Religare
Aarti Ind (Buy)
CMP: ₹423.30
Target: ₹555
Backed by 14 per cent overall volume growth and 9-10 per cent growth in specialty chemicals, Aarti Industries’ Q1 operating profit margins grew about 17 per cent y-o-y, largely in line with the guided about 20 per cent y-o-y growth target. While specialty chemicals EBIT grew by 21 per cent y-o-y to ₹118 crore, pharmaceutical EBIT declined by 11 per cent y-o-y on account of maintenance shutdown at one of the caffeine production units. Revenue traction, however, is expected to improve going forward on a) the caffeine unit resuming operations; and b) USFDA approval for four products which will contribute to sales Q2FY16 onwards.
Aarti Industries is investing about ₹500 crore over FY15-FY17, which will lead to a) expansion in NCB capacity from 66-75 TMT in Q2-Q3FY16; b) PDA expansion to 1000TPA from 250 TPQ in a phased manner over FY16; and c) toluene capacity of 30 TMT by FY16-end. Expanded capacities would shore up ARTO’s volume/EBITDA by 15-20 per cent /20-24 per cent y-o-y over FY16E-FY18E.
Aarti Industries has received HC approval for amalgamation of its subsidiaries with itself, leading to a reduction of 5.95 per cent in equity capital and thus improving EPS and ROE.