Aarti Industries’ share price declined 8.3 per cent to Rs 511 apiece on the BSE on Wednesday after analysts turned cautious on the stock post the company’s March quarter results.
“Discretionary demand is slow, while demand in agro and polymer market is sustaining. Product off take linked to textiles industry such as dyes and pigments remains subdued,” said the management.
The company also supplied certain discretionary products to ‘non-regular markets’, like China, resulting in lower than normal margins. Demand in ‘regular market’, like North America and Europe, remained weak.
For the quarter ended March 2023, Aarti Industries profit grew 2 percent year-on-year to Rs 149 crore, while revenue jumped 15 percent to Rs 1,656 crore. Sequentially, though, revenue was flat.
EBITDA margin declined to 15.2 percent, from 17.3 percent QoQ and 18.2 percent YoY. The company’s net debt increased to Rs 2700 crore versus Rs 25oo crore in September 2022.
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Despite the weak Q4 numbers brokerages remain positive on the stock. Kotak Institutional Equities said Aarti’s March quarter Ebitda missed its estimate by 12 per cent, with management attributing the miss to a maintenance shutdown and subdued demand from discretionary end-uses, although tax refunds helped profit after tax exceed its estimate by 3 per cent.
“FY24 Ebitda growth guidance of 15 per cent is modestly below our previous expectations, leading us to trim FY25 EPS by 1-6 per cent. Our March 2024E fair value stays at Rs 520,” it said.
Phillip Capital has cut the rating for Aarti Industries to neutral with a reduced stock price target of Rs 600.
“We believe Aarti Industries to sustain volume growth led by multi-year supply contracts and multiple expansions but the elevated cost (on account of weak visible demand scenario, unabsorbed cost led by multiple expansions, negative operating leverage, etc) will mount margin pressure in the near future. Hence, in order to factor the uncertain macro factors and earnings miss in Q4, we cut our FY24/FY25 estimates by 12 per cent/15 per cent,” the brokerage said in its Q4 result review report.
Also factoring the volatility and little control on cost, the brokerage cut valuation multiples to value the stock at Rs 600 (16x FY25 EV/ EBITDA vs Rs 750 i.e 18x FY25 EV/EBITDA earlier), implying limited upside in the near term.
Nuvama Institutional Equities also has a Buy rating with a target of Rs 776. “Considering the revival in earnings and return ratios, we argue Aarti Industries offers a favourable risk-reward at 30x FY25E earnings per share,” it said in a recent report.
However, Nuvama’s analysts have flagged off delays in project commissioning and slow pickup in demand as key risks for the company.
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