Aarti Industries stock tanks 16% on heavy volumes on margin concerns

Shares of Aarti Industries tanked 16 per cent to Rs 614.70 on the BSE in Tuesday’s intra-day trade amid heavy volumes on margin concerns. The stock was down 20 per cent when compared with its intra-day high of Rs 767.10 on Monday.

The stock of specialty chemicals erased majority of its gain recorded in the past 14 days. It had rallied 22 per cent from its previous month low of Rs 630 touched on July 23.

At 01:24 pm; Aarti Industries was quoting 15 per cent lower at Rs 622.30, as compared to 0.5 per cent decline in the BSE Sensex. The average trading volumes at the counter jumped over 10-fold. A combined 17.06 million shares representing 4.7 per cent of total equity of the company changed hands on the NSE and BSE.

For the April to June quarter (Q1FY25), Aarti Industries reported revenue from operations of Rs 1,848 crore, up 31 per cent on a year-on-year (YoY) basis, and up 5 per cent quarter-on-quarter (QoQ). This growth was driven by 6 per cent QoQ and 30 per cent YoY rise in volumes. Profit after tax jumped 3.8 per cent QoQ and 95.7 per cent YoY at Rs 137 crore.

Earnings before interest, tax, depreciation and amortization (EBITDA) margin stood at 16.5 per cent as against 14.3 per cent in Q1FY24 and 16 per cent in Q4FY24, up by 50 bps.

The management said this performance came despite pricing headwinds as well as supply chain pressures. Additionally, continued global challenges from overcapacity in China affected demand supply dynamics.

The management anticipates 20-30 per cent volume growth in FY25, although margins are expected to remain under pressure for at least next 1-2 quarters due to continued dumping from China. 

Additionally, increase in the prices of key raw materials, such as benzene and aniline, has impacted gross margins. Although some volume-led growth is anticipated in the near term, pricing pressures are expected to continue to affect performance, analysts at Prabhudas Lilladher said in the result update.

Aarti’s Q1FY25 results, as expected, continued the trend of sequential recovery witnessed since the bottom formed in Q1FY24. However, the surprise was suspension of FY2025 EBITDA guidance of Rs 1,450-1,700 crore given volatility and pressure on margins, according to analysts at Kotak Institutional Equities.

Aniline prices have risen QoQ, and management did not offer guidance for Q2FY25 either. While management continues to guide to a 20-25 per cent earnings CAGR over the next five years that is of course subject to multiple variables including demand, competition and commissioning timelines the brokerage firm said.

“We continue to find current valuations very expensive given limited visibility amid an uncertain demand environment (with spreading economic weakness worldwide), intense competition from China, low RoCE, high financial leverage and slippages on project ramp-up in the past. The Street’s indiscriminate optimism on the entire chemicals sector also needs to be tempered—only innovation-driven businesses will likely prosper amid Chinese mayhem,” analysts said.

The brokerage firm’s estimates were already below the low end of the guidance range and leave them largely unchanged. It continues to find valuations way too high and retain ‘SELL’ rating on the stock with revised FV Rs 470 (from Rs 460).