QFY22.