Buy Aarti Industries; target of Rs 1271 KR Choksey

KR Choksey's research report on Aarti Industries

Aarti Industries Limited (AIL) Q2FY21 consolidated revenue grew 18.7% YoY / 25.1% QoQ to INR 11.7 bn. Specialty Chemical which accounts for major portion of total revenue grew 23.9% YoY / 31.9% QoQ to INR 11.1 bn. Pharmaceutical sales grew 21.7% YoY / 14.1% QoQ to INR 2.2 bn. EBITDA was flat YoY (up 39.7% QoQ) at INR 2.5 bn. EBITDA margin contracted 403 bps YoY (up 227 bps) to 21.7%, led by lower gross profit margin, higher employee and other expenses. Net profit decline by 5.0% YoY (up 71.3% QoQ) to INR 1.4 bn. Net Profit margin declined 297 bps YoY / (up 323 bps) to 12.0% in Q2FY21.

Outlook
We apply P/E multiple of 28.0x (earlier PE was 27.0x) on FY22E EPS of INR 45.4/share to arrive at target price of INR 1,271 per share (previous target price of INR 1,194 per share); indicating an upside of 17.2%. Accordingly, we reiterate a “BUY” rating on the shares of AIL.

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