Strong Buy Aartiinds cmp 645, target 740-745 in 10-15 sessions
Aarti Industries Ltd manufactures and deals in Speciality Chemicals and Pharmaceuticals. Company has 21+ manufacturing units, 100+ products, 700+ domestic customers, 400+ export customers in 60+ countries with major presence in the USA, Europe, Japan, etc.
Product Profile:
a) Special Chemicals: Benzene, toluene, nitric acid, chlorine, methanol, aniline, sulphur, etc.
b) Pharmaceuticals: API, Intermediates, Xanthine Derivatives, CDMO
User Industries:
Polymer and additives, agrochemicals and intermediates, dyes, pigments, paints, and printing inks, pharma intermediates, fuel additives, rubber chemicals, resins, etc.
Clientele:
a) Polymers and Additives: BASF, Sojitz, Solvay, Teijin, Toray, Dupont, Sabia, Dic
b) Pigments, Paints, Printing Inks and Dyes: Huntsman, Clariant, Atul, Archroma, Sun Chemical, Sudarshan
c) Agro Intermediates & Fertilizers: Bayer, Sygenta, UPL, Gharda Chemicals, FMC, Makhteshim, Coromandel
Segmental Revenue:
In FY22, company generated revenue from Speciality Chemicals 84% and Pharmaceuticals 16%
Geographical Revenue Split:
In FY22, company generated revenue from Exports 44% which consisted of revenues from North America 11%, Europe 11%, China 5%, Japan 3% and rest of the world 11%
Demerger:
On 30th January 2023, company demerged its Pharma entity into a separate company viz. Aarti PharmLabs Limited after getting approval from NCLT Ahmedabad. Shareholders of the demerged company received 1 equity share of Rs. 5/- of the
Resulting Company for every 4 equity shares of Rs. 5/- held in the Demerged Company
Future Projects:
Company is adding new chemistries and 40+ Value added products for Chemical by doing CAPEX of Rs. 2,500-3,000 crore, and also doing site development work on 100+ acre land at Jhagadia, which is expected to be completed by FY24. These include:
a) USFDA capacity expansion underway: API unit at Tarapur and intermediate unit at Vapi
b) Expansion cum asset upgradation for acid unit at Vapi
c) Expansion, asset restoration, sustainability initiatives, etc.
d) Unit at Jhagadia for 3rd long-term contract
e) NCB capacity expansion at Vapi
Partnership:
On November 19th 2022, company signed a binding term-sheet with Deepak Fertilizers (DFPCL), for Nitric Acid off take and supply arrangement valued over ~Rs. 8,000 crore for a 20-year period. DFPCL will supply Nitric Acid to the company, at formula driven international prices from 1st April 2023
18th January, 2024: Aarti Industries Limited (AIL) announces the signing of a long-term agreement with a multinational conglomerate for supply of a niche speciality chemical. The contract entails supply over a period of four years and is anticipated to generate revenue of over Rs. 6000 crores for the Company.
Financial Performance:
Aarti Industries exhibited strong resilience and delivered robust performance with a 16% increase in absolute EBITDA compared to the previous quarter. Revenues increased by 2% to Rs. 1,597 crore in Q2 FY24 compared to the previous quarter. EBITDA grew by 16% on a Q-o-Q basis to Rs. 233 crore in Q2 FY24. Profit after tax stood at Rs. 91 crore in Q2 FY24, higher by 30% over the previous quarter.
Aarti Industries maintains optimism about potential demand revival in end-use segments such as agrochemical, polymer additives, and other discretionary applications. The company expects better performance in H2 FY24 and foresees FY25 as a normalizing year considering the current pace of recovery. The export market is showing stronger momentum compared to the domestic market. The company expects to sustain and grow its market share in the export market.
The demand for octane boosters, a key product, is growing, and the company expects to sustain and grow this demand. The company anticipates a gradual recovery in global demand and a decrease in competitive intensity. The company is progressing well with various expansion projects and expects to commission them in a phased manner from next year. Aarti Industries is committed to deploying Rs. 2,500 to 3,000 crore for growth initiatives over a two-year period.
The company is targeting commissioning of the ethylation and nitrotoluene projects in Q1 FY25. Margins have improved due to a better product mix and the recovery in demand for certain products. The company expects the bottoming out of margins in the first quarter and a gradual improvement going forward. The company is focused on optimizing staff costs and other expenses.The company expects FY25 to see a progressive increase in volume and EBITDA, with a quarter-on-quarter improvement in performance. The company expects to see a gradual recovery in volumes and margins in the second half of FY24.The net debt is expected to peak at around Rs. 2,700-2,900 crore in FY24. The company expects to see a normalization of business in FY25 as the demand recovers and inventory correction is completed. The company expects volume growth across various product lines in FY25, leading to an improvement in performance. The company's exports are predominantly to regular markets, with non-regular markets accounting for around 10% of exports. Margins in non-regular markets are generally lower, but the company expects the benefit of regular markets to accrue in the future.
Conclusion:
The company has a strong potential to grow as it has already signed big revenue contracts for long term and looking at a growth prospects, the share price can easily reach 900 in matter of 2 months. However for a technical trade, we see a good upside momentum and strong buying pattern, completing a big U-shaped recovery and expecting a target of 740-745 in next 10-15 trading sessions max.
Product Profile:
a) Special Chemicals: Benzene, toluene, nitric acid, chlorine, methanol, aniline, sulphur, etc.
b) Pharmaceuticals: API, Intermediates, Xanthine Derivatives, CDMO
User Industries:
Polymer and additives, agrochemicals and intermediates, dyes, pigments, paints, and printing inks, pharma intermediates, fuel additives, rubber chemicals, resins, etc.
Clientele:
a) Polymers and Additives: BASF, Sojitz, Solvay, Teijin, Toray, Dupont, Sabia, Dic
b) Pigments, Paints, Printing Inks and Dyes: Huntsman, Clariant, Atul, Archroma, Sun Chemical, Sudarshan
c) Agro Intermediates & Fertilizers: Bayer, Sygenta, UPL, Gharda Chemicals, FMC, Makhteshim, Coromandel
Segmental Revenue:
In FY22, company generated revenue from Speciality Chemicals 84% and Pharmaceuticals 16%
Geographical Revenue Split:
In FY22, company generated revenue from Exports 44% which consisted of revenues from North America 11%, Europe 11%, China 5%, Japan 3% and rest of the world 11%
Demerger:
On 30th January 2023, company demerged its Pharma entity into a separate company viz. Aarti PharmLabs Limited after getting approval from NCLT Ahmedabad. Shareholders of the demerged company received 1 equity share of Rs. 5/- of the
Resulting Company for every 4 equity shares of Rs. 5/- held in the Demerged Company
Future Projects:
Company is adding new chemistries and 40+ Value added products for Chemical by doing CAPEX of Rs. 2,500-3,000 crore, and also doing site development work on 100+ acre land at Jhagadia, which is expected to be completed by FY24. These include:
a) USFDA capacity expansion underway: API unit at Tarapur and intermediate unit at Vapi
b) Expansion cum asset upgradation for acid unit at Vapi
c) Expansion, asset restoration, sustainability initiatives, etc.
d) Unit at Jhagadia for 3rd long-term contract
e) NCB capacity expansion at Vapi
Partnership:
On November 19th 2022, company signed a binding term-sheet with Deepak Fertilizers (DFPCL), for Nitric Acid off take and supply arrangement valued over ~Rs. 8,000 crore for a 20-year period. DFPCL will supply Nitric Acid to the company, at formula driven international prices from 1st April 2023
18th January, 2024: Aarti Industries Limited (AIL) announces the signing of a long-term agreement with a multinational conglomerate for supply of a niche speciality chemical. The contract entails supply over a period of four years and is anticipated to generate revenue of over Rs. 6000 crores for the Company.
Financial Performance:
Aarti Industries exhibited strong resilience and delivered robust performance with a 16% increase in absolute EBITDA compared to the previous quarter. Revenues increased by 2% to Rs. 1,597 crore in Q2 FY24 compared to the previous quarter. EBITDA grew by 16% on a Q-o-Q basis to Rs. 233 crore in Q2 FY24. Profit after tax stood at Rs. 91 crore in Q2 FY24, higher by 30% over the previous quarter.
Aarti Industries maintains optimism about potential demand revival in end-use segments such as agrochemical, polymer additives, and other discretionary applications. The company expects better performance in H2 FY24 and foresees FY25 as a normalizing year considering the current pace of recovery. The export market is showing stronger momentum compared to the domestic market. The company expects to sustain and grow its market share in the export market.
The demand for octane boosters, a key product, is growing, and the company expects to sustain and grow this demand. The company anticipates a gradual recovery in global demand and a decrease in competitive intensity. The company is progressing well with various expansion projects and expects to commission them in a phased manner from next year. Aarti Industries is committed to deploying Rs. 2,500 to 3,000 crore for growth initiatives over a two-year period.
The company is targeting commissioning of the ethylation and nitrotoluene projects in Q1 FY25. Margins have improved due to a better product mix and the recovery in demand for certain products. The company expects the bottoming out of margins in the first quarter and a gradual improvement going forward. The company is focused on optimizing staff costs and other expenses.The company expects FY25 to see a progressive increase in volume and EBITDA, with a quarter-on-quarter improvement in performance. The company expects to see a gradual recovery in volumes and margins in the second half of FY24.The net debt is expected to peak at around Rs. 2,700-2,900 crore in FY24. The company expects to see a normalization of business in FY25 as the demand recovers and inventory correction is completed. The company expects volume growth across various product lines in FY25, leading to an improvement in performance. The company's exports are predominantly to regular markets, with non-regular markets accounting for around 10% of exports. Margins in non-regular markets are generally lower, but the company expects the benefit of regular markets to accrue in the future.
Conclusion:
The company has a strong potential to grow as it has already signed big revenue contracts for long term and looking at a growth prospects, the share price can easily reach 900 in matter of 2 months. However for a technical trade, we see a good upside momentum and strong buying pattern, completing a big U-shaped recovery and expecting a target of 740-745 in next 10-15 trading sessions max.
Trade closed: target reached:
Target achieved recently. However any investor having a long term view can still hold for good gains till 900 plus.