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CD Equisearch
Aarti Industries (Buy)
CMP: ₹1,472.5
Target: ₹1,704
To buttress its stock of capital goods, Aarti's plans to add fixed assets worth nearly ₹700 crore in several projects including specialty chemical complex at Jhagadia, acid reconstruction plants, debottlenecking and expansion of API and pharmaceutical intermediates, R&D facility and capex for ₹4,000 crore multi-year supply deal. Construction for ₹4,000-crore deal facility in Dahez has already commenced. Investments in R&D and Innovation facility in Navi Mumbai is aimed at expanding its capabilities to develop high end value added products and chemistries.
Gargantuan expansion plans (at least ₹700 crore for next fiscal), foray in to new chemistries — such as chlorotoluene and no belittling focus on mega supply deals would restrict earnings growth slowdown. Renewed focus on domestic supplies emanating from clampdown on polluting Chinese chemical plants would help reduce its fx exposure. Yet challenges looms over meeting ever tightening regulations of developed markets, which would require modifications to its existing manufacturing infrastructure.
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