Recommendation From Chemical Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.                                                                                                                                                                                                                                                                                                                                                                                                 

HERE IS WHY
Starts production from greenfield ethylation unit
Robust capex plans
Strong financials and attractive valuations

Aarti Industries

FORMULA FOR COMPOUNDED GROWTH

The global consumption of specialty chemicals, according to a report by IHS Markit, is expected to increase at 3.5 per cent CAGR (volumes in 2015-20) with consumption in North America, Western Europe, and Japan combined growing more slowly at about 2 per cent per year, while China would report the highest growth. Indian manufacturers have emerged as key players in several speciality chemical markets.

Aarti Industries is a manufacturer of specialty chemicals and pharmaceuticals. The company is also engaged in the manufacture of home and personal care products. It operates through three segments, viz. speciality chemicals, pharmaceuticals, and home and personal care chemicals. Aarti Industries has integrated portfolio of over 70 products. Its products include benzene-based intermediates, sulfuric acid and its allied products, active pharmaceutical ingredient, agrochemicals and dyes.

Aarti Industries has plans to churn out value-added products as it has earmarked investments of Rs.400 crore to Rs.450 crore over the next three years. Aarti Industries has established co-generation power plants and nitro toluene project by Q1FY18 and this would be followed by an announcement of expansion of chlorination capacity from 11 ktpa to 175 ktpa by the end of the fiscal.

Aarti Industries has cut down its total debt-to-equity ratio to 1.16x in FY16. The company’s interest coverage ratio stood at 4.1x in FY16. The company’s ROE and ROCE stood at 25.18 per cent and 20.75 per cent, respectively, in FY16. 

On the valuation front, the share price of Aarti Industries is trading at trailing 12-month (TTM) PE of 25.09x as compared to its peers such as Atul (26.35x), Pidilite Industries (42.64x). The company’s PE is also attractive as compared to industry PE of 26.13x. We recommend our reader-investors to BUY the stock.