Aether Industries has market leadership in products with INR 37.5bn opportunity size: HDFC Sec

Composite of competencies

Aether Industries Ltd has a technology-oriented business model and it sells innovations in chemistries and technologies. Competencies in eight chemistries and eight technologies has enabled the company to successfully build all three of its business verticals—large-scale manufacturing, contract manufacturing and contract research and manufacturing services (CRAMS)—in less than six years of operation. The company is more than doubling its manufacturing capacity by CY23 end. Augmentation of capacity will not only allow it to fulfil the demand of the existing and potential customers for existing products, but also provide an opportunity to launch new products.

Aether’s business model compels it to regularly launch products and add competencies. It is tripling its research and development (R&D) infrastructure and strengthening its team size. Capacity addition and strengthening of R&D infrastructure will support its growth pace. We expect EBITDA and PAT CAGRs of 43/45% over FY22-25E. We initiate coverage on Aether Industries Ltd with a BUY and target price of INR 1,045 (WACC 11%, terminal growth 6%). The stock is trading at 40.7x on FY24E EPS.

Market leadership in products with INR 37.5bn opportunity size in CY25 In the eight major products that contributed ~75% to the revenue in FY22, Aether is a market leader globally for four products and the second-largest producer globally for two products. The company has achieved these market positions by developing differentiated processes with the use of its core competencies of chemistry and technology. The market opportunity for eight of their major products is INR 37.5bn in CY25. We believe, owing to its market leadership position in these products, the company is well-positioned to capitalise on market opportunities.

Long-standing relationships with marquee customers Aether has a loyal customer base of over 188 multinational, regional and domestic pharmaceutical, agrochemical, material science, oil & gas and textile companies. Top-20 customers contributed ~73% to the total revenue in FY22 having a relationship in excess of five years with 70% of customers. These enduring customer relationships have helped Aether expand its product offerings and geographic reach.