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Buy Aarti Industries; target of Rs 1000: Edelweiss

June 19
18:41 2017

Edelweiss’ research report on Aarti Industries

Aarti Industries (AIL) has secured a INR 40bn multi-year contract from a global agriculture company to supply a high-value agrochemical intermediate. The contract entails capex of INR 4bn with cumulative revenue potential of INR 40bn (10% incremental revenues p.a.) spread over 10 years starting from FY20. The product will fetch higher margins of 40% versus current EBITDA margin of 22-24%.

Outlook

We expect capex of INR 4.0-4.5bn each year to drive revenue and PAT CAGR of 14% and 20%, respectively, over FY17-19. As this project will start contributing from FY20, our EPS estimates remain unchanged. We upgrade our valuation multiple to 18x (from 16x) and upgrade target price to INR 1000 (from INR 890) and reiterate ‘BUY’. NPV based per share contribution of INR 45 per share from this project justifies rerating.

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