Aarti Industries Ltd. - Moneycontrol

Aarti Industries Ltd.

SALES NOTE

19th March, 2018

India Equity Institutional Research II Sales Note II 19th March, 2018

Page 2


Yin Yang of crude prices !

CMP

Target

Potential Upside

Market Cap (INR Mn)

Recommendation

Sector

INR 1,140

INR 1,455

27.6%

94,578

BUY

Specialty Chemicals

Incorporated in 1984, Aarti Industries Limited (AIL) is the largest producer of benzene based derivatives in India and has a global footprint with presence in 60 countries. AIL possesses 17 integrated plants located on the western belt of India enjoying easy procurement of raw materials, manufacturing more than 125 products. Over the years, AIL has gradually developed its core competencies in various chemical processes and reactions, thus evolving into an integrated (backward and forward) specialty chemicals manufacturing company. AIL ranks between the global first and fourth position for 75% of its product portfolio. AIL’s products are used in manufacturing of agrochemicals, pharmaceuticals, polymers & additives, dyes & pigments, fuel additives, rubber chemicals, surfactants and so on. Recently, the Company expanded its product portfolio by entering into toluene value chain coupled with other expansion plans (including Greenfield chlorination complex, calcium chloride unit, PDA & Ethylene derivatives) and two multiyear deals. Going forward, the specialty chemicals industry in India is expected to grow at 14% over FY17-FY20E scaling to USD 54 bn. We believe favorable macro outlook combined with AIL’s expansion plans should fuel future growth and consequently, we estimate revenues for the company to witness 16.1% CAGR over FY17-FY20E. Industry in a sweet spot: Specialty chemicals segment is a margin lucrative high value and low volume game industry and these chemicals are used in manufacturing of dyes and pigments, agrochemicals, flavours and fragrances, personal care products, paints & coatings, construction chemicals, water treatment chemicals and so on. India’s market size of specialty chemicals stood at ~USD 36 bn in FY17 accounting for ~3% of the total global specialty chemical industry and has been growing at 13.5% CAGR over FY10-FY17. In terms of manufacturing, many multi-national companies have increased their focus in Asia owing to stricter environmental norms in the Western countries. Further, over the last couple of years, tightening pollution control policies in China has led to many plant shutdowns resulting into sluggish production growth in China. Consequently, there has been a structural shift in the industry globally with India emerging as one of the manufacturing hubs. Lower production costs and easy raw material availability make India as one of the attractive spots for investment activity by MNC’s and domestic manufacturers. We believe that higher export demand and surge in domestic demand owing to increasing disposable incomes, higher infrastructure activities and overall growth of rural economy should result into robust and sustainable growth for specialty chemicals industry in India. Owing to the aforementioned reasons, it is expected that the specialty chemicals market should maintain its growth rate and deliver ~14% CAGR over FY17FY20E as against 7.4% CAGR for the entire Indian chemical industry over the same period. In terms of major segments, Agrochem/dyes & pigments/polymers & additives are expected to witness 12%/13%/12% CAGR over FY17-FY20E. Further, it is expected that the share of Indian specialty chemical industry should increase to 5% of the global specialty chemical market at USD 54 bn by FY20E.

MARKET DATA Shares outs (Mn)

82

Equity Cap (INR Mn)

411

Mkt Cap (INR Mn)

94578

52 Wk H/L (INR)

1212/751

Volume Avg (3m K)

83

Face Value (INR)

5

Bloomberg Code

ARTO IN

SHARE PRICE PERFORMANCE

350 250 150

Exhibit 1: Indian Chemical Industry Break-up (FY14) Mar-18

Sep-17

Mar-17

Sep-16

Mar-16

Sep-15

Mar-15

50

4%

Exhibit 2: Expected Growth from End user Markets (FY15-FY20E)

3% Bulkchemicals Petrochemicals

Aarti Industries Ltd

Sensex

25%

15%

Specialty Chemicals

12% API

MARKET INFO

16%

SENSEX

33176

NIFTY

10195

19%

11%

13%

15% 10%

Fertilizers Biotechnology

18%

Agrochemicals

Source: FICCI, KRChoksey Research

Source: Industry Research, KRChoksey Research

SHARE HOLDING PATTERN (%) Particulars

Dec 17

Sep 17

Jun 17

Promoters

53.63

53.7

54.26

3.88

3.97

4.12

DIIs

13.22

12.65

12.47

Others

29.27

29.7

29.14

100

100

100

FIIs

Total ANALYST

Kunal Shah, [email protected], +91-22-6696 5568 Neha Mehta, [email protected], +91-22-6696 5413

16.1% Revenue CAGR over FY17 -FY20E KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

12.6% EBITDA CAGR over FY17 -FY20E +91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

13%


Page 3

Aarti Industries Ltd. AIL set on its path for value creation through capacity addition: AIL possesses a wide product portfolio with applications in specialty chemicals (~81.2%), pharmaceuticals (~13.5%) and home & personal care (~5.3%). In terms of end user industries, the company derives revenues from dyes & pigments (~15-20%), agrochemicals (~20-25%), polymers & additives (~15-20%), pharmaceuticals (15-20%) and others (~20-25%). Over FY13-FY17, pharmaceuticals segment for the company has witnessed robust growth of 22.9% as compared to 10% of specialty chemicals segment while home and personal care delivered a meagre growth of 2.6%. AIL has a strong and diversified clientele base with 650+ customers and contribution from single customer not exceeding more than 9% of revenues as of FY17. In terms of geographical split, AIL derives 50% revenues from domestic market while USA (~14%), Europe (~13%), China (~6%) and Japan (~6%) being the other key markets for the company. Exhibit 3: Revenue Split by Segment Segmental Revenue a) Speciality Chemicals yoy % of revenue b) Pharmaceuticals yoy % of revenue c) Home & Personal Care yoy % of revenue

FY13

FY14

FY15

FY16

FY17

17,578

22,167 26.1% 84.2% 2,490 33.3% 9.5% 1,668 10.0% 6.3%

23,980 8.2% 82.5% 3,032 21.8% 10.4% 2,068 24.0% 7.1%

24,304 1.4% 80.8% 4,258 40.4% 14.2% 1,505 -27.2% 5.0%

25,693 5.7% 81.2% 4,261 0.1% 13.5% 1,681 11.7% 5.3%

83.9% 1,868 8.9% 1,516 7.2%

Source: Company data, KRChoksey Research

Over the years, AIL has focused on its core competencies across different processes ranging from chlorination, nitration, ammonolysis, hydrogenation and Halex chemistry. Consequently, the company is globally ranked from first to fourth position for majority of its products (75% of its portfolio) and enjoys a global market share of 25-40% across various products. With company’s de-risked portfolio of multiple products, AIL has strategically entered into margin lucrative specialty products and high value knowledge based industries. Due to process driven products and fungibility of plants, AIL could cater different industries enabling higher customization and value maximization in changing market dynamics. Going forward, AIL is set on its path to value creation by further capex plans to capture the market with its wide product portfolio. Accordingly, the company plans to augment its overall capacity by expanding its chlorination and PDA plant, setting up of Nitro Toluene and Ethylation unit as mentioned in the table below. Exhibit 4: Growth Projects in pipeline Chlorination Unit

Nitro Toluene Unit

Ethylation Unit

PDA Expansion

Products

Expansion of Chlorination plant to 1,75,000 TPA in the Chloro Benzene range of chemicals. Setting up of Calcium chloride facility with a capacity of 30,000 TPA

Diversification into toluene range of products through green field expansion plan with capacity of 30,000 TPA.

New green field plant to produce about 8,00010,000 TPA of Ethylene Derivatives.

2nd Phase PDA Expansion from 5400 TPA to 12,000 TPA catering Polymers and Additives industries being the only producer in India.

Time Horizon

Chlorination – FY18 Calcium – Commissioned

Commissioned

Commissioned

Commissioned

End User Markets

Chlorination – mainly for captive consumption Calcium – oil exploration and de-icing

Agrochemicals, Pharma, optical brighteners and pigments.

Agro (herbicides). Majorly export oriented

Engineering Polymers and additives industries

Incremental Revenue at peak utilizations

INR ~6500 mn

INR 2,000 mn

INR 1,500 mn

INR 2,000-2,500 mn


ANALYST Kunal Shah, [email protected], +91-22-6696 5568 Neha Mehta, [email protected], +91-22-6696 5413

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com


Page 4

Aarti Industries Ltd. Recent Projects – Multiyear deals 1.

During H1FY18, the company signed a deal with MNC to provide intermediate for agrochemical industry with foreseeable revenue potential of INR 40,000 mn spread over 10 year period. Further, the company plans to incur capex of INR 1,000 mn for the said project with a dedicated plant expected to commission by H2FY20E.

2.

AIL also signed another deal of INR 1,00,000 mn with a global chemical conglomerate to supply high value specialty chemical intermediate over a period of 20 years. AIL plans to set up a dedicated manufacturing facility for production of the said intermediate. For this, the customer has agreed to provide AIL with USD 42 mn as advance to be paid in installments which, later, shall be adjusted against the supplies.

With Indian specialty chemicals market being in a sweet spot, AIL is poised to be one of the biggest beneficiaries of the favorable market scenario. Further, AIL has been addressing regulated markets directly or indirectly with its presence in generics. The Indian pharmaceutical market holds 20% of the global exports in generics which accounts for USD 26 bn as on FY16. The contribution from the said segment has been increasing gradually and currently accounts for ~14% of the total revenue vis-a-vis ~9% in FY13. Going forward, we expect the pharma industry to witness a turnaround on account of higher drugs going off-patent and increase in unmet medical needs and expect the industry to deliver 12% CAGR over FY17-FY20E. Assuming peak utilizations in four years time coupled with sturdy demand scenario, we expect capacity addition plans to facilitate higher volumes over FY18E-FY20E and consequently, we estimate revenues to grow from INR 31635 mn to INR 49524 mn at 16%.

16,733

20,962

26,325

29,080

30,066

31,635

35,132

44,920

49,524

INR mn

Exhibit 5: Revenue growth over the years

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E


Surge in crude oil prices to remain as an overhang: AIL is a benzene based specialty chemical company with benzene accounting for ~ 30% of overall raw material costs. Benzene is a hydrocarbon and is extracted from crude oil resulting into their global prices moving in tandem. The company adopts cost plus pricing for its various products resulting into mitigation of risk with respect to volatility in raw material prices. However, margins for the company appear optically enhanced in a declining crude oil price scenario owing to base effect. Consequently, gross margins for the company has improved from 36% to 44.89% over FY14-FY17 due to the sharp correction of crude oil prices while gross profit grew by 14.4% over the same period. Since the business is on “pass-on” model, the EBITDA in absolute term does not get affected owing to combination of higher utilization and cost reduction initiatives. Therefore, higher operating leverage and strengthening of product portfolio led to outperformance of EBITDA which witnessed a growth of 17.6% over FY14-FY17. Going forward, we expect crude oil prices to surge over FY18-FY20E translating into reduction of gross margins by 359 bps from 44.89% in FY17 to 41.3% by FY20E. Consequently, we expect EBITDA margins to slip from 20.66% in FY17 to 18.86% in FY20E while estimating absolute EBITDA to grow at 12.6% from INR 6,535 mn to INR 9,339 mn over the same period. Over FY12-FY17, return ratios for the company has gradually improved (avg. ROE/ROCE of 20%/18.3%) coupled with average net debt/equity of 1.04x. Going ahead, we expect total capex to the tune of INR 17,500 mn over FY18-FY20E while total FCFF generation of INR 2794 mn over the same period. Accordingly, we estimate the total debt of the company to increase by INR 3,500 mn over FY17-FY20E from INR 14,357 mn to INR 17,857 with net debt/equity ratio to improve to 0.7x in FY20E from 1.03x in FY17. Going ahead, we expect PAT to grow at 14% CAGR from INR 3,158 mn in FY17 to INR 4,7132 mn in FY20E with PAT margins at 9.55% on account of sustained interest costs. We estimate ROCE/ROE to witness minor setback touching 18%/19% in FY20E from 19%/23% currently. ANALYST Kunal Shah, [email protected], +91-22-6696 5568 Neha Mehta, [email protected], +91-22-6696 5413




Page 5

Aarti Industries Ltd. Exhibit 6: Margins to remain range bound 25,000 39%

INR mn

20,000

50%

45%

43%

41%

41%

45%

37%

36%

34%

42%

40% 35%

15,000 10,000

30% 17%

15%

19%

16%

15%

21%

25%

19%

19%

19%

20%

9,339

20,454

8,433

18,822

6,508

14,931

6,535

14,202

5,723

12,388

4,657

10,758

4,015

9,479

3,612

8,130

2,493

5,771

15% 5,000 -

10% 5% 0%

FY12

FY13

FY14 Gross

FY15 EBITDA

FY16 FY17 Gross Margin

FY18E FY19E EBITDA Margin

FY20E

Source: Company, KRChoksey Research

Exhibit 7: Return Ratios to witness a minor setback

20.0% 15.0% 10.0%

23.2%

22.6%

25.0% 17.5%

20.3%

17.8%

18.7%

18.1%

17.9%

18.7%

1.06

1.02

16.3% 1.05

1.05

4.00

21.6%

19.9%

19.5%

3.50 3.00

20.2%

19.0%

17.9%

16.2% 1.06

1.03

2.50

17.7%

2.00

1.03

1.50

0.92

0.70

1.00

5.0%

0.50 0.0%

0.00 FY12

FY13

FY14

FY15 ROE %

FY16

FY17

ROCE %

FY18E

FY19E

FY20E

Net Debt / Equity


Exhibit 8: Key Financials Particulars (INR mn)

FY15

FY16

FY17

FY18E

FY19E

FY20E

Revenue

29,080

30,066

31,635

35,132

44,920

49,524

EBITDA

4,657

5,723

6,535

6,508

8,433

9,339

PAT

2,059

2,569

3,158

3,110

4,261

4,731

EBITDA Margin

16.0%

19.0%

20.7%

18.5%

18.8%

18.9%

7.1%

8.5%

10.0%

8.9%

9.5%

9.6%

EPS

23

31

38

38

52

58

P/E

15

17

20

30

22

20

PAT Margin






Page 6

Aarti Industries Ltd. Valuations and Outlook: Aarti Industries Limited (AIL) commenced operations at Gujarat with capacity of 1200 TPA of Nitro Chloro Benzenes (NCBs) in 1986 and currently stands as a global supplier of various specialty chemicals and pharmaceuticals products. Since inception, AIL has developed its expertise in benzene based specialty chemicals enabling it to widen its portfolio with more value added products. Over the years, AIL has evolved as an integrated (backward & forward) player manufacturing more than 125 products through various processes like chlorination, nitration, ammonolysis, hydrogenation and halex chemistry. Accordingly, it is globally ranked from first to fourth position for majority of its products (75% of its portfolio) and enjoys a global market share of 25-40% across various products. The company caters to more than 650 customers spread across 60 countries including BASF, Syngenta, UPL, Solvay, Huntsman, Dupont, Sudarshan Atul, Clariant, Hindustan Unilever, Pfizer, Dr. Reddys, Sun Pharma, and Lupin among others with no customer contributing more than 9% of its total revenue. The company’s products are used in downstream manufacture of pharmaceuticals, agrochemicals, dyes & pigments, polymers & additives, fuel additive, rubber chemicals, surfactants and so on catering B2B customers. AIL derives revenues from various segments like specialty chemicals (~81.2%), pharmaceuticals (~13.5%) and home & personal care (~5.3%) Industry estimates suggest that Indian specialty chemicals segment is expected to increase to USD 54 bn by FY20E from USD 28 bn in FY15 translating into a CAGR of 13.6% representing 5% of the global specialty chemicals. The primary factors attributing to the said growth include 1) favourable macro factors leading to growth in Indian economy; 2) tightening pollution control norms in China leading to subsequent capacity shut downs; 3) burgeoning demand from end user sub sectors like agrochemicals, colourants, polymer additives, paints & coatings, surfactants, personal care ingredients and; 4) growing disposable income along with increasing urbanization. We believe, going ahead, AILs growth plan to develop toluene based specialty chemicals (30,000 MTPA) and ethylene derivatives (~9,000 MTPA) coupled with other expansion plans in its core business (Chlorination, PDA, Calcium Chloride) and presence in upcoming end user markets (domestically as well as internationally) will aid the company to capitalize on the said opportunities and emerge as a dominant player. Going forward, we expect the pharma industry to witness a turnaround on account of higher drugs going off-patent and increase in unmet medical needs and expect the industry to deliver 12% CAGR over FY17-FY20E. Consequently, we expect revenues for the company to grow at 16% from INR 31,635 mn to INR 49,524 mn Over FY17-20E. Additionally, the Company has entered into 2 multi year deal that is expected to generate a revenue of INR 40,000 mn and INR 1,00,000 mn spread equally over 10 years and 20 years respectively. We believe, this will further boost the company’s topline with enhanced return ratios and provide longevity in terms of revenue visibility. Going ahead, we estimate revenue/EBITDA/PAT to grow at 16%/13%/14% over FY17-FY20E. Further, we factor in a total capex of INR 17,500 mn over FY18-FY20E for the said capacity addition plans. We expect the company to fund the same partially through debt and partially through internal accruals. Accordingly, we expect the total debt of the company to increase by INR 3,500 mn from INR 16,357 mn to INR 17,857 mn over FY18-FY20E with net debt/equity ratio to improve to 0.7x by FY20. Consequently we estimate return ratios to observe a drop in FY20E with ROCE/ROE to reach 18%/19% by FY20E on account of ongoing capex plans. The Company currently trades at two year forward P/E multiple of 20x. Going forward, we believe AIL should fetch premium valuations on account of 1) higher volumes aided by capacity addition plans; 2) bolstering demand from end user segments; 3) higher revenue visibility owing to multi-year deals; and 4) steady balance sheet despite higher capital requirements. Accordingly, we value the Company at a P/E multiple of 25x on FY20E and arrive at a target price of INR 1,455/share resulting into an upside of 27.6% from the CMP of INR 1,140/share. We assign a “BUY” rating on the stock.

Exhibit 9: Two year forward P/E band 1600 1400 1200 1000 800 600 400 200 0 01-04-2010

01-04-2011 Price

01-04-2012 2x

01-04-2013 7x

01-04-2014

01-04-2015

10x

15x

01-04-2016 19x

01-04-2017 25x






Page 7

Aarti Industries Ltd. Exhibit 10: Peer Comparison: Company Name

M. Cap (INR Mn)

Revenue (INR Mn)

EBITDA (INR Mn)

PAT (INR Mn)

EBITDA Margin

PAT Margin

P/E

ROCE

ROE

Aarti Industries

94,578

31,635

6,535

3158

21%

10%

20

19%

23%

BASF India

89,651

50,789

2,696

(142)

5%

-0.3%

NA

3%

1%

Atul Limited

78,307

28,339

5,667

3,204

20%

11%

22

23%

18%


Exhibit 11: AIL business Model


Home & Personal Care

Benzene value chain through chlorination, nitration and other processes. Eg, Nitro chloro benzene and derivatives, chloro benzene and derivatives, PDA and nitrobenzene, and so on.

APIs and intermediates for Innovators and generic Companies and CRAMs business.

Concentrates for shampoo, hand wash, dish wash, oral care, etc.

Polymer & additives, agrochem, dyes, pigments, paints, fuel additives, and rubber chemicals amongst others.

Neutraceuticals & Pharmaceuticals (anti-cancer, anti-asthma, anti hyper– tensive drugs & oncology therapies) and Other innovator & Pharma MNCs.

FMCGs – shampoos, Anti dandruff shampoo, hand & Body wash, dish Wash, Detergents bars & powders and other home & personal care industry applications.

BASF, Solvay, Toray, Sojitz, Chemipro, DOW, Dupont, Coromandel, UPL, Syngenta, FMC, Bayer, Hunstman, Sudarshan, Clariant, Atul, Flint Ink, Eastman, Sun Chemicals, and so on.

Cipla, Dr. Reddys, Lupin, Pfizer, Sun Pharma, Sanofi, Sandoz.

Unilever, CavinKare, Dabur, 3M, Innospec.

Clients

Products

Pharmaceuticals

End Users

Specialty Chemicals






Page 8

Aarti Industries Ltd. Exhibit 12: AIL’s Product Value Chain

NCB Value chain

Chloro Benzene Value chain

PDA Value chain






Page 9

Aarti Industries Ltd. Exhibit 13: Management team: Name

Designation

Shri Rajendra V. Gogri

Chairman & Managing Director

Shri Rashesh C. Gogri

Vice – Chairman & Managing Director

Shri Shantilal T. Shah

Vice – Chairman

Shri Parimal H. Desai

Executive Director

Shri Manoj M. Chheda

Executive Director

Smt. Hetal Gogri Gala

Executive Director

Shri Kirit R. Mehta

Executive Director

Shri Renil R. Gogri

Executive Director

Shri Ramdas M. Gandhi

Independent Non – Executive Director

Shri Laxmichand K. Jain


Shri P. A. Sethi


Shri K.V.S. Shyam Sunder


Shri Bhavesh R. Vora


Prof. Ganapati D. Yadav


Smt. Priti P. Savla



Exhibit 14: Share Holding Pattern

29.27%

53.63% 13.22%

3.88% Promoters

FIIs

DIIs

Others


Exhibit 15: Share Holding Pattern Fund

Market Value

No of Shares

DSP BlackRock Mutual Fund

2459.9

2097044

HDFC Mutual Fund

7661.1

6530886

Principal PNB Mutual Fund

23

19608

Reliance Mutual Fund

1.4

1160






Page 10

Aarti Industries Ltd. Exhibit 16: Financials Income Statement (INR mn)

FY15

FY16

Net Revenues

29,080

30,066

31,635

Cost Of Revenues (incl Stock Adj)

18,321

17,678

17,433

Gross Profit

10,758

12,388

14,202

937

1,207

Other Operating Expenses

5,165

EBITDA

4,657 55

Employee Cost

Other Income Depreciation

FY17

FY18E

FY19E

FY20E

35,132

44,920

49,524

20,201

26,099

29,071

14,931

18,822

20,454

1,523

1,675.1

1,876.1

2,101.2

5,458

6,144

6,748

8,512

9,013

5,723

6,535

6,508

8,433

9,339

59

20

20

20

20

820

985

1,225

1,334

1,635

1,893

3,892

4,797

5,329

5,194

6,818

7,465

Exceptional Items

35

0

0

0

0

0

Net Interest Exp.

1,380

1,170

1,173

1,306

1,491

1,551

EBT

2,548

3,627

4,156

3,888

5,327

5,914

610

946

881

778

1,065

1,183

2,059

2,569

3,158

3,110

4,261

4,731

23

31

38

38

52

58

FY15

FY16

FY17

FY18E

FY19E

FY20E

443 9,721 10,164 4,191 1,027 3,061

417 10,956 11,373 5,268 1,271 2

411 13,214 13,625 5,964 1,554 5

407 15,227 15,634 6,795 1,554 5

407 19,323 19,729 7,626 1,554 1,355

407 23,871 24,277 7,418 1,554 2,705

6,483 2,488 1,566 341 10,878 29,378

7,064 3,052 910 205 11,231 29,665

8,393 2,997 1,536 278 13,204 34,991

9,562 3,487 1,705 309 15,063 39,690

10,731 4,505 2,181 395 17,812 48,714

10,439 5,097 2,404 436 18,376 54,969

9,669 1,930 1,392 4,411

12,455 3,130 413 1,323

16,966 2,695 470 1,684

20,132 2,695 470 1,684

25,496 2,695 470 1,684

29,603 2,695 470 1,684

5,517 4,390 337 1,409 323 11,977 29,378

4,952 5,234 290 1,679 185 12,340 29,665

5,714 5,247 285 1,687 239 13,172 34,991

6,641 5,775 243 1,781 266 14,705 39,690

8,509 7,261 287 1,969 340 18,366 48,714

9,319 7,870 780 2,171 374 20,513 54,969

EBIT

Taxes Net Income Basic & Diluted EPS (INR) Source: Company, KRChoksey Research

Balance Sheet (INR mn) SOURCES OF FUNDS Share Capital Reserves Total Shareholders Funds Long Term Borrowings Net Deferred Tax liability Long term provisions Current Liabilities and Provisions Short term borrowings Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities Total Liabilities APPLICATION OF FUNDS : Net Block Capital Work in Progress Non-current investments Other Non-Current assets Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Other Current Assets Total Current Assets Total Assets Source: Company, KRChoksey Research





Page 11

Aarti Industries Ltd. Cash Flow Statement (INR mn)

FY15

FY16

FY17

FY18E

FY19E

FY20E

PBT

2,513

3,627

4,156

3,888

5,327

5,914

Depreciation

820

985

1,225

1,334

1,635

1,893

(Inc) / Dec in Working Capital

(688)

964

(869)

(886)

(687)

552

Taxes

(583)

(978)

(975)

(778)

(1,065)

(1,183)

Cash from Operations

3,395

5,736

4,701

4,865

6,701

8,728

(3,031)

(4,665)

(5,302)

(4,500)

(7,000)

(6,000)

54

145

14

0

0

0

(2,977)

(4,520)

(5,289)

(4,500)

(7,000)

(6,000)

-

(960)

(980)

-

-

1633

837

2722

2000

2000

(500)

Others

(1863)

(2121)

(1179)

(1427)

(1657)

(1735)

Cash from Financing

(230)

(1,284)

583

(407)

343

(2235)

Net Change in Cash

189

(68)

(5)

(42)

45

493

BF cash

149

358

290

285

242

287

END Cash

337

290

285

242

287

780

FY15

FY16

FY17

FY18E

FY19E

FY20E

Total Sales

10.5%

3.4%

5.2%

11.1%

27.9%

10.2%

EBITDA

16.0%

22.9%

14.2%

-0.4%

29.6%

10.7%

APAT

26.7%

24.8%

22.9%

-1.5%

37.0%

11.0%

16.0%

19.0%

20.7%

18.5%

18.8%

18.9%

Adj. Net Profit Margin

7.1%

8.5%

10.0%

8.9%

9.5%

9.6%

ROCE

19%

20%

19%

16%

18%

18%

ROE

20%

23%

23%

20%

22%

19%

AEPS

23.2

30.8

38.5

38.3

52.4

58.2

BVPS

115

136

166

192

243

299

PE(x)

15.1

16.7

19.9

29.8

21.7

19.6

P/BV (x)

3.1

3.8

4.6

5.9

4.7

3.8

Debtor Days

55

64

61

60

59

58

Inventory Days

110

102

120

120

119

117

Payable Days

50

63

63

63

63

64

1.05

1.08

1.05

1.05

0.93

0.74

Purchase of Fixed Assets Others Cash from Investing Proceeds from issue of shares / (Buyback) Borrowings (Net)


Ratio Analysis Growth (%)

Profitability (%) EBITDA Margin

Per Share Data (Rs.)

Valuations (x)

Turnover days

Gearing Ratio D/E Source: Company, KRChoksey Research





Page 12

Aarti Industries Ltd. ANALYST CERTIFICATION: We, Kunal Shah (BE), research analyst and Neha Mehta (B.Com – Financial Markets, CS), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that, Kunal Shah (BE), research analyst and Neha Mehta (B.Com – Financial Markets, CS), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. It is confirmed that, Kunal Shah (BE), research analyst and Neha Mehta (B.Com – Financial Markets, CS), research associate, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform them of and to observe such restriction.

Please send your feedback to [email protected] Visit us at www.krchoksey.com Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: +91-22-6633 5000; Fax: +91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.


