Business News/ Markets / Stock Markets/  Specialty chemical stock down 30% from highs. Time to buy/accumulate?

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 currently trading down about 30% from its highs.

“Aarti implemented around 43 bn capex over FY19-22 and targeting 30 bn in the next two years. It intends to enter the chloro-toluenevalue chain, set up universal multi-purpose plants (UMPP), a new range of value-added and specialty products and custom manufacturing," said domestic brokerage and research firm Anand Rathi. 

With utilisation picking up at the recently commissioned capacities, the start of revenue from long-term contracts and rising share of downstream and value-added products, the brokerage expects the strong growth momentum to persist. It has maintained Buy rating on the specialty chemical stock with a target price of 960.

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.

Management maintained its guidance of investing 30bn in the next two years to add capacity for the chloro-toluene value chain, set up universal multi-purpose plants (UMPP), a new range of value-added and specialty products and custom manufacturing. It guided to its Q1 revenue rate to sustain in coming quarters.

“We expect healthy revenue/ EBITDA/ PAT CAGR of 18%/21%/24% (adj for termination fees) over FY22-24E, on rising capacity utilization (high capex intensity of 45-50 bn over FY22-24E focused on value added derivatives) import substitution, rising domestic demand and China +1 strategy," said analysts at brokerage Prabhudas Lilladher while maintaining ‘Accumulate’ rating on the stock with a target price of 880.

It further added that ramp-up of recently commissioned plants, Jhagadia chlorination capacity and Dahej phase 2 unit to drive specialty chemicals revenue while pharma revenue to be driven by higher volumes from regulated markets, value-added products and new intermediate products. Also, upcoming projects to aid penetration in key therapies (anti-hypertension, cardio-vascular, oncology, corticosteroids).

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Updated: 17 Aug 2022, 11:05 AM IST
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