Cashing in on a dream run

Rising cost of production of chemicals in China due to tighter environmental norms and depreciation of the rupee has put India’s speciality chemical sector on a strong footing over the past one year. Riding on those tailwinds, Aarti Industries stock  gained 61% to #1,437 (as of November 16) in a year compared with the six percent return by the Sensex. As the stock continues to scale new highs, promoter Chandrakant Vallabhaji Gogri decided to cash in on the stock’s dream run by selling  143,160 shares worth #202 million between November 7 and November 15 in seven tranches. Post the sale in tranches, Gogri’s stake has gone down from 4.15% to 3.97%. 

Overall, Gogri along with promoter groups sold shares worth #342 million in the year FY19. Of these, Gogri disposed shares worth around #316 million in the current financial year. In FY18 too, the promoters sold shares worth #143 million. The promoters have pared their stake from 53.78% in March 2017 to 53% in September 2018. 

The latest sale in tranches comes at a time when the sector is poised to take advantage of favourable global conditions. According to Edelweiss Securities, sustained clamp down on chemicals manufacturing in China, demand uptick in the global agrochemicals industry and recent weakness in rupee enhances the cost competitiveness of the domestic manufacturers compared to global players.

Aarti Industries reported a robust set of numbers in the September quarter thanks to strong volume growth and increasing share of high-value products. Net sales increased by a healthy 46.36% (yoy) to #1,299.52 crore while net profit surged 56.57% to #122.92 crore. Analysts remain bullish on the company’s prospects and believe it will continue its upward growth trajectory thanks to its new deal signings and increased capacity.  Analysts estimate that its revenue and profit will see a CAGR of 20% and 22% respectively over FY18-21.

At 16.6x FY21 estimated  earnings, analysts see more room for an upside, given its strong earnings visibility and healthy return ratios