Aarti Industries - Rs.38.00

Established in 1984, Aarti Industries Ltd. (AIL), is a leading chemical company manufacturing benzene-based downstream and derivative products and has a diversified portfolio divided into four business segments viz. Basic Chemicals, Speciality Chemicals, Agro Chemicals and Pharmaceuticals. AIL is among the largest manufacturers of benzene based intermediates in India with more than 50% market share. Its Inorganic Acid division, manufactures sulphuric acid and its derivatives, in Speciality Chemicals it produces alkylated amines and toluidines, chloro phenols, fluoro compounds and other specialty chemicals. It also makes various bulk pharmaceuticals and agro chemicals comprising of Quinalphos & Carbendazim. Presently, AIL manufactures more than 100 products that are exported to around 65 countries including USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc. It also has representatives in USA and a subsidiary company in UK to provide better services to its overseas customers.

AIL has five manufacturing units, which are of global scale and are situated in Gujarat & Maharashtra. They are highly integrated coupled with cost-efficient manufacturing process at low capital investment. In addition to the Single Super Phospate (SSP) fertilizer manufactured from a by-product, the company has set up a unit to produce Di-calcium Phosphate - a veterinary item from dilute sulphuric acid. Its API Division is managed by its subsidiary Aarti Healthcare which focuses on research and manufacturing, APIs/ advanced intermediates in niche segments viz: anti–hypertensive, anti–asthamatic, anti-cancer, anti-inflammatory, anti-allergic, anti-diabetic, anti-depressants and anti-thalassaemic. As a measure of forward integration, AIL has started contract research and custom synthesis activities at its new plant in Vapi. It is also developing customised products under Secrecy Agreements. Recently, it commenced operation at Block–I of its Tarapur USFDA compliant facility and has started exporting validation batches to the regulated markets. Meanwhile, it is in the process of completing the work at Block-II, III and IV during the year and may start commercial production in near future. Further, it is setting up a new project for downstream product called Para Amino Phenol (PAP) at Jaghadia, Dist. Bharuch in the state of Gujarat.

Importantly, raw materials account for nearly 70% of the company's manufacturing costs and Benzene accounts for one-third of that. Its margins were, therefore, under pressure due to the rising crude oil price. But now that the crude oil price has slipped below $62, it may report better margins in coming quarters. Although, its first quarter numbers were not that encouraging, still on the full year basis it could report sales of Rs.825 cr. with net profit of Rs.55 cr., which translates into an EPS of Rs.7 on its fully diluted equity of Rs.37.75 cr. Besides, it’s an investor friendly company with a good dividend payout ratio. Investors are recommended to buy with a price target of Rs.60 (70% appreciation) in 15-18 months.