Specialty chemical stock down 55% from 52-wk high. Should you Buy post demerger?

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Aarti Industries became the pure play in specialty chemicals post the demerger of its Pharma business and is confident to deliver >25% EBITDA CAGR over FY23-25E. Analysts at PhillipCapital recently met the management of Aarti Industries to better understand the business focus of the company post demerger.

“The company is confident to deliver >25% EBITDA CAGR over FY23-25E led by – ramp up in multiyear supply pacts, capacity expansions and introduction of 40+ value added products with new chemistries. In fact, it expects the new product portfolio developed by its established R&D will drive accelerated value growth beyond FY25,” the brokerage note stated.

The brokerage house has Buy rating on Aarti Industries shares with a target price of 780 – for its end-to-end integrated operation, upgradation in product portfolio, committed growth Capex, pure play in specialty chemicals and technocrat management. The specialty chemical stock is down more than 55% from its 52-week high.

“Factoring the demerger of pharma business, we expect Aarti Industries to deliver a steady sequential progress in H2FY23. However, we expect improved EBITDA and earnings momentum of 26%/19% over FY23-25 followed by even stronger earnings growth led by new chemistry based value added products, custom/outsourced manufacturing opportunities, etc,” it added.

Aarti Industries Limited (AIL) is a leading Indian manufacturer of speciality chemicals and pharmaceuticals. The company recently demerged into two companies — Aarti Industries and Aarti Pharmalabs Limited.

Another brokerage and research firm Yes Securities is also bullish on the stock. “We maintain BUY rating on Aarti Industries with a revised target price of 845 per share, 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%,” it added.

While 2HFY23 could continue to be tepid, but the brokerage believes in the company’s strong guidance for ~25% CAGR in operating earnings backed by ongoing investment in capacity expansion and more than new 50 molecules under development.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. 

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