This speciality chemicals stock zoomed 1700% in 5 years; hits new high

Aarti Industries hit a new high of Rs 1,714, rallying 1704 per cent in the past five years from the level of Rs 95 on the BSE.

Shares of Aarti Industries hit a new high of Rs 1,714 apiece, gaining 5 per cent on the BSE in an otherwise weak market after the company posted strong growth of 47 per cent in net profit at Rs 132 crore in December quarter (Q3FY19). The company, one of the most competitive benzene‐based speciality chemical companies in the world, had a profit of Rs 90 crore in the year-ago quarter.

Operational revenue during the quarter review grew 28 per cent at Rs 1,268 crore against Rs 990 crore in the corresponding quarter of previous fiscal. EBITDA (Earnings before interest, taxation, depreciation and amortisation) margin improved 150bp to 19.5 per cent in Q3FY19 from 18 per cent in Q3FY18.

The growth was driven by year-on-year (y-o-y) volume expansion in the speciality chemicals business, in addition to the positive impact of a higher value-added product mix. The company is seeing healthy demand from direct exports, which contributed 40% to revenues during the quarter.

Thus far in current calendar year 2019, the stock has moved up 19 per cent, as against 0.66 per cent gain in the S&P BSE Sensex. In the past five years, it has zoomed a massive 1,704 per cent from the Rs 95, as compared to 80 per cent rise in the benchmark index.

Aarti Industries reported the compound annual growth rate (CAGR) growth of 9.7 per cent in revenue and 19.6 per cent in net profit during the past five years between the financial year 2013-14 and 2017-18.

The company said the operating revenues have grown on the back of strong volume growth in key business segments and better product mix. The top line is a function of variations in raw material prices especially crude, it added.

Domestic demand is increasing faster than in the export market as production is shifting to India and management expects this to help the company grow.

Speciality Chemicals is the major revenue-generating segment of Aarti Industries contributing approximately 78 per cent of sales. The other segments i.e. pharmaceuticals and home & personal care; contribute approximately 15 per cent and approximately 7 per cent of sales respectively.

Analysts at Anand Rathi Share and Stock Brokers expects Aarti Industries’ revenue and profit CAGRs over FY18-21 to come at respectively 20 per cent and 22 per cent, driven by scale-ups in its specialty chemical and pharmaceutical businesses and the new toluene capacity.

Its capex of around Rs 1,700 billion in the next three years, strong operating performance of all divisions, focus on R&D and strong relationships with clients would shift growth to a higher trajectory in future, the brokerage firm said in November 2018 report.

Meanwhile, foreign portfolio investors (FPIs) were continuously increasing their stake in Aarti Industries for third straight quarter in a row. FPIs held 4.45 per cent stake in the company at the end of December 2018 quarter. They hold 4.22 per cent holding in September quarter and 3.64 per cent stake at the end of March 2018 quarter, the shareholding pattern data shows.

At 01:20 pm; Aarti Industries was trading 4.6 per cent higher at Rs 1,703 on the BSE, against 0.51 per cent decline in the S&P BSE Sensex. A combined 188,233 equity shares changed hands on the counter on the BSE and NSE so far.