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Key sector slowdowns impacting business

Our View:?

ARTO’s 1QFY24 reported operating profits stood at Rs 2bn (-28.5% YoY; -19.5% QoQ), below our (YES: Rs 2.5bn) and street expectations (Rs 2.3bn). The Ebitda margin clocked in at 14.4%, lower QoQ and YoY. The PAT stood below estimates at Rs 710mn. The result was impacted due to global destocking of inventory, margin contraction due to competition from China, decline in prices of rm & lower volumes. Recovery among sectors expected in 2H FY24. Commercialized expanded NCB capacity. Renewable power unit commenced with capacity of 13MW. Zone 4 to commence in phased manner from FY25. Tax for FY24 to be low at 10% due to MAT credit. Capex plans being maintained and no delay in commissioning as expectations of normalcy in FY25. Growth beyond FY25 on back of new facilities coming up and complex chemistries undertaking. We maintain our BUY rating

Result Highlights??????

? Revenue: The Revenue for the quarter stood at Rs 14bn (-12.5% YoY; -14.3% QoQ), on account of decline in volumes, prices of rm, slower than expected recovery in select sectors & competition from China.

? Ebitda & PAT: Ebitda for the quarter stood at Rs 2bn (-28.5% YoY; -19.5 QoQ), margin was lower at 14% as utilization rates were lower. PAT stood at Rs 710mn (-48% YoY; -51.7% QoQ).

? Capex: The capex for the FY24 to be ~Rs 15bn, with Rs 2.6bn incurred during the quarter.

Valuation

We maintain BUY rating on ARTO with a revised TP of Rs 590/sh (from Rs 730/sh). Our TP is premised upon an operating earnings growth CAGR of 18% (FY23-30e).

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