Steady growth makes Aarti Industries a value pick

The stock of specialty chemicals maker, Aarti Industries has gained over 22 per cent in the past five trading sessions with investors seeing it as a value buy. The company has a track record of consistent growth and dividend payments for over the past 15 years, and trades at reasonable valuations.

A recent report from Mumbai-based brokerage house Anand Rathi said that the stock is trading at 5.6 times its FY15 estimated EPS of Rs17.26 and a 4.5 per cent dividend yield, giving a one-year target of Rs135. Aarti Industries reported a 36 per cent rise in net profit to Rs140 crore for the 12-month period ended December ’13.

The company manufactures benzene-based intermediate chemicals needed in various industries such as pharma, agrochemicals, pigments, polymer and personal care, where it has emerged as a strategic supplier to various global players. It has been steadily expanding capacities as well.

“We expanded pigment intermediate capacity in the June '13 quarter. By September ’14 our expansion of performance chemicals will come on stream,” Rajesh Gogri, managing director of the company told ET. The company has plans to set up new capacities for ethylene-based chemicals in Dahej and expand capacities for polymer and dyes intermediate in FY15 and FY16.

Aarti Inds also operates a US FDA-approved pharma drugs manufacturing facility, which will emerge as a key growth driver. “We are expecting 30 per cent annualised growth in the pharma business in the next few years, where incremental revenues will result in significant improvement in profit margins,” Gogri said. In the nine-month period to December '13 this division posted a four-fold jump in profits to Rs23 crore.