India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/6583" target="_blank" data-smartkarma-citation="entities:6583:1">Aarti Industries Limited (ARTO IN)</a> (Aarti) is a manufacturer of speciality chemicals with an integrated value chain.  Aarti is involved in Benzene- based chemical production and intermediate chemical products. Aarti works into 3 segments: 1) Specialty Chemical, 2) Pharmaceutical and 3) Homecare segment.We are positive about the stock because:<ul><li>The diversified product portfolio of Aarti with multiple products and multiple segments helps to reduce the risk of dependence on any single product or segment.</li></ul><ul><li>Aarti focuses on high margin products. The Nitro- toluene &amp; its derivatives and Ethylation unit would help to improve its margins as these are the high margin products. Aarti is also focusing on more value-added products under the speciality chemicals. It has signed two multi-year contracts which are likely high margin businesses.</li></ul><ul><li>Capacity expansion (CapEx) will boost the growth of Aarti. The CapEx by the company is undertaken to gain from the opportunities emerging from its product portfolios, shutdowns in developed markets and reduction of supplies from China due to its slowdown. This CapEx would help Aarti in the enhancement of existing capacities and add more value to the product chain. We believe the ongoing CapEx would ensure sustained growth for Aarti.</li></ul><ul><li>We expect the EBITDA margins to be stable at 18- 19% in FY19E and FY20E with a gradual improvement from FY20E on the back of stabilised raw material prices and revenues from the high margin Multi-year contracts. We see ROE at 25.0% and ROCE at 24.7% in FY20E from the current levels of 22.0% and 22.6% respectively.</li></ul><ul><li>Global leadership, CapEx commencement of high margin segment/ contracts and the slowdown in China will likely trigger growth for Aarti.</li></ul><ul><li>We initiate coverage on Aarti with a fair value objective of Rs. 1,480/-. This represents a potential return of 18% from its current price of Rs. 1,253. We arrive at the fair value by applying PE multiple of 22x to March 20E EPS of Rs. 67.3.</li></ul><table class="table table-striped"><tbody><tr><td></td><td style="text-align: center;">FY17</td><td style="text-align: center;">FY18</td><td style="text-align: center;">FY19E</td><td style="text-align: center;">FY20E</td></tr><tr><td>P/E(x)</td><td style="text-align: center;">32.9</td><td style="text-align: center;">31.8</td><td style="text-align: center;">23.9</td><td style="text-align: center;">18.3</td></tr><tr><td>ROE (%)</td><td style="text-align: center;">25.5</td><td style="text-align: center;">22.4</td><td style="text-align: center;">24.6</td><td style="text-align: center;">25.5</td></tr><tr><td>ROCE (%)</td><td style="text-align: center;">24.4</td><td style="text-align: center;">22.6</td><td style="text-align: center;">23.6</td><td style="text-align: center;">24.7</td></tr></tbody></table><div style="text-align: center;" class="content-caption">Source: Aarti Industries Annual report FY17, Trivikram Consultants Research as on 14-06-2018</div>

Aarti Industries Limited (ARTO IN) (Aarti) is a manufacturer of speciality chemicals with an integrated value chain.  Aarti is involved in Benzene- based chemical production and intermediate chemical products. Aarti works into 3 segments: 1) Specialty Chemical, 2) Pharmaceutical and 3) Homecare segment.We are positive about the stock because:The diversified product portfolio of Aarti with multiple products and multiple segments helps to reduce the risk of dependence on any single product or segment.Aarti focuses on high margin products. The Nitro- toluene &amp; its derivatives and Ethylation unit would help to improve its margins as these are the high margin products. Aarti is also focusing on more value-added products under the speciality chemicals. It has signed two multi-year contracts which are likely high margin businesses.Capacity expansion (CapEx) will boost the growth of Aarti. The CapEx by the company is undertaken to gain from the opportunities emerging from its product portfolios, shutdowns in developed markets and reduction of supplies from China due to its slowdown. This CapEx would help Aarti in the enhancement of existing capacities and add more value to the product chain. We believe the ongoing CapEx would ensure sustained growth for Aarti.We expect the EBITDA margins to be stable at 18- 19% in FY19E and FY20E with a gradual improvement from FY20E on the back of stabilised raw material prices and revenues from the high margin Multi-year contracts. We see ROE at 25.0% and ROCE at 24.7% in FY20E from the current levels of 22.0% and 22.6% respectively.Global leadership, CapEx commencement of high margin segment/ contracts and the slowdown in China will likely trigger growth for Aarti.We initiate coverage on Aarti with a fair value objective of Rs. 1,480/-. This represents a potential return of 18% from its current price of Rs. 1,253. We arrive at the fair value by applying PE multiple of 22x to March 20E EPS of Rs. 67.3.FY17FY18FY19EFY20EP/E(x)32.931.823.918.3ROE (%)25.522.424.625.5ROCE (%)24.422.623.624.7Source: Aarti Industries Annual report FY17, Trivikram Consultants Research as on 14-06-2018

Aarti Industries- Built by Benzene Derivatives, to Grow by Contract Manufacturing