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Broker's call: Aarti Industries (Accumulate)

| Updated on August 26, 2019 Published on August 27, 2019

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Aarti Industries (Accumulate)

CMP: ₹1,506.05

Target: ₹1,741

According to the latest update of Mordor Intelligence, global market for specialty chemicals is estimated to rise by a CAGR of 5.2 per cent during 2019-2024 driven by robust construction activities in Asia-Pacific, West Asia and African regions, and growth of oil exploration and production activities.

Brandishing its wherewithal of undertaking complex projects, Aarti recently signed a $125-million deal with a global chemical conglomerate for a high value specialty chemical intermediate for a period of 10 years. The production facility for this product would come up in Dahej at an investment of $15m by Q4FY21. Both the companies have jointly worked on optimizing and scaling up the process for this project ove rthe course of four years. Contract for the supply of agrochemical herbicide to a global major bagged in the past would commission sometime in fourth quarter of current fiscal.

The stock currently trades at 23.3x FY20e EPS of Rs 63.80 and 18.8x FY21e EPS of Rs 79.14. Despite perceptible stress in global chemicals industry, earnings for the current fiscal would nearly matched previous forecast though with upside risks. Commencement of margin rich long term supply contract of $620 million would add to earnings next fiscal. On balance, we retain our accumulate rating on the stock with revised target of ₹1,741 based on 22x FY21e earnings.

Published on August 27, 2019
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