HDFC Securities raises Aarti Industries share target price to Rs 1380, sees upside of 38%—Here is why

Brokerage house HDFC Securities has raised target price of specialty chemical manufacturer Aarti Industries and maintained a buy rating for this stock.  It is of the view that AIL's constant focus on Capex and R&D will enable it to remain competitive and expand its customer base going forward.

Stating that the toluene segment in India is mainly untapped and catered to through imports, HDFC Securities believes that AIL will benefit in the long term by entering this segment.  

HDFC Securities has raised Aarti Industries target price from 1330 to Rs 1380. At the base price of Rs 999, it sees an upside of 38 per cent on new target price in one year.  "We maintain our BUY recommendation on Aarti Industries (AIL) with a target price of INR 1,380/share," the brokerage said.  
Financials

Aarti Industries adjusted EBITDA (excluding the impact of INR 6.1bn termination fees arising on account of the termination of a long-term supply contract by the customer) grew 25/15% YoY/ QoQ to INR 3.6bn, on the back of strong performance across both specialty chemicals and pharmaceutical segments.  

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Value-added products contributed 71% to revenue in Q3. EBITDA margin came in at 18%, as higher input costs were passed through to the customers.

The brokerage also raised its FY22 EPS estimate by 75.5% to INR 33.1 to account for the one-off termination fee and the 9MFY22 performance.  

A capex of Rs 45-50bn to be spent, primarily to add over 40/50 new products for specialty chemicals/pharma segments respectively, between FY22 to FY24 and the company's guided APAT growth of 25-35% for FY22 are among the reasons that the brokerage is bullish on this counter in the long-run.

Aarti Industries closing price on February 9
Meanwhile, shares of Aarti Industries ended over 3 er cent higher to Rs 1010.90 a share on the BSE as the domestic markets ended higher for the second consecutive session on Tuesday.  
In the last one year, as on February 9, the shares of this specialty chemical shot up over 60 per cent on the BSE and the NSE.

What does AIL do?

Aarti Industries Limited (AIL) is a leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint. We manufacture chemicals used in the downstream manufacturing of pharmaceuticals, agrochemicals, polymers, additives, surfactants, pigments and dyes.