Buy Aarti Drugs; target of Rs 848: Anand Rathi

Anand Rathi's research report on Aarti Drugs

Aarti’s Q3 FY21 margins surpassed our expectation. Its EBITDA margin expanded 569bps to 19.9%, driven by better realisations in APIs and import-duty imposition on key products such as ciprofloxacin. Sales grew 12% to Rs.5.3bn. The API division contributed 87% to sales and grew 13.1% to Rs.4.6bn. Formulations sales were up 5.2% to Rs.697m. Through organic growth and capacity addition, Aarti expects sales to record a 15% CAGR over FY21-26 to Rs.45bn and the EBITDA margin to scale up to 24-25%.

Outlook

We raise our FY21e/FY22e/FY23e EPS 8%/7.6%/5.2%. We retain our Buy rating and raise our target to Rs.848 (earlier Rs.813) based on 18x FY23e earnings.