Right Chemistry

Indian specialty chemical firms have been on a roll even as several external factors have soured overall market sentiment. One of the few midcap stocks in this space that has been riding the slowdown in China is Atul — the stock that hit an all-time high of Rs.4,160 on June 13. That stellar run has been halted due to expectation of lower global demand and the post-Budget market turmoil. The stock now trades at Rs.3,613 but the company has delivered robust results on the back of its well-diversified portfolio.

The market leader in aromatic compounds reported sales growth of 14% YoY at Rs.10.4 billion in Q1FY20, while its Ebitda margin expanded by 650 basis points to 23.1%. Lower raw material cost and better pricing in agro-chemicals, aromatics and bulk chemical segments aided the company’s financials. With the stock correcting, promoters stepped up their open market buying between July 30 and August 5. Arvind Farms, a promoter entity led by Samveg Lalbhai, executive director of Atul and two more promoter entities bought shares worth 90 million during that period. As per the latest quarterly report, their holding stood at 44.70% in June & the latest purchase will push up their holding by 0.09%.

Analysts at Phillip Capital have raised their Ebitda estimates by 3% and 5%, respectively, for FY20 and FY21, but with a caveat. Their July 2019 report mentions, “We remain cautious on Atul due to softening product prices, visible growth concerns highlighted by global peers and its exposure in auto and agro sectors”.

These concerns have not alarmed institutional investors yet. Their holding has increased from 6.22% in December 2018 to 6.90% in June 2019. Kotak Funds - India Midcap Fund currently holds 1.26% stake – unchanged from December 2018. Meanwhile, mutual fund holding has incrementally risen from 22.09% to 22.23% in the same period. HDFC MF and Aditya Birla MF have upped their holding from 6% and 1.7% to 6.19% and 2.60%, respectively.  Among the sellers, DSP MF and SBI MF have reduced their stake from 3.88% and 2.94% to 3.60% and 2.04%.