Aarti Industries - Margins Improve; Result Update Q2FY15 :: Edelweiss report link

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Aarti Industries’ (AIL) Q2FY15 revenue of INR7,612mn (up 18% YoY) was 3.3% lower than our INR7,783mn estimate. However, EBITDA at INR1,292mn surpassed our forecast by 3% as the company reported improved EBITDA margin of 16% (100bps higher than our estimate) due to improvement in Pharma margins and rise in volumes (~15% YoY). The improvement in margins led to reported net profit of INR507mn (up 20% YoY), 12% higher than our estimate. AIL’s PAT margin at 6.7% (up 106bps QoQ, flat YoY) also surpassed our 5.7% estimate riding improved operating metrics. Though finance cost at INR359mn surged by 30% YoY, it fell 5% QoQ due to higher share of low cost forex borrowings.

Specialty chemicals continue to dominate show

The specialty chemicals segment continued to dominate with 82% revenue share (83.2% in Q2FY14) and 89% EBIT share (85.7% in Q2FY14). Revenue for the segment was flat at INR 6,249mn even as volumes grew 15-20% YoY. The segment reported EBIT of INR 1,041mn up 26% YoY with EBIT margin at 16.7% up 120bps YoY. The improvement in the margins was due to drop in benzene prices during second half of Q2FY15. During Q3FY15, we expect full impact of low Benzene prices to lead to muted revenue growth, However, since AIL sales’ is largely volume-based, we expect Q3FY15 EBITDA margins to increase further.

Pharmaceuticals growth key positive

Though Pharma segment’s revenue share remained flat at 10% QoQ, its EBIT share increased 477bps QoQ to 11%. The segment reported EBIT of INR125mn (up 6% YoY) with an EBIT margin of 15.7%. The EBIT margin was up 650bps QoQ and has further upside as AIL improves its product mix.

LINK

https://www.edelweiss.in/research/Aarti-Industries--Margins-Improve;-Result-Update-Q2FY15/27511.html