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Why Atul Share Price is Falling

May 3, 2023

Why Atul Share Price is Falling

Over the past few years, the Indian chemicals sector has exceeded all shareholder expectations, outperforming not just the overall equity market but also the majority of its upstream and downstream industries.

But with several headwinds like high energy costs, rising freight expenses, and skyrocketing raw material prices, the sector is currently facing challenges, pressuring margins of even the best chemical stocks in India.

Consequently, many chemical stocks have seen a significant decline in their share prices over the last month. Atul being one of them.

Atul, a specialty chemicals player, has experienced a 5% drop in its stock price for the third consecutive session, hitting a fresh 52-week low of Rs 6,525 on 2 May 2023.

The stock has lost more than 23% in the last year and has had negative returns for the past eight months.

Here is what triggered the fall in the share price.

Disappointing Q4 results

For the March 2023 quarter, Atul reported a 12.7% YoY drop in revenue at Rs 11.9 billion (bn). This was against the revenue of Rs 13.8 bn in the same quarter last year.

Net profit for the period also came in lower by 33% YoY to Rs 1.2 bn. The company reported a net profit of Rs 1.8 bn in the corresponding quarter last year.

This decline was due to a slowdown in global demand. Although it was previously known that dyes and pigments were affected by the slowdown, the unexpected disappointment came from the sales of Epoxy resin.

In addition, the company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) came in lower by 23.7% YoY, falling from Rs 2.3 bn in the corresponding quarter last year to Rs 1.7 bn this year. This was due to reduced sales.

The gross profit margin for the quarter decreased by 2.5% YoY to 12.5%, which was attributed to lower realisation.

Following the update, shares of Atul cracked 5% to hit their fresh 52-week low.

Long-term outlook

Going forward, Atul plans to invest Rs 20 bn in expanding its capacity. The expansion project has been divided into four parts: dyes, agrochemicals and APIs, epoxy resins and related chemicals, and multiple API intermediaries & other chemicals.

Further, the company has already filed for environmental clearance for its 1.2 million ton production capacity.

Overall, this expansion project represents a significant long-term opportunity for Atul to enhance its revenue and profitability.

The demand is also expected to be aided by China plus one strategy of companies and the government's Atmanirbhar Bharat Abhiyan to reduce the dependence on chemical imports and make India more self-reliant.

Further, the challenges in Europe amid the war between Ukraine and Russia have added to the opportunities for the companies.

How Atul shares have performed recently

Atul shares have declined by more than 5% in the past five days. Over six months, the company's shares have been trading lower by 21%.

So far in 2023 the stock has eroded over 19%.

Atul touched its 52-week high of Rs 9,804.1 on 13 September 2022 while it touched a 52-week low of Rs 6,530 on 2 May 2023.

chart

About Atul

Atul is a part of Lalbhai Group, one of the oldest business houses in India, with interests mainly in textiles and chemicals.

It's a leading Indian chemical company based in Gujarat, India.

Atul is an improvement-driven, integrated chemical company serving about 6,000 customers belonging to 27 industries across the world.

The company has established subsidiary companies in the USA, the UK, China, Brazil, and the UAE to serve its customers and thus enhance the breadth and depth of its business.

The company is into diversified business with interests in various industries such as chemicals, pharmaceuticals, performance, and polymer solutions.

Atul ltd produces a wide range of chemicals, including basic chemicals such as methanol, formaldehyde, acetic acid, and polymers.

The company also manufactures pharmaceuticals, with a focus on APIs (active pharmaceutical ingredients) and intermediates and has a presence in over 100 countries worldwide.

With a strong focus on sustainability, the company has implemented various initiatives to reduce its carbon footprint, conserve natural resources, and promote sustainable development.

For more details, see the Atul company fact sheet and quarterly results on our website.

You can also compare Atul with its peers -

Atul vs Godrej Industries

Atul vs Hindcon Chemicals

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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FAQs

Which are the top specialty chemical companies in India?

Based on marketcap, these are the top specialty chemical companies in India:

You can see the full list of specialty chemicals stocks here.

And for a fundamental analysis of the above companies, check out Equitymaster’s Indian stock screener which has a separate screen for best specialty chemicals stocks in India.

What are the top gainers and top losers within the specialty chemicals sector today?

Within the Speciality chemicals sector, the top gainers were MACHHAR INDUSTRIES (up 2.0%) and NAVIN FLUORINE (up 1.0%). On the other hand, BHATIA COLOUR CHEM (down 1.5%) and BALAJI AMINES (down 1.2%) were among the top losers.

Since chemical stocks interest you, check out our guide on the best chemical stocks in India.

How should you value specialty chemicals companies?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

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