Sharekhan has given Buy recommendation for Aarti Industries with a target price of Rs. 1335 in its research report issued on Jan 29, 2021
Sharekhan’s research report on Aarti Industries
Q3FY2021 results were strong with a 16%/19.4% beat in operating profit/adjusted PAT at Rs. 285 crore/ Rs. 155 crore led by strong OPM of 24% (401 bps above our estimate) as gross margins surged to 54% (up 303 bps y-o-y). Specialty chemicals’ EBIT margin rose sharply by 356 bps q-o-q to 20.5% (close to pre-COVID-19 level) led by higher share of VAP at 76% versus 72% in Q2FY21 and normalisation of discretionary demand; pharmaceutical EBIT margins were also resilient at 23.8% (up 338 bps y-o-y). Recent recovery in specialty chemicals and ongoing capex of Rs. 2,500 crore over FY2021EFY2022E to drive EBITDA/PAT CAGR of 21%/24% over FY2020-FY2023E. Management is also looking to demerge pharma business and list it separately that could help unlock value.
We believe Aarti Industries would be a key beneficiary of China plus one factor and import substitution in domestic markets for specialty chemicals. Hence, we maintain a Buy rating on the stock with a revised PT of Rs. 1,355.
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