Axis Securities, in its latest analysis, designates Aarti Drugs as the ‘Top Pick of the Week,’ underlining four compelling reasons for a ‘buy’ recommendation with a target price of ₹528, indicating a potential 10% upside from its current market value of ₹480.30.
Aarti Drugs: A Pharmaceutical Powerhouse
Aarti Drugs, a prominent player in APIs, Pharma Intermediates, and Specialty Chemicals, is part of the Aarti Group, boasting a robust net worth of $900 million. With an extensive portfolio of over 50 compounds covering various therapeutic categories, the company stands out as a market leader in APIs.
Financial Snapshot and Stock Trends
While Aarti Drugs has experienced a 6.5% gain in the past year and a 9% surge in 2023 YTD, the stock’s performance has varied throughout the year. Positive returns were recorded in five out of eleven months, with notable gains in July. Currently trading at ₹480.30, the stock is positioned approximately 25% below its 52-week high of ₹645.00, achieved in July 2023.
Earnings Overview
In the September quarter, Aarti Drugs reported a net profit decrease of over 5% to ₹34.58 crore, accompanied by an 8% decline in revenue to ₹577.54 crore. The EBITDA also contracted by approximately 6% to ₹66.16 crore during the same period.
Investment Rationale
- Diversification into Anti-Diabetic and Specialty Chemicals: Aarti Drugs has expanded its capacities in anti-diabetics and specialty chemicals, anticipating an incremental revenue boost of ₹400 crore to ₹500 crore over the next three years. The recent launch of Chlorosulphonation in Q2FY24 has already contributed to this growth.
- Robust Capex Plans: The company’s strategic capex of ₹315 crore over the last two years, focused on capacity expansion, backward integration, and new product launches, positions it for further revenue growth. Tarapur Greenfield Capex for dermatology and specialty chemicals, scheduled to commence operations in Q4FY24 and Q2FY25, respectively, is expected to contribute to FY24 revenue.
- Emphasis on Specialty Chemicals: Despite weak demand visibility and the impact of campaign-based specialty products, Axis emphasizes Aarti Drugs’ commitment to the specialty chemicals segment. Some spillover of execution of campaign-based products is expected into the next quarter.
- Industry Outlook: Axis anticipates sustained demand for APIs in the coming quarters, driven by eased supply-chain bottlenecks. Increased volumes, a decline in solvent prices, and operating leverage are poised to improve EBITDA margins. As a leader in the domestic industry, Aarti Drugs is positioned to capitalize on these opportunities.
Axis Securities’ endorsement positions Aarti Drugs as a compelling investment, with the brokerage projecting favorable prospects in the pharmaceutical landscape.
