Next Business No 5 – Aarti Industries

“Sleeping Giant ,Will Come out with Flying Colours In FY26”

Company Corrected 50% Peak in last 2 years and now started forming Base

Largest producer of Nitro-Chlorobenzene, Benzene and Lowest cost producer of benzene in the world and have diverse portfolio of basic chemicals, agrochemicals, speciality chemicals and intermediates, which are extensively used in the manufacture of pharmaceuticals, agri-products, polymers, additives, pigments and dyes.

Multiple Long-Term Contract during FY17-FY19 Mfg Outsourcing, Product development and these contracts are under ramp up and can add 1000 Cr Sales and all contract are at less utilisation level

Agro chemical division business facing downturn nearly 30% Down overall

Benzene Price Volatility leads to inventory losses which is likely to cool off now.

Capex Guidelines Rs 3000 Cr for next 2 Years 50% for existing products and rest for the new product.

Chlorotoluene in Jaghadia India with Integrated Operation chain and will have 20% of the Global Capacity and whatever capacity they have built will be at 70%-90% Capacity Utilisation level by FY24 End.

Company Business into B2B and having Shallow Cyclical in nature leads to ups and down in the operating margin and overall growth in every 2-3 Years

Thesis

· Company has Given Guidance Earnings to 3X By FY27 on FY21 As Benchmark based on above expansion and product mix with higher value-added products

· Company have been maintaining CFO/EBITDA Above 75% despite B2B business Model

· Company has Big Marquie Clients recognised Globally

· Company has Strong management with Technical Know How >30 Years

· Company will be able to take benefit of operating Leverage in few years

Anti-Thesis

· From the current Outlook company seems to sleep more at least for next 1 Year

· Company debt will mount and Deprecation too may lead to poor earnings for next 1year Minimum

· How company able to pay such debt to be Noticed

· How Orderbook of the Company at Current stage and going forward

· Over Capacity and if China starts dumping company may suffer

Dis: No Buy/Sell Rico*

I feel it is more procedural and matter of few more weeks now ( Mgmt wanted to complete it before end of Q3 ) . Even if we account for another three months and make it end of Q4 , a 20% discount at current valuations looks attractive .

I feel that Ujjivan Bank itself would be a strong buy with yesterday’s election results . Considering it has one of the largest MFI books in Small Finance banks , unless we see signs of stress in portfolio . Considering their Provisioning levels , they seems to have create sufficient buffers for any stresses .

Wasn’t it Amit Shah who promised people of Chattisgarh that NMDC Steel Nagarnar plant will not be privatised?

I really hope this is one of those promises that are only meant for election time.

Can we please add a screener to filter companies if it does concalls or not? helps to avoid micro caps that have very little public information available.