Atul shares up 14% in 3 months, beat Midcap index; worth a buy?

Atul Ltd has witnessed a strong 14% rise in its stock price over the past three months, significantly outperforming the Nifty Midcap Index, which saw a modest 2% gain in the same period. This surge correlates with the completion of destocking across various segments in the chemical sector. Global chemical companies have expressed confidence in a volume growth recovery anticipated in FY26, although price recovery remains a challenge due to global economic pressures such as the tariff war, a slowdown in Chinese demand, and oversupply, Elara Securities said in a note.

The stock broking firm has maintained an 'Accumulate' rating on Atul, driven by expectations of increased utilisation and volume growth across segments in FY26. The brokerage remains cautious about price recovery, citing ongoing concerns from the tariff conflict and China's market oversupply. Atul's strategic focus on demand recovery is central to its growth outlook, according to Elara's analysis.

In its Q4FY25 financial report, Atul posted an EBITDA of Rs 220 crore and a PAT of Rs 130 crore, surpassing Elara's EBITDA estimate of Rs 170 crore and PAT estimate of Rs 70 lakh. Revenue in Q4 stood at Rs 1,450 crore, marking a 20% year-on-year and a 2% quarter-on-quarter increase, aligning with Elara's forecast. The company's gross margin improved by 20% YoY to Rs 720 crore, reflecting robust operational performance.

The EBITDA margin for the quarter was reported at 15.4%, an increase from 12.2% in Q4FY24 and slightly down from 15.8% in Q3FY25, yet it exceeded Elara's estimate of 12.3%. Atul's life science chemicals segment, which constitutes 29% of its revenue, reported an 18% YoY and 6% QoQ improvement in revenue for Q4. This performance was bolstered by increased exports of 4-D and resorcinol, key products in the company's portfolio.

Elara Securities has adjusted its EPS estimate for FY26E, reducing it by 1% due to lower EBIT margins stemming from slower price recovery. The firm has introduced FY28 estimates with an expected 14% EPS growth, raising the DCF-based target price to Rs 7,485 from Rs 7,129. This adjustment is based on a consistent terminal growth rate of 5% and a cost of capital at 10.8%. The average EBITDA margin is projected to be 17.6% over FY26-47E, with a revenue CAGR of 10.6% through FY25-47E.

Export volumes and revenues for the herbicide 4-D have shown year-on-year growth, according to Elara's estimates based on Ministry of Trade data. This growth underscores Atul's competitive edge in expanding its global footprint and enhancing its export capabilities. The company's focus on life science chemicals, particularly in herbicides and resorcinol, remains a cornerstone of its strategic growth plans.

Despite global economic challenges, Atul's robust performance has been supported by strategic management decisions, helping the company maintain its market position. The stock's recent performance is not only indicative of sector resilience but also reflects investor confidence in the company's strategic direction and operational effectiveness.

Elara Securities notes that while volume recovery is expected, price recovery may take longer due to external economic factors. The firm continues to monitor the impact of geopolitical tensions and market dynamics on Atul's performance metrics. Global commentary suggests cautious optimism as companies navigate through these economic headwinds.