Aarti Industries Ltd
Outperformer
Target Price: Rs723
CMP: Rs700
Upside: 3.3%
Volume driven growth ahead
Aarti Industries Ltd (AIL), for Q2FY17, reported decent set of numbers. EBITDA grew 14.6% YoY to Rs151 crore with margins expanding by 270bps to 21.3% due to decline in raw material cost. Net profit grew 24.2% to Rs76 crore due to fall in tax rate. Overall volumes in the specialty chemical segment grew by 2% YoY in Q2FY17; volumes were affected due to decline in demand from the Agrochemical sector. Exports accounted for 48% of revenue. During the quarter, AIL had commercialized production at multipurpose Ethylation unit at Dahej SEZ (Gujarat) with an annual capacity of about 8,000-10,000 tonnes and completed the 2ndphase of PDA capacity expansion from 450 tonnes per month (tpm) to 1,000 tpm.
Valuation and View: Management expects growth in H2FY17 to be largely volume driven. It expects speciality chemical volume to grow between 7-10% for FY17 and pharmaceutical to grow around 15-20%. In the Q1FY17 result update, we had an Accumulate rating on AIL with a target price of Rs665 and upside of 14%. The stock has marginally outperformed our expectation and given a return of 20% (since Aug 12, 2016). At CMP of Rs700, stock is trading at 15.5x its FY18E earnings. It is difficult to say if market will further re-rate the stock, however in the current market scenario when domestic demand is expected to see a temporary contraction due to currency demonetization, export oriented businesses (AIL has around 50% exports) are likely to see higher buying interest. This, along with AIL's good financials might result in stock continuing to outperform.
Q2FY17 Financial Summary
| Y/E Mar (Rs Cr.) | Q2FY17 | Q2FY16 | YoY (%) | Q1FY17 | QoQ (%) |
| Revenue | 710 | 710 | 0.0 | 735 | (3.4) |
| EBITDA | 151 | 132 | 14.6 | 155 | (2.4) |
| Margin (%) | 21.3 | 18.5 | 270bps | 21.0 | 22bps |
| PAT | 76 | 61 | 24.2 | 83 | (7.9) |
| EPS (Rs) | 9.12 | 7.35 |
| 9.90 |
|
Source: Company, Centrum Wealth Research
Specialty chemical volumes to grow at a healthy pace: Speciality chemical volumes in Q2FY17 were mainly affected due to decline in demand from the Agrochemical sector. However the management foresee the trend to reverse in H2FY17 and expects demand from Agrochemical sector to rebound. The company now expects volumes to grow between 7-10% in FY17 and 10-15% in FY18.
Pharma business rebounding on growth track: Due to a slowdown in overall business, the pharmaceutical segment grew mere 3% YoY in H1FY17. The management expects growth to bounce back in H2FY17 and expects this segment to grow between 15-20% in FY17 (25-30% growth in H2FY17). In Q2FY17, EBIT for the segment grew 28% to Rs12 crore with margins expanding by 191bps to 11.9%.
Commercialization of key projects on track: During Q2FY17, AIL has started production at multipurpose Ethylation unit and completed the 2nd phase of expansion of its PDA capacity. It further plans to set up a Nitration (Toulene) unit in H2FY17 and is developing a co-generation power plant. AIL further plans to incur capex of Rs700-800 crore over the next 2 years towards building up new capacities.
Risk factors: 1) Unavailability of key raw materials like nitric acid; 2) Volatility in crude oil prices; 3) Depreciation of Chinese Yuan.
The Byke Hospitality Ltd
Buy
Target Price: Rs241
CMP: Rs178
Upside: 36%
On-track growth
The Byke Hospitality Ltd (Byke) for Q2FY17, reported good set of numbers with strong growth in revenue (18% to Rs54 crore) and EBITDA (20% to Rs12 crore). Byke maintained excellent occupancy levels at ~56% in spite of seasonally weak quarter and has sold ~1.3 lakh room nights in room-chartering business registering a growth of 14% YoY. Net profit has grown by 19% YoY to Rs6 crore. Byke has added 2 new properties in the quarter at Mumbai (40 rooms) and Jaipur (80 rooms) taking its hotel room portfolio to 797 rooms with 11 properties. The management in its post result conference call has maintained its guidance of for adding 8 properties (addition ~400-500 rooms) by FY18. It has also maintained its target of selling 7 lakh room-nights in chartering business and EBITDA margins of 24% in FY17.
Valuation and View: Post Q1FY17 results, we had a buy rating on the stock. In line with our expectations stock has outperformed the market with a return of ~10% since the last update. At the CMP, the stock is trading at 13.3x its FY18E EPS. Byke's strong expansion plans and increasing focus on value added segments like F&B are key growth drivers in the long run. We expect Byke to command higher valuation on the back of its strong growth trajectory along with healthy financials. We maintain BUY on Byke on the back of good growth, strong financials and attractive valuations with a target price of Rs241, valuing it at 18x its FY18E EPS.
Q2FY17 Result Summary
| Y/E Mar (Rs Cr.) | Q2FY17 | Q2FY16 | YoY (%) | Q1FY17 | QoQ (%) |
| Revenue | 53.6 | 45.4 | 18.0 | 61.9 | (13.4) |
| EBITDA | 12.2 | 10.1 | 20.4 | 12.9 | (5.6) |
| Margin (%) | 22.7 | 22.2 | 50bps | 20.8 | 190bps |
| PAT | 5.8 | 4.9 | 19.2 | 6.4 | (9.2) |
| EPS (Rs) | 1.5 | 1.2 |
| 1.6 |
|
Source: Company, Centrum Wealth Research
On-track expansion plans: Byke has added two new properties in the current quarter 'The Byke Grassfield Riviera, Jaipur' and 'The Byke Hotel Delotel, Mumbai' and plans to add 3 properties in FY17 and 5 in FY18, keeping its expansion well in line. In spite of seasonally weak quarter Byke's revenue have grown by 18% on the back of improved occupancy and a higher ARR. The company has managed to improve its margins by 50 bps to 22.7% in Q2FY17. The company reiterated its plan to take its Owned & Leased hotel portfolio to 25 by FY20 (from 11 currently) and achieve a top-line of Rs500 crore by FY19. We expect hotel and F&B revenues to register a 34% CAGR over FY16-18E on the back of the new hotels addition.
Room chartering growth trend on track: During Q2FY17, Byke sold ~1.3 lakh room nights growing at ~14% YoY and targets to sell 7 lakh room nights in FY17. For Q3FY17, Byke has invested Rs37 crore for Room chartering (close to 2 lakh room nights) and has substantially increased its focus on weekend business which is margins accretive. We expect room chartering revenues to report a 33% CAGR over the next two years.
Risk factors: 1) Short term demand contraction due to currency de-monetization 2) Any delay in commissioning of new property, 3) Decrease in tourist travel due to any natural or Man-made calamity.
Regards,
Centrum Wealth Research
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.
No comments:
Post a Comment