Sharekhan's research report on Aarti Industries
The recent rise in price of some of the key products in the NCB value chain, easing of freight charges and liquidation of high-cost inventory in pharma business bodes well for improvement in EBIT margin of specialty chemical/pharma segment to 20%/18-20% by Q4FY22 as compared to 16.4%/14.8% in Q2FY22. Management has guided for a high capex plan of Rs. 4,500-5,000 crore over FY22E-24E, which would double Aarti Industries gross block to >Rs. 10,000 crore by FY24E and provides longevity to the earnings growth cycle. Management has guided for PAT growth of 1.7x-2x/3x-4x by FY24E/FY27E over FY21. The management is planning to demerge the pharma business into a separate company and list it on the stock exchanges, which could unlock value for Aarti Industries and remain key near-term catalyst.
We maintain a Buy on Aarti Industries with an unchanged PT of Rs. 1,155 as high capex intensity would drive sustained high earnings growth and China plus one strategy would strengthen global scale (from current position of top-3 global producers of Nitro Chloro Benzene and Di-Chloro Benzene).
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