Reduce Aarti Industries; target of Rs 420: Prabhudas Lilladher

Prabhudas Lilladher recommended reduce rating on Aarti Industries with a target price of Rs 420 in its research report dated July 02, 2025.

Broker Research

July 03, 2025 / 14:17 IST

Reduce

26 Aug, 2025 12:21

Volume

Todays L/H

Prabhudas Lilladher's research report on Aarti Industries

Aarti Industries demonstrated a volume growth of 17% in FY25, however realizations across key products remained subdued, resulting in lower margins. For FY26, the management has guided double-digit volume growth and expects margins to remain stable. The Energy segment, which contributed 36% to the company’s topline in FY25 and is largely comprised of MMA, saw sequential improvement in export volumes, although pricing pressure persists due to volatility in the gasoline-naphtha spread. Over the past few years, the company has undertaken multiple growth initiatives, including capacity expansions in MMA, Nitro Toluene, and Ethylation, which are expected to ramp up gradually. The company is currently executing four long-term contracts, with volume ramp-up anticipated across most of them. However, there remains uncertainty around the achievability of the previously guided peak annual revenue potential from these contracts. Meanwhile, the ongoing capex for Chloro Toluene and its derivatives is slated to commercialize in FY26. These initiatives, along with efforts on cost optimization, are expected to help bridge the gap between the current EBITDA of Rs10bn and the management’s target range of Rs18–22bn within three years. While volume growth remains visible, we believe that continued weakness in realizations will likely impact near-term performance.

Outlook

The stock trades at 29x FY27E P/E. We maintain a Reduce rating, valuing it at 25x FY27E EPS, and arrive at a target price of Rs420.

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