CD Equisearch has given Reduce recommendation for Aarti Industries with a target price of Rs. 765 in its research report issued on Jul 28, 2021

CD Equisearch’s research report on Aarti Industries

Aided by the specialty chemicals business – whose revenues surged by an eye-popping 56.6% in Q1 and EBIT by gravity-defying 84.2% – Aarti Industries posted 40.5% growth in overall sales and 98.4% rise in post tax earnings on yoy basis. Despite sharp increase in raw material prices, freight and fuel prices, operating profit advanced by 72.4% to Rs 313.81 crs, thus pulling up OPMs to 23.8% from 19.4% (21.5% in Q4); finance costs though rose sharply not least due to M2M impact on unhedged ECBs. Much of the business growth last quarter was aided by higher capacity utilization and better product mix with value added products contributing 70%. Margins of the pharmaceuticals business declined to 19.8% from 21.2% in Q4 due to higher inventories awaiting shipments. Yet its growth would be driven by higher volumes from regulated markets, increased revenue share of value added products and launch of intermediates. Expected commissioning of additional capacities of APIs and intermediates in the second half of current fiscal would buoy volumes.

Outlook

Weighing odds, we advise “reduce” rating on the stock with revised target of Rs 765 (previous target: Rs 555) based on 35x FY23e earnings.

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