Tag - PLI

Will incur Rs 10000 mn Capex per year over next 3-4 years – Aarti Industries

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,910 (-0.1%). Among the sectoral indices, IT (+1.3%), FMCG (+0.9%), and AUTO (+0.2%) closed higher. PSU Bank (-1.3%), PVT Bank (-1.0%), and Financial Services (-0.8%) closed in the red. Asian Paints (+4.7%), Dr. Reddy’s Laboratories (+2.6%), and HUL (+1.59%) closed on a positive note. CIPLA (-1.6%), Tata Steel (-1.6%), and ICICI Bank (-1.5%) were among the top losers.

Excerpts from an interview of Mr. Rajendra V Gogri, Chairman and MD, Aarti Industries with CNBC-TV18 dated 15th March 2021:

  • Gogri said the demand is higher. The discretionary sector demand has picked up.
  • Considering China plus one factor, demand is diverted to India. India comes ahead of other countries like Vietnam, Bangladesh, and Malaysia when it comes to specialty chemicals.
  • The company is expecting pre-Covid demand in Q4FY21E.
  • Speaking on capacity, he said the company will incur a Capex of Rs 10,000 mn each year for the next 3-4 years.
  • This Capex will be utilized to introduce new products as well as the expansion of existing products.
  • The company will not directly participate in the Pharma PLI scheme, however, the Pharma PLI Scheme is expected to benefit the general chemical sector indirectly.
  • The company has posted single-digit revenue growth in 9MFY21 and a flat bottom line YoY is expected in FY21E. However, Mr. Gogri guided for a 20% growth in top-line as well as in bottom line in FY22E.
  • Exports are usually 40-45% of total revenues and the rest is domestic sales. The major growth is expected on the discretionary side which was badly affected in 1FY21.
  • Speaking on capacity utilization, he said some plants are running at 80-90% utilization levels and new capacities are running at 20-30% utilization levels.
  • Speaking on the demerger of the Pharmaceutical business, he said a committee has been set up to look at the available option. The decision of the committee is yet to come on board.

 

Asset Multiplier comments:

  • As per a study conducted by McKinsey & Company, the Indian specialty market is expected to grow to $40bn over the next 4 years from $28bn in 2018.
  • Within the specialty chemical segments in India, surfactants, specialty polymers, and textile chemicals and dyes are among the top segments expected to further grow in line with market demand.
  • Indian specialty companies need to ramp up capacities and infrastructure to get maximum advantage from specialty chemical sector growth prospects.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Aarti Industries was ₹ 1,286 as of 16-March-2021.  It traded at 41x/29x/25x the consensus Earnings per share estimate of ₹ 31.0/44.0/52.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,241/- which implies a PE multiple of 24x on FY23E EPS of 52.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Expect to take another price hike from April – Bluestar

 Update on the Indian Equity Market:

On Wednesday, Nifty closed in the green at 15,175. Among the sectoral indices, Metal (+1.9%), IT (+1.7%), and Pharma (+1.8%) closed higher. PSU Bank (-0.2%) was the only sector that closed in the red. Eicher Motors (+3.1%), JSW Steel (+3.0%), and Hindalco (+2.3%) closed on a positive note. SBI Life (-3.5%), ONGC (-1.8%), and HDFC Life (-1.5%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Bluestar with CNBC-TV18 dated 09th March 2021:

  • The demand for cooling products has picked up since the festival season. 20% sales growth is expected in Q4FY21E.
  • The Indian Meteorological Department (IMD) has indicated for hotter than usual summer season in 2021.
  • Thiagarajan expects 25% sales growth in the summer season for Bluestar.
  • The demand recovery is primarily due to people spending more time at home.
  • The disposable income is expected to be higher in the hands of people as there is saving due to no summer vacations and less travel.
  • The company has taken a price increase by 3-5% since Jan-21 on its products. The second price hike has not yet been taken by the company.
  • The second price hike might come from April 1. The rise in raw materials, transportation charges, and ABS plastic costs are not coming down.
  • The dealers are stocking up ahead of the season.
  • Room AC market share for the Bluestar was ~12.8% last year and currently it is 13%. The company targets to maintain a 15% market share by FY23E.
  • Food delivery and the pharma sector are driving the growth of commercial refrigeration.
  • In the Electromechanical projects segment, growth is coming from the manufacturing sector.
  • Thiagarajan says Room air conditioners are poised for growth in coming years led by positive announcements under the PLI scheme.

 

Asset Multiplier comments:

  • The coming summer season will be crucial for Air cooling products as last summer season was a washout led by lockdowns.
  • Industry players are bullish on the upcoming summer season as early sales indicate an uptrend.
  • On the commodity cost front, inflationary pressure is witnessed by the industry. Most AC players have resorted to taking price hikes.
  • Increased demand due to rise in temperature bodes well for the industry but an increase in commodity cost might hurt operating margins in the coming next 2 quarters.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 932 as of 10-March-2021.  It traded at 94x/47x/36x the consensus Earnings per share estimate of ₹ 9.87/19.9/26.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 761/- which implies a PE multiple of 29x on FY23E EPS of 26.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”