Aarti Industries demonstrated healthy growth over the last few years

06-06-2014 • About Aarti Industries ($AARTIIND) • By InTwits

Pay attention to Aarti Industries as a growth stock. It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story

Aarti Industries showed fast growth in the last financial year. Aarti Industries's revenue surged on 25.6% in FY2014. EBITDA also increased: 11.2% for the same period.

In the longer period Aarti Industries showed fast revenue growth of 21.9% from FY2011 to FY2014 annually. EBITDA surged on 26.3% from FY2011 to FY2014 annually.

Aarti Industries ($AARTIIND) financials for the last 5 years

mln. INR	FY2010	FY2011	FY2012	FY2013	FY2014
Revenue	32,980	14,530	16,733	20,962	26,325
Revenue growth, %		-55.9%	15.2%	25.3%	25.6%
SG&A, %
EBITDA	2,077	2,013	2,545	3,650	4,058
EBITDA growth, %		-3.1%	26.4%	43.4%	11.2%
EBITDA margin, %	6.30%	13.9%	15.2%	17.4%	15.4%
Net Income	683	815	1,033	1,344	1,624
Net Income margin, %	2.07%	5.61%	6.17%	6.41%	6.17%
CAPEX	629	691	1,331	2,348	2,909
CAPEX/Revenue, %	1.91%	4.75%	7.96%	11.2%	11.0%
Debt	4,385	5,285	6,278	8,489	10,389
Cash	49	129	68	85	64
Net Debt/EBITDA	2.1x	2.6x	2.4x	2.3x	2.5x
ROIC, %	15.7%	13.1%	15.9%	19.1%	17.2%
ROE, %	16.5%	16.9%	18.8%	20.0%	20.0%

Profitability and return on investment

EBITDA growth was partly attributed to margin expansion. In the longer period the company showed fast EBITDA margin growth of 1.50 pp from 13.9% in FY2011 to 15.4% in FY2014.

We call Aarti Industries an attractive growth stock as together with the growth it delivers high ROIC at 17.2%. During the last three years it surged - it was 13.1% in FY2011. Average ROIC for the last three years was 17.4%.

The company showed small Net Income margin decline of 0.200 pp from 6.40% to 6.20% in FY2014. In the longer period Net Income margin surged on 0.600 pp from 5.60% in FY2011 to 6.20% in FY2014.

Aarti Industries operates at ROE of 20.0%. For the last three years the average ROE was 19.6%.

Capital expenditures (CAPEX)

To fuel this fast growth Aarti Industries had to invest in CAPEX.In FY2014 Aarti Industries had CAPEX/Revenue of 11.0%. Aarti Industries showed fast CAPEX/Revenue growth of 6.30 pp from 4.75% in FY2011 to 11.0% in FY2014. Average CAPEX/Revenue for the last three years was 10.1%.

Leverage (Debt)

Aarti Industries has medium debt level at 2.5x Net Debt/EBITDA to maintain high growth. In the last 3 years leverage decreased slightly on 0.02x from 2.56x in FY2011 to 2.54x in FY2014.

Valuation vs. comparable companies

The company trades at 6.5x EV/EBITDA which is 59.2% lower than 16.0x Commodity Chemicals industry avearge calculated based on 186 companies. The company trades at 9.9x P/E which is 86.3% lower than 72.6x Commodity Chemicals industry avearge calculated based on 22 companies.

For capital intensive compnanies it's worth taking a look at EV/(EBITDA-CAPEX) multiple. At the end of trading day today Aarti Industries traded at 23.0x EV/(EBITDA-CAPEX) which is 273% higher than 6.2x Commodity Chemicals peer group avearge calculated on the basis of 13 companies.

Peers in Commodity Chemicals

Below you can find Aarti Industries benchmarking vs. other companies in Commodity Chemicals industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

	FY2010	FY2011	FY2012	FY2013	FY2014
Top 5
Shree Hari Chemicals Export ($SHHARICH)		-52.2%	-2.5%	-78.0%	299.5%
Jindal Poly Films ($JINDPOLBBPH)		-66.5%	-17.2%	-6.3%	131.7%
Bodal Chemicals ($BODALCHEM)		-51.3%	5.4%	-12.6%	80.0%
Kanoria Chemicals & Industries ($KANORICHEM)		-22.3%	-40.7%	27.2%	47.9%
Camphor & Allied Products ($CAMPHOR)		-49.0%	-6.7%	7.2%	42.7%
Median (33 companies)		-43.8%	20.9%	11.4%	10.1%
Aarti Industries ($AARTIIND)		-55.9%	15.2%	25.3%	25.6%

Top companies by Gross margin, %

	FY2010	FY2011	FY2012	FY2013	FY2014
Top
Godrej Industries ($GODREJIND)	94.1%			90.8%
Median (1 company)	94.1%			90.8%

Top companies by EBITDA margin, %

	FY2010	FY2011	FY2012	FY2013	FY2014
Top 5
Shree Hari Chemicals Export ($SHHARICH)	3.4%	8.3%	1.8%	-19.4%	29.4%
Chemfab Alkalis ($CHEMFALKAL)	14.6%	19.0%	22.3%	32.9%	24.2%
Aditya Birla Chemicals (India) ($ABCIL)	5.7%	33.6%	26.8%	27.1%	23.6%
Bodal Chemicals ($BODALCHEM)		10.6%	1.8%	5.6%	20.4%
Alkyl Amines Chemicals ($ALKYLAMINE)	6.3%	13.3%	15.9%	16.0%	19.0%
Median (29 companies)	5.4%	10.8%	8.3%	8.3%	8.5%
Aarti Industries ($AARTIIND)	6.3%	13.9%	15.2%	17.4%	15.4%

Top companies by CAPEX/Revenue, %

	FY2010	FY2011	FY2012	FY2013	FY2014
Top 5
Chemfab Alkalis ($CHEMFALKAL)	8.2%	5.1%	2.2%	15.8%	55.6%
Aditya Birla Chemicals (India) ($ABCIL)	0.5%	5.9%	136.9%	24.2%	30.8%
Jindal Poly Films ($JINDPOLBBPH)	2.5%	2.9%	6.9%	2.1%	27.5%
Kanoria Chemicals & Industries ($KANORICHEM)	3.8%	12.9%	25.1%	6.0%	13.4%
Garware Polyester ($GARWARPOLY)		5.4%	3.1%	7.9%	10.1%
Median (17 companies)	2.7%	5.6%	5.2%	6.3%	5.4%
Aarti Industries ($AARTIIND)	1.9%	4.8%	8.0%	11.2%	11.0%

Top companies by ROIC, %

	FY2010	FY2011	FY2012	FY2013	FY2014
Top 5
Riddhi Siddhi Gluco Biols ($RIDDHI)	20.4%	-0.2%	-1.3%	-0.6%	61.1%
Bodal Chemicals ($BODALCHEM)			-1.3%	3.3%	39.0%
Alkyl Amines Chemicals ($ALKYLAMINE)	12.5%	10.3%	16.0%	18.7%	25.0%
Camphor & Allied Products ($CAMPHOR)	19.8%	10.3%	5.7%	15.5%	17.0%
Chemfab Alkalis ($CHEMFALKAL)	10.3%	8.3%	10.9%	29.9%	15.9%
Median (52 companies)	10.3%	10.5%	9.1%	9.8%	9.3%
Aarti Industries ($AARTIIND)	15.7%	13.1%	15.9%	19.1%	17.2%

Top companies by Net Debt / EBITDA

	FY2010	FY2011	FY2012	FY2013	FY2014
Top 5
India Glycols ($INDIAGLYCO)	15.9x	8.2x	4.8x	3.7x	8.5x
Godrej Industries ($GODREJIND)	27.9x	6.8x	9.9x	5.7x	7.9x
Refnol Resins & Chemicals ($REFNOL)				4.1x	5.6x
Cosmo Films ($COSMOFILMS)	3.5x	4.0x	4.1x	4.8x	4.9x
Garware Polyester ($GARWARPOLY)		0.6x	2.2x	3.8x	4.0x
Median (38 companies)	2.3x	2.5x	2.7x	3.2x	0.5x
Aarti Industries ($AARTIIND)	2.1x	2.6x	2.4x	2.3x	2.5x

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