Taking Steps to Recoup Growth; Maintain BUY
Est. Vs. Actual for Q2FY26: Revenue: BEAT; EBITDA: BEAT; PAT: BEAT
Changes in Estimates post Q2FY26
FY26E/FY27E: Revenue: 0%/0%; EBITDA: -5%/-3%; PAT: -1%/-1%
Recommendation Rationale
• Robust Volume Growth and Margin Rebound: Aarti Industries delivered a strong performance in Q2FY26, with revenue up 29% YoY, driven by higher volumes—particularly in the MMA business—and the recognition of bulk shipments deferred from Q1. The energy segment reported an impressive 118% YoY volume growth, while the non-energy segment grew 17% YoY, indicating a broad-based recovery across end markets. EBITDA margin improved to 14%, supported by operating leverage from higher capacity utilization.
• De-risking Through Geographic Expansion: Despite headwinds from US tariffs, AIL delivered healthy growth driven by diversification of its product portfolio and regional rebalancing. The company continues to strengthen its presence across Europe, the Middle East, and Africa, while refining its US market strategy to maintain long-term competitiveness. Management reiterated confidence in achieving its FY28 EBITDA targets, supported by volume growth, cost optimization, operating efficiency, and the commissioning of ongoing capex projects.
• Gradual Capacity Enhancement Through Disciplined Capex: During Q2FY26, the company incurred capex of Rs 267 Cr, primarily directed toward ongoing expansion initiatives. Execution at Zone-4 projects remains on schedule, with multiple projects planned for commissioning in a phased manner over the next one and a half years. These strategic expansions will be undertaken selectively and are expected to strengthen integration, enhance product diversification, and support margin sustainability.
Sector Outlook: Cautiously Optimistic
Company Outlook & Guidance: The company is actively expanding its product portfolio to enhance diversity and improve capacity utilization. Simultaneously, AIL is progressing with backward integration into select downstream products to support margin expansion. Going forward, it intends to execute its growth strategy in a measured and disciplined manner, with planned capex of less than Rs 1,000 Cr for FY26. As the global demand environment stabilizes, AIL is wellpositioned to benefit from the next phase of recovery, driven by improved operating leverage and innovation in high-value chemistries. The company continues to target an annual EBITDA range of Rs 1,800–2,200 Cr by FY28.
Current Valuation: 23x Sept’27E (25x FY27E)
Current TP: Rs 530/share (Earlier TP: Rs 525/share).
Recommendation: We maintain our BUY rating on the stock with a revised target price of Rs 530/share, implying a 38% upside from the CMP.
Financial Performance: AIL’s performance exceeded expectations across all parameters. Revenue stood at Rs 2,100 Cr, up 29% YoY and 25% QoQ, surpassing estimates by 16%. EBITDA came in at Rs 291 Cr, up 48% YoY and 37% QoQ, beating estimates by 21%. EBITDA margin improved to 13.9%, compared to 12% in Q2FY25 and 12.7% in Q1FY26. PAT stood at Rs 106 Cr, significantly up 112% YoY and 147% QoQ, driven by improved operating leverage and the impact of exceptional items (Rs 22 Cr related to tax relief and advance payment provision), outperforming the estimated Rs 63 Cr.
Aarti Industries Ltd – Q2FY26 Result Update – 10112025_10-11-2025_08
