Aarti Industries CAPEX jumped on 53.9% while Revenue decreased on 4.4%

06-05-2016 • About Aarti Industries ($AARTIIND) • By InTwits

Aarti Industries reported FY2016 financial results today. Overall the company's long term financial model is characterised by the following facts:

Aarti Industries has high CAPEX intensity: 5 year average CAPEX/Revenue was 11.5%. At the same time it's a lot of higher than industry average of 6.1%.
CAPEX is quite volatile: ₹4,665m in FY2016, ₹3,031m in FY2015, ₹2,909m in FY2014, ₹2,348m in FY2013, ₹1,331m in FY2012
The company has highly profitable business model: ROIC is 19.3%
It operates with medium-size leverage: Net Debt/EBITDA is 2.2x while industry average is 2.3x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

Aarti Industries's Revenue decreased on 4.4%. During the last 5 years Revenue growth topped in FY2014 at 25.6% and was decelerating since that time. Despite revenue decline the EBITDA margin expanded. EBITDA Margin increased on 4.4 pp from 16.1% to 20.6% in FY2016.

Net Income margin increased on 2.2 pp from 7.1% to 9.2% in FY2016.

Investments (CAPEX, working capital and M&A)

The company's CAPEX/Revenue was 16.8% in FY2016. Aarti Industries's CAPEX/Revenue increased on 5.6 pp from 11.2% in FY2013 to 16.8% in FY2016. Average CAPEX/Revenue for the last three years was 12.8%. Battling declining revenue the company invested a large share of EBITDA (81.5%) to CAPEX but that didn't help at least in this year.

Return on investment

The company operates at high and attractive ROE (24.1%) while ROIC is a bit lower (19.3%). ROIC increased slightly on 1.4 pp from 17.9% to 19.3% in FY2016. ROE increased on 2.3 pp from 21.8% to 24.1% in FY2016. ROE followed a growing trend at 1.2 pp per annum in FY2012-FY2016.

Leverage (Debt)

Debt level is 2.2x Net Debt / EBITDA and 2.3x Debt / EBITDA. Net Debt / EBITDA dropped on 0.3x from 2.5x to 2.2x in FY2016. Debt increased on 7.4% while cash dropped on 25.6%.

Aarti Industries has short term refinancing risk: cash is only 2.9% of short term debt.

Valuation and dividends

Aarti Industries's trades at EV/EBITDA 9.9x and P/E 17.1x while industy averages are 17.8x and 21.9x. Aarti Industries's EV/(EBITDA-CAPEX) is 53.6x with the industry average at 22.8x.

Financial and operational results

Aarti Industries ($AARTIIND) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	16,733	20,962	26,325	29,080	27,796	-4.4%
EBITDA	2,545	3,650	4,058	4,694	5,723	21.9%
Net Income	1,033	1,344	1,624	2,059	2,569	24.8%
Balance Sheet
Cash	68	85	64	302	224	-25.6%
Short Term Debt	5,243	7,317	7,837	7,832	7,649	-2.3%
Long Term Debt	1,035	1,173	2,553	4,191	5,268	25.7%
Cash flow
Capex	1,331	2,348	2,909	3,031	4,665	53.9%
Ratios
Revenue growth	15.2%	25.3%	25.6%	10.5%	-4.4%
EBITDA growth	26.4%	43.4%	11.2%	15.7%	21.9%

EBITDA Margin	15.2%	17.4%	15.4%	16.1%	20.6%	4.4%
Net Income Margin	6.2%	6.4%	6.2%	7.1%	9.2%	2.2%
CAPEX, % of revenue	8.0%	11.2%	11.0%	10.4%	16.8%	6.4%

ROIC	15.9%	19.1%	17.2%	17.9%	19.3%	1.4%
ROE	18.8%	20.0%	20.0%	21.8%	24.1%	2.3%
Net Debt/EBITDA	2.4x	2.3x	2.5x	2.5x	2.2x	-0.3x

Peers in Commodity Chemicals

Below we provide Aarti Industries benchmarking against other companies in Commodity Chemicals industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Tuticorin Alkali Chemicals & Fertilisers ($TUTIALKA)	354.1%	-27.9%	-83.3%	408.0%	-
Jayshree Chemicals ($JAYCH)	288.9%	17.5%	-75.2%	262.3%	-
Jagran Production ($JAGPRO)	589.4%	4.4%	514.9%	192.3%	-
Shree Hari Chemicals Export ($SHHARICH)	-2.5%	-78.0%	299.5%	111.6%	-
Jindal Poly Films ($JINDPOLBBPH)	-17.2%	-6.3%	131.7%	46.9%	-
Median (37 companies)	20.6%	9.7%	10.6%	5.6%	11.9%
Aarti Industries ($AARTIIND)	-	25.3%	25.6%	10.5%	-4.4%

Top companies by EBITDA margin, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Riddhi Siddhi Gluco Biols ($RIDDHI)	-	-	-	104.7%	-
Mysore Petro Chemicals ($MYSORPETRO)	-	-	-	47.1%	-
Aditya Birla Chemicals (India) ($ABCIL)	26.8%	27.1%	23.6%	21.9%	-
Indo Borax & Chemicals ($INDOBORAX)	-	-	-	21.3%	-
Chemfab Alkalis ($CHEMFALKAL)	22.3%	32.9%	24.2%	19.8%	-
Median (50 companies)	9.6%	8.3%	8.5%	6.6%	9.0%
Aarti Industries ($AARTIIND)	15.2%	17.4%	15.4%	16.1%	20.6%

Top companies by CAPEX/Revenue, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Kanoria Chemicals & Industries ($KANORICHEM)	25.1%	6.0%	13.4%	40.3%	-
Aditya Birla Chemicals (India) ($ABCIL)	136.9%	24.2%	30.8%	15.0%	-
Alkyl Amines Chemicals ($ALKYLAMINE)	5.1%	6.6%	5.9%	8.6%	-
Sukhjit Starch & Chemicals ($SUKHJITS)	15.7%	9.4%	5.4%	5.4%	-
Godrej Industries ($GODREJIND)	1.5%	9.9%	5.4%	5.4%	-
Median (21 companies)	5.2%	6.3%	5.4%	3.2%	4.7%
Aarti Industries ($AARTIIND)	8.0%	11.2%	11.0%	10.4%	16.8%

Top companies by ROIC, %


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Bodal Chemicals ($BODALCHEM)	-1.3%	3.3%	39.0%	38.3%	-
Elantas Beck India ($ELANTAS)	20.4%	33.9%	31.0%	36.6%	-
Alkyl Amines Chemicals ($ALKYLAMINE)	16.0%	18.7%	25.0%	23.7%	-
Transpek Industry ($TRANSPEK)	-1.7%	14.2%	11.0%	17.8%	-
Balaji Amines ($BALAMINES)	19.3%	16.1%	15.6%	16.5%	-
Median (60 companies)	9.0%	9.5%	8.9%	7.9%	3.5%
Aarti Industries ($AARTIIND)	15.9%	19.1%	17.2%	17.9%	19.3%

Top companies by Net Debt / EBITDA


Top 5	FY2012	FY2013	FY2014	FY2015	FY2016
Iol Chemicals & Pharmaceuticals ($IOLCP)	5.8x	4.5x	3.7x	35.4x	8.8x
India Glycols ($INDIAGLYCO)	4.8x	3.7x	8.5x	14.2x	-
Godrej Industries ($GODREJIND)	9.9x	5.7x	7.9x	10.7x	-
Kanoria Chemicals & Industries ($KANORICHEM)	5.2x	9.6x	3.5x	9.4x	-
Garware Polyester ($GARWARPOLY)	2.2x	3.8x	4.0x	5.2x	-
Median (37 companies)	2.6x	3.2x	0.8x	0.9x	0.0x
Aarti Industries ($AARTIIND)	2.4x	2.3x	2.5x	2.5x	2.2x

Aarti Industries stock price chart

Aarti Industries financials

mln.	FY2010	FY2011	FY2012

Revenue	32,980	14,530	16,733
EBITDA	2,077	2,013	2,545
Net income	682.9	814.8	1,033
CAPEX	628.6	690.5	1,331
Debt	4,385	5,285	6,278
Cash	48.859	128.6	67.803

About Aarti Industries

Aarti Industries Limited produces and sells benzene based basic and intermediate chemicals primarily in India. The company offers para nitro chloro benzene, ortho nitro chloro benzene, dinitro chloro benzene, para dichloro benzene, ortho dichloro benzene, nitro benzene, and nitro toluenes, as well as their derivatives. It also provides dimethyl sulfate, sulfuric acid and allied products, chloro phenols, polymer additives, refinery chemicals, plastisizers, alkylated anilines and toluidines, fluoro compounds, agrochemicals, and bulk drug intermediates/specialty chemicals. In addition, the company offers mono chloro benzene, single super phosphate, dilute sulfuric acids, hydro chloric acid, gypsum, calcium chloride, di-calcium phosphate, and nitrosyl sulfuric acid. Further, it develops active pharmaceutical ingredients, as well as their intermediates, including dextromethorphan, bazedoxifene, besifloxacin, saxagliptin, tetrabenazine, desvenlafaxine, asenapine, apixaben, rotigotine, vilazadone, and vardenafil intermediates. Aarti Industries Limited offers its products for various end-uses in agrochemicals, pharmaceuticals, high performance polymers, paints, pigments, printing inks, rubber chemicals, additives, surfactants, dyes, oil and gas additives, flavors and fragrances, etc. The company also exports its products to approximately 60 countries. Aarti Industries Limited was founded in 1975 and is based in Mumbai, India.