When investors were struggling to generate alpha during 2018, stock Aarti Industries was busy in hitting ball out of ground.Shares of company, which is engaged in business of specialty chemicals (78 per cent of revenue), pharmaceuticals (15 per cent) and home personal care (7 per cent), rallied 27 per cent last year.
The stock is again hogging limelight as several brokerages have picked midcap stock for their model portfolios for 2019.The stock has multiplied investors wealth by 45 times in last 10 years.
An investment of Rs 10,000 made on January 1, 2009 in stock would have become Rs 4,50,000 on December 31, 2018.Brokerage firm Axis Securities has recommended Aarti Industries as its New Year pick with a target price of Rs 1,740.
Capacity expansion and growing demand to drive revenues; new toluene business will attain optimum utilisation in two years, and multi-year deals will ensure revenue visibility.
Chinas crackdown on polluting businesses will also be favourable for company, brokerage said.In its annual report for 2017-18, Aarti Industries said chemicals industry has been undergoing some tectonic shifts globally.
Indian companies focussed on speciality chemicals with better compliance standards are expected to be major beneficiaries of growing trend of easternisation and reduction of capacities in China on environmental concerns.
This will give us exciting growth opportunities, it said.The companys top line, as well as bottom line, grew at a compounded annual growth rate (CAGR) of 16 per cent and 24 per cent, respectively, in last 10 years.
Axis Securities has projected a profit after tax (PAT) of Rs 455 crore and Rs 569 crore for FY19 and FY20.
It reported a PAT of Rs 333 crore in FY18.
The brokerage believes companys return on equity (RoE) may jump to 25 per cent in FY19 from 23 per cent in FY18.
However, it predicted a RoE of 24 per cent for FY20.Aarti Industries is among top picks of Sharekhan for 2019.Incorporated in 1984, company is one of largest producers of benzene-based derivatives in India.
It has 17 manufacturing plants, sells over 200 products and exports to more than 60 countries, which bring in around 45 per cent of revenues.
During FY18, Aarti Industries announced demerger of its home and personal care business segment into a separate entity to be held by existing shareholders, subject to court approval.
The company expects demerger process to be completed during FY19.Analysts say demerger will help company release capital deployed in unrelated business and focus more on core business, i.e.
speciality chemicals and pharmaceuticals.The management says company is at an inflection point, as significant opportunities are clearly visible thanks to China losing its competitive advantage in a challenging regulatory environment.
Hence, to tap growth opportunities, company intends to add further capacities, for which board has approved Rs 750 crore fund raising.The company has been able to continue its strong performance, tapping growth momentum.
This is expected to help it expand capacities further and meet rising demand, Sharekhan said in a report.As many as nine analysts have given an outperform rating on Aarti Industries, while two have buy calls.
China crackdown, capacity de-bottling and visibility of revenue make Aarti Industries our favourite pick for 2019.
The company also has good a management, said Amar Ambani, President, and Head of Research of YES Securities (India).