Buy Aarti Drugs; target of Rs 844: Anand Rathi

An Edelweiss research report for Q4FY21 says road tonnage continued to improve, evident in e-way bill generation (up 6% QoQ) and improved core trucking rentals. “We estimate tonnage would increase by three–five percent for truckers. Asset-light plays Mahindra Logistics and TCI Express remain our preferred picks due to their ability to scale up/down as the environment demands,” the report said. Edelweiss is bullish on Blue Dart Express due to the pandemic-induced boom in e-commerce and its leaner cost structure. It has retained a ‘buy’ call on Mahindra Logistics, TCI Express and Blue Dart Express.

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Anand Rathi's research report on Aarti Drugs

Raw-material price rises and a higher share of domestic sales dented Aarti’s gross margin 966bps to 31.7%. Certain maintenance costs pulled down the EBITDA margin more, to 1,085bps. Revenue grew 6.5% to Rs5.8bn on 6.7% growth in formulations, and 38.5% in specialty chemicals. API sales were up 3.9% to Rs4.5bn. Via better utilisation of capacities and addition of products, Aarti is on track for 18% revenue growth in the next 4-5 years. We cut our FY22e/FY23e EPS 18.6%/11.1% to factor in the temporary rise in raw-material prices.

Outlook

We retain our Buy rating and lower our target to Rs844 (earlier Rs949) on 20x FY23e earnings.

For all recommendations report, click here

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