Shares of Aarti Industries plunged over 9% on November 11, reaching a 52-week low of ₹430 due to disappointing Q2 earnings that revealed significant margin contraction and a substantial dip in net profit. The specialty chemicals company reported a 43% on-year drop in net profit for the July-September quarter, falling to ₹52 crore from ₹91 crore in the same period last year. This steep decline has been attributed to higher expenses and weaker operational performance.

Financial Performance Overview

Despite a 12% revenue growth on-year to ₹1,628 crore—up from ₹1,454 crore—the company faced headwinds with its EBITDA margin, which contracted sharply from 16% to 12.1%. The increase in revenue reflects Aarti's ongoing efforts to expand its market reach and diversify products, but margin pressure stemming from high channel inventory levels and lower demand for key products, particularly MMA (Methyl Methacrylate), impacted profitability.

The company experienced heightened trading volume, with 78 lakh shares traded on the NSE in the first hour, far exceeding the one-month daily average of 17 lakh shares.

Brokerage Insights and Analyst Reactions

Nuvama Institutional Equities highlighted margin contraction as a major drag on earnings, attributing it to macroeconomic factors affecting Aarti’s product demand. Reflecting ongoing pressure, Nuvama cut its FY25/26/27 EPS estimates by 56%, 41%, and 34%, respectively. Nevertheless, the brokerage retained a 'buy' rating on the stock, revising the target price down to ₹600 due to valuation comfort from recent corrections.

Similarly, Emkay Institutional Equities acknowledged Aarti's conservative outlook, citing weaker-than-expected volumes in its core products. Emkay also retained a 'buy' recommendation with a price target of ₹675, as it foresees potential upside in the stock following the correction.

HDFC Securities offered a more optimistic perspective, noting that Aarti’s continued investment in capital expenditure and R&D could strengthen its competitive edge. The brokerage pointed out that India’s toluene market is largely untapped, creating a strategic growth avenue for Aarti. HDFC maintained an 'add' rating with a target price of ₹532.

Forward Guidance and Strategic Moves

Looking ahead, Aarti Industries has issued cautious guidance, expecting EBITDA between ₹1,800–2,200 crore by FY28, reflecting the challenges of current market dynamics. For FY25, EBITDA projections stand at ₹1,050 crore, as the company faces higher costs and limited near-term relief. However, Aarti continues exploring new growth segments, including CRAMS (Contract Research and Manufacturing Services), to drive long-term resilience.

In summary, while Aarti Industries is navigating near-term headwinds, its strategic emphasis on product diversification and entry into the toluene market could offer growth potential. Investor sentiment remains mixed, with brokerages maintaining largely positive outlooks despite downward revisions in price targets. As the company manages near-term challenges, these long-term growth prospects may stabilize investor confidence.

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The Current active IPO are  Niva Bupa Health and Neelam Lines and Garments.

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