INITIATING COVERAGE

Aarti Industries
Entering into a new orbit
OUTPERFORMER

Aarti Industries Limited (AIL) is a leading player in benzene-based

12 September 2018
BSE Sensex: 37718
Sector: Midcaps
Stock data
CMP (Rs)
Mkt Cap (Rs bn/USD m)
Target Price (Rs)
Change in TP (%)
Potential from CMP (%)
Earnings change (%)
FY19E
FY20E
intermediate products, and an integral part of value chain for several
global chemical majors. AIL’s backward/forward-integrated and
diversified business model, which involves the supply of ~125 products
to 700-800 customers across geographies, underpins its
competitiveness. Despite significant forex and crude volatility, AIL
posted 15%/20% EBITDA/PAT CAGR over FY14-18 with 21.6% RoE in
FY18, which reflects its robust business model. We anticipate a step-up
in growth with steady 12-15% volume growth in core benzene segment
and diversification into toluene compounds, with the company recently
signing Rs140bn of two long-term contracts. We estimate 22%/24%
revenue/PAT CAGR, respectively, over FY18-21E, with potential upside
from new contract wins. We initiate coverage on the stock with an
1,305
Outperformer rating and target price of Rs1,572 (20x FY21E earnings).
106.1 /1,460
Diversified business model: AIL’s focus on developing integrated
1,572
product chains versus standalone products and creating diversified
NA product portfolios are key pillars of its strategy. These measures have
enabled the company to become a global leader in benzene-based
20.5
intermediates. While adding to its benzene capacities, AIL is also
venturing into new chemistries, e.g., toluene-based compounds and
stepping up R&D investments to explore opportunities in speciality

chemicals. The company expects to invest Rs7-8bn/pa over FY18-21E,
 which would drive 12-15% CAGR volume growth.

Bloomberg code
1-yr high/low (Rs)
6-mth avg. daily volumes (m)
6-mth avg. daily traded value
Volumes to drive EBITDA growth: AIL has a cost-plus pricing model that
ARTO IN insulates it from crude price volatility. This is because EBITDA growth is
a factor of volumes and not linked to end-product pricing. We estimate
1,445/835
22% EBITDA CAGR over FY18-21E (versus 15%+ EBITDA growth per
0.1 annum), as the company is expected to initiate the supply of specialised
intermediates as per its 2 large multi-year agreements, FY21E onwards.

(Rsm/USDm) 79.9/1.1 Growth platform in place: AIL’s business has morphed from import
substitution to exports. The company now partners global chemical
Shares outstanding (m) 81.3
players, which reflects management’s strong execution capabilities. We
Free float (%) 46.9 believe AIL is in a pole position to capitalise new opportunities in the
Indian specialty chemical space. Two multi-year contracts (worth
Promoter holding (%) 53.1
Rs140bn) with global players exhibit AIL’s potential. At 16.6x FY21E
earnings, we see room for upside, given AIL’s strong earnings visibility
Price performance – relative & absolute and healthy return ratios. We initiate coverage with an Outperformer.
Aarti Industries Sensex
300
Key valuation metrics
225
Year to 31 Mar FY17 FY18 FY19E FY20E FY21E
150 Net sales (Rs m) 31,635 38,061 46,849 55,728 68,036
Adj. net profit (Rs m) 3,158 3,330 4,100 5,012 6,391
75
Shares in issue (m) 82 81 81 81 81
0
Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Adj. EPS (Rs) 38.5 41.0 50.4 61.6 78.6
% change 24.7 6.5 23.1 22.2 27.5
(%) 3-mth 6-mth 1-yr
PE (x) 34.0 31.9 25.9 21.2 16.6
ARTO IN 5.8 12.8 51.7 Price/ Book (x) 7.5 6.4 5.1 4.1 3.3

BSE Sensex 6.3 13.2 18.3 EV/ EBITDA (x) 18.7 18.0 15.3 13.0 10.8
RoE (%) 24.1 21.6 22.0 21.6 22.1
RoCE (%) 18.9 16.2 16.2 16.0 17.1
Source: Company, IDFC Securities Research

Nitin Agarwal Miloni Bagadia

nitin.agarwal@idfc.com miloni.bagadia@idfc.com
91-22-4202 2568 91-22-4202 2663

For Private Circulation only. “Important disclosures appear at the back of this report”
 Aarti Industries

INVESTMENT ARGUMENT
 AIL’s business has metamorphosed from import substitution to
exports. The company now partners global chemical players,
reflecting management’s strong execution capabilities.

 A global leader in benzene-based products, AIL has delivered stable

20%+ earnings growth (FY14-18) despite volatility in crude oil prices
given 1) large-scale integrated product chains, 2) de-risked product
portfolio, 3) cost-plus pricing model, 4) world-class facilities.
 Leveraging on its existing facilities, AIL is venturing into new
chemistries, e.g., toluene-based compounds and stepping up R&D
investments to explore fresh opportunities in specialty chemicals.

 We expect capex intensity to increase (Rs7-8bn/per annum (pa) over

FY18-21E, as AIL continues to capitalize on opportunities in the Indian
specialty chemicals space, while maintaining 1:1 debt/equity ratio.

 The company has signed 2 multi-year contracts (valued at Rs140bn),

which will provide significant delta to earnings (24% CAGR over FY18-
21E) and boost RoE/RoCE to 22%/17%, respectively.
 At 16.6x FY21E EPS and 10.8x EV/EBITDA, we see room for upside
given strong earnings visibility and robust return ratios. Disruption
from trade wars and currency volatility are key risks.

Leading integrated player with global size & scale

Timely delivery and AIL, promoted by first-generation technocrats in 1985, is a leading
quality standards are AIL’s manufacturer of benzene-based intermediate products and an integral
USP that help it remain part of value chain for several global chemical majors. It is one of the few
competitive players globally and the only backward/forward integrated player in India
across benzene-based value chain. The company offers a basket of 125+
products under various chemistries (nitration, chlorination, hydrogenation,
etc) within the benzene-based value chain that have applications across
diverse end-user industries such as agrochemicals, pharmaceuticals, dyes,
pigments, etc.

Since a decade, AIL has been ramping up its existing capacity,

strengthening and enhancing product portfolio to develop value-added
products to capitalise on opportunities in the chemicals space. AIL
continues to comply with SH&E (Safety, health & environment) standards,
which has attracted top global players to partner with them.

The company’s presence across integrated product chains (versus

standalone products), a diversified consumer base and cost-plus pricing
model differentiate AIL from peers. These factors have enabled AIL to
deliver consistent 20%+ earnings CAGR over FY14-18, despite significant
crude and forex volatility. Besides, the company’s best-in-class
manufacturing capabilities, timely delivery and quality (adherence to
specifications) standards are AIL’s unique selling proposition (USP) that
help it remain competitive.

2 | IDFC SECURITIES 12 September 2018

 Aarti Industries

 Business overview
The company has been AIL has snowballed from a small-scale manufacturing unit into a leading
investing extensively to integrated speciality chemicals player of global size and scale. Currently,
enhance capacity the company has 17 manufacturing units (SH&E standards) across Gujarat,
Maharashtra, Madhya Pradesh and Silvassa. AIL has emerged as one of the
largest producers of benzene-based products globally over the last
decade, as the company has been investing extensively to enhance
capacity. For instance, the company started its journey with a 1200mt nitro
chloro benzene (NCB) plant in 1986 and gradually scaled it up to
75,000tpa by FY17. Similarly, AIL pioneered the hydrogenation process
and added phenyl diamine (PDA) capacity in FY02. It later scaled the PDA
capacity up from 3,000tpa to 12,000t in FY17, thereby entering the
business of complex chemistries.

Exhibit 1: Timeline of events

2016
2001
Scaled NCB capacity from 57,000tpa to 75,000tpa
Commenced production in Jhagadia
2017
2002
• Commenced calcium chloride facility and 2nd Phase of PDA
• Pioneered hydrogenation process based on facility at Jhagadia
Swiss technology
• Commenced multipurpose Ethylation unit at Dahej SEZ, Gujarat
• Merged Alchemie Organics Ltd into Aarti
Industries Ltd • Operationalized Co-generation and Solar plants
1984
Aarti Organics Pvt Ltd incorporated 2006-08 2018
• Expanded NCB capacity • Commissioned greenfield Nitrotoluene facility at Jhagadia
1986
• Commenced 1,200tpa Unit for Nitro • Expanded sulphuric acid capacity by 100ktpa to • Signed Rs40bn multiyear deal with a Global Agriculture Company
Chloro 200ktpa for supply of a high value agrochemical intermediary

• Benzenes (NCB) in Sarigram, • Received USFDA approval for API unit at • Signed Rs100bn 20- year, exclusive supply contract with a
Gujarat Tarapur leading global chemical conglomerate

1984-1989 2001-2008 2016-2018

1990-2000 2009- 2015

1990
Set up additional unit at Vapi to manufacture NCB
withcapacity of 4,500tpa
1994
• Merged Salvigor Labs, producers of DMS and
Sulphuric Acid and their downstream
productsinto Aarti.Change of name from Aarti
Organics Ltd to Aarti Industries Ltd.
1998
• Set up Alchemie (Europe) Ltd. A subsidiary in UK
for marketingand distribution
2009
• Merged Surfactants Specialities Pvt. Ltd.(accessing home/
personal care segment).
2010
• Custom Synthesis division (Vapi) received USFDA approval.
• Upgraded hydrogenation unit from batch to continuous
• Commissioned sulfonation unit in Pithampur
2013
• Merged manufacturing division of Anushakti Chemicals and
Drugs Ltd. into Aarti Industries Ltd.

Source: Company, IDFC Securities Research

With a basket of 125+ products, the company sources 500+ domestic

customers and 150+ export customers across 60 countries. AIL is a major
presence in the US, Europe and Japan. Exports have registered 7% CAGR
over FY14-18 and accounted for 44% of total revenues in FY18.

Management plans to The company currently operates under three major business segments 1)
demerge its HPC business, Speciality chemicals (78% of revenues), 2) Pharmaceuticals (15%) and 3)
which it believes will Home and Personal Care (7%). While speciality chemicals remains a key
unlock value for the business driver, the pharma business is at inflection point (has started
company contributing FY18 onwards), but the low-margin HPC business remains
lacklustre. Management plans to demerge its HPC business, which it
believes will unlock value for the company.

3 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Exhibit 2: Business overview

Speciality Chemicals Pharmaceuticals Home & Personal Care

Revenue
78% 15% 7%
contribution (%)

• Polymer & additives • Active Pharmaceutical • Non‐ionic Surfactants

• Dyes, Pigments, Paints & Ingredients (APIs)
• Concentrates for shampoo,
Printing Inks • Intermediates for Innovators hand wash &dish wash
• Fuel Additives, Rubber & Generic Companies
Key end users chemicals, Resins, etc.
• Agrochemicals &
intermediates
• Fertilizer & Nutrients
• Pharma Intermediates

• BASF,Solvay,Chemipro,DO • Sanofi, Cipla, Dr.Reddys, • Unilever, CavinKare, Dabur,

W,Dupont,Coromandel,UPL, Lupin, Pfizer, SunPharma, 3M, Innospec.
Syngenta,FMC,Bayer,Hunst Sandoz
Key clients man,Sudarshan,Clariant,Atul,
FlintInk,Eastman,SunChemic
als etc

• 6 plants at Jhagadia, • 4 plants at Vapi and Tarapur • 2 plants at Silvassa and

Sarigam,vapi, Kutch, Pithampur
Plant location Pithambar ,Dombavali

Source: Company, IDFC Securities Research

Exhibit 3: Segment Revenues Exhibit 4: Segment EBIT (%)

Speciality Pharmaceuticals Speciality
Pharmaceuticals
Home & Personal Care Home & Personal Care Chemicals
40,000 24.0

30,000 18.0

12.0
20,000
6.0
10,000
0.0

0 -6.0
FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Source: IDFC Securities Research, Company Source: IDFC Securities Research, Company

 Management has a proven track record

Mr Chandrakant Gogri was
responsible for making
AIL into a path-breaking
enterprise
Mr Chandrakant Gogri (retired in August 2012), a first-generation
technocrat, founded AIL in 1985 and was responsible for making the
company into a path-breaking enterprise. He continued to provide
strategic direction to the company in his capacity as Chairman Emeritus
even post retirement. AIL has grown from a small manufacturing unit to a
leading integrated speciality chemical player of global size and scale (SHE
standards) under the guidance of its professional and qualified founding
promoters and directors.

Currently, the management team is led by Mr Rajendra Gogri (Chairman

and Managing director) and Mr Rashesh Gogri (Vice Chairman and
Managing Director). Other management personnel include Mr Renil Gogri
(Director), Mr Shantilal Shah (Vice Chairman) and Mr Parimal Desai
(Director). The promoters are supported by a growing team of
experienced professionals with considerable experience in the industry.

4 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Diversified business – key competitive advantage

Few players globally are There are few players globally that are integrated across the benzene-
integrated across the based value chain and AIL is one of them. Also, the company is the only
benzene-based value integrated player in India with benzene-based products, comprising 82% of
chain and AIL is one of AIL’s speciality chemical revenues. Currently, the company has 17
them manufacturing units of global size and scale (SHE standards) across
Gujarat, Maharashtra, Madhya Pradesh and Silvassa. Focus on developing
integrated product chains versus standalone products and creating a
diversified product portfolio have been key pillars of AIL’s strategy.
Besides, a cost-plus pricing model, best-in-class manufacturing capabilities
and a diverse customer base have enabled AIL to withstand challenges like
crude and forex volatility and emerge a global leader.

Exhibit 5: A diversified business model

Best in Class
Global leadership Capabilities
Ranks 1-4th for 75% of its QSHE standard plants,
products , Enjoys 25-40% Timely delivery and
market share for most of its Quality (-key USP)
products

A differentiated Strong execution

business model capabilites
Diversified porfolio Continous capex
offers 125+ products to (Rs22bn over
diverse end-users FY14-18) to capitalise
segments on opportunities
in the speciality
chemical
sector
Cost plus model
insulated against
fluctuation in raw
material prices

Source: Company, IDFC Securities Research

 Global leader in benzene-based derivatives

Over the years, AIL has built strong expertise in benzene-based derivatives
(82% of speciality chemical revenues) and established itself as a global
leader across product chains and processes The company commands 25-
th
40% market share globally in various products and ranks in the 1-4
position for 75% of its product portfolio. Within the benzene value chain,
AIL manufactures a wide range of products under various processes that
include, chlorination, nitration, ammonolysis, hydrogenation, etc. While
chlorination/nitration are base processes, others are high-value chemical
processes. AIL continuous to strengthen its leadership in benzene-based
value chain by continuously expanding in higher value processes. This has
helped the company improve its product mix in addition to building scale,
thereby creating a business that is difficult to replicate.

5 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Exhibit 6: Benzene-based derivatives value chain

A B C D E F

35 DCA PFNB
PNCB PNA PCA
(NCB) value 24 DNCB OFNB
Benzene MCB
chain
ONCB ONA OCA 33 DCBH OFA

RED B 24 DFNB
34 DCNB
34 DCA 13 DFB
ODCB OCPNA
23 DCNB 23 DCP
23 DCB 24 DFA
DCB PDCB 25 DCNB PCONA 25 DCP
25 DCA PFA

Chloro 24 DCA
MDCB 24 DCNB
benzene Benzene
value chain
124 TCB 245T CNB 245 TCA
TCB

123 TCB

MPD
PDA value Benzene PPD
TCB TCB
chain
OPD

A Chlorination (Ranked amongst top 3 globally) B Nitration (Ranked amongst top 4 globally) C Ammonolysis (Ranked amongst top 2 globally)

D Hydrogenation (Ranked amongst top 2 globally) E Others F Fluro compounds – Halex chemistry (Only player in India)

Source: Company, IDFC Securities Research

Exhibit 7: Sulphuric Acid and derivatives

• Sulphuric acid and derivatives

Sulphuric Acid

OLEUM 23% - 63%

Chloro Sulphonic
Sulphur 1000 0C SO2 SO3
Acid

Di Methyl Sulphate Global leader

Steam

Di Ethyl Sulphate
Co Gen Power
Plant (6MW)

• Single super phosphate (fertilizer)

• Export grade calcium chloride granules (for oil exploration & de-icing)
• Fuel additives
• Phthalates

Source: Company, IDFC Securities Research

6 | IDFC SECURITIES 12 September 2018

 Aarti Industries

 Flexibility to change product mix – key competitive advantage

AIL’s facilities have
flexibility to change input
mix and manufacture
different products
AIL’s competiveness can been gauged from the extensive integration of its
operations. With this, the company not only derives cost leadership to
manufacture various products, but has also emerged as a strategic
supplier/partner of choice for major global and domestic downstream
customers.

A significant portion of AIL’s production capabilities are process driven

(not based on a particular product), which gives AIL the flexibility to
change its input mix and manufacture different products. As a result, the
company has been able to achieve optimum utilization of its production
capabilities. Such a process gives the company the needed flexibility to 1)
manufacture products based on market dynamics, 2) counter demand
vagaries, 3) achieve higher product customization, and 4) enhance
customer relationships. Focus on developing an integrated product chain
(rather than standalone products) has enabled the company to achieve
cost competitiveness versus peers. Besides, the company’s ability to
maintain a fine balance between manufacturing and consumption of
products has been difficult to replicate.

Exhibit 8: Some of the key products manufactured by AIL

Products
Ortho Nitro Chloro benzene (ONCB)
Mono Chloro Benzene (MCB)
Para Nitro Chloro benzene (PNCB)
Di Chloro Nitro Benzene (DCNB)
Dichloro Aniline (DCA)
Para Dichloro Benzene (PDCB)
Source: Company, IDFC Securities Research
End- uses
Pharma , Agrochemicals ,Dyes
Dye-intermediates, pharma ,Agrochemicals
Pharma (Paracetamol), Agrochemicals ,
Dyes and Dyes intermediates
Agrochemicals
Polymer

 Cost-plus model insulates against RM price fluctuation

Relatively insulated AIL has adopted a cost-plus model, wherein any increase/decrease in
against fluctuations in RM crude-linked raw material (RM) prices is passed on to the customer with
prices the lag of a quarter. For example, while a fall in benzene price (key raw
material) would have a bearing on the company’s topline, absolute EBIDTA
will not be impacted (except for markdown of inventory). EBITDA margin,
however, could see a spike due to the lower topline. Moreover, demand is
inelastic to benzene price fluctuation, even in the case of high-value added
products, where the impact of benzene price increase is significantly lower.
We believe AIL is relatively insulated against fluctuations in RM prices.
Exhibit 9: Revenue growth driven by cost plus pricing Exhibit 10: Volumes drive EBITDA growth
Revenues (Rsbn -LHS) EBITDA (Rs bn - LHS)

Avg Crude price (US$/bbl) -RHS EBITDA Margins (% - RHS)

40.0 120 8.0 24.0

30.0 90 6.0 18.0

20.0 60 4.0 12.0

10.0 30 2.0 6.0

0.0 0 0.0 0.0

FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18
Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

7 | IDFC SECURITIES 12 September 2018


A one-stop strategic
supplier with a broad-
based and de-risked
business
Exhibit 11: Diversified end-user application
Industry
Agrochemicals
Polymer and additives
Pharmaceuticals
Dyes, pigments and printing inks
Others
Source: Company, IDFC Securities Research
Adoption of global SH&E
standards give AIL key
competitive advantage
over peers
8 | IDFC SECURITIES
Aarti Industries
 Diversified customer base
AIL supplies products to more than 500 domestic customers and over 150
international customers from 60 countries. The company has major
presence in the US, Europe, Japan, China and India. Its products have
applications in industries such as agrochemicals, polymers and additives,
dyes, pigments, printing inks, pharmaceuticals, FMCG, optical brightners,
etc. Thus, AIL is a one-stop strategic supplier, given its integrated model
through which it can supply a basket of products to its customers. With
this, the company has been able to forge potent relationships with
customers, rendering it a strategic supplier/partner of choice position by
domestic and global customers. Thus, multiple co-products for varied
customers spread over diversified end-user industries present an effective
entry barrier for competition.
AIL has been generating more than 85% of revenues from customers with
whom it has been working for five years or more; its largest customer
accounted for only 9% of 2016-17 revenues, highlighting its broad-based
and de-risked business.
Exhibit 12: Diversified geographical presence
Exposure North
Rest of America
20-25% World , , 26%
29%
15-20%
15-20%
15-20% Japan ,
10% Europe ,
20-25% China , 25%
10%
Source: Company, IDFC Securities Research
 Quality + timely delivery = strong customer relationships
AIL supplies a wide range of 125+ products to global and domestic
customers in bulk quantities for which the company strictly adheres to
product specifications and delivery timelines. As a result, the company has
been able to enhance its customer base through satisfactory services.
Besides, AIL also provides solutions to customers on specific issues, which
helps them cement their relationships with customers even further.
Adherence to specifications is a crucial aspect in the chemicals business,
as even marginal difference/error in chemical properties can make the
product unviable for customer use. In addition to meeting strict delivery
timelines, which gives it an edge over competitors, AIL has also established
specific delivery/stocking points in the US and Europe through which it
has gained customer confidence, as the latter is able to secure material in
less than 24 hours.
 Created world-class facilities
AIL identified and adopted global SH&E standards early on, which has
given the company key competitive advantage over peers. Over last 5-6
years, AIL cumulatively invested Rs2.5bn towards SHE. Being a strong
proponent of 'green chemistry' (development of chemical
products/processes that reduce/eliminate the generation of waste), AIL
has been successful in attracting and partnering global players/innovators.
The company’s facilities are REACH compliant, and possess 7 zero-liquid
discharge units; the company is working towards converting 2 other units
into zero-discharge too. Reduce-Reuse-Recover (3R) is the key theme
across its operating sites, which follow the highest SH&E standards.
12 September 2018
 Aarti Industries

Huge emerging opportunities in speciality chemicals

 Indian speciality industry to post 10% CAGR over FY18-25E
India’s speciality industry has registered 14% CAGR over last 5 years to US$25bn and is expected to
touch US$100bn by 2025E (Source: FICCI). We attribute the growth to increased investments in R&D
and innovation, stable labour costs and strong growth in end-user segments like agrochemicals, dyes
and pigments, polymer additives, water chemicals, etc.

Agrochemicals – a key driver

Key chemical companies such as BASF, Monsanto, Dow, etc, have been investing heavily in their
agrochemical businesses, which has in turn driven growth in the agrochemicals market, especially
herbicides. Constant innovation and regular introduction of differentiated molecule formulations are
essential to control increasing pest attacks and improving productivity, which lead to the
development of new products. The global crop protection market has seen flat growth over last 5
years(valued at US$49bn in FY16) due to subdued commodity prices and higher channel inventory,
however it is witnessing a gradual pick up with falling inventory levels and is expected to touch
US$58.7bn by 2020E (CAGR of 4% over CY16-20E. Source: Phillip McDougall)

Global consolidation to open up significant growth avenues

We believe consolidation among global agrochemical innovators (Bayer-Monsanto, Syngenta-
Chemchina, Dow-Dupont) will open up significant growth avenues for speciality chemicals players
like AIL. Increasing competition among global players has hastened the level of innovation in the
industry. The number of molecules released annually has been declining, while complexity of new
molecules is on the rise, pushing up R&D costs. Higher R&D costs will result in most global players
increasingly focusing on their core competencies, which will generate significant outsourcing
opportunities for chemical players like AIL.

 Increasing easternisation…
Over last 5-6 years, larger players from developed countries have progressively discontinued
operations for N-1/N-2 and below, transferring capacities eastwards and using local facilities for
manufacturing high-end performance products. Tighter environmental norms in the west, supported
by lower cost of production and availability of skilled manpower in Asian countries have led to the
shift.

Environmental issues causing businesses to shift from China to India

While easternisation was for long favourably skewed towards China, Increasing plant shut downs in
China over last 4-5 years on environmental concerns and stringent regulations led to the shift in
business towards India. Management is confident that the change in dynamics would contribute to
AIL’s volume growth, enabling the company to cater to domestic as well as export markets. Although
plant shutdowns due to environmental non-compliance in China is not a new development, we
believe the situation is more structural, as increased cost of production has made it unviable for
companies to operate below a certain scale.

MNCs looking to diversify their country risks

With growing uncertainty in China, MNCs are acknowledging the capabilities of Indian players. They
are looking to diversify their own country risk by reducing dependence on China. India has recently
developed into an important manufacturing hub for speciality chemicals on account of superior
compliance with environmental norms, increasing competitiveness and decline in Chinese
competitiveness. Moreover, as MNC customers remain keen to allay their country risk by diversifying,
India remains well positioned to capitalise on the growing opportunities in speciality chemical and
pharmaceutical intermediate exports.

9 | IDFC SECURITIES 12 September 2018


AIL’s aggressive capex
plan over FY19-2021E
underpins management’s
comfort on growth
visibility
Exhibit 13: Capex in last 3 years
Project
NCB (NCB value chain )
Chloro Benzene Value Chain
Calcium Chloride Unit
Chlorination complex
PDA Value Chain
PDA (Phenol Diamine )
Toluene Value Chain
Nitration Unit (Nitro Toluene &
downstreams)
Ethylation unit
Source: Company, IDFC Securities Research
10 | IDFC SECURITIES
Aarti Industries
Aggressive capex on existing and new ventures
AIL has been incurring capex since a decade to increase capacity and also
towards introducing value-added products. Post expertise and leadership
in benzene-based value chain, the company is now exploring newer
domains and has ventured into toluene-based value chain since FY17.
Additionally, AIL has signed 2 multi-year agreements with global players to
supply specialised high-value intermediates.
During FY14-18 AIL cumulatively invested Rs22.2bn capex and expects to
further invest Rs7-8bn/per year towards building 1) a speciality Chemical
Complex at Jhagadia, 2) acid re-concentration plants, 3) API and pharma
intermediate de-bottlenecking and expansions at Vapi and Tarapur units,
and 4) an R&D and innovation facility. A part of the capex (~Rs2bn) would
be towards Rs40bn multi-year deal and various other speciality chemical-
based project initiatives in FY19E. AIL’s aggressive capex plan over FY19-
2021E (~30-35% increase in gross block over FY14-18) underpins
management’s comfort on growth visibility.
Completion
Key Details
status
Expanded NCB capacity of 75,000 tpa from earlier 57,000 tpa Nov-15
Commissioned greenfield Calcium Chloride Unit at Jhagadia with
Q1FY17
capacity of 30,000 tpa
Expanded Chlorination Capacity from 110KTPA to 175KTPA FY18
Expanded from 250 tpm to 1,000 tpm.
- 1st phase from 250 tpm to 450 tpm Q1FY16
- 2nd Phase from 450 tpm to 1,000 tpm Q2FY17
Greenfield capacity of 30,000 tpa at Jhagadia, reached capacity
H2FY17
utilization of 40%
Capacity to manufacture about 8,000 – 10,000 tpa of Ethylene
H2FY17
derivatives
Exhibit 14: Capex for the next two years (~Rs16bn)
Expected Outlay
Expanding /debottlenecking of existing capacities Rs2-3bn
New R&D Set up Rs750m
Multi-year deals Rs7-8bn
Maintenance capex Rs3-4bn
Source: Company, IDFC Securities Research
 A solid base in benzene-based derivatives
AIL has evolved as one of the largest producers of benzene-based
products globally over the last decade, as the company has been investing
extensively to enhance capacity (Rs22.2bn over FY14-18 versus ~Rs8.6bn
over FY10-14). The company started its journey with a 1200mt nitro chloro
benzene (NCB) plant in 1986 and gradually scaled it up to 75000tpa by
FY16. Currently AIL’s NCB capacity is operating at 90% utilisation as of
FY18 and AIL is looking for further expansion in NCB going forward. In
FY18, AIL also increased capacity of base chlorination facility from 110,000t
to 175,000t to facilitate introduction of new range of chlorinated
compounds. As these additional capacities provide adequate feedstock for
related downstream value-added products, the company has been
increasingly focusing on this space and various other niche chemistries
since last 2-3 years, after building scale in base NCB and chlorination.
12 September 2018
 Aarti Industries

Exhibit 15: NCB capacity operating at 90% utilisation Exhibit 16: Increasing capex intensity
(tonnes)
Capital Expenditure (Rsm)
80,000 10000

7500
60,000

5000
40,000
2500
20,000
0

FY19E

FY20E
FY14

FY15

FY16

FY21E
FY17

FY18
0
FY13 FY14 FY15 FY16 FY17 FY18
Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

 Increasing proportion of value-added products

The company has plans to
invest Rs750m to set up
th
its 4 R&D plant
Through higher R&D investment, AIL has been increasing its presence in
niche chemistries where competitive intensity is low. The company is
constantly focusing on downstream products through processes like high-
value chlorination, hydrogenation, ammonolysis, fluoro-compounding, etc.
Value-added products account for 45% of total revenue compared with
~15% a decade ago. Currently, AIL has 3 R&D facilities (of which, 2 are
dedicated to pharmaceutical API business and 1 to the speciality chemicals
business), which houses 150 scientists. Meanwhile, the company has plans
th
to invest Rs750m to set up its 4 R&D plant, which will help in further
enhancing its product portfolio in speciality chemicals.

 Venture into toluene-based derivatives

AIL’s proven capabilities and demonstrated success in benzene-based
derivatives and established strong relationships with customers is enabling
the company to explore newer domains (new chemistries and value
chains). After establishing its presence in benzene-based derivatives, AIL
diversified into toluene-based derivatives by investing Rs600m to set up a
30,000tpa greenfield plant at Jhagadia (Gujarat). This plant was
commissioned in Q2FY18 and has reached 40% capacity utilisation and is
expected cross 80% utilisation by FY20E, as per management. Toluene-
based derivatives have opened up a new revenue stream for AIL, where
the market potential and margin profile is the same as benzene-based
derivatives. Moreover, AIL will be able to leverage its existing customer
relationships to cross-sell toluene-based derivatives for their downstream
use in the products already serviced by the company (optical brighteners,
agrochemicals, pigments and pharmaceuticals). At peak capacity
utilisation, we estimate the project could generate revenues of Rs3.5-4bn
over next 3-4 years, translating into ~10% of AIL’s overall revenues by FY20E.

11 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Exhibit 17: Toluene-based value chain

Nitration Clorination Hydrogenation Others

NEOT
OT
New unit at Dahej SEZ: Ethylene
MEA derivative (first of its kind in India)
6C2NT 6C2NT
ONT
4C2NT 24 DCT

26 DPT

48 Acid Key end users:

Agrochemicals  Dyes and
PT pigments  Optical brightener 
Toluene PNT MNPT
Explosive

DMPT

OCPNT OCPT 28 Acid

DEMT
MNT MT
MEMT

Source: Company, IDFC Securities Research

Newly commissioned
ethylation unit (first in
India) will receive input
material from the toluene
plant
In Q2FY17, AIL also commissioned an ethylation unit with a capacity of
8,000-10,000tpa at Dahej to manufacture ethylene derivatives, which will
receive input material from the toluene plant. The initial product
manufactured at this unit has applications in herbicides (agrochemicals).
The company plans to add other products in due course with key
applications in agrochemicals, globally. AIL is the first company in India to
have set up an ethylation unit, as it is the first in India to procure ethylene
through a pipeline and operate an environment-friendly ethylation process.

 Multi-year contracts – the next leg of growth

Benefiting from its strong execution skills and capabilities, AIL has bagged
2 multi-year contracts with global majors in FY18. These long term
agreements require AIL to supply specialised intermediates and are in line
with its preferred supplier status, and thus provide long-term visibility.

Rs40bn multi-year contract with a global agrochemical major

In June 2017, AIL entered into a multi-year agreement to supply high-value
agrochemical intermediary for use in herbicides over 10 years.
Management indicated that supplies would commence from H2FY20E. The
company expects to generate revenues (asset turnover of 1:1) at
~Rs4bn/pa over these 10 years. The project will entail an investment of
Rs40bn over a period of 10 years, to be funded through a mix of debt and
equity. The lower asset turnover of 1:1 (compared with other projects) will
be compensated by higher margin of 35-40%, leading to improvement in
ROCE (beyond FY21E)

12 | IDFC SECURITIES 12 September 2018

 Aarti Industries

2 multi-year contracts Rs100bn multi-year contract with a global major

provide long-term In December 2017, AIL signed another Rs100bn multi-year contract with a
visibility leading global chemical conglomerate to supply a high-value speciality
chemical intermediate over 20 years. Supplies are expected to commence
from FY21E and are estimated to generate revenues of Rs5bn/Rs5.5bn
over the contract period, as per management. With this deal, AIL would
enter a new chemistry range, first of its kind in India and its end products
would be among major growth initiatives for the customer. AIL will be
setting up a dedicated large-scale manufacturing facility for production of
this speciality intermediate, which will be built on the basic technology
package received from the customer with US$42m as an advance from
the customer to AIL in instalments, which would be adjusted against future
supplies. The upcoming facility will be a 100% export-oriented unit in
Gujarat. With the customer pitching in for the capex, AIL would be able to
reduce the net capital employed, enabling significantly higher ROCE for
the project.

Exhibit 18: Asset turnover declines… Exhibit 19: …But, return ratios have improved

Asset Turnover x) RoE (%) RoCE (%)

3.5 26.0

2.8
23.0
2.1
20.0
1.4
17.0
0.7

0.0 14.0

FY19E

FY20E
FY14

FY15

FY16

FY21E
FY17

FY18
FY19E

FY20E
FY14

FY15

FY16

FY21E
FY17

FY18

Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

13 | IDFC SECURITIES 12 September 2018


Exhibit 20: Salient features
Active Pharmaceuticals Ingredients
48 commercial APIs with 33 EDMF, 28
USDMF and 16 CEP (1 under
approval)
12 new APIs under development.
Owns backward-integrated facilities for
most APIs
Distinct advantage having dedicated
US, Japan and EU approvals for
steroids and anti‐cancer products
Source: Company, IDFC Securities Research
25% revenue CAGR in
pharma business over
FY18-21E
14 | IDFC SECURITIES
Aarti Industries
Pharmaceuticals - at an inflection point
AIL’s pharmaceuticals (pharma) business, which comprises API,
intermediate and xanthine derivatives, currently accounts for 15% of total
revenues (as of FY18). AIL has 4 pharma manufacturing units, of which, 2
are USFDA and 2 are WHO-GMP approved. AIL has been bearing the brunt
of overall weakness in the global pharma generic industry since last couple
of years, which has been marred by worsening price erosion and delays in
complex drug approvals. Moreover, increased investments (capital
employed almost doubled over FY14-18 to Rs7.3bn) and lower utilisation,
especially in the intermediates segment, impacted AIL’s overall margins (9-
11% over FY16-17). During FY14-18, AIL posted 22% CAGR in pharma
revenues with margins improving to 14.2 in FY18 (11.3% in FY17). The
business has seen a turnaround in last 2-3 quarters, with AIL registering
40% and 41.1% revenue growth and margins improving to 17.1% and 17.4%,
in Q4FY18 and Q1FY19, respectively, led by 1) improving utilisation (from
60% in FY16 to 80% in FY18 and 2) shift in business from China to India.
Pharma Intermediates for Innovator
Xanthine Derivatives
& Generics Company
Commissioned a new unit for caffeine
CRAMs activity focused on
dedicated to meet the demand for
intermediates
cola/energy drink manufacturers in FY15
Dedicated 50 scientists working in
Doubled capacities to cater to demand
separate R&D blocks for these
for cola/energy drink manufacturers.
Intermediates
Have developed 10 API intermediates
Working with several Innovators on
API Intermediates opportunities
 Past capex bearing fruits
AIL’s products find applications in drugs across numerous therapeutic
areas that include anti-hypertension, anti-asthma and anti-cancer. The
company has been consistently increasing its share of operations and
engagement with various customers in the regulated market space.
Exports constitute ~51% of sales and ~60% of it comes from the EU and the
US. Within the regulated space, AIL is looking to address the older/already
off-patent generics, areas in which few/restricted suppliers operate.
During FY14-17, AIL invested extensively in the pharma business to
increase capacity (capital employed almost doubled to Rs7.3bn over FY14-
18). AIL posted 20% CAGR in pharma revenues over FY14-17, while margins
remained subdued at 11% in FY17. However, higher utilisations in recently-
commissioned capacities and a range of 48 commercial APIs, with 33
EUDMFs, 28 US DMF and 16 CEP, led to significant improvement in revenue
growth and profitability of the business in FY18. As majority of the factors
are already built in, positive operating leverage will lead to profitability
improvement, in our view. FY18 revenues grew at robust 30.5% yoy, while
margins improved to 14.2% during the period. We expect the growth
momentum to continue at 25% revenue CAGR over FY18-21E and EBITDA
margins to remain stable at 17% over FY18-21E. Increased global volumes
(particularly in regulated markets) and positive operating leverage will
accentuate growth in AIL’s pharma business
12 September 2018
 Aarti Industries

Exhibit 21: Pharma Revenues to grow at a CAGR of 25% over FY18-21E

Pharma (Rs bn - LHS) yoy (% - RHS)

12.0 44.0

9.0 33.0

6.0 22.0

3.0 11.0

0.0 0.0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: Company, IDFC Securities Research

 Shift in business from China to India

Indian companies For companies manufacturing APIs globally, China has been a traditional
manufacturing source for intermediates. However, tighter compliance with pollution
intermediates benefited norms, increasing and stricter regulatory processes and consolidation of
from import substitution pharma companies led to suppliers getting thinner, which impacted the
supply of various intermediates as also the prospects of Chinese suppliers.
Indian companies manufacturing intermediates thus benefited from import
substitution. We believe AIL too should be able to establish a strategic
position in the intermediates space, as it already serves several pharma API
companies.

15 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Financial Analysis
 Volumes to grow at ~15% per annum over FY18-20E
We estimate 22% revenue AIL posted 10% revenue CAGR, led by 10-12%volume growth over FY14-18.
CAGR for AIL over FY18- If crude prices remain stable, we estimate 22% revenue CAGR for AIL over
21E FY18-21E on the back of higher volumes (~12-15%). Capacity expansions in
both pharma and speciality chemicals businesses, coupled with revenue
contribution from the recently signed multi-year deals (2HFY20E and
FY21E onwards) should aid volume growth, in our view. Any drastic decline
in crude oil prices can have impact on revenue growth.

Exhibit 22: Revenue growth aided by volume growth

Revenue (Rs bn - LHS) yoy (% - RHS)
80.0 30.0%

60.0 22.5%

40.0 15.0%

20.0 7.5%

0.0 0.0%
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Source: Company, IDFC Securities Research

 EBITDA margin to improve to 18.8% CAGR over FY18-21E

Continued contribution As AIL has adopted a cost-plus model, EBITDA growth is a function of
from value-added sales volume growth , while margins remain insulated against fluctuation of
products and positive crude linked RM prices. During FY14-18, AIL posted 15% EBITDA CAGR,
operating leverage from while EBITDA margins improved from 15.5% in FY14 to 18.6% in FY18, led
the pharma business to aid by higher contribution from value-added products. We estimate 18.8%
EBITDA growth EBITDA margin in FY21E, driven by continued increase in contribution from
value-added products and positive operating leverage from the pharma
business. EBITDA is expected to post 22% CAGR over FY18-21E.

Exhibit 23: EBITDA margins insulated on cost-plus model

EBITDA (Rs bn - LHS) EBITDA Margins (% - RHS)

12.0 24.0

9.0 18.0

6.0 12.0

3.0 6.0

0.0 0.0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, IDFC Securities Research

 Upfront capex to pressure on FCFs in the near term

AIL’s operating cashflow improved significantly over FY14-18, which the
company used to incur a capex of ~Rs22.2bn. Management has indicated a
capex of over Rs16bn over the next two years, expected to be funded by a
mix of debt and internal accruals. Despite the increase in capex intensity,
management expects to maintain its debt/equity ratio at 1:1, while FCF is
expected to improve FY21E onwards, once the company accrues the
benefits of capex and the capex intensity begins to ease.

16 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Exhibit 24: Negative FCF due to upfront capex model

Free cashflows (Rs m)
0

-1,000

-2,000

-3,000

-4,000

-5,000
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Source: Company, IDFC Securities Research

 Return ratios to improve gradually over FY18-21E

We estimate 24% net AIL reported 20% net profit CAGR over FY14-18. Its ROE and ROCE stood
profit CAGR over FY18-21E at 21.6% and 16.2%, respectively, in FY18. However, stable interest costs
despite the increase in debt (due to lower interest rates and shift in mix
towards lower foreign currency debt) and stable depreciation led to higher
net profit growth versus EBITDA growth. We expect net profit growth
momentum to continue and estimate 24% net profit CAGR over FY18-21E;
ROE and ROCE are expected to improve to 22.1% and 17%, respectively, by
FY21E.

Exhibit 25: PAT to grow at a CAGR of 24%(FY18-21E) Exhibit 26: Return Ratios to improve gradually

PAT (Rsm - LHS) yoy (% - RHS) RoE (%) RoCE (%)

8.0 30.0% 26.0

6.0 22.5% 23.0

4.0 15.0% 20.0

2.0 7.5% 17.0

0.0 0.0% 14.0

FY19E

FY20E
FY13

FY14

FY15

FY16

FY21E
FY17

FY18

FY19E

FY20E
FY14

FY15

FY16

FY21E
FY17

FY18

Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

17 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Key Risks
 Raw material fluctuations
Although AIL follows a cost-plus mechanism for various speciality
chemicals, availability of RMs and fluctuation in RM prices pose marginal
risk on the company’s working capital.

 China comeback
Aggressive come-back by Plant shutdown in China due to environmental issues coupled with higher
Chinese players remains a labour costs have led to the shift in business from China to India. However,
key risk any aggressive come-back by Chinese players remains a key risk.

 US–China trade war

In the last few months, the US and China have been going back and forth
over tariffs on numerous products. The effects of a trade war are unlikely
to be restricted to merely these two countries and could disrupt the global
supply chain. Due to this, India too could find some change in its economic
dynamics, chemicals space included.

 Limited R&D investments

AIL spends less than 2% of its sales on R&D, which is lower versus peers.
Over the next few years, the company aims to increase its scope of R&D
activities towards niche/differentiated products. Inability to successfully
execute these plans could create growth challenges in the medium term.

18 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Valuation & View

AIL is in a pole position to AIL has a strong foothold in the Indian chemicals space, thanks to its
capitalise on new diversified business, strong client relationships and large-scale Integrated
opportunities emerging in operations. Promoted by first-generation technocrats, AIL has emerged as
the Indian specialty a leading player in benzene-based intermediate products, and has become
chemicals space an integral part of value chain for several global chemical majors. AIL’s
backward/forward-integrated and diversified business model, which
involves the supply of ~125 products to 700-800 customers across
geographies, underpins its competitiveness.

Over the years, AIL has managed a smooth transition of its business model
from import substitution to focussing on global exports. In a further
evolution of its business model, the company has now begun to put in
place strategies to partner with global players. Given that a quite a few
peers have struggled to make these transitions, AIL’s success underlines
management’s strategic vision backed by strong execution capabilities.
With growing easternisation of the global chemical industry, we believe
AIL is in a pole position to capitalise on new opportunities emerging in the
Indian specialty chemicals space. Two recent multi-year contract win
(worth Rs140bn) with global players exhibit AIL’s growth potential.

Despite significant forex and crude volatility, AIL posted 15%/20%

EBITDA/PAT CAGR over FY14-18 with 21.6% RoE in FY18, reflecting the
robustness of its business model. The company’s net profit growth is set
to accelerate in the medium term from 20% over FY14-18 to 24% over
FY18-21E, led by higher volume growth (12-15%) and increased contribution
from value-added products.

AIL has been trading at 11-14x EV/EBITDA (1 year forward) and 18-24x
earnings (1 year forward) over last three years, re-rating driven by
consistent and strong earnings growth over the years. Given, strong
medium term earning visibility backed by improving return ratios with
significant potential for earning upsides, we expect these multiples to
sustain. We initiate coverage on the stock with an Outperformer rating and
a target price of Rs1572, based on 20x FY21E earnings and 12.5x
EV/EBITDA FY21E.

Exhibit 27: One year forward P/E Exhibit 28: One year forward EV/EBITDA
Aarti Industries 7.0 (Rs bn) Aarti Industries 3.7
3.5 7.2
3.4 10.4 10.9
17.4 160
1,600

120
1,200

800 80

400 40

0 0
Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
Sep-10

Mar-10
Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Mar-12
Sep-17

Sep-18

Mar-11

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18
Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Source: Company, IDFC Securities Research Source: Company, IDFC Securities Research

19 | IDFC SECURITIES 12 September 2018

 Aarti Industries

Income statement Key ratios

Year to 31 Mar (Rs Year to 31 Mar FY17 FY18 FY19E FY20E FY21E
FY17 FY18 FY19E FY20E FY21E
m) EBITDA margin (%) 20.7 18.4 18.2 18.5 18.7
Net sales 31,635 38,061 46,849 55,728 68,036 EBIT margin (%) 16.8 14.5 14.6 14.8 15.0
% growth 5.2 20.3 23.1 19.0 22.1 PAT margin (%) 10.0 8.7 8.8 9.0 9.4
Operating expenses 25,100 31,069 38,327 45,422 55,345 RoE (%) 24.1 21.6 22.0 21.6 22.1
EBITDA 6,535 6,991 8,522 10,306 12,691 RoCE (%) 18.9 16.2 16.2 16.0 17.1
% change 14.2 7.0 21.9 20.9 23.1 Gearing (x) 1.0 1.1 1.2 1.1 0.9
Other income 20 78 75 75 75 Net debt/ EBITDA
2.2 2.7 2.8 2.7 2.4
Net interest cost 1,173 1,317 1,640 1,786 1,946 (x)
FCF yield (%) 0.1 (2.2) (2.9) (1.7) (0.3)
Depreciation 1,225 1,462 1,667 2,084 2,457
Dividend yield (%) 0.1 0.1 1.0 1.2 1.5
Pre-tax profit 4,156 4,290 5,290 6,511 8,362
Deferred tax 284 220 0 0 0
Current tax 597 609 1,058 1,367 1,840 Valuations
Profit after tax 3,275 3,462 4,232 5,144 6,523 Year to 31 Mar FY17 FY18 FY19E FY20E FY21E
Preference dividend 0 0 0 0 0 Reported EPS (Rs) 38.5 41.0 50.4 61.6 78.6
Minorities (118) (132) (132) (132) (132) Adj. EPS (Rs) 38.5 41.0 50.4 61.6 78.6
Adjusted net profit 3,158 3,330 4,100 5,012 6,391 PE (x) 34.0 31.9 25.9 21.2 16.6
Non-recurring items 0 0 0 0 0 Price/ Book (x) 7.5 6.4 5.1 4.1 3.3
Reported net profit 3,158 3,330 4,100 5,012 6,391 EV/ Net sales (x) 3.9 3.3 2.8 2.4 2.0
% change 22.9 5.5 23.1 22.2 27.5 EV/ EBITDA (x) 18.7 18.0 15.3 13.0 10.8
EV/ CE (x) 4.0 3.3 2.8 2.4 2.1
Balance sheet
As on 31 Mar (Rs Return Ratios to improve
FY17 FY18 FY19E FY20E FY21E
m)
Paid-up capital 411 407 407 407 407
Preference capital 0 0 0 0 0
Reserves & surplus 13,214 15,377 19,478 24,490 30,881
Shareholders'
14,263 16,554 20,654 25,667 32,058
equity
Total current
4,533 5,428 6,846 8,164 9,317
liabilities
Total debt 14,362 19,208 24,261 27,908 30,209
Deferred tax
1,554 1,774 1,774 1,774 1,774
liabilities
Other non-current
278 310 310 310 310
liabilities
Total liabilities 20,727 26,720 33,191 38,156 41,610
Total equity &
34,990 43,274 53,846 63,822 73,668
liabilities
Net fixed assets 19,644 24,324 30,594 36,532 41,125
Investments 470 472 472 472 472
Cash 285 321 495 467 376
Other current assets 14,571 18,140 22,268 26,334 31,676
Deferred tax assets 0 0 0 0 0 Shareholding pattern
Other non-current
22 17 17 17 18
assets
Net working capital 10,322 13,033 15,917 18,638 22,735
Total assets 34,991 43,275 53,846 63,822 73,668

Cash flow
Year to 31 Mar (Rs
FY17 FY18 FY19E FY20E FY21E
m)
Pre-tax profit 4,156 4,290 5,290 6,511 8,362
Depreciation 1,225 1,462 1,667 2,084 2,457
Chg in Working
(627) (2,674) (2,710) (2,749) (4,189)
capital
Total tax paid (597) (609) (1,058) (1,367) (1,840)
Net Interest 1,173 1,317 1,640 1,786 1,946
Others 0 0 0 0 0
Operating cash
5,404 3,818 4,830 6,265 6,737
flow
Capital expenditure (5,302) (6,138) (7,936) (8,022) (7,051)
Free cash flow
102 (2,320) (3,107) (1,757) (314)
(a+b)
Chg in investments (57) (3) 0 0 0
As of Jun 18
Debt raised/(repaid) 2,028 4,846 5,053 3,647 2,301
Net interest (1,173) (1,317) (1,640) (1,786) (1,946)
Capital
(226) (4) 0 0 0
raised/(repaid)
Dividend (incl. tax) (99) (99) (1,230) (1,504) (1,917)
Other items (580) (1,068) 1,230 1,503 1,917
Net chg in cash (5) 36 174 (28) (91)

20 | IDFC SECURITIES 12 September 2018

 Aarti Industries

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