Chemicals

10 Jun

Expect robust demand but need to watch for supply issues– Galaxy Surfactants

Update on the Indian Equity Market:

On Thursday, Nifty snapped its two-day losing streak to end at 15,738 (+0.7%). Among the sectoral indices, MEDIA (+4.6%), REALTY (+3.3%), and PSU BANK (+2.4%) led the gainers while AUTO (-0.1%) was the only sectoral loser. Among the stocks, BAJFINANCE (+7.7%), BAJAJFINSV (+3.8%), and SBIN (+2.6%) led the gainers while BAJAJ-AUTO (-1.0%), EICHERMOT (-0.7%), and UPL (-0.7%) led the losers.

Excerpts of an interview with Mr. U Shekhar, Founder, and MD, Galaxy Surfactants (GALAXYSURF) with CNBC TV-18 on 9th June 2021:

  • Operating margins have gone down in 4QFY21 due to a sharp increase in raw material prices. As a result, revenue increase has been in direct correlation with the increase in material prices.
  • Overall, for the year sales volume growth was ~5.2% with specialty care products growing 15.7% in 2HFY21 over 1HFY21. Performance surfactants volume grew ~8.8% in FY21.
  • FY21 and FY22E are going to be focused on mitigating supply chain disruptions. Demand will be strong with a focus on GALAXYSURF’s response to customers’ supply chain requirements.
  • New products have been launched and expect EBITDA per ton to increase sequentially.
  • The delay in the arrival of raw material along with sustained higher freight costs remains a concern for the regular availability of raw material.
  • There could be certain costs to maintain an inventory that might have a marginal impact on margins.
  • FY21 was a ten months performance, especially for India. The US and Egypt business was not impacted as much, in terms of operations. The growth in terms of specialty care was in 2HFY21 when customers’ demand improved. With the introduction of new products in FY22, they are confident of additional revenues from new customers. A 6-8% volume growth is expected.
  • International sales have remained stable at ~65%. Mr. Shekhar expects a ratio of 65-35/67-33 for international and domestic sales.

 

Asset Multiplier Comments

  • The Company has given a Capex guidance of Rs 1.5bn for FY22, with a large part to be spent on the specialty care portfolio. The ongoing capex projects are expected to be completed in 1HFY22, resulting in the introduction of new products, which will aid volume growth post 2HFY22.
  • With clients’ focus on reducing carbon footprint, the launch of new green products will strengthen the Company’s market position in specialty care products.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXYSURF was ₹ 3,061/- as of 10-June-2021. It traded at 34x/ 30x the consensus earnings estimate of ₹ 89/102 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,742/- implies a PE multiple of 27x on FY23E EPS of ₹ 102/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Mar

Will incur Rs 10000 mn Capex per year over next 3-4 years – Aarti Industries

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,910 (-0.1%). Among the sectoral indices, IT (+1.3%), FMCG (+0.9%), and AUTO (+0.2%) closed higher. PSU Bank (-1.3%), PVT Bank (-1.0%), and Financial Services (-0.8%) closed in the red. Asian Paints (+4.7%), Dr. Reddy’s Laboratories (+2.6%), and HUL (+1.59%) closed on a positive note. CIPLA (-1.6%), Tata Steel (-1.6%), and ICICI Bank (-1.5%) were among the top losers.

Excerpts from an interview of Mr. Rajendra V Gogri, Chairman and MD, Aarti Industries with CNBC-TV18 dated 15th March 2021:

  • Gogri said the demand is higher. The discretionary sector demand has picked up.
  • Considering China plus one factor, demand is diverted to India. India comes ahead of other countries like Vietnam, Bangladesh, and Malaysia when it comes to specialty chemicals.
  • The company is expecting pre-Covid demand in Q4FY21E.
  • Speaking on capacity, he said the company will incur a Capex of Rs 10,000 mn each year for the next 3-4 years.
  • This Capex will be utilized to introduce new products as well as the expansion of existing products.
  • The company will not directly participate in the Pharma PLI scheme, however, the Pharma PLI Scheme is expected to benefit the general chemical sector indirectly.
  • The company has posted single-digit revenue growth in 9MFY21 and a flat bottom line YoY is expected in FY21E. However, Mr. Gogri guided for a 20% growth in top-line as well as in bottom line in FY22E.
  • Exports are usually 40-45% of total revenues and the rest is domestic sales. The major growth is expected on the discretionary side which was badly affected in 1FY21.
  • Speaking on capacity utilization, he said some plants are running at 80-90% utilization levels and new capacities are running at 20-30% utilization levels.
  • Speaking on the demerger of the Pharmaceutical business, he said a committee has been set up to look at the available option. The decision of the committee is yet to come on board.

 

Asset Multiplier comments:

  • As per a study conducted by McKinsey & Company, the Indian specialty market is expected to grow to $40bn over the next 4 years from $28bn in 2018.
  • Within the specialty chemical segments in India, surfactants, specialty polymers, and textile chemicals and dyes are among the top segments expected to further grow in line with market demand.
  • Indian specialty companies need to ramp up capacities and infrastructure to get maximum advantage from specialty chemical sector growth prospects.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Aarti Industries was ₹ 1,286 as of 16-March-2021.  It traded at 41x/29x/25x the consensus Earnings per share estimate of ₹ 31.0/44.0/52.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,241/- which implies a PE multiple of 24x on FY23E EPS of 52.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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09 Feb

Double-digit volume growth to continue – Galaxy Surfactants

Update on the Indian Equity Market:

On Tuesday, the Indian equities snapped the six-day winning streak and Nifty 50 ended at 15,109 (-0.5%). Among the sectoral indices, FINANCIAL SERVICES 25/50 (+0.3%), FINANCIAL SERVICES (+0.3%), and BANK (+0.2%) ended the day with gains. MEDIA (-1.9%), AUTO (-1.4%), and PHARMA (-1.2%) led the losers. Among the stocks, SBILIFE (+4.0%), ASIANPAINT (+3.8%), and HDFCLIFE (+3.6%) led the gainers while M&M (-3.0%), TATAMOTORS (-3.0%), and JSWSTEEL (-2.2%) dragged the index lower.

Excerpts of an interview with Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 9th February 2021:

  • GALAXY saw good 3QFY21 earnings. The reported double-digit volume growth on a YoY basis is expected to continue, especially in the specialty chemicals segment.
  • Money received from Egypt which was accounted in 3Q was export benefits accumulated over the last 2-3 years. GALAXY accounts for the export benefits availed only when received.
  • Consumer focus on personal hygiene has increased significantly this year. This is expected to sustain going forward and the new products which have been introduced are seeing slow evolution which is certainly giving Galaxy better numbers.
  • The company has implemented expansion projects at Jhagadia, which was expected to be completed by April-21. This project has been delayed a little due to difficulties faced due to the outbreak of Covid-19.
  • The disruption due to shipping and containers is continuing which is certainly putting pressure on the supply chain.
  • The price hikes have been passed on to customers or absorbed the freight hikes in case of long-term contracts.
  • As far as the margin is concerned, there will be a gradual progression when new products keep on getting better.

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXY was ₹ 2,222/- as of 09-February-2021. It traded at 31x/ 27x/ 23x the consensus earnings estimate of ₹ 71.6/ 83.8/ 95.7 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,160 implies a PE multiple of 23x on FY23E EPS of ₹ 95.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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02 Feb

Expect export market to bounce back in Q4 -Tata Chemicals

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,648 (+2.5%). Top gainers in NIFTY50 were Tata Motors (+16.9%), Shree Cement (+7.2%) and UltraTech Cement (+6.9%). The top losers were HDFC Life (-2.5%), Bajaj Finserv (-2.2%), and Hero Motocorp (-1.5%). The top sectoral gainers were AUTO (+4.1%), REALTY (+3.8%), and BANK (+3.5%) and there were no sectoral losers.

Excerpts of an interview with Mr. R Mukundan, MD & CEO – Tata Chemicals with CNBC -TV18 dated 29th January 2021:

  • Tata Chemicals is expecting the export market to bounce back in the 4QFY21 quarter.
  • They are expecting exports from the US to be better than last year’s levels in Q4. Demand in South-East Asia should also normalise by H1-H2 FY22.
  • The market in which the Magadi division faced a bit of pressure is South-East Asia. There the tourism industry is hit very hard. The demand for container glass which goes into beverages and drinks had been impacted severely.
  • They believe by H1-H2 of FY22 that demand would come back. But what Magadi has done is to get a lot of cost orders in the system. So they have posted a solid margin this quarter and will continue to maintain a good set of numbers.
  • He thinks that revenues of Rs 170 bn in the next 4-5 years are doable. Rs 170 bn is board-approved plan and that guidance still remains. They are not way off from that.
  • By the end of FY21, some of the projects will come on-stream, and by 2022-23 almost 50 percent of the capital would be deployed, and it will be on-stream.
  • They anticipate an incremental revenue of about Rs 14 bn and an incremental contribution or EBIT margin of close to about Rs 6 bn as a result of investments of Rs 2,600 crore.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of TATACHEM was ₹ 521/- as of 2-February-2021.  It traded at 32x/ 15x/ 13x the consensus earnings estimate of ₹ 16.5/ 34.5/ 39.7 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 448/- which trades at 11x the earnings estimate for FY23E of ₹ 39.7/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

 

 

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07 Jan

Demand buoyant but supply chain challenges remain – Galaxy Surfactants

Update on the Indian Equity Market:
On Thursday, Nifty 50 ended in the negative at 14138 (-0.1%). Among the stocks, TATASTEEL (+5.3%), HINDALCO (+4.8%), and BHARTIARTL (+3.6%) ended with gains while NESTLEIND (-2.0%), HDFCLIFE (-1.9%), and HINDUNILVR (-1.8%) were the top laggards. METAL (+3.8%), REALTY (+1.4%), and PRIVATE BANK (+0.7%) were the top sectoral gainers, while FMCG (-0.9%), IT (-0.7%), and PHARMA (-0.4%) were the sectoral laggards.

Excerpts of an interview of Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 6th January 2021:
• The raw material prices have surged significantly in the last month. The freight rates have gone up by more than 4-6 times across the world. GALAXY has been able to pass on the price hikes to customers.
• Despite the raw material price increase, he expects the margins to be stable.
• With the supply chain being disrupted across the world, getting the supply remains the number one priority for customers. At current levels, price increases seem to have been absorbed by the customers.
• 2QFY21 saw record volumes for the company. FMCG products, particularly the ones required for cleaning and sanitization have maintained the tempo but the trend of pantry stocking has subsided. The demand has been strong and buoyant.
• For GALAXY’s products, the pipeline got built in September and that should translate into sales for their customers in December quarter.
• Even on exports, the demand has been pretty strong but supply chain challenges remain. Getting the containers is a challenge and even if they get the containers, the freight rates have gone through the roof. Demand remains strong but supply chain challenges remain.
• The expansion plans are on track and he remains hopeful of commissioning the existing products by 1QFY22.
• They have acquired new land and the process of applying for clearance will take some time.
• GALAXY is not opting for the PLI scheme now but they would be happy expanding in the existing premises.
• For the last 2-3 years, they incurred a capex of Rs 1300-1400 mn every year financed through internal accruals. The capex for the next year or two will also be financed through internal accruals.
• Their R&D expenditure has been about 1.5% of their sales consistently. The entire R&D has been in-house for them.
• He expects 6-8% volume growth in FY22 and the growth will be gradual over time.

Consensus Estimate: (Source: market screener website)
• The closing price of Galaxy Surfactants was ₹ 2280 /- as of 07-January-2021. It traded at 32x/ 27x/ 24x the consensus earnings estimate of ₹ 71.5/ 83.1 / 95.7 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 2118 implies a PE multiple of 22x on FY23E EPS of ₹ 95.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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26 Nov

Expect to touch Rs 170-180 bn revenue in a couple of years – Tata Chemicals

Update on Indian equity market:
After crossing 13,000 for the first time ever, the Nifty-50 could not hold onto the gains as the monthly expiry led volatility kicked in the markets. Nifty closed the day 185 points lower at 12,870. Within the index, only 8 stocks closed the day in green led by ONGC (5.9%), GAIL (2.1%) and ADANIPORTS (1.9%) whereas EICHERMOT (-3.5%), AXISBANK (-3.2%) and KOTAKBANK (-3.2%) led the laggards. Among the sectoral indices, all but one index, PSUBANK (1.9%) traded the day in the red led by REALTY (-2.3%), PHARMA (-2.1%), and BANK (-1.8%).
Excerpts of an interview with Mr. R Mukundan, CEO & Managing Director, Tata Chemicals (TataChem) published on CNBC-TV18 dated 24th November 2020:
Tata Chemicals 2QFY21 result was operationally weaker due to pressure on margins in the basic chemistry segment. All the units are working at full capacity though and the company sees no demand problem from 2HFY21.
The nutrition and agri segment performed well during the quarter. These two segments were unaffected due to the pandemic. Q1 was good and Q2 continued to be even better. Sequentially, material science has done better than 1QFY21.
He said that there are some pricing issues in the export market, but India is doing well. The UK has performed well through the pandemic. The overall momentum is positive. All the sectors are beginning to open up and the company expects to be back to normal somewhere around 2QFY22E.
Regarding the pricing power, he mentioned that as the volumes pick up, the pricing power comes back especially in the material segment.
The company is focusing on the nutraceutical segment and increased allocation of assets. Revenue from this business can scale up to Rs 50bn with this capacity addition.
The company is expecting good growth in the silica business from 3QFY21. Renewables are a big market opportunity for the company currently.
With the capacity additions and business racing towards pre-covid levels, the company is confident of achieving an annual revenue target of Rs 170-180bn in the next couple of years.
Consensus Estimate: (Source: market screener website)
The closing price of Tata Chem was ₹ 368/- as of 25-Nov-2020. It traded at 21x/ 11x/ 9x the consensus EPS estimate of ₹ 17.2/ 34.4/ 40.4 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 332/- implies a P/E multiple of 8x on FY23E EPS of ₹ 40.4/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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01 Oct

The pandemic has led to a behavioral change toward Health and Wellbeing – Tata Chemicals

Update on the Indian Equity Market:
On Wednesday, the consolidation in the equity markets continued with the Nifty ending marginally higher at 11,227 (0.2%). Among the stocks, GRASIM (+3.0%), TECHM (+2.8%), and TITAN (+2.6%) led the gainers while BPCL (-9.0%), BHARTIARTL (-3.7%), and TATASTEEL (-3.1%) led the laggards. FMCG (+1.3%), PHARMA (+0.5%), and IT (+0.4%), the three sectors considered defensive led the index gainers. METAL (-2.1%), PSU BANK (-1.1%), and REALTY (-0.8%) led the sectoral losers.

Edited excerpts of an interview with Mr. Rahul Gupta, Business Head, Nutritional Sciences, Tata Chemicals with ETHealthworld on 29th September 2020:
• One of the consequences of the pandemic has been a paradigm shift in the health consciousness and food preferences of consumers.
• Following a healthy lifestyle has increased the significance to increase gut health and immunity by following a healthier diet which includes consuming more fortified products. This increased inclination towards nutritional products and supplements coupled with the increasing disposable income is now changing the consumer’s purchasing pattern which has provided an impetus to the wellness sector.
• The F&B, pharma, and nutrition companies are forced to present well-researched and innovative products to suit the changing needs of the customers. The desire to build a stronger immunity and lead a healthier lifestyle will only evolve consumer behavior patterns towards the nutraceuticals industry.
• Tata Chemicals is witnessing 100% growth driven by a focus on health and immunity. The virus outbreak will reset the baseline for health and nutrition companies which will help reshape the market by offering products backed by strong science.
• Tata NQ, the nutritional solutions arm of Tata Chemicals has invested in researching new age products with the help of machine learning and big data at the R&D centers over the past years.
• The work on building one of the biggest global knowledge bases on the gut microbiome, mapping subjects across geographies, age groups, genders, sedentary habits, and other parameters is underway.
• The new trend in consumers’ food patterns is the inclusion of more immunity building nutrients in the daily diet to strengthen health and protect from the virus. There is a huge demand for preventive nutraceutical products and natural products in the market, across all age groups.

Consensus Estimate: (Source: market screener website)
• The closing price of Tata Chemicals was ₹ 300/- as of 30-September-2020. It traded at 13x/ 8x/ 7x the consensus earnings estimate of ₹ 23.5/ 35.9/ 41.3 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 327 implies a PE multiple of 8x on FY23E EPS of ₹ 41.3/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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01 Jan

Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

Update on the Indian Equity Market:

On Tuesday, Sensex fell over 307 pts and Nifty ends below 12,200. Markets witnessed profit booking ahead of the press conference from the FM.

Among the sectors, NIFTY AUTO was down by 0.9%, NIFTY IT by 0.8% and NIFTY Bank by 0.6%. Among stocks, NTPC, Sun Pharma and ONGC were the major gainers in the Sensex pack, while Tech Mahindra, Bajaj Auto and Reliance Industries were the major laggards in the trade today.

Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

Excerpts from an interview with Vinati Saraf Mutreja, Managing Director & CEO, Vinati Organics; dated 30th December 2019:

  • In 2006, Vinati Organics (Vinati) was a single product company. 2007-08 was a turning point for Vinati as growth of ATBS (Acrylamido tertiary-butyl sulfonic acid), star product for Vinati, suddenly picked up and Vinati started exporting IDB (Iminodibenzyl)
  • In 2010, Vinati started manufacturing IB, which is a raw material for ATBS. Backward integration helped in gaining economies of scale. Presently, Vinati is one of the largest manufacturers of IB with ~60-70% market share.
  • Vinati has a philosophy of generating wealth from waste or value-added products from waste which not only reduces the effluents but also reduces operating costs. These have been some of the key factors that have led to the growth of Vinati over the last decade.
  • Vinati is setting up a plant for manufacturing Butylphenol. These products go into fragrances, plastics, resins and they are at present imported from Korea, Singapore, etc. That is going to be the growth driver for the next two to three years.
  • ATBS, IBB are growing at 10% to 15% year on year. Similarly, talking about innovation, Vinati has about seven to eight products in the R&D pipeline and even if one or two see the light at the end of the day, they are expected to result in significant revenue. Vinati is looking at doubling revenues in the next three to four years.
  • The industry segment is quite diversified and they go from pharma to water treatment, to agro, to oil and gas. Vinati does see a bit of a slowdown coming from the oil and gas industry. The only way to make up for that is to keep adding new products into a portfolio and to keep diversifying.
  • In ATBS, Vinati competes with China and because of the new tariffs in the US, ATBS has become more competitive in the US but at the same time, the Chinese have started dumping the product in the rest of the world, especially Europe. So in the end, it is a zero-sum game and also because Vinati is into niche products. For other products, Vinati does not face much competition from China. In fact, it is a market for both, IBB and ATBS are exported to China and because of the environment crackdown, especially on Ibuprofen front, Vinati has seen a bit of a slowdown in the IBB segment this year from China.
  • ATBS margins went up essentially over the last one and a half to two years, because Lubrizol exited the industry and suddenly there was a shortage of the product and prices shot up. But now, with the new expansions coming in place and the slowdown in oil and gas, there is no more demand-supply imbalance. Some of those prices are due for a correction. Margins are expected to come down slightly, going forward to a more sustainable level.
  • IBB or ibuprofen is a consolidated market and over the last couple of years, new players have entered into the ibuprofen market because ibuprofen itself grows at 4-5% annually. Vinati will start supplying IBB to North America and expect to make up for IBB in fiscal year or calendar year 2020. Overall, one can expect IBB growth for the next two to three years to be 10-15% year-on-year.
  • The butylphenol plant should be ready in January next year and the total revenue potential from butylphenol is about Rs 4,000-4,500 mn. One can expect Rs 500-600 mn of revenues just in Q4FY20 and then in FY21, one can expect around Rs 2,500 mn. The sentiment from the customers has been positive and they are keen to start the plant as soon as possible because till now, they have been importing this product. They are really looking forward to having a local supplier.
  • The new brownfield ATBS plant has been slightly delayed. It is expected to start in Feb-20 and revenues out of that plant from Apr-21 onwards. Since the existing line for ATBS is running at close to full capacity, the 10-15% annual growth for ATBS will be serviced by a new line for the next three to four years.

 Consensus Estimate: (Source: market screener, investing.com website)

  • The closing price of Vinati Organics was ₹ 1,983/- as of 31st December 19. It traded at 27x/ 24x/ 18x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 71.3/79.7/105 respectively.
  • Consensus target price of ₹ 2,327/- implies a PE multiple of 22x on FY22E EPS of ₹ 105/-.
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30 Dec

Mr Rajendra Gogri on why Aarti Industries will continue to be a multi-bagger.

Update on the Indian Equity Market:

On Friday, Nifty closed 1% higher at 12,245. Among the stocks, Coal India (+3.5%), Axis Bank (+3.3%) and BPCL (+2.7%) were the gainers. Yes Bank (-1.4%), Wipro (-1.0%), and Infratel (-0.8%) ended in the red. Nifty PSU Bank (+2.9%), Nifty Realty (+1.6%) and Nifty Bank (+1.3%) were the top sectoral gainers. All the sectors ended in the green. 

Excerpts from an interview of Mr Rajendra Gogri, CMD, Aarti Industries Ltd (Aarti Ind) with ET NOW on 24th December 2019

  • Aarti Industries is a specialty chemical manufacturer with B2B sales to major global companies for a variety of end-use – polymer, agrochemicals, dyes, and pigments. The company has a value-added product chain. Because of this business model and multi-customer relations, Aarti Ind has been able to grow the business sizably. In the last few years, the overall competitiveness of India against China has increased, which has expanded margins for the chemical industry and also for Aarti Ind as well. That is a major reason for both volume growth as well as bottom-line growth.
  • According to him, India is in a very sweet spot as far as the specialty chemical industry is concerned because the cost-wise, now Chinese labour cost is double that of India and because of the trade war issue also, there is a big appetite for India. Now the buzz word is that the company is getting extra benefits in the global supply chain because they do not import anything from China for their specialty chemical business. They are totally backward integrated.
  • According to Mr Gogri, the key in the chemical industry will continue to be backing businesses with relatively better chemistry skills, operating in molecules, markets with oligopoly. With more chemistry skill and with a strong customer base, Aarti Ind is able to have a substantial market share in their line of products.
  • Two factors have impacted the growth this year:
  1. climate impact on US agrochemical market is specifically restricted this year.
  2. the global automobile sector slowdown was led by a slowdown in China, for some of the products which are going in the auto sectors, there is some demand pressure.
  • Aarti Ind is well spread in the product line as well as geography and is expected to grow.
  • There is a sizable scope for an import substitution with about $1 billion worth of chemicals within Aarti Ind chain being imported. The Company has identified quite a few products now which are virtually not made in India. The entire chlorotoluene chain which they have identified is not made in India and some of the downstream products are also not manufactured in India. They have also considered import substitution. That is one of the major criteria for identifying the products in addition to the direct demand for global markets.
  • Aarti Ind has signed 2-3 major contracts. Out of this, the first two contracts will be commissioning in 4QFY20 and that has the potential to give a substantial boost to their top line going forward. A first contract is a 10-year contract. It is a high value-added product and EBITDA is almost expected to be about 40%. Topline growth will be relatively less from that project but EBITDA growth will be substantially more.

Consensus Estimate: (Source: market screener website)

  • The closing price of Aarti Industries Ltd was ₹ 833 /- as of 27-December-19. It traded at 25x/ 20x/17x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.0/40.9/48.2 respectively.
  • Consensus target price of ₹ 925/- implies a PE multiple of 19x on FY22E EPS of ₹ 48.2/-.
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