Buy this chemical stock, shares are down 35%, have strong business and capacity expansion

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Company’s revenues increase on strong volume growth

According to Anand Rathi, Aarti’s fourth quarter revenue increased by 45% to Rs 17.6 billion, supported by volume growth, higher prices (to cope with rising commodity prices) and the growing share of value-added products. Q/q, however, it remained stable as the Q3 FY22 figures were adjusted to take into account the termination fee of Rs 6.3 billion from the first canceled long-term contract.

“Gross margin contracted sharply by 631 bps y/y to 47.5% (but y/y increased by 137 bps) due to the sharp rise in commodity prices. Despite the huge margin contraction Gross EBITDA margin contracted only 221bps y/y to 19.3% (but q/q up 12bps), helped by higher raw materials, logistics and fuel costs passed on to customers and lower operating expenses Absolute EBITDA increased 30% y/y, 1.3% q/q PAT increased 42.3% y/y, 2.0% y/y 7% QoQ, to Rs 1.9 billion, driven by strong operational performance and revenue growth. increased 42% y/y, 14% q/q, to ​​Rs 306 million,” Anand Rathi said in his report.

Strong prospects for the future

Strong prospects for the future

According to Anand Rathi, Aarti’s capital expenditure for FY22 was Rs 13 billion. Its major expansion projects (Long Term 3, US FDA Pharmaceutical Expansion, RCN Capacity Expansion) are progressing and are expected to go live in FY23. Capex is being finalized for FY23. “The company has guided up to Rs 30 billion in investments by FY24 to add capacity to the chloro-toluene value chain, to set up Universal Multipurpose Plants (UMPPs), a new product line value-added and specialty and custom manufacturing Management guided high single-digit EBITDA growth in FY23 and significant EBITDA growth in FY24, capacity utilization reaching 80-90%,” Anand Rathi said in his report. Aarti Industries stock is already down nearly 35% from 52-week highs, significantly higher than benchmarks.

Ratings

Ratings

Anand Rathi maintains his buy rating at the target price of Rs.1,065, valuing the company at 32x FY24e and 20x FY24e EV/EBITDA. According to the brokerage company, the main risks for the company would be a delay in the implementation of investments, a slow ramp-up of additional capacities and a delay in long-term contracts.

Disclaimer

Disclaimer

The action above is taken from Anand Rathi’s brokerage report. Investors are urged to exercise caution as markets have become extremely volatile. Neither Greynium Information Technologies nor the author nor the brokerage would be responsible for any loss based on a decision reading the above article. Every effort has been made to provide accurate information and readers should understand the inherent risks before investing in the markets. The author and his family do not own shares in the aforementioned company.

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