Hold Aarti Industries; target of Rs 420: Prabhudas Lilladher

Prabhudas Lilladher's research report on Aarti Industries

ARTO reported a topline of Rs16.8bn, reflecting a decline of 10% YoY and 14% QoQ, primarily due to reduction in prices of key RMs, such as benzene and aniline, along with the postponement of some bulk shipments from Jun to Jul. Demand across dyes, pigments, and pharma segments remained stable, while the agrochemicals segment continued to face pressure. Volumes in the Energy business, which largely comprises MMA, increased by 3% YoY and 4% QoQ; however, rising competition led to pressure on margins. The Non-Energy business saw a 4% QoQ decline in volumes, led by lower demand for NCB and DCB. DCB volumes are likely to see an upward trend in H2FY26. The management has reiterated its EBITDA guidance of Rs18–22bn by FY28, implying a 30% CAGR over the next 3 years. We believe near-term headwinds are likely to persist. Additionally, likely imposition of 25% tariffs by the US (15%-20% revenue mix) on Indian exports, poses a further risk, especially for MMA, a key product already facing pricing pressure. The stock is currently trading at 25x FY27 P/E. Upgrade to ‘HOLD’ rating.

Outlook

Due to sharp correction in price, we upgrade to ‘HOLD’ with TP of Rs420, valuing the stock at 25x FY27E EPS.