Aarti Industries Q2 Results Review - Margin Impacts Profitability; Estimates Slashed: Systematix

Systematix Research Report

Aarti Industries Ltd.’s Q2 FY25 volumes grew at healthy 15% YoY, with margin slipping 400 basis points YoY and 446 bps QoQ to 12%, impacting profitability. In line revenue of Rs 16.3 billion (+12% YoY, -12% QoQ) underscores the demand rebound across non-energy segments (volume up 22% YoY and 11% QoQ), offsetting the weakness in the energy segment (volumes down 1% YoY and 36% QoQ).

Gross margin shrunk 367 bps YoY and 21 bps QoQ to 37.5% (41% estimate) on pricing pressure from overcapacity and competition, particularly China (likely a persisting near-term headwind). Ebitda at Rs 2 billion (-16% YoY, -36% QoQ) missed our estimate of Rs 2.4 billion, dragged by pricing pressure that compressed margins. Adjusted profit after tax disappointed at Rs 520 million (-43% YoY, -62% QoQ), trailing our estimate by 24%, largely due to margin squeeze and higher depreciation from capacity expansions.

We cut our revenue/Ebitda/earnings per share by 9%/31%/44% for FY25 and 15%/34%/51% for FY26. We revise our target price to Rs 511 (earlier Rs 690) based on 22 times FY27E (earlier 24 times). Maintain Hold.

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