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Higher Volumes Support Revenue & EBITDA Growth; Maintain BUY

Est. Vs. Actual for Q3FY25: Revenue: BEAT; EBITDA: INLINE; PAT: MISS

Changes in Estimates post Q3FY25

FY25E/FY26E/FY27E: Revenue: 4%/2%/2%; EBITDA: -4%/-6%/-4%; PAT: -9%/-1%/-0.1%

Recommendation Rationale

* Volume growing despite pricing pressures: While pricing headwinds impacted margins, AIL posted sequential revenue and EBITDA growth during the quarter. The company attributes this performance to its focus on execution and risk mitigation, which led to higher volumes, cost efficiencies, product diversification, and geographic expansion into the US, Europe, and Japan markets. Volumes in the non-energy business grew by 14% YoY and 8% QoQ, while the energy business recorded 10% QoQ growth. The management noted that growth in the energy business could have been higher, but a large-volume bulk shipment was delayed from late December to early January.

* Diversification in Energy business to counter demand variations: During the quarter, the energy (MMA) business accounted for 36% of overall sales, while volumes experienced a 14% YoY decline. While the significant drop in gasoline-to-naphtha cracks during Q3 impacted the economics of octane boosting, the company expects it to improve in Q4 based on the price trends. Within the Energy business, MMA is a key product and AIL is looking to diversify solution offerings and expand its customer base to negate seasonal fluctuations.

* Rupee Depreciation Impacted PAT: The company’s PAT during the quarter was impacted by higher finance costs due to mark-to-market losses on its long-term ECB loan arising from rupee depreciation. However, AIL expects to benefit from currency depreciation going forward, as a significant portion of its business comes from exports.

Sector Outlook: Cautiously Optimistic

Company Outlook & Guidance: The management has maintained its FY25 EBITDA guidance of Rs 1,000-1,050 Cr and is observing the normalization of inventory levels for agrochemicals across most end markets. The company is focusing on developing new products, particularly within the ethylation value chain, where it recently expanded capacity to diversify its product base and augment utilisation levels. Additionally, AIL is pursuing backward integration into select downstream products to enhance margins. While it reduced its FY25 capex budget last quarter, the company plans to continue expansion in a disciplined manner, targeting Rs 1,800-2,200 Cr EBITDA over the next three years.

Current Valuation: 25x FY27E (Unchanged)

Current TP: Rs 525/share (Earlier TP: 540/share).

Recommendation: We maintain our BUY rating on the stock with a revised target price of 525/share, implying a 16% upside from the CMP.

Financial Performance:

Revenue came in at Rs 1,840 Cr, up 6% YoY and 13% QoQ, beating estimates by 5%. EBITDA stood at Rs 232 Cr, up 18% QoQ, driven by volume growth, operating leverage, and product mix improvements, which is in line with estimates. EBITDA margin stood at 12.6%, compared to 15% in Q3FY24 and 12% in Q2FY25. The company’s PAT was Rs 46 Cr, down 63% YoY and 12% QoQ, missing estimates by 39%, primarily impacted by a mark-to-market loss of Rs 23 Cr on its long-term ECB loan due to rupee depreciation.

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