On Wednesday, Motilal Oswal Wealth Creation Study named it among the top five fastest wealth creators on Dalal Street. The stock is chemicals player Aarti Industries.
From a price of mere Rs 46 in December 2013, the stock trades at Rs 775 today, up nearly 1,600 per cent in six-odd years.
The scrip has come off a bit after hitting a record high of Rs 930.51 in May, 2019, amid poor revenue growth due to a drop in input prices and unavailability of raw materials. Analysts see a good chance that the stock will soon make a comeback.
Reliance Securities finds comfort in the company’s strong long-term earnings visibility. It has signed three multi-year long-term deals, which at 100 per cent off-take would contribute Rs 181 crore to earnings. That would be 37 per cent of its profit after tax for FY19.
“We expect healthy earnings growth at 22 per cent CAGR over FY19-21E. The stock trades at 25.2 times FY20E earnings and 18.9 times FY21E earnings. We maintain a ‘buy’ recommendation on it with a price target of Rs 929,” it said.
The Mumbai-headquartered diversified chemicals company offers Benzene-based derivatives. Benzene accounts for 60 per cent of its revenues, while aniline and sulphuric acid compounds contribute 12 per cent.
The company majorly deals in two segments: specialty chemicals and pharma: the former accounts for 84 per cent of revenues, and the latter the rest.
The company offers dyes, pigments, agrochemicals, pharmaceuticals and rubber chemicals, with around 40 per cent of revenue coming from exports.
Revenues grew 13 per cent compounded annually to Rs 4,706 crore in FY19 from Rs 2,908 crore in FY15. Ebitda expanded 20 per cent annually during the period to Rs 965 crore from Rs 466 crore.
So far, the company has reported an 11 per cent drop in revenues at Rs 2,378 crore for the six-month period ended September 30. During this period, profits have grown 31.73 per cent to Rs 212.20 crore while margins improved by 440 basis points to 13.3 per cent from 8.9 per cent YoY.
Geojit Financial Services believes the firm’s revenue growth could get impacted by lower volume offtake. It also projected a drop in realisations on account of a fall in raw material prices.
However, the company remains constructive on long-term growth given the strong capacity building focused on global markets, backward integration and an increase in downstream products.
The brokerage has upgraded the stock to ‘accumulate’ rating from ‘reduce’ with a price target of Rs 933. Edelweiss has also upgraded it to ‘buy’ from ‘hold’.
Arati’s capacity augmentation is on track with an investment of Rs 1,200 crore, the brokerage said. It would be a key growth driver in FY21 (revenue growth of 29 per cent YoY), it said, “even as it expects FY20 revenue growth to be affected by poor volumes, improvement in product mix is likely to drive PAT growth of 10 per cent.”
The management has so far guided for 10-15 per cent PAT growth in FY20.
“Factoring in the fall in input prices, we revise down FY20 revenue estimate, but keep PAT estimates unchanged, which is in line with the management’s guidance for 10-15 per cent growth. As we roll forward to December 2020E while maintaining the multiple at 25 times, we revise target price to Rs 992 from Rs 923. This promises an attractive upside after the recent correction,” Edelweiss said.
Recent Comments