Shares of Aarti Industries, a specialty chemicals company, experienced a significant drop of 16% to Rs 614.70 on the BSE in Tuesday’s trading session. This decline was driven by margin concerns, with the stock falling 20% from its previous day’s high of Rs 767.10. The company had seen a 22% rally from its low of Rs 630 in the past 14 days, but this recent drop erased most of those gains.
At 01:24 pm, Aarti Industries was trading 15% lower at Rs 622.30, while the BSE Sensex was down by only 0.5%. The trading volumes for the stock surged over 10-fold, with a total of 17.06 million shares changing hands on the NSE and BSE, representing 4.7% of the company’s total equity.
In terms of financial performance, for the April to June quarter (Q1FY25), Aarti Industries reported a 31% year-on-year increase in revenue from operations, reaching Rs 1,848 crore. The company also saw a 5% quarter-on-quarter growth, driven by a 6% increase in volumes compared to the previous quarter. Profit after tax rose by 3.8% quarter-on-quarter and 95.7% year-on-year to Rs 137 crore. The EBITDA margin improved to 16.5%, up by 50 basis points from the previous year.
Despite these positive financial results, the management highlighted challenges such as pricing pressures and supply chain issues, as well as global challenges stemming from overcapacity in China. The company expects 20-30% volume growth in FY25, but margins are likely to remain under pressure due to continued dumping from China and price increases in key raw materials like benzene and aniline.
Analysts at Prabhudas Lilladher noted that while some volume-led growth is anticipated in the near term, pricing pressures are expected to persist. The suspension of FY2025 EBITDA guidance due to margin volatility and pressure was seen as a surprise by analysts at Kotak Institutional Equities. They also pointed out the uncertainty surrounding aniline prices and the lack of guidance for Q2FY25.
In conclusion, analysts expressed concerns about the company’s high valuations, limited visibility, intense competition from China, and potential project ramp-up issues. They maintained a ‚SELL‘ rating on the stock with a revised fair value of Rs 470. Despite the challenges ahead, Aarti Industries continues to aim for a 20-25% earnings CAGR over the next five years, contingent on various factors including demand, competition, and commissioning timelines.