Aarti Industries shares fall 10% to 4-year low as Q2 profit drops 43% YoY | Stock Market News

Stock Market Today: Shares of Aarti Industries, the flagship company of the Aarti Group, tumbled 10% to ₹427 per share, hitting a 4-year low in trade on Monday, November 11. This decline followed the company’s disastrous performance in the September quarter, with both net profit and EBITDA reaching multi-quarter lows, impacted by a sharp rise in operating expenses and weak performance in the energy segment.

The company posted a net profit of ₹51 crore, marking a significant 42% year-on-year (YoY) drop compared to a net profit of ₹90 crore in the same quarter last year and ₹137 crore in the June-ending quarter (Q1FY25).

Revenue grew by 12% YoY to ₹1,628 crore, up from ₹1,454 crore in the previous year. However, EBITDA fell sharply by 13.3% YoY and 35.9% quarter-on-quarter (QoQ), totalling ₹202 crore. EBITDA margins contracted by 400 basis points YoY to 12%.

In Q2, except for the energy segment, Aarti experienced healthy growth across other segments, with overall volume growth of 22% YoY and 11% QoQ. Volume upticks were observed in end applications such as dyes, pigments, and polymer additives, while the agrochemicals segment continued to show weakness.

However, the energy business saw a volume decline of 1% QoQ and 36% YoY due to lower gasoline-naphtha cracks, and MMA volumes plummeted by around 35% QoQ, impacting overall performance.

The company expects the gasoline-naphtha delta to remain low in Q3, with a potential recovery in Q4 driven by USA summer specifications and demand. Although a few Chinese and Indian players have started manufacturing MMA, current capacities are still relatively smaller compared to those of Aarti Industries.

Overall, margin pressure was also observed in some segments due to new capacities from China, leading to uncompetitive pricing. Taking note of the ongoing margin pressure on its key product and limited relief in the near term, the management has also provided a conservative EBITDA guidance of ₹1,800–2,200 crore by FY28. Management also lowered its FY25E/FY26E capex guidance to ₹1,300-1,500 crore/ ₹1,000 crore.

“Entire swing was due to subdued demand for its flagship product, Mono Methyl Aniline (MMA/NMA), volumes of which were lower 35% QoQ, impacted by lower Gasoline-Naphtha cracks. However, excluding the energy business segment (MMA, CaCl2), volume uptick was healthy with 22% YoY and 11% QoQ growth,” said domestic brokerage firm Centrum Broking.

The brokerage said that the company has been facing competition in some of its products due to new capacity additions in China and is trying to move up the value chain for such products. Outlining a new strategy under its new professional leadership, the management rolled out a new growth roadmap with FY28E EBITDA guidance of Rs18-22bn, Debt/EBITDA less than 2.5x, and RoCE of more than 15%.

Analysts slash target price

Amid near-term concerns, Centrum Broking has downgraded its rating on the stock to ‘Sell’ from the previous ‘Reduce’ and cut its target price to ₹443 per share, down from ₹730. The brokerage revised Aarti Industries’ FY25E and FY26E EBITDA estimates downward by 35.9% and 30.3%, respectively, to ₹960 crore and ₹1,290 crore.

Nuvama Institutional Equities highlighted weak margin performance as the main drag on Aarti Industries’ quarterly earnings. The brokerage noted that the company’s Q2 FY25 results were negatively impacted by a sharp decline in the margins of its key product—MMA—and lower utilisation.

Nuvama also cut its target price to ₹600 per share while maintaining a ‘Hold’ rating on the stock.

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