Recently, on 5th Feb’21, we finally closed the coverage on the stock and booked complete profit in our Model Sheets as well.
The company has been a great wealth creator for us and our members. We first initiated coverage on the same in Feb’14 around 27-28 odd levels (adjusted for bonuses) and soon got a good exit opportunity with 200% + gain in less than 6 months. This time around, we got ~400% return from the stock in ~2.5 years.
Below, we have produced the update shared on 5th Feb’21 for your reference.
Aarti Drugs (NSE – AARTIDRUGS) – Sep’18 Alpha stock
CMP – 677.60 (BSE); 678.90 (NSE)
Rating – Negative and Coverage Closure; this is not an investment advice (refer rating interpretation)
Aarti Drugs Investment report was initiated in Sep’18 around 137-138 odd levels (adjusted for 3:1 bonus).
The company is having an extraordinary FY 21 on the back of significant uptick in prices for its products and as a result recording both higher sales and profitability. In the 9M FY 21, the company has recorded EBITDA margins of 21.5% against the average of 14-16% recorded in the past.
The major gains have been on the back of price inflation while the volume growth has been 10-12%.
The product prices did correct in the Sep’20 quarter and as a result EBITDA margins contracted from 24.60% in Q1 FY 21 to 20.14% in Q2 FY 21 and 19.95% in Q3 FY 21.
Going forward, in the medium term we believe there’s a risk of contraction in the end product prices and the same could negatively impact both the sales growth (on the higher base of FY 21), margins and thereby the growth in the profits of the company.
Further, the major growth will only start accruing from FY 23-24 when the company will commercialize the greenfield CAPEX of Rs 600 crore.
Thus, considering the above risks, we have a negative rating on the stock and also closing coverage on the same.
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Disclosure: As on date, I don’t have any investment in the stock.
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Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: No
Details of Associates: Not Applicable
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