Rs 10 lakh in this stock grew into Rs 3 crore in 10 years & it's still a 'Buy'

An investment of Rs 10 lakh in Aarti Industries (AIL) has turned into Rs 3 crore over the last ten years. The share price of the company soared over 3,220 per cent, or 33 times, to Rs 829.85 on May 26, 2017 from Rs 24.95 on May 28, 2007. Meanwhile, benchmark BSE Sensex advanced 115 per cent to 31,028 from 14,397 during the same period.

The company is a manufacturer of specialty chemicals and pharmaceuticals.

During the years, return on net worth (RoNW) of the company surged from 9.61 per cent in 2006-07 to 25.18 per cent in FY16. Likewise, return on capital employed (RoCE) of the firm surged from 10.80 per cent to 18.32 per cent during the same period.


Experts are further bullish on Aarti Industries and believe the scrip can hit four-digit figure in coming months. Vivek Mahajan, Head-Fundamental Research, Aditya Birla Money in a chat with ETNow said, “Aarti Industries provides end-to-end solution. In the past, they were basically strong on benzene chemistry. Their new plant which will take care of the toluene chemistry at Dahej is going on stream in the current quarter. We believe the company should be delivering 15 per cent top line CAGR over next couple of years, Rs 400 to 500 crore capex is slated over next two to three years and the earning should be growing at a rate of 25 per cent over next two to three years. In one year, shares of the company should be quoting in four-digit mark.”

As of March 31, 2017, DSB Blackrock Micro Cap Fund and HDFC Trustee Company A/c HDFC Balance Fund were holding 2.50 per cent and 7.63 per cent stake in the company. On the other hand, promoters hold nearly 55 per cent stake in the company.

On any change in promoters’ holdings in coming future, Rajendra Gogri, CMD, Aarti Industries told ETNow, “There will be no significant change in the promoters holding of the company.”

For the latest quarter ended March 31, 2017, the company reported 6.80 per cent rise in net profit at Rs 74.33 crore against Rs 69.60 crore in the corresponding quarter last year. Net sales of the company jumped 12.18 per cent Year-on-Year (YoY) to Rs 834.35 crore during the quarter under review.

During Q4FY17, volumes and margins of the chemicals segment were under pressure primarily as Aarti Industries faced an issue with one of the products ie, calcium chloride. This product’s volumes dipped mainly due to sluggish demand from the oil & gas sector. To overcome the same, the company has started exploring demand for this product from different sectors and other markets like North America, Europe and Japan.

In the first quarter 2017, AIL’s board gave in-principle approval for demerger of the Home and Personal Care (HPC) business. The board has directed the company to initiate discussions with merchant bankers and other agencies to take the process forward. The exact time frame will be decided once the company gets a report from the merchant banker.

Edelweiss Securities believes the step is in the right direction and will boost profitability. “HPC business was dragging the company’s overall profitability by making losses. This segment accounts for 5 per cent of overall revenues and capital employed of the company,” said Edelweiss Securities in a research note.

Edelweiss further added that the management of AIL expects the pharma business (15 per cent revenue contribution) revenue to pick up 20-25 per cent in FY18 driven by strong order book, the specialty chemical business is likely to face margin pressure due to unfavourable currency movement.

AIL guided for 12-15 per cent volume and similar net profit growth factoring in the margin pressure. However, management will continue to incur capex (Rs 400-450 crore per annum over the next 2 years) given the long-term growth potential. We have revised down FY18 and FY19 EPS estimates by 4 per cent each and maintain ‘BUY’ with a target price of Rs 890,” Edelweiss said.