Aarti Industries Shares Surge 6% Following Q3 Earnings; Prabhudas Lilladher Reiterated REDUCE Rating

Aarti Industries witnessed a surge of 6% in its shares, reaching Rs 702 per share, following the release of a healthy set of Q3 earnings. The company's standalone quarterly net sales for December 2023 stood at Rs 1,724.00 crore, marking a 5.46% increase from Rs 1,634.74 crore in December 2022. Despite facing headwinds, the company exhibited resilience in maintaining a positive growth trajectory.

However, the quarterly net profit witnessed a marginal decline of 8.3%, resting at Rs 124.00 crore in December 2023 as compared to Rs 135.23 crore in December 2022. Similarly, EBITDA recorded a decrease of 6.7%, standing at Rs 267.00 crore in December 2023, down from Rs 286.18 crore in December 2022. The earnings per share (EPS) also saw a dip from Rs 3.73 in December 2022 to Rs 3.41 in December 2023.

Prabhudas Lilladher, a prominent brokerage firm, provided insights into the company's performance. The report highlighted the impact of the rise in feedstock prices, resulting in a gross margin decline of approximately 500 basis points both YoY and QoQ. However, the strategic use of operating leverage helped mitigate this decline to 230 basis points YoY and 110 basis points QoQ on EBITDAM.

The company is currently progressing on schedule with its ongoing ethylation and NT expansions, which are anticipated to cost around Rs 2,400 crore to Rs 2,500 crore in FY24 and FY25. These expansions are strategically targeting the import substitution market of Rs 1,500 crore and exports. Notably, two contracts concluded in Q3FY24 provide further visibility towards the earnings outlook of the company.

Prabhudas Lilladher expects an EPS CAGR of 5% during FY23-26. Despite the positive outlook, the brokerage firm suggests caution, valuing the stock at approximately 34x FY26 EPS and recommending a "Reduce" stance with a target price of Rs 599.

Aarti Industries shares were seen trading with gains of more than 3% at Rs 683.50 per share on the National Stock Exchange (NSE) as of 1:55 pm. The shares have gained 22% over the last year.

The future outlook for Aarti Industries appears promising, with the ongoing expansions and strategic contracts providing a solid foundation for growth. Investors and analysts will be closely monitoring the company's performance in the coming quarters to gauge its ability to navigate market challenges while maintaining a positive trajectory.