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CD Equisearch
Aarti Ind (Accumulate)
CMP: ₹891.70
Target: ₹1,034
Aarti Industries Ltd is one of India's leading manufacturers of chemicals and pharmaceutical intermediates: dyestuff; pigment; agro chemicals; speciality chemicals; active pharmaceutical ingredient (API); intermediates of API.
The stock currently trades at 22.2x FY18e EPS of ₹40.13 and 19x FY19e EPS of ₹46.98. Beneficial client engagement — larger revenue share from older clients — and backward integration for intermediates does instil wider economic moat and so does enriching global market share (25-40 per cent across products) in benzene products. Despite massive ongoing capex, its return on capital has shown only faint signs of degradation in the last few years. Rebound in its speciality chemicals dispatches partly instigated by resurrection in agrochemical industry and ramp up of nitro toluene capacity next fiscal would help earnings surge by some 17 per cent. On balance we maintain ‘Accumulate’ rating on the stock with revised target of ₹1,034 (previous target: ₹900) based on 22x FY19e earnings.
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