Aarti Industries Q1 Results Review - Dropped Ebitda Guidance Amid Uncertainties: Nirmal Bang

Aarti Industries Ltd.'s Q1 FY25 operational performance came broadly in line with our estimates led by volume driven growth. While the management has maintained 20%-30% volume growth guidance; it dropped the Ebitda guidance of Rs 14.5-17 billion for FY25 considering the volatile environment.

The management indicated that the core portfolio margin (on per kg basis) is at a level reasonably lower than the old normal and considering more than 70% portfolio overlap with China, the margin is expected to be under pressure till the time China dumping continues. Also, a large part export volume during Q1 FY25 is on the back of 1 product (MMA).

While Aarti Industries' optical performance is better than that of peers on account of relatively lower Agchem exposure and the start of new long term contracts, we don’t see it as a re-rating candidate considering the muted Ebitda growth over the last five years despite incurring a cumulative capex of Rs 63 billion and lower incremental return on capital employed profile.

Maintain Sell with a revised target price of Rs 630 (25 times PE versus five-year median of 39 times) after rolling forward valuation to June-26E.

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