• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Alagappan Arunachalam

SHAREHOLDERS can retain their holdings in the stock of Aarti Industries, which trades at a price-earnings multiple of close to nine times its trailing 12-month earnings. Though the company's margins have been under pressure from the rising input prices, the profit growth has been robust on the back of healthy volume growth. While the revenue growth had slowed down in the previous years, it has picked up in the third quarter of this fiscal.

Aarti Industries is among the larger manufacturers in the domestic benzene derivatives market and has a presence in the global intermediate chemicals markets. It is the market leader in benzene derivatives, with more than 50 per cent market share. It has a diversified end-user profile across sectors such as pharmaceuticals, dyes and pigments, surfactants, speciality chemical, agrochemicals and intermediates.

The company derives economies of scale from its large installed capacities for nitro and chloro-benzene derivatives and makes a wide range of value-added downstream products.

Aarti Industries manufactures intermediates and derivatives of organic chemicals and inorganic acids. Its organic chemicals division, which makes benzene intermediates and downstream products, accounts for nearly 90 per cent of its revenues. The acid (sulphuric acid and its derivatives) and agrochemical divisions account for the rest of its revenues. Aarti Industries commissioned its sulphuric acid expansion project and a captive generation plant last fiscal, and is expanding its nitro-chloro-benzene facilities. The expansion has aided the revenue growth announced for the last few quarters.

The diversified portfolio of end-users insulates Aarti Industries from the downturns in any one. The prospects of the chemical industry, in general, depend on the economy's performance, Aarti Industries, by virtue of its scale and its operating performance compared to its peers, would stand to gain.

Raw materials account for nearly 70 per cent of the company's manufacturing costs. Benzene accounts for one-third of this, its prices are prone to fluctuations as it is a derivative of crude oil.

While the prices of crude oil have been rising, Aarti Industries has not been able to pass on the entire impact to its customers. Although revenue and earnings have continued to grow, an increased deployment in inventories and other current assets has cut into its operating cash flows.

Aarti Industries proposes to merge with itself two of its sick subsidiaries — Aarti Healthcare and Avinash Drugs. These are relatively small in relation to the parent company. Aarti Industries in early February had announced a bonus issue of 2:1.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Open offer for ACC: Accept; Buy at lower levels

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line