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Saturday, August 16, 2008

Aarti Industries Ltd (AIL) - Equity Investment Report

Making money in stock market is not easy. Equity investment should always be done cautiously. Though Financial markets (especially stocks trading) looks lucrative, if one fails to understand the finance, better you leave it to stock market experts (Mutual Funds, portfolio management etc.) Invest Wisely,Trade Cautiously !! Happy investing !!


Report Date: August 4, 2008
Company Name: Aarti Industries Ltd (AIL)
Recommendation: BUY
CMP – Rs. 48.50
Target Price – Rs. 60/-
Mkt. Cap. Rs. 353.8 crore


Investment Rationale
Ø Aarti Industries, a leading manufacturer of Basic Chemicals, Specialty Chemicals and Pharmaceuticals. has come out with fantastic results for Q1 Financial Y 2009. Net sales registered a jump of 85.6% to Rs.337.73 crore on back of increased volumes and price realisations. Specialty chemicals division (61.4% of Net Sales) grew @71.7% to Rs.238.43 crore, while Basic Chemcials division (29.4% of Net Sales) grew @ 153% to Rs.113.94 crore. Agrochem as well as pharma business too recorded healthy growth. OPM% grew significantly to 19.3% (11.3%) with improvement in PBIT% of Specialty chemicals to 11.1% (9.4%) and that of Basic Chemicals to 30.8% (11%). Higher Sales coupled with improved margins has led to spurt in PBT to Rs.42.98 crore (Rs.6.72 crore). PAT sky rocketed to Rs.33.23 crore (Rs.5.22 crore).

Ø AIL has competence in areas of high value added chemicals, conforming with international quality and standards. This has translated into growth opportunity to establish a dominant presence in both international and domestic markets. AIL, thru its continuous R&D has been able to make new product introductions. Moreover, merger Of Alchemie Organics Limited with AIL has Increased & diversified AIL’s product range to include agrochemicals too. Company has been diversifying the value chain, the concentration of specialty chemicals and pharma segments are increasing and dependence on commodity products has been significantly reduced.

Ø Besides having a stronghold in domestic market, AIL caters to the requirements of leading manufacturers of dyes, pigments, pharmaceuticals, agrochemicals and rubber chemicals in countries such as USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc .

Ø AIL has got approval for its stat-of-art USFDA compliant Pharma Unit which in turn will increase AIL’s sales from the US market for various high value lifestyle APIs which are used in manufacturing cardio-vascular, anti-asthamatic, anti-cancer, anti-thalassaemic, anti-hypertensive, anti-depressant drugs tech. Further, the pharma business in other markets are also poised for strong growth in coming years.

Ø Company has also been working with various MNCs, for development of advanced chemicals with specialized applications.

Ø Chemcials Industry in India is poised for a rapid growth with shifting of business from developed countries to Asia (India & China). Moreover, with reduction of export incentives in China and appreciation of Chinese currency, demand for Indian chemicals has surged steeply. AIL is well poised to take advantage of these opportunities. Additional capacities being commissioned by the company coupled with process innovation will result in increase in topline and bottomline going ahead.

Valuation
Ø At CMP, stock (Face value Rs.5) is trading at 3.73 times FY 2009 expected EPS of Rs. 13 on fully diluted equity of Rs.37.9 crore post conversion of Convertible Warrants issued to promoters on preferential basis. In view of bright future prospects of the company, We recommend to “BUY” the share at CMP.

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