Atul Ltd – A Chemical Company with Clean Management

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A Few Details on Atul Ltd

NSE SYMBOL ATUL
BSE CODE 500027
GROUP A
MARKET CAPITAL (INR) Rs.18130 CR
FACE VALUE RS.10/-
BOOK VALUE RS. 1064/-
CURRENT PRICE Rs. 6112/-
BUYING RANGE Rs.5000-6200
TARGET PRICE Rs. 7500-10000/-
HOLDING PERIOD 24 MONTHS TO 48 MONTHS
STOPLOSS Rs. 4800/-
SUITABLE WEIGHTAGE IN PORTFOLIO 4% TO 7%
DEBT EQUITY RATIO 0.03
EPS Rs. 215
PE 28
RISK LOW TO MEDIUM
STOCK TYPE GROWTH
NET PROFIT MARGIN 17.85% (Latest quarter)
TOTAL EQUITY CAPITAL 29.66 CR
PROMOTER STAKE 44.80%
FOREIGN INVETORS STAKE 6.73%
MUTUAL FUND 24.12%
INSURANCE COMPANIES 1.00%
INDIVIDUAL INVESTOR’S STAKE 18.52%
PLEDGE SHARES PRECENTAGE 3.76%

Overview of Atul Ltd

Atul Ltd

Atul Ltd, formerly known as Atul Products was established on 15 September 1947 Just after one month of India’s independence. It was the very first private sector company inaugurated by Pandit Jawaharlal Nehru, the first prime minister of independent India.

It was founded by Shri Kasturbhai Lalbhai and is a part of the Lalbhai Group of industries based in Ahmedabad, Gujarat. It’s a chemical conglomerate specializing in the production of over 900 products.

Headquartered at a village named Atul in Valsad district of Gujarat, it is spread over 1,300 acres of land. It is one of the greenest chemical complexes in the world and is guarded by the Panera hill on one side and the Par river tributary on the other.

The company has completed 73 years, and today as we talk, the company has 900 products and 400 formulations, which caters to 30 industries across 90 countries comprising of 4000 total clients.

Employee strength as of today stands 3000. Across India, it Works with 2,250 distributors and retailers and is further strengthening this route to market. As of today, the company owns 140 brands!

Atul Ltd is a diversified company meeting the needs of varied industries such as Adhesives, Agriculture, Animal Feed, Automobile, 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, Rubber, Soap and Detergent, Sport and Leisure, Textile, Tyre, and Wind Energy across the world.

Company has placed the products belonging to the two reporting segments, namely Life Science Chemicals and Performance and Other Chemicals, under seven sub-segments (interchangeably called Businesses), namely Aromatics, Bulk Chemicals and Intermediates, Colors, Crop Protection, Floras, Pharmaceuticals and Polymers – these, in turn, are managed through a matrix organization structure for achieving all-round functional excellence.

The company has 13 operational subsidiary companies, 15 associate companies, and two joint venture entities.

It has set up companies in Brazil, China, the UAE, the UK, and the USA. The company has manufacturing facilities at Atul village, Ankleshwar, Panoli, Tarapur, Ambernath, Jodhpur, and Bristol (UK).

The company has the advantage of being backward integrated and with new capacities being added, fixed cost per unit of the product is decreasing, and that is visible and can be seen in financial statements.

Atul Ltd uses coal, salt, water, and derivatives of crude oil and manufactures value-added products, company Has 3000 team members in India and other countries and is focused on building strong people-related processes.

Atul Ltd Analysis

Let’s have a look at its major subsidiaries, associate companies, and joint ventures and undergoing CAPEX plans.

ATUL BIOSCIENCE LIMITED

Atul bioscience limited is majorly into active pharmaceutical ingredients and its intermediaries. It is a 100% wholly-owned subsidiary company of Atul limited.

This company will complete its first phase of investment of ₹ 110 cr at Ambernath site by the end of September 2020.

Thereafter, the company will have a sales potential of ₹ 270 cr consisting mainly of active pharma ingredients and their intermediates. Sales of FY 2019-20 stood at ₹ 105 cr, so after capacity expansion sales will grow in excess of 100%.

As per the company management, there are other possibilities to further grow this business.

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ANAVEN LLP

Anaven, a 50-50 JV partnership with Nouryon (400-Year-old company from the Netherlands, it’s a global specialty chemical leader), will commence the first phase of its manufacturing facility of monochloroacetic acid (MCA) built with an investment of ₹ 195 cr in the second half of this fiscal.

The ultimate objective of this joint venture is to have the capacity required to meet the entire demand of MCA in India and thus make our country self-sufficient.

This company will have an initial sales potential of ₹ 156cr. Sales in FY 2019-20 was nil.

In the latest AGM of Atul limited company said MCA is just a beginning with NOURYON, we will be looking forward to manufacturing some other products with NOURYON in coming times.

AMAL LIMITED

Amal, (formerly Piramal Rasayan), is engaged in the manufacturing and marketing of bulk chemicals such as Sulphuric acid and Oleum and their downstream products such as Sulphur dioxide and Sulphur trioxide.

Atul Ltd holds 50% of the equity share capital of Amal limited, it is a profit-making company since 2016, but from initial years it was making losses and it had accumulated losses around ₹ 56 cr.

Now the company has brought down its carried forward loss from ₹ 56 cr to ₹ 9 cr by consistent improvement and is looking forward to wiping out the remaining carried forward loss soon.

The company is now evaluating a new project to reasonably grow its business.

DPD LIMITED

DPD, a 98% subsidiary company, DPD Ltd – Date Palm Developments, the largest producer of tissue culture raised date palm plants in Europe.

In 2011, DPD was bought by Atul Europe Ltd (a wholly-owned subsidiary company of Atul Ltd), with a 98% stake in the Company. By adding 3,000 sqm of greenhouse, dispatch, and office space to its existing infrastructure, this new facility will enable DPD to double its production capacity to meet growing export demand.

DPD is the first company in the world to successfully micro-propagate date palms on a commercial scale.

The Company currently exports around 1,50,000 date palm plants to 25 countries outside of the European Union every year. The plants produced by the Company are certified as being disease-free and pest-free by FERA Science Ltd laboratories, York.

Recently the company completed an investment of 17 cr to double its capacity and now has a sales potential of ₹ 50 cr. Sales of FY 2019-20 stood at ₹ 21 cr, so after capacity expansion sales will grow in excess of 100%.

Overall company is doing Capex of ₹ 487 cr. And as per the management, Once all these projects are commissioned, Company will have sales potential of ₹ 5,400 cr on a standalone basis. And if we talk about FY 2019-20 standalone sales, it stood at ₹ 3906 cr.

So the growth of 38% is expected on a standalone basis.

Subsidiaries, JV and associate entities have CAPEX plans of total ₹ 372 cr as mentioned above and as per the management of the company, the outcome of their total investment of ₹ 372 cr made or underway will only be visible in 2021-22.

The company is also focusing on retail business as well and the management did a friendly consultation with senior management of retail giants like Asian paints, Britannia, Hindustan Unilever, etc to grow a retail business.

Currently, the two main retail businesses of the Company, CP-Retail, and POLYMER -Retail, are quite small, with combined sales of ₹ 230 cr. They are scalable not only in India, which itself is a huge market but across the world.

Its brand poly grip is now having sales of ₹ 80cr which were earlier only ₹ 20 cr, company has recently doubled the capacity and it has the potential to reach sales of ₹ 200 cr.

You will be surprised to know that Atul Ltd has developed a village called Atul in Gujarat. Let us know about it.

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Atul is an industrial village developed by the chemical conglomerate Atul Ltd, located in the Valsad district of Gujarat, India.

Although a small village, it has good educational, recreational facilities, banks, temples, post offices, police stations, a bus depot,s and a railway station.

As of the Census of India, 2011, Atul has a population of 3486. Males constitute are 51.23% of the population and females are 48.77%.

Atul has an average literacy rate of 83.28%; with 87.46% of males and 78.88% of females literate. 8.89% of the population is under 6 years of age.

It is always said that employees are the biggest asset for any company and Atul limited has proved it. They are one of the best employers In India when it comes to taking care of employees in many aspects.

If I have to choose the top 10 companies in good corporate governance in Gujarat, Atul Ltd would by my first choice among the top 10.

-PRADEEP MADHWANI

WORLD CHEMICAL INDUSTRY

The total size of the world chemical industry is around US$ 4.20 TRILLION, and out of that 35% market share (i.e. US$ 1.45 TRILLION) is held by China and that’s a very big percentage, here we can say that more than 1/3rd of the world market share of the chemical industry is held by china!

And only 3.5% market share is held by India, which is a very low percentage, and India continues to be a minute part of the world chemical industry.

While it is an unfortunate fact on the one hand, and on the other hand, it presents a big opportunity for our beloved India and as well as Atul limited.

And if we talk in GDP terms china’s chemical industry represents 10.30% of their total GDP, while India’s chemical industry represents just 4.90% of our total GDP.

Here we should not forget that the GDP of China is near US$ 14 TRILLION, which is very big compare to the GDP of India which is just below US$ 3 TRILLION.

Now here we can just imagine the huge growth potential for India in the chemical industry. And we should also not forget that currently many countries of the world are not on good terms with China and that fact is a positive thing for India because India has very good relations with most countries of the world.

ATUL LTD HAS FIVE EVERLASTING MANDATES.

  1. Become world-class in people’s productivity and remain lean in fixed costs.
  2. Drive efficiency in manufacturing and other processes (focus on inputs; outputs will take care of themselves).
  3. Pervade ‘R&D’ in every function.
  4. Conserve cash while growing and evolving the future (that is, measure performance by free-cash-flow).
  5. Work with customers on ideas with large potential

FINANCIALS OF ATUL LTD

Atul Ltd has been one of the biggest wealth creators for old investors, and it should create good wealth for current investors as well in times to come.

You will be surprised to know that the market capitalization of Atul limited was only ₹ 57 cr in the year 1999 and today after 21 years market capitalization of the company stands at ₹ 18130 cr!

Yes, you read it right. Atul Ltd has multiplied investor’s wealth by 318 times in just 21 years! That’s the power of compounding and investing in high-quality companies.

Let’s talk about the last 10 years’ performance. In 2010 the company was doing sales and profit of ₹ 1174 cr and ₹ 56 cr respectively.

And today in 2020 it’s doing sales and profit of ₹ 4093 cr and ₹ 666 cr respectively! This is excellent, hence in the last 10 years, the company has delivered an extraordinary return of 45% CAGR. Which is magnificent.

Let’s have a look at its profit and loss account statement of Atul Ltd for the last 10 years.

Let’s analyze Atul Ltd Facts….

-Operating profit margin over the years, has been rising constantly from 8% to 22%

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-Depreciation over the years, has been constantly increasing from ₹ 32cr to ₹ 130 cr. This shows the company has been doing CAPEX on regular basis.

-Net profit margin over the years, has been continuously rising from 3.47% to 16.27%, which shows the company has been able to reduce costs consistently.

Also Watch: Atul Ltd Case Study

SOME OTHER IMPORTANT POINTS ON ATUL LTD:-

-Atul Ltd is a debt-free company.

-Equity share capital of the company is only ₹ 30 cr, reserves of are at ₹ 3,040 cr, which denotes reserves are 100 times of equity capital and it leaves the huge scope of liberal bonus in the future, and the face value of the company is ₹ 10 so a split is also possible in coming times.

Here it must be noted that bonuses and split cannot be drivers of growth in any company.

Ultimately, it’s the performance of the company which drives growth in the share price. But yes bonus and split do increase the excitement among the investors, which is good for investor’s sentiments.

-Atul Ltd has paid uninterrupted dividends except for one year, since the commencement of operation in 1952 and it has declared a total dividend of 275% during2019-20, which is highest so far. So out of 68 years, it has paid dividend of 67 years continuously. Which is phenomenal!

– Profit before tax has increased from ₹80 cr to ₹ 803 cr in the last 10 years.

-ROCE has increased from 13% to 34% in 10 years, which shows the efficiency of the company.

-Borrowing of the company has reduced from ₹ 295 cr to ₹ 0 cr in the last 10 years, and it has decent surplus funds on the books for regular expansions.

We at Madhwani & Associates had attended the Atul Ltd AGM which happened on 31st July 2020. And we were delighted to hear the following two statements by Mr. SUNIL SIDDHARTH LALBHAI (Chairman and Managing Director of the company).

“I know the environmental, financial, and social dream of the Founder while establishing our Company was much bigger, and in many ways, this is only the beginning.”

“We are a 70 years old company and we have to now prepare for the next 70 years. And yes we will grow definitely.

OUR NOTES:

Atul Ltd is one of the high-quality companies and it has excellent corporate governance practice for many years. There are very few companies in India that have a very long history of clean management. And Atul Ltd is one of them.

Looking at the growth opportunities in the chemical sector in the coming times, we at Madhwani & Associates believe Atul Ltd will be one of the major beneficiaries.

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Pradeep Madhwani

Pradeep Madhwani

Passionate Long-Term Investor | Research Head of Madhwani & Associates | Tax Professional.
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