Accumulate Aarti Industries; target of Rs 476: Prabhudas Lilladher

What happened

Prabhudas Lilladher maintained its Accumulate rating on Aarti Industries with a target price of Rs 476. Aarti Industries reported Q2FY27 revenue of Rs36.7bn, up 75% YoY, and EBITDA of Rs4.1bn, up 41% YoY.

Confirmed

Global impact / market context

The broker expects improving factory use and new growth projects to lift profit over time. Its Rs 476 target values the stock at 21x Sep'28 earnings per share, which means 21 times expected profit, while the shares now trade at 17x FY29 earnings.

Analyst inference

Revenue jumped on higher sales volumes and passing through costly raw materials, while profit grew slower because those input costs rose. Energy results benefited from high crude oil prices and wider gasoline-naphtha cracks, which means the profit gap between these two fuels. Chinese dumping kept pressuring PDA.

Analyst inference

What to watch

1. Management expects current business momentum to continue, helped by improving demand, the ramp-up of newly commissioned Zone IV facilities, and the execution of upcoming long-term contracts, according to the report. Confirmed
2. Watch working capital, which means cash tied up in inventory and receivables, because higher requirements and potential inventory losses could strain cash available, while Chinese dumping pressure on PDA could weigh on profit per sale. Analyst inference
3. Watch whether improving capacity utilization, meaning more of existing plant capacity is used, plus commissioning of growth projects, delivers the medium-term earnings growth the broker expects to justify its Accumulate rating and Rs 476 target. Proposed

Evidence

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