Up 4,200% in 10 years and analyst see more steam left in this multibagger chemical stock
It has been a prudent capital allocator which allowed it to generate one of the highest return on capital employed in the industry
Despite rallying more than 43 times in the 10 years, this chemical stock has not yet run out of gas and seems to have more steam left. Analysts believe that the domestic chemical Industry has multi-year tailwinds like global companies shifting to India for raw material sourcing along with initiatives taken by the government to promote the domestic industry.
This will help strong companies like Atul Ltd in the sector to show consistent and profitable growth. They are also projected more upside for the counter.
Shares of the company have already rallied 4,221% to Rs 7888.75 on April 7, 2021, from Rs 182.55 on April 7, 2011. Market watcher believes that Atul Ltd with its strong management profile and technical capabilities has been able to develop an ability to manage its costs in order to protect its profitability during the downfall. It has been a prudent capital allocator which allowed it to generate one of the highest return on capital employed in the industry, as a result, Atul has been generating one of the best free cash flow in the industry.
B&K Securities believes that Atul is one of the best ways to play the sector growth. “It has a great track record in its ability to identify key products which had growth potential and in augmenting capacities for such products in a timely manner,” the brokerage said.
Capacity expansion took place in products like Anisole, Para-Cresol, RF Resins, Sulphones, 2,4-D, etc. and as a result, it is now one of the leading suppliers of these chemicals. B&K Securities has fixed a 3-year target price of Rs 10,600 for the stock, indicating an upside of over 30% from the current market price.
In terms of financials, the net profit of the company have grown 28% annually to Rs 665.93 crore during the past 10 years till FY2020. On the other hand, net sales increased by 13.13% annually to Rs 4093 crore during the same period.
Incorporated on September 5, 1947 by Kasturbhai Lalbhai and its first plants commissioned on March 17, 1952, Atul Ltd enters its 70th year of operations. From a small beginning, with the manufacture of a few textile dyes, the company has helped make India self-reliant by developing and commercialising several products for the first time in the country, supplying 900 products and 400 formulations to 4,000 customers belonging to 30 diverse industries. It has grown into a diversified chemical conglomerate.
At present, the debt-free company is preparing itself for the future and is investing in the sustainable growth of the company and its subsidiary, JV and associate’s entities. As per its 2019-20 annual report, Rs 235 crore is the value of capital work-in-progress on a standalone basis and Rs 368 crore on a consolidated basis.
B&K Securities further added that Atul Ltd has created multiple growth drivers in each segment: With the opportunities arising out of China plus one theme, each of the company’s business segments has the potential to scale up significantly. The company has continuously reinvested in businesses for a better future outlook: Atul Ltd has been among the first ones in the industry to expand capacities and incurred capex of Rs 780 crore in the last five years. Further, capex of Rs 487 crore comprises of projects started in FY19 are expected to get completed during the first half of 2022 and are likely to drive the next leg of growth.