Buy This Multibagger Small Cap Pharma Stock, Shares Can Jump 15%: Axis Securities

Axis Securities' recent report on Aarti Drugs Limited, the brokerage, suggests buying the stock of the company for a target price of Rs 545 per share. The stock is expected to give a return of up to 15% on investments if we consider the brokerage's estimated target price.

Aarti Drugs Ltd. is engaged in the manufacturing of Active Pharmaceutical Ingredients (APIs), Pharma Intermediates, Specialty Chemicals and also produces Formulations with its wholly-owned subsidiary - Pinnacle Life Science Private Limited. It is a small-cap pharmaceutical company with a market capitalization of Rs 4,407.30 crore.

Current Market Price, 52-Week High/Low, & Returns

On NSE, the stock is currently trading at Rs 474.70 per share, 1.69% up from its previous close. The Stock opened at 466.75 per share. Its 52-week high level is Rs 612.45 recorded in October 2021 and its 52-week low is Rs 378 recorded in June 2022, respectively.

The stock in terms of returns has performed well on long-term investments. However, it has given positive returns in short term as well. In the past 1 week, the shares gained 3.9%, 1.38% in 1 month and 13.44% in 3 months, respectively. However, in the past 1 year, the stock has given a negative return of 18.85%. In the past 3 and 5 years, the stock has given multibagger returns of 253.34% and 253.44%, respectively.

Q2FY23 Results, Gross margins at the lowest level

Aarti Drugs reported Q2FY23 results below to expectation despite strong topline growth. Aarti Drugs (ARTD) reported lowest Gross margins 30% YoY in last 4 years due to price correction of high cost inventory that includes Raw material like DCDA and Ammonia. EBITDA margins are 10.8% fell by 190 bps due to low gross profitability and high fuel and power costs. The overall realizations have increased for top 8 API products along with moderation in inputs cost.

Revenue Rs 688 Cr grew by 18.7% YoY majorly driven by commencement of new capacities in the diabetic segment. Reported Gross margins, ~30%, lowest in recent times despite fall in base chemical prices fell by 180 bps YoY. Reported PAT fell by 9% YoY due to low operating profitability and higher interest costs. Debt levels have increased as the company has increased capacity in diabetic and pain segment.

Antidiabetic in API and Specialty Chemicals added growth

API witnessed the highest-ever realizations for most of the API products along with moderation in input costs. The antibiotic therapeutic category contributed ~44%, antiprotozoal ~16%, anti-inflammatory ~10%, anti-diabetic ~17%, antifungal ~10%, and the rest contributed ~45.0% to total consolidated sales. The growth in this segment is mainly driven by the niche Chlorosulphonation products along with recently augmented capacity. The company will focus to further enhance the market share for this segment.

Capex: The Capex for H1FY23 stood at Rs 77 Cr and is expected to be in the range of Rs 200- 300 Cr for the entire FY23 that includes Greenfield Capex in Gujarat and Tarapur for API. Brownfield Capex for specialty chemicals in Tarapur will commence operations in next quarter. The combined Capex is expected to deliver topline growth in upcoming years.

Buy for target price of Rs 545

Axis Securities has said, "API demand has started to pick up as inventories of large formulation players have corrected which was full during the covid period plus raw prices of base chemicals has started to correct. Freight prices are also showing corrections in the last three months. Therefore, Aarti Drugs could be benefitted in upcoming quarters, we upgrade to BUY on Aarti Drugs with Target Price of Rs 545."

Disclaimer

The stock has been picked from the brokerage report of Axis 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.