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Aarti Industries Ltd>
  • CMP : 818.4 Chg : 3.0 (0.37%)
  • Target : 860.0 (11.69%)
  • Target Period : 12-18 Month

01 Jun 2022

Upcoming capex bodes well for growth outlook…

About The Stock

Established in 1984 by first generation technocrat Rajendra Gogri, Aarti Industries is a leading benzene-based speciality chemical company globally.

  • The company primarily operates in two segments – speciality chemicals (84%) and pharma (14%). Pharma is further divided into APIs, intermediates and xanthine derivatives

Aarti ranks among the top five globally for 75% of its portfolio. Its 200+ products are sold to 700+ domestic and 400+ export customers across the globe in 60 countries with a major presence in the US, Europe and Japan

Q4FY22 Results

: Topline was marginally below while margins missed owing to higher RMAT cost.

  • Total revenues grew by 45% YoY to ₹ 1755.6 crore. Speciality business recorded 45.1% YoY growth to ₹ 1629.4 crore while Pharma business recorded 73.6% YoY growth to ₹ 388.5 crore.
  • Gross margins contracted 631 bps YoY to ~47.5% while EBITDA margin declined 220 bps YoY to 19.3%, due to higher COGS.
  • Adjusted EBITDA was up 30.3% YoY to ₹ 339.1 crore.

Adjusted PAT increased 39.1% YoY to ₹ 193.7 crore. 

What should Investors do?

The stock appreciated at 31% CAGR in last three years.

We retain HOLD rating on the back of better growth outlook from both speciality chemical and pharma segments

Target Price Valuation

We value Aarti Industries at 28x P/E FY24E EPS to arrive at a revised target price of ₹ 860/share (earlier ₹ 1175/share).

Key Triggers for future price performance
  • Upcoming capex bodes well for speciality chemical revenue growth
  • Higher share of value added business portfolio to improve margins profile of the business
  • Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further
Alternate Stock Ideas

Apart from Aarti Industries, in our chemical coverage we also like Neogen Chemical.

  • Trigger for Neogen Chemical’s future revenue growth would be increasing custom synthesis opportunity

BUY with a target price of ₹ 1870

Key Financial Summary

(_ Crore) FY19 FY20 FY21E FY22E 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Revenue 4,705.5 4,186.3 4,506.1 6,369.0 15.0 7,771.2 8,904.9 18.2
EBITDA 965.1 977.3 981.5 1,320.0 15.1 1,606.6 2,002.6 23.2
EBITDA Margins (%) 20.5 23.3 21.8 20.7 - 20.7 22.5 -
Adj.PAT 504.2 536.1 525.8 785.9 20.0 886.1 1,113.5 19.0
Adj. EPS (`) 13.6 14.8 14.5 21.7 - 24.4 30.7 -
EV/EBITDA 30.6 30.4 31.1 22.6 - 18.9 15.4 -
P/E 56.8 52.1 53.1 21.4 - 31.5 25.1 -
ROE (%) 18.7 18.0 15.0 13.3 - 13.2 14.4 -
ROCE (%) 14.6 13.5 10.7 12.0 - 12.6 13.6 -
- - - - - - - - -
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Source: Company, ICICI Direct Research

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