Accumulate Aarti Industries Ltd for the Target Rs 476 by Prabhudas Liladhar Ltd
Zone IV expansion to drive growth
Aarti Industries reported Q2FY27 revenue of Rs36.7bn, up 75% YoY, driven by strong volume growth and the pass-through of elevated raw material prices. EBITDA increased 41% YoY to Rs4.1bn, supported by healthy demand across key non-energy value chains and strong performance in the Energy segment, aided by elevated crude oil prices and higher gasoline-naphtha cracks.
Non-Energy volumes remained healthy, driven by traction across the NCB, DCB and pharma value chains, while PDA continued to face competitive pressure from Chinese dumping. Management expects the current business momentum to sustain, supported by improving demand, ramp up of newly commissioned Zone IV facilities and the execution of upcoming long-term contracts.
Elevated raw material prices, higher working capital requirements and potential inventory losses remain key monitorable. However, improving capacity utilization and the commissioning of growth projects are expected to support medium-term earnings growth. We maintain our Accumulate rating with a target price of Rs476, valuing the stock at 21x Sep'28 EPS. The stock is currently trading at 17x FY29 EPS.
Revenue increases by 75%YoY/54%QoQ: Consolidated net revenue 75% YoY/ 54% QoQ to INR37bn (PLe: INR23.6bn, Consensus:24.49bn), actual revenue was 55% higher than our estimates. H1FY27 revenue was up by 60% to INR61bn. Revenue growth was primarily driven by higher volume and input prices passed on to customers. Gross Margin contracted by 620bps YoY to 28.3% and 750bps sequentially (vs 34.5% in Q2FY26 and 35.8% in Q1FY27).
EBITDAM contracted 270bps YoY: EBITDA increased 41% YoY and 8% QoQ to INR4.1bn (PLe: INR3.6bn, Consensus: INR3.5bn). EBITDAM stood at 11.2% (PLe: 15.1%) as against a margin of 13.9% in Q2FY26 and 16% in Q1FY27, contracted sequentially by 480bps and 270bps YoY. PAT stood at INRINR1,700mn, increased by 60% YoY/ 10% QoQ, PAT margins were 5% vs 5% & 6.5% in Q2FY26 and Q1FY27 respectively.
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SEBI Registration number is INH000000933
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