Aarti Industries expands capacity as realisations rise

Aarti Industries [

] sees better realisations and higher fuel additive volumes, driven by Middle East pricing tailwinds and a wider product mix. The stock trades at a current price of Rs 478. The company recently expanded its fuel additives capacity from 290 tonnes to 360 tonnes and commissioned Phase I of its Zone IV project at Jhagadia. This integration supports new specialized chemicals like Calcium Chloride and PEDA. Meanwhile, the suspension of export tax rebates in China has eased competitive dumping pressures, allowing Indian players to capture stronger export demand in the US and ***** higher oil derivative spreads aid short-term numbers, investors should look past the immediate margin bump. The core investment thesis relies on asset turn recovery. Asset turns dropped to 0.96x post-pandemic from 1.36x during 2015 to 2019. New capacity additions are projected to contribute an incremental Rs 300 to 450 crore to EBITDA over the medium term. Furthermore, management targets a capital expenditure outlay of Rs 700 to 800 crore for FY27, after which overall capex intensity is expected to taper off. Key risks involve execution delays in ramping up new asset platforms and elevated leverage. Net debt to EBITDA sits at 3.65x, though management aims to bring this below 2.5x by FY28. At 12.6x EV/EBITDA for FY28e, valuation sits at a sector discount. Watch for the leverage reduction trajectory and asset turn acceleration. Maintain a tactical positive view with focus on sustained mid-teens return ratios over the next two to three years.