ATUL LTD.

Long-term bank loans/facilities Short-term bank loans/facilities Rating CARE has retained the 'CARE A-' [Single A minus] rating assigned to the long-term bank loans/facilities of Atul Ltd. (Atul). This rating is applicable to facilities having tenure of more than one year. Facilities with this rating are considered to offer adequate safety for timely servicing of debt obligations. Such facilities carry low credit risk. Further, CARE also retained 'PR 1' [PR One] rating assigned to the short-term bank loans/facilities of Atul. This rating is applicable to facilities having tenure of up to one year. Facilities with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk. Within this category, facilities with relatively better credit characteristics are assigned PR1+ rating. CARE assigns '+' or '-' signs to be shown after the assigned rating (wherever necessary) to indicate the relative position within the band covered by the rating symbol. Facilities rated by CARE aggregate to Rs.485.49 crore, including outstanding/sanctioned term loans of Rs.155.49 crore, fund based working capital limit of Rs.200 crore and sanctioned non-fund based limit of Rs.130 crore. The ratings continue to factor in wide experience of promoters and competent management, established track record and strong position of the company in the chemical industry with diversified product portfolio, strong R&D setup, established customer base and improving financial profile characterized by moderate gearing levels, improving profitability and comfortable liquidity position. The ratings, however, continue to remain constrained due to weak end-use industry scenario marked by stiff competition from unorganized sector, high operational overheads, exposure to raw material price fluctuations with global linkages and foreign exchange fluctuation. Company's ability to improve its profitability through better 'CARE A-' 'PR1'

raw material price-risk management, control over operational overheads and improvement in gearing levels are the key rating sensitivities. Company Background Atul was originally promoted by Late Shri Kasturbhai Lalbhai in 1947 as Atul Products Ltd. as a step towards backward integration of their cotton textile business. In 1996, it was renamed as Atul Ltd. It has one of the biggest integrated chemical complexes in Asia, manufacturing a wide variety of dyes & dye intermediates, bulk chemicals & intermediates, agrochemicals, polymer & pharma intermediates and aromatics. The over three hundred products manufactured by the company, find wide usage in industries like - textile, paints, agriculture, fragrance & flavours, tyre, paper, pharmaceutical, aerospace, construction, etc. Operations Atul's operations are divided into six Strategic Business Units (SBUs) viz.: Colours/Dyes (contributing to 22% of FY09 net sales), Aromatics (26%), Bulk chemicals and Intermediates (7%), Crop Protection (21%), Pharmaceuticals & Intermediates (6%) and Polymers (16%). While Aromatics division is located in Ankleshwar (Gujarat), all the other divisions are located in Valsad, Gujarat. Atul sells its products both in the domestic as well as international markets with exports contributing nearly 50% of the sales during FY09. Some of the major contributing products include pcresol, p-anisic aldehyde, p-anisic alcohol, p-cresidine, epoxy resi ns, sul fones havi ng w i de ran ge of applications in different industries including personal care, pharmaceuticals, dyestuff, paper, tyre, textile, agriculture, aerospace etc. Atul enjoys fair amount of market share in many of these products segments around the world.

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Major raw materials for its products are mainly toluene, phenol and methanol. Atul also manufactures some of the intermediate products at its some divisions which are raw material for its other divisions. The raw materials are largely procured from domestic market and only 26% during FY09 was procured from abroad. Raw materials are largely crude oil derivatives which expose the company to raw material price risk. Financial Performance Atul's total income has grown at CAGR of 12% over the past three years till FY09 primarily driven by growth from crop protection, aromatics and pharmaceutical divisions. Atul's total operating income grew by 17% during FY09 on standalone basis, primarily driven by growth from across almost all the divisions. PBILDT margin improved significantly during FY09 due to improvement in sales realization coupled with decline in raw material prices and spreading of overhead costs over larger production base. With improvement in PBILDT margin, PAT margin also improved during FY09 despite increase in interest and depreciation costs and other extraordinary losses pertaining to exchange rate fluctuations. Long-term debt equity ratio, though increased marginally, remained comfortable at 0.65 times as at Mar.31, 2009. However, the overall gearing ratio improved and stood at 1.02 times as at Mar.31, 2009 compared to 1.31 times as at Mar.31, 2008, due to accretion of profits to networth and repayment of term loans. With the improvement in profitability margins, interest coverage ratio improved to 2.95 times during FY09. Current ratio improved to 1.60 times as at Mar.31, 2009 from 1.37 times as at Mar.31, 2008 mainly due to reduction in bank borrowings for working capital and decline in the level of sundry creditors for expenses. Atul's overall operating cycle improved during FY09 to 52 days compared to 64 days during FY08 due to decrease in collection period. Results for H1FY10: During H1FY10, Atul reported a PAT of Rs.33 crore on a total income of Rs.544 crore as

against the PAT of Rs.18 crore registered on total income of Rs.650 crore during H1FY09. PBILDT margin of 13.27% during H1FY10 was higher than its FY09 levels. Industry Scenario Dyestuff: The global dyestuff industry (dyes and pigments) has witnessed a gradual shift of manufacturing facilities from the developed countries to Asia, particularly China and India due to environmental considerations, availability of trained and inexpensive manpower and the relocation of the end-user industries mainly textile and leather to the Asia-Pacific region. The Indian dyestuff industry is widely fragmented between the organised and unorganised sectors. There are approximately 950 dye manufacturing units in India of which 50 units are in the organised and 900 in the unorganised sector. The two western States of Maharashtra and Gujarat account for over 90% of the total dyestuff production in the country. India has emerged as a global supplier of dyestuffs and dye intermediates, particularly for reactive, acid, vat and direct dyes. The Indian dyestuff industry meets more than 95% requirement of the domestic market and has gradually also made a dent in the global market. The worldwide demand for organic colourants is estimated at USD 10.6 billion in 2008. India accounts for 6.80% of the world dyestuff production. It faces stiff competition in the international market from China and some south-east Asian countries. At present, vat, disperse and reactive dyes and pigments are manufactured mainly by the organised sector as these are very capital intensive. Disperse dyes have maximum share in the total domestic demand followed by acid and direct dyes. Others Products: Resorcinol, a chemical intermediate, is the essential component of an adhesive system used in the tyre manufacturing process and other fibre-reinforced rubber mechanical goods. INDSPEC Chemical Corporation is the world's largest producer of resorcinol, having global

CAREVIEW

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market share of above 50%. In India, Atul has approximately 40% share of the domestic resorcinol market, whereas the balance requirement is met mainly through imports. With Atul's plan to increase the resorcinol manufacturing capacity, the company will be able to meet the domestic consumer's requirements. Agrochemical industry plays a vital role in ensuring food security and economic benefits to the farmers. Domestic consumption of agrochemicals grew at a CAGR of 8.67% during the five year period ending FY07. Domestic consumption in FY 07 stood at Rs.4,463 crore, an increase of 7.72% compared to previous year. The growth for two consecutive years viz. FY06\FY07 was due to good monsoons, good support prices of crops, pro agricultural policies by the GoI and higher agricultural produce. Insecticides constitute the largest proportion of agrochemicals consumption in India. Exports grew at a CAGR of 15.84% in last five years ending FY08 valued at Rs.3,143 crore. The increased export focus is due to better export realizations, global outsourcing due to low cost production, low or nil credit periods in export markets and tax sops. Atul is the leading manufacturer of p-cresol (aromatic division) in India, having almost 30% domestic market share. The balance demand is being met mainly through imports. Atul has almost 80% domestic market share of p-anisic aldehyde which is used mainly as an intermediate in the synthesis of other compounds important in pharmaceuticals and perfumery. Prospects Overall growth of Atul would be driven by the initiatives taken by it for technological up-gradation, innovation of new products and mitigating risk related to fluctuation in input costs by moving towards more value added products. The prospects would also be driven by the overall improvement in the performance of its colors division and agrochemicals division and other divisions' performance being stable.

Financial results (Rs.crore) For the period ended / as at Mar.31, Working Results Net Sales Total operating income PBILDT Depreciation Interest PBT PAT [after deferred tax] Gross cash accruals Financial Position Equity capital Networth Total capital employed Key Ratios Growth Growth in total income (%) Growth in PAT [after deferred tax] (%) Profitability (%) PBILDT / Total operating income (%) PAT / Total income (%) ROCE (%) Average cost of borrowing (%) Solvency Long-term debt equity ratio (x) Overall gearing ratio (x) Interest coverage (x) Term debt / GCA (years) Liquidity Current ratio (x) Quick ratio (x) Turnover Capital turnover ratio (x) Working capital turnover ratio (x) Avg. collection period (days) Avg. inventory period (days) Avg. creditors period (days) Total operating cycle (days) 2007 2008 2009 (12m, A) (12m, A) (12m, A) 920 924 68 31 29 20 19 49 30 292 678 1028 1037 60 30 31 31 29 56 30 312 758 1202 1224 154 32 41 50 40 74 30 344 731

5.51 -79.47 7.38 2.10 5.68 8.11 0.64 1.21 1.28 4.96 1.41 0.92 1.40 2.81 85 95 106 74

12.33 47.71 5.79 2.76 4.69 7.73 0.66 1.31 1.09 4.92 1.37 0.87 1.45 2.87 81 86 103 64

17.98 39.97 12.59 3.27 16.41 10.36 0.65 1.02 2.95 4.26 1.60 1.00 1.64 3.35 66 81 95 52

A: Audited Note: Shri S.M. Datta, the Director of Atul Ltd, is one of CARE's Rating Committee members. He did not participate in the rating process nor the Rating Committee while assigning the rating for bank facilities of the company. December 2009

Disclaimer
CARE's ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments.

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CARE is headquartered in Mumbai, with Offices all over India. The office addresses and contact numbers are given below:

HEAD OFFICE: MUMBAI

Mr. D.R. Dogra Managing Director Cell : +91-98204 16002 E-mail : dr.dogra@careratings.com Mr. P N Sathees Kumar Exective Vice President - Marketing Mobile: +91-9820416004 E-mail : sathees.kumar@careratings.com Mr. Rajesh Mokashi Dy. Managing Director Cell : +91-98204 16001 E-mail: rajesh.mokashi@careratings.com Mr. Ankur Sachdeva Vice President - Marketing (SME) Cell : +91-9819698985 E-mail: ankur.sachdeva@careratings.com

Mr. Vivek Palan Manager - Banking & Finance Cell : +91-98206 06406 E-mail: vivek.palan@careratings.com 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400 022 Tel.: (022) 67543456 Fax: (022) 67543457 Website: www.careratings.com

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