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Our View:

ARTO’s 4QFY23 reported operating profits stood at Rs 2.52bn (-3.7% YoY; -12.7% QoQ), below our (YES: Rs 2.9bn) and street expectations (Rs 2.7bn). The Ebitda margin clocked in at 15.2%, lower QoQ and YoY. The PAT however stood above estimates on lower tax incidence due to tax reversal pertaining to earlier period; Tax guidance for FY24 as well remain low at ~ 17%. Going ahead, while a 25% growth in volumes is expected over FY24, driven by commissioning of capacities, the YoY growth in Ebitda is expected to lag the volume growth due to increased orientation of sales towards lowmargin non-regular markets, in absence of strong demand sentiment from regular markets. ARTO nonetheless expects demand sentiment to normalize over FY24 and maintains the FY25 Ebitda guidance of ~Rs 17bn, with growth in FY26 & beyond fueled by commissioning of Chlorotoluene capacity. Maintain BUY

Result Highlights

* Revenue: The Revenue for the quarter stood at Rs 16.6bn (+15% YoY; -0.7% QoQ). The FY23 revenue stood at Rs 66.2bn (+22% YoY).

* Consolidated Ebitda & PAT: Ebitda for the quarter stood at Rs 2.5bn (-3.7% YoY; -12.7 QoQ). The same for FY23 stood at Rs 10.9bn (+13.8% YoY). Consolidated PAT stood at Rs 1.5bn (+2.4% YoY; +9.1% QoQ) and Adj. cosol. PAT for FY23 stood at Rs 5.45bn (+7.2% YoY)

* Operating & Free Cashflow: The operating cashflow for FY23 stood at Rs 13.1bn with capital expenditure at Rs 13.3bn, implying an almost negligible cash outflow at FCFF level. However, going ahead capex requirement could exceed operating cashflow in FY24, requiring increased dependence on debt.

* Dividend: ARTO has declared a final dividend of Rs 1.5/sh, which along with interim dividend of Rs 1/sh, resulted in total dividend of Rs 2.5/sh.

* Capex: The capex for the FY23 stood at ~Rs 13bn, with guidance for FY24 -25 at Rs 15bn p.a.

Valuation

We maintain BUY rating on ARTO with a revised TP of Rs 730/sh (from Rs 795/sh). Our TP is premised upon an operating earnings growth CAGR of 18% (FY23-30e) and RoEs of ~15%.

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