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15-Jun-2020 AARTIIND Aarti Industries Ltd. SMALLCAP WORLD FUND INC SELL 15,97,950 854.71
15/06/2020 524208 AARTIIND SMALLCAP WORLD FUND INC S 1,000,000 855.00
total almost 26L shares sold today in NSE and BSE
NSE data - approx 51L shares traded with 74% delivery.
Mgmt commentary of no impact on next two year performance/guidance/margins
Asset stays with Aarti and can monetize it in addition to settlement amount.
Invested and added today
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Capex of 400Crs and receiving 800Crs without operation cost in 2 years? Isnāt it great deal?
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I have the same question. It has been a while since the demerger was announced.
The impact of cash flow on account of termination of contract: Since Aarti Industries was to get 80crs/annum as PAT (20% margin) and due to termination it likely to receive a compensation cash flow of $20mn each in FY21 and FY22, and $80mn in FY23, below is the calculation of NPV of the same:
You are not accounting for the fact that the asset is already built and the company can use it and sell to other clients and also make other products. So, the outcome for Aarti is actually not bad as I had mentioned initially.
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Incremental update on 20th June ( 20May and results concall being earlier)
Tone seems much more cautious and border case pessimist compared to concall which seemed much better - could be just my way of looking at it. No mention of Above key project cancellation ( was covered in call adequately).
- Non essential biz(40% topline) to see contraction
- Supply chain issues - transport/labor/port and so on
- Project commencement delays likely- deferment of some sort on milestones
Add to it incessant selling by part of promoter groups. Raising funds for charity on almost every few days basis?? Wouldnāt it be more constructive to find a strategic/fin investor rather than this part by part approach.
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Continuous selling continues from the promoter group ā¦ Size is not that big but kind of unsettling that why will people keep selling a good business.
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Demerger - Aarti Inustries - Aarti Surfactants
We can see aarti surfactants being listed
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| S.No. | Name | CMP Rs. | P/E | Mar Cap Rs.Cr. | ROE 10Yr % | ROE 7Yr % | ROE 5Yr % | ROE 3Yr % | ROCE3yr avg % | Debt / Eq | M.Cap / Sales | Free Cash Flow 10Yrs Rs.Cr. | Free Cash Flow 7Yrs Rs.Cr. | Free Cash Flow 5Yrs Rs.Cr. | Free Cash Flow 3Yrs Rs.Cr. | Free Cash Flow Rs.Cr. |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Pidilite Inds. | 1463 | 84.2 | 74339.71 | 27.08 | 26.95 | 27.55 | 26.22 | 35.58 | 0.06 | 12.08 | 4469.36 | 3711.02 | 3363.63 | 1950.68 | 835.62 |
| 2 | Aarti Industries | 1015 | 36.24 | 17684.8 | 21.84 | 22.34 | 22.73 | 21.7 | 16.93 | 0.7 | 4.1 | -237.19 | -221.51 | -293.47 | -357.4 | -23.44 |
From last 10 yearsā¦not even single year free cash flow generated?..is it not a red flag?..Please advise.
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ICICI Direct has initiated coverage on Aarti Industries
I agree with your view, but FCF turned negative after year ended Mar 16. But CFO has increased significantly and once the capex intensity reduced for Aarti Industries,it will surely make lots of free cash.main question is Can we trust the management for execution and its business model.
Nice to see your views. Negative FCF is a component of red flag study, not necessarily a red flag. Companies in āheavy investmentā mode can have negative fcf for an elongated period due to continuous CAPEX. Separately, it is important to track other metrics i.e. CFO/Sales, capex capitalisation trend, CFO/EBITDA, leverage, matching of cumulative CFO to PAT etc.
Although, financial shenanigans can still exist despite everything looking rosy on books.
Good luck.
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Nirmal Bang has initiated coverage on Aarti Industries.
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Conference call takeaways
ļ³ The Specialty Chemicals segment reported sales of Rs 11.09bn (32%/24 qoq/yoy). The
growth was on the back of higher volumes and better capacity utilization. However EBIT
margin remained lower at 17.1% (-680bps/+170bps yoy/qoq) on account of one time
effort to push higher volumes in the discretionary spend basket at lower margins in nonregulated markets.
ļ³ Update on Multiyear supply contacts: (1) With the US court verdict to ban the Dicamba
herbicide in Q1, ARTO and its partner have mutually agreed to cancel their 10 year
supply deal with an adequate compensation for ARTO. However, the US Environmental
protection Agency has recently given a five year extension for use of Dicamba
formulations. Hence, ARTO expects incremental business from its earlier build
intermediate plant developed dedicatedly for Dicamba intermediate. Guides the 2nd
phase plant commissioning in Q4 and expects to supply the intermediate in India &
China region. (2) The 2nd multiyear contract is delayed due to equipment supply issue
and Covid led lower demand. Guides to commission the plant in Q1FY22 (vs H2FY21)
and expects 50% utilization in the first year. (3) 3rd contract should start in H2FY22.
ļ¼ The Pharma segment continued its healthy growth momentum with sales at Rs 2.21bn
(15%/21.7% qoq/yoy) and 700bps/+200bps yoy/qoq jump in EBIT margin to 25.5%. This
was driven by increasing contribution from regulated markets and value-added
products. However, ARTO guides for a healthy segment sales growth of 15-20%p.a. for
next few years. The growth will be supported by strong visible demand and continued
Capex of Rs 1.50bn in FY21 and Rs 1bn p.a. thereafter.
ļ¼ ARTO guides for incremental revenue of Rs 20bn for specialty chemicals over next 2-3
years as itās continues with its aggressive Capex plans of Rs 10-12bn annually.
ļ³ FY21 Guidance: Flat FY21 earnings (due to Covid led global uncertainties) but confident
about 15-20% earnings CAGR over 3-4 year on the base of FY20
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Good interview on the prospects going forward in FY22 and FY 23
Disclosure: Invested and this is not a recommendation to buy or sell. I am not a SEBI registered advisor.
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Interesting development on the contract that was canceled, possibly the sales might still ramp up post the commissioning of Dicamba Intermediate plant
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