Value Pick: Brokerages see up to 46% upside in Aarti Industries shares amid strong outlook

The fresh Covid-19 outbreak has resulted in a forced shutown of factories and that could jack up prices chemical prices further, brokerage firm B&K Securities said in its report. Already, spike in in coal, crude oil and natural gas prices have been driving the upward rally in chemicals.  

This makes Aarti Industries a hot favourate for the brokeratges among chemical stocks who see bumper returns and an upside of up to 46 per cent in the stock price from the current levels. The counter on Monday was trading at Rs 914.50 on the BSE around 12 pm and was down 0.7 per cent from the Friday closing price.  

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YES Securities 

With most logistical challenges being resolved now, the earnings traction is expected to pick up along with recovery of demand in key consumption segments such as agrochemical, dyes and pharma. The company remains on track to witness up to 3-4X earnings growth by FY27E. 

The company reported a healthy set of earnings in the December-end quarter of this fiscal, with consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) clocking in at Rs 330 crore (+17.5% YoY; +8.1% QoQ), aided by higher percentage of value-added product in sales. 

The brokerage maintained a Buy rating with target price of Rs 1350 per share (+46% upside), on DCF (Discounted Cash Flow) basis, implying a target P/E multiple of 36x FY27E, as against 29x the stock is currently trading. Our target is premised upon EBITDA growth CAGR of around 19% over FY21-30e. 

SMIFS Limited 

Aarti Industries management seems confident of maintaining its gross margins around 50% in the coming years on the back of increased focus on high margin segments and better product mix. The operating leverage benefits kicked in for the company and provided some comfort on the operating margin front despite higher material prices. 

Moreover, the management guidance of 15-25% growth for the next 2-3 years is on track on the back of stronger volumes from API and intermediates segment, while De-bottlenecking in caffeine business will increase its presence further into key markets. 

Currently, the stock is trading at FY23 P/E of 32.8x. The brokerage assign Accumulate rating and value the scrip on forward P/E multiple of 35x and, sets a target price of Rs 1045 per share, which offers upside of over 13% from current valuations.  

Geojit Financial 

Aarti Industries is a global leader in Benzene based derivative products, and it has a diversified product portfolio with end users in pharma, agrochemicals, specialty polymers, paints & pigments. The company’s focus is on new products and import substitutes, by value addition through backward integration/forward integration. 

Going ahead, contribution from new projects starting from FY23, pass through of cost and improved performance in Pharma segment will drive earnings. The brokerage continues to maintain positive stance given expanding portfolio of value-added products, strong clientele and improving outlook. 

The earnings outlook remains strong at 30% CAGR over FY21-24E and RoE of around 21% with 5 years average. Geojit Financial value stock at P/E of 33x on FY24E and recommend to Buy, with a target price of Rs 1,038 per share, which translates an upside of over 12 per cent. 

(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)