1 JULY 2016
SECTOR: CHEMICALS
Aarti Industries Limited
BSE SENSEX
27,144.91
S&P CNX
8,328.35
(INR CRORES)
CMP: INR526 TP: INR630 (+20%)
Buy
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
BV/share
Core ROE (%)
Core ROCE (%)
P/E (x)
P/BV (x)
FY16
2,729
572
21.0%
257
29.0
25%
134
24
18
18.1
4.0
FY17E
3,150
670
21.3%
317
35.8
23%
162
26
18
14.7
3.3
FY18E
3,622
758
20.9%
378
42.7
19%
197
25
19
12.3
2.7
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
Past 3 yrs Sales Growth (%)
Past 3 yrs NP Growth (%)
8.3
4,416
651.90
9%
25%
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of 31st March 2016)
Promoter
Institutions
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
587/331
54.8
15.7
29.5
36941
1.85
1/-1/60
2/1/56
We recommend to BUY Aarti Industries for a target of INR
630- valuing the company on SOTP basis.
Geared for growth with global leadership in Speciality
Chemicals:
AIL has a strong understanding of chlorine derivative
chemistry and has the largest nitro-chlorobenzene capacity in India at
60,000 tonnes per annum. Exports account for 51% of speciality
chemicals division. It offers over 100+ products to MNCs
globally(globally ranks 1st -5th for most of its key products) having
end-user applications in polymers, additives, pigments, paints, dyes,
agro chemicals, etc to 800+ clients. It has a "Strategic Supplier" status
with many MNCs due to its wider product portfolio, cost
competitiveness and ability to supply consistently. The Indian Speciality
Chemical Industry is expected to reach $60-70bn by 2020 from $23bn
in 20131. Aarti Industries should gain from this growth given its strong
customer linkages and command over Chlorine chemistry.
Capex to lead to revenue growth as well as margin expansion:
The company is looking to expand capacities across benzene, toluene
& ethylene, and nitro toluene based value chain with a capex of ~INR
500cr over the next 3yrs (~asset turnover of 3-4 times) to cater growing
end-user markets and space vacated by closing down of few capacities
in developed markets & reduced global supplies from China. The
company is expected to have firm off-take commitments from global
agrochemical majors for exclusive supply. The addition of value added
products will further aid in margin expansion over the next 3yrs.
Pharma business to growth driver (to grow at 20% CAGR over
next 2-3 years):
Pharma is a high-margin and potential high-growth
business in a nascent stage. Most of the investment in pharma facilities
is already complete and the segment broke even in FY12. Now,
incremental volumes would only contribute to expansion in segment
margins and ROE.
Valuations & View:
Aarti Industries is a high quality proxy play two
key emerging trends: (1) rising demand for specialty chemicals in India
(15% CAGR FY15-FY20E) and (2) eastward migration of global
chemical manufacturing (Asia to have 70% production share by 2030).
We expect EBIT/Ton to improve in Speciality Chemicals segments
due to benefits of operating leverage and better product mix. The
company is setting up capacities for different chemistries which gives
us visibility of volume growth for the next three years. We expect the
company to grow its profits at 21% CAGR over FY16-17E and improve
its ROCE from 17% in FY15 to 19% in FY18E. We value the company
at 15x FY18E EPS at INR 630 providing for an upside of 20%
Dharmesh Kant (Dharmesh.Kant@motilaloswal.com); Tel: +91 22 30102470 (Earlier Covered by: Ravi Shenoy)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Aarti Industries Limited
INVESTMENT CONCERNS
High sensitivity to currency movement:
AIL's exports accounted for ~50% for FY16 revenue expose
AIL to risk of foreign exchange fluctuations. A significant appreciation of INR against USD also poses a risk
to AIL's competitiveness in global markets.
Benzene prices (short term risk):
Though AIL works on a cost plus basis model in its speciality chemical
segment, any significant fluctuation in benzene prices will affect profitability in the short term. Further, any
significant increase in benzene prices will increase the working capital requirement for the business funded by
short term debt, leading to increase in interest outgo and decline in profitability.
Demergers postponed:
While expectation was for the demerger to be announced this quarter, AIL has
postponed its plans to demerge its 3 segments as it wants to see further improvement in pharma and home &
personal care segments.
Company background:
Aarti Industries manufactures speciality chemicals, pharmaceuticals drugs (API's), and home & personal care
chemicals. Mr. Rajendra Gogri (MS Chemical Engineering) is the Chairman & Managing Director of the
company. The company has 10 manufacturing units for the speciality chemicals division, 4 units for the
pharmaceutical division, and 2 units for the home& personal care division. The group has a strong market
position in the benzene-based specialty chemicals segment. It also has a full-fledged research and development
centre, recognised by the Department of Scientifiand Industrial Research, Government of India.
INRCr
Total Income
Expenditure
EBITDA
Other Income
Interest
Depreciation
PBT
Tax
P\L of Associates
Adj. PAT
EBITDA (%)
Tax rate (%)
4QFY15
677
556
121
0
32
21
69
17
0
52
18.2%
24%
3QFY16
679
547
132
1
28
23
82
20
0
62
19.7%
24%
4QFY16
699
562
137
8
28
25
91
22
0
70
19.9%
24%
33.9%
11.8%
-11%
22%
33%
3%
11%
11%
yoy
3.1%
1%
12.8%
qoq
2.9%
3%
4%
Quarterly Performance
Speciality chemicals: Revenues were up by 3.1% YoY, however volumes remained flat OoQowing to
issues concerning availability of nitric acid . (mainly hit by the prevalent drought conditions). Hence, NCB
volumes fell to 12,460 tonnes versus 16,400 tonnes in Q3FY16. Similarly, run-rate of hydrogenation volumes
also decelerated. Despite this, higher volumes of other products saw EBIT rise by 15% YoY to INR1.2bn.
Volumes for the year increased by ~10% YoY with guidance of 15% YoY growth for FY17. Average benzene
price was INR 40.3/kg in Q4FY16 v/s Rs 44/kg in Q3 FY16 and current prices is ~INR 45/kg. Spend in FY17
is expected to be INR4bn. This year, AIL will spend on second phase of PDA, calcium chloride unit and
ethylene unit. The company expects this to be commissioned by Q1FY17.
Pharma & Home & personal segment: Pharma segment had a strong quarter clocking 47% YoY growth to
INR1.2bn, highest in past many quarters. Management had guided for 20% QoQ growth, but the segment
delivered a superior 35% QoQ growth. This was driven by robust performance by both API/intermediates and
caffeine. Home & personal care segment reported another disappointing quarter again.
1 July 2016
2

Aarti Industries Limited
IVRCL: Financials and Valuation
Aarti Industries Limited Financials & Valuation
INCOME STATEMENT
Y/E MARCH
FY14
FY15
(INRCR)
FY16 FY17E FY18E
RATIOS
Y/E MARCH
FY14
FY15
FY16 FY17E FY18E
Net sales
Growth
COGS
Employee Cost
Other Expenses
EBITDA
EBITDA Margin
Depreciation
Other Income
Interest Cost
PBT
Tax
Rate
Adjusted PAT
Growth
PAT Margin
2,598 2,861 2,729 3,150 3,622
24%
1,685
79
467
402
89
11
118
206
54
26%
162
23%
10%
94
516
466
82
6
138
251
61
205
26%
-5%
121
565
572
99
6
117
363
95
257
25%
15%
142
605
670
124
10
127
429
112
317
23%
15%
2,057
109
634
758
138
11
120
511
133
378
19%
1,832 1,522 1,789
Adjusted EPS (INR)
Book Value
Div Per Share
Dividend Payout
Net Debt / Equity
P/E
P/BV
Dividend Yield
EV/EBITDA
ROCE
ROE
Debtor days
Inventory days
Creditor days
W.Cap cycle
18.3
98
4.7
26%
1.1
28.7
5.4
0.9%
14.0
18%
20%
62
126
80
108
23.1
115
5.5
24%
1.0
227
4.6
1.0%
12.3
17%
22%
56
103
50
110
29.0
134
7.1
24%
1.1
18.1
4.0
1.3%
9.9
18%
24%
70
119
73
116
35.8
162
8.0
22%
0.9
14.7
3.3
1.5%
8.3
18%
26%
60
105
63
102
42.7
197
9.1
21%
0.8
12.3
2.7
1.7%
7.4
19%
25%
60
105
57
108
15.5% 16.3% 21.0% 21.3% 20.9%
24% 26.1% 26.0% 26.0%
6.2% 7.2% 9.4%10.1%10.4%
BALANCE SHEET
Y/E MARCH
FY14
FY15
(INRCR)
FY16 FY17E FY18E
CASH FLOW
(INRCR)
FY14
FY15
FY16 FY17E FY18E
Y/E MARCH
Share Capital
Reserves
Networth
Minority interest
Loans
Less Net Def. Tax Liab
44
826
44
972
42
42
42
1,073 1,310 1,597
1,114 1,352 1,639
52
63
75
1,308 1,283 1,283
127 127 127
308 308 308
2,910 3,133 3,433
1,399 1,656 1,822
160 160 160
495
523
29
134
18
0
515
518
75
123
16
0
592
595
39
130
18
0
871 1,016
4
6
942
85
1,068
103
Less other long term liability 7
306
SOURCES OF FUNDS 1,909 2,498
Net Fixed Assets
Capital WIP
Inventories
Debtors
Cash & Investments
Loans & Advances
Other Curr Assets
Current investments
Curr. Assets
Creditors and Prov.
Net Current Assets
Other LT Assets
826
117
606
443
15
131
30
0
1,225
761
464
502
967
193
552
439
34
141
32
0
1,198
439
758
581
NI
Adjustments
(Inc)/Dec in W.Cap
Others
Pre Tax OCF
Tax Paid
CF from Operations
(Inc)/Dec in FA
Net investments
Others
CF from Investing act.
206
196
(92)
59
369
(54)
315
251
215
(72)
6
401
(61)
339
363 429 511
215 247 253
(0) (75) (144)
0 135
33
578 736 653
(95) (112) (133)
483 624 520
(288) (295) (531) (299) (304)
(4)
(4) 121
0
0
1
1
0
0
0
(291) (298) (410) (299) (304)
1,200 1,246 1,375
342 421 417
858
493
825
493
958
493
Equity issuance/ Share buy back0
0
0
0
0
Inc/(Dec) in Debt
138
163 100 (75) (50)
Interest Paid
(116) (138) (117) (127) (120)
Divd Paid (incl Tax)
(42)
(49) (59) (67) (76)
Others
(2)
1
(6)
(6)
(6)
CF from Financing act.
(22) (23) (82) (275) (251)
Inc/(Dec) in Cash
2
19
(9)
50 (35)
Add: Opening Balance
12
15
34
25
75
Closing Balance
15
34
25
75
39
APPLICATION OF FUND 1,909 2,499 2,910 3,133 3,433
1 July 2016
3

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