Aarti Industries’ Stock Outlook & Returns On Investment
Aarti Industries is a small-cap stock with a market cap of Rs 13,530.23 crore. The current market price (CMP) of Aarti Industries’ stock on NSE is Rs 661 apiece, trading 0.15% down as compared to its previous close. Today, it opened at Rs 662 apiece. The stock hit its 52-week high at Rs 1,118 in January 2022, and its 52 week low at Rs 642 in October 2022, respectively.
It is a multibagger return stock with 189.57% positive returns in 5 years. In 3 years it gave 60.03% positive returns. The stock in the past couple of months has not performed well as it fell by 3.86% in 1 month and 16% in 3 months, respectively. Over a year, the stock has fallen by 29.79%.
RM sourcing secured; capex execution to drive revenue growth
Aarti had entered into a 20-year agreement to secure nitric acid from Deepak Fertilisers valued at ~Rs80bn w.e.f. 1 st Apr’23 and specifications based on formula-linked pricing. This secures its RM and enables it to focus on growth opportunities, and introduce value-added products and value chains for niche applications. “We are positive on Aarti’s long-term performance and expect its revenue/EBITDA/PAT to clock 14%/24%/ 28% CAGRs over FY23-25 on utilisation picking up at the recently commissioned capacities, the start of revenue from long-term contracts and the rising share of downstream and value-added products. The key short-term moniterables are demand slowdown in discretionary end-user industries, the challenging business environment (higher RM and utility costs) and volatile margins,” the brokerage has said.
Focus shifted to forward-integration opportunities on secured Rms
Due to business and production losses on non-availability of nitric acid, Aarti had earlier planned a 200-250tpd plant to manufacture nitric acid. However, it entered into a multiple-year agreement with Deepak Fertilisers for the latter supply it nitric acid. This would allow it to focus on forward-integrated opportunities and channel resources, effectively enabling it to drive research-driven long-term and high-growth avenues.
Management guided to a muted H2 FY23 on the demand slowdown in the dye and pigment sectors, expected to continue for some time due to the inflationary trend and low offtake. The company is positive about the long-term performance as multiple capex plans (+Rs30bn over FY23-FY25) are coming on stream in a phased manner to add capacity in the chloro-toluene value chain, set up multi-purpose plants, value-added and specialty products and custom manufacturing. “We maintain our Buy rating at a revised Target Price of Rs 800, valuing the company at 33x FY25e (adjusting for the hiving off of the pharma business),” the brokerage has said.
According to the brokerage, the key risks would be, Capex delay; a slow ramp-up of added capacities and delay in LT contracts.
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