Aarti Industries Q2 Results: Profit Falls 43%, Margin Contracts

Aarti Industries Ltd.'s consolidated net profit plunged 43% in the second quarter of the current financial year, missing analysts' estimates.

The specialty chemical manufacturer's profit declined to Rs 52 crore in the September quarter from Rs 91 crore in the year-ago period, according to an exchange filing on Friday. This compares with the Rs 77-crore consensus estimates of analysts tracked by Bloomberg.

While the annual volume grew 15%, margin pressures across various products resulted in lower gross profit.

• Revenue up 12% to Rs 1,628 crore (Bloomberg estimate: Rs 1,655 crore).

• Ebitda down 16% to Rs 197 crore (Estimate: Rs 243 crore).

• Margin narrows 390 basis points to 12.1% versus 16% (Estimate: 14.7%).

• Net profit down 43% to Rs 52 crore (Estimate: Rs 77 crore).

Adverse weather conditions in the US and Latin America have impacted market dynamics. Channel inventories are gradually returning to normal levels in major markets, though some overhang may persist on a product-by-product basis. Crop consumer prices remain soft, affecting farm profitability and reducing demand for crop protection products.

To navigate these challenges, the company is targeting higher market shares across products and pursuing backward integration for existing downstream products.

The textile industry, a major end-user of dyes, is temporarily impacted in Bangladesh due to political unrest. The pigment industry is experiencing consolidation, as seen with Sudarshan Chemicals' acquisition of Germany-based Heubach.

Indian dye manufacturers are facing increased competition, leading to margin pressures across the supply chain. Despite these challenges, volume and margin improvement in the domestic market is anticipated, supported by industry consolidation.

The decline in the gasoline-naphtha crack has negatively affected octane-boosting economics, impacting methyl methacrylate volumes significantly in the quarter. The trend is expected to continue through the third quarter, but a potential recovery may occur in the fourth quarter as summer demand in the US picks up.

India's pharma market continues to grow at 8–9% annually, while the active-pharmaceutical-ingredient imports to India rose 13% in the first quarter, driven by lower prices from China.

The US Biosecure Act is expected to positively impact Indian pharma companies. However, the para-aminophenol market has slowed due to a 50% price drop in the past year.

Aarti Industries is working to increase its para-nitro-chloro-benzene market share in India's PAP market, expand exports, explore new applications and improve costs to stay competitive against Chinese suppliers.

• Consistent volume growth over three years, driven by capacity expansions.

• Ebitda growth expected to exceed volume growth through operating leverage and cost optimization.

• Fiscal 2025 capital expenditure estimated at Rs 1,300–1,500 crore, down from Rs 1,500–1,800 crore.

• Fiscal 2026 capex projected at around Rs 1,000 crore.

• Target Ebitda range of Rs 1,800–2,200 crore in three years.

• Debt-to-Ebitda target of less than 2.5 times and return on capital employed over 15%.

Shares of Aarti Industries closed 7.89% lower at Rs 474.40 apiece on the NSE before the results were declared, compared to a 0.21% decline in the benchmark Nifty 50.