Yes Securities, a leading brokerage firm, has placed a buy call on Arti Industries Limited (ARTO) in its recent report published on November 22, 2022. According to the brokerage's given target price, the stock is likely to surge up to 26% from its current level.
Arti Industries is a mid-cap chemicals sector company having a market capitalisation of Rs 24,376.58 crore. Aarti Industries is a leading Indian manufacturer of Speciality Chemicals and Pharmaceuticals with a global footprint. Chemicals manufactured by Aarti are used in the downstream manufacture of pharmaceuticals, polymers, agrochemicals, additives, pigments, surfactants, dyes, etc.
Stock Outlook & Returns
The current market price (CMP) of Arti Industries' stock stood at Rs 672.45 per share on NSE, up 0.46% from its previous close. The stock recorded its fresh 52 week low at Rs 642.30 on 19 October 2022. Its 52 week high was recorded on 18 January 2022 at Rs 1,118. The stock in the past 1 year has not performed well as it moved down by 26.3%. In 3 months the stock has given 14.52% negative returns. It moved up by 62.91% in 3 years, whereas, in 5 years, the stock has given multibagger returns of 195.58% positive returns.
Volatile macro weighs on 2Q; prognosis strong
According to the brokerage, ARTO's 2QFY23 Adj. Ebitda at Rs 2.7bn (+31.5% YoY;‐5.2%), stood largely in‐line with our estimates. The YoY growth stemmed from adjustment for shortfall fee of Rs 520mn in base quarter. Higher raw material volatility, lower volume due to maintainance shutdown at Jhagadia and muted demand for discretionary products (dyes & pigments) coupled with QoQ higher operating expense led to sequential drop in operating profits.
Going ahead, while Ebitda for 2HFY23 could remain flat (vs 1H), a stronger 25% CAGR is expected over FY24‐25e driven by a) expansion in NCB and Ethylation capacities, b) ramp‐up in LT‐2 (revenue potential : Rs 5.5bn) c) commissioning and ramp‐up of LT‐3 (revenue potential: Rs 940mn) and d) launch of 50+ molecules currently under R&D. Maintain BUY.
Revenue: The Revenue for the quarter stood at Rs 16.8bn (+34% YoY; +4.6% QoQ). As the statements are restated, so the revenue pertains only to Specialty Chemicals. Volatility in raw material prices, forex and muted demand for Dyes & Pigmenst impacted business during the quarter. However esports demand picked up as proportion of exports in the mix increased to 50%.
Consolidated Ebitda & PAT: Consol. Adj. Ebitda stood at Rs 2.7bn (+31% YoY; ‐ 5.2% QoQ) and Consol. PAT stood at Rs 1.25bn (‐17% YoY; ‐8.2% QoQ). The sequential decline in Ebitda/Ebitda margin stemmed from contraction in gross margin to 47% (1Q: 54%) and 11% QoQ increase in operating expenses. ARTO has guided for FY23 Ebitda to be in excess of Rs 11bn (1HFY23: 5.5bn), followed by an EBITDA growth CAGR of ~ 25% over FY24‐25e.
Pharma Demerger: Given the approval for de‐merger of Pharma business (effective 17th Oct'2022), the assets and liabilities pertaining to the Pharma Business Undertaking, including supporting manufacturing units, employees, cash and cash equivalents and investments (including investments in subsidiaries and joint ventures), as defined in the Scheme, stand transferred and vested into the Aarti Pharmalabs Ltd from its appointed Date i.e. from 1st Jul'21. Accordingly, the financial statement for Aarti Industries Ltd. stands restated.
Capex: The planned Capex for FY23 is estimated at Rs 11‐12bn, with Rs 5.7bn invested in 1HFY23.
Yes Securities said, "We maintain BUY rating on ARTO with a revised TP of Rs 845/sh, as we align our estimates to re‐stated, post demerger financials and roll estimates forward to FY25e. Our TP is premised upon an operating earnings growth CAGR of 10% (FY22‐30e) and RoEs of ~15‐16%."
The stock has been picked from the brokerage report of Yes Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.