HDFC Securities bullish on this specialty chemical stock, sees over 30% upside
The specialty chemical stock is down nearly 20% in 2022 (YTD) so far
PremiumAarti Industries Ltd's (AIL) constant focus on Capex and R&D will enable it to remain competitive and expand its customer base, as per domestic brokerage and research firm HDFC Securities. The toluene segment in India is mainly untapped and catered to through imports and Aarti Industries will benefit in the long term by entering this segment, it added.
“Aarti Industries' Q1 EBITDA/APAT were 6/3% above our estimates, owing to a 26% rise in sales, lower-than-expected depreciation, offset by higher-than-expected raw material cost, higher-than-expected other expense and higher-than-expected finance cost," the brokerage's note highlighted.
The brokerage house has maintained its Buy recommendation on Aarti Industries shares, with a target price of ₹1,085 per share, implying a potential upside of over 32% from current stock level.
Aarti Industries Limited (AIL) is a leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint. It manufactures chemicals used in the downstream manufacturing of pharmaceuticals, agrochemicals, polymers, additives, surfactants, pigments and dyes. The specialty chemical stock is down nearly 20% in 2022 (YTD) so far, whereas it has declined over 12% in a year's period.
The company's revenue grew 50% from the year ago quarter, steered by higher volume off-take for key products as well as favourable realisation gains. It was supported by incremental volume coming from newer capacities added in the recent past.
Both 1st and 2nd long term contract has seen a ramp-up during the quarter, and this is expected to further improve in the ensuing quarters. EBITDA grew 18% year-on-year (YoY). EBITDA margin fell by 510 bps from the year-ago quarter to 19% in Q1, on account of higher input and utility costs, combined with logistical challenges and mark to market impact on the ECBs on account of steep depreciation in currency rates during the quarter, HDFC Securities added.
“We raise our FY23 EPS estimate by 1.5% to INR 23.3/sh, and cut our FY24 EPS estimate by 3.2% to INR 29.8/sh to factor in Q1 results and the change in raw material assumption," it said.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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