Aarti Industries - Long Term Contract Improves Profit Visibility; Accumulate: Dolat Capital

Dolat Capital Report

We have increased our Ebitda estimates by 7%/ 6% for FY25/FY26 to factor in the incremental revenue from this contract and upgrade to ‘Accumulate’ with revised target price of Rs 680 (25 times FY26 earnings per share), earlier Rs 620, on rising visibility.

However, no upward revision in management’s Ebitda guidance for FY25 (Rs 14.5-16 billion) despite back to back contract announcements (earlier nine year Rs 30 billion contract for agrochemical intermediate and now four year Rs 60 billion contract) indicates this profitability was already embedded in its previous guidance, now concretized.

We expect Ebitda/profit after tax compound annual growth rate of 20%/ 22% over FY23-26E, on ramp-up of recently commissioned plants and contribution from upcoming expansions.

However, persisting demand weakness in key end use segments like agro and slower than expected ramp-up in capacities meant for long term projects (older ones) continue to be the lingering concerns. Increasing revenue concentration is a key risk.

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