Buy Aarti Industries; target of Rs 750: Emkay Global Financial

Emkay Global Financial's research report on Aarti Industries

Aarti is poised for a structural uptick in its value chains, led by i) headwinds faced by European players operating in similar value chains on high feedstock/energy costs, ii) India becoming more competitive in nitration after multiple nitric acid capacities coming on stream, and iii) a diversified end-user market. A large part of the capex spent in the last five years has not contributed to Aarti’s EBITDA due to 1) cancellation of the first long-term contract, 2) spends on asset refurbishment/replacement, which are non-revenue generating, 3) availability issues in nitric acid hindering volume growth.

Outlook

Aarti’s EBITDA has not grown materially over FY19-23, but we expect FY24-26E revenue/EBITDA/PAT CAGR at ~21%/38%/57%. We initiate coverage with a BUY recommendation and TP of Rs750/share, valuing it at 30x its Dec-25E EPS.

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