Target: ₹500

CMP: ₹468.70

Aarti Industries’ (ARTO) Q4-FY25 EBITDA came in a tad better than our and consensus estimates led by volume led performance (17 per cent y-o-y) across key verticals. Pricing pressure across the key value chains continued. The management commentary on volume trajectory across energy as well as non-energy end-user verticals was encouraging.

While the management has maintained its 3-year guidance (₹1,800-₹2,200 crore by FY28), it did not share expectations for FY26 amid global uncertainty and too many moving variables. We believe that an improved volume momentum (led by restocking and a favourable base) should enable ARTO to report about 21 per cent y-o-y EBITDA growth in FY26.

Operating leverage gains should offset the impact of negative pricing incrementally, in our view. ARTO’s EBITDA over the last seven years (FY19-25) has been hovering around ₹1,000 crore, despite incurring a cumulative capex of ₹8,500 crore.

While the multiple ‘ifs and buts’ still remain, ARTO is finally focusing on the controllables such as cutting capex, prudent capital allocation and implementing cost rationalisation measures.

We resume coverage on ARTO with ADD rating by valuing it at 25x PE on FY27E EPS. While we don’t expect the return ratio and margin profile to revert to old normal in the near term, trajectory should improve going ahead.

Published on May 12, 2025