ICICI Direct has given Buy recommendation for Aarti Industries recommended buy rating on the stock with a target price of Rs 1085 in its research re with a target price of Rs. 1085 in its research report issued on Aug 23, 2021
ICICI Direct’s research report on Aarti Industries
Aarti industries’ board has approved the restructuring of the pharma business and allied activities of the company, which will be demerged into Aarti Pharmalabs Ltd (formerly known as Aarti Organics Ltd), a wholly owned subsidiary company of Aarti Industries Ltd. The demerged undertaking also includes a part of the specialty chemical business, which is a backward integrated facility providing feeding material to the pharma business. This part of the specialty chemical business accounts for less than 3% of revenues of the speciality chemical business. The demerged company would continue to run and operate the remaining specialty chemical business.
Outlook
As per the exchange ratio, the pharma business is valued at around Rs 6900 crore, implying a valuation EV/sales of ~6x FY23E. We expect average EBIT margins to reach normalised levels of 22%. Thus, based on our expected bottomline of the pharma segment, it is valued at ~38x PER on FY23E. We believe based on the peers’ valuation for the same stream of business line, it is on the higher side. However, any development in the CDMO space or improving margins profile ahead of estimates would support valuations, going ahead.