IGI Logo

Aarti’s Q4 EBITDA at Rs3.4bn (+27% YoY, +6% QoQ) was above the street’s and our estimates. This was mainly owing to higher MMA, NT, DCB, and MEA volumes and higher gross margins. The Middle East (ME) crisis has put pressure in the energy segment, as exports to the ME have halted and availability of feedstock is impacted (expects pent-up demand once the situation stabilizes). While the non-energy business has witnessed healthy volume growth, margins in some end-uses remain under pressure. Capex intensity has reduced, with FY26 capex at Rs11bn and FY27 guidance at Rs7-8bn. We have still built in the lower end of its FY28 EBITDA guidance considering the volatile macro environment. We retain our estimates, factoring capacity commissioning of MPP and various blocks at Zone-IV, along with margin recovery amid China’s antiinvolution efforts (benefiting NCB and other value chains). We retain BUY on Aarti while raising TP by 10% to Rs550 from Rs500 (rollover to Mar-28E EPS).

MMA volumes remain volatile owing to ME conflict

Aarti posted EBITDA of Rs3.4bn (+27% YoY/+6% QoQ) in Q4FY26. The improvement was led by i) higher MMA, NT, DCB, and MEA volumes, and ii) higher gross margin aided by forex and marginal inventory gains. The conflict-led disruption has put its energy business under pressure, with 4% QoQ decline in MMA volumes due to a halt in shipments to the ME. ME exposure to overall topline stands at ~10%. However, Aarti was able to redirect the ME MMA shipments to other regions like the US and EMEA, hence largely offsetting the impact of supply chain disruption to the ME (expects pent up demand once the situation stabilizes). The geography-mix change led to higher working capital.

Non-energy business witnessing healthy volume growth Aarti’s non-energy business reported steady performance, with +9% YoY/+13% QoQ volume growth. In terms of demand, gradual recovery was visible in select products in agrochemicals. In pigments and pharmaceutical segments, volumes are expected to largely be driven by domestic demand. In polymer and additives segment, PDA remained under pressure due to Chinese competition, while PDCB continued growth momentum, driven by Chinese EV application. With regard to pricing, agrochemicals and fluoro product margins remain under pressure, while there are green shoots visible in value chains like NCB, where there has been margin improvement on the back of the Chinese anti-involution efforts.

Zone-IV to be commissioned in FY27 in staggered manner

There has been a delay of 3-4 months in Zone-IV projects due to labor constraints, but the management expects to commission it in a phased manner by the end of FY27. The management has reaffirmed its FY28 EBITDA guidance of Rs18-22bn, led by costoptimization measures, ramp-up of existing capacities, and commissioning of MPPs and various blocks at Zone-IV. In FY26, Aarti spent ~Rs11bn capex, in line with its guidance, and guided for lower capex intensity going forward, with Rs7-8bn capex expected in FY27 and focus on lowering net debt. We bake in the lower end of the FY28 EBITDA guidance, to account for the volatility in the energy business. Accordingly, we retain our estimates

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354