The brokerage firm UBS has given a double upgrade to Aarti Industries, lifting its rating to ‘Buy’ from ‘Sell’ and revising the target price to Rs 625. The visible green shoots in the company’s performance and industry cycle is the reason behind the upgrade. The revised target price suggests a potential upside of over 30% from current levels.
UBS on Aarti industries: From peaking pressures to prospects
UBS initially held a cautious view on Aarti Industries due to a “peaking chemical cycle” and headwinds in the energy segment, particularly for n-methyl aniline (MMA). But as per the latest note from UBS, these concerns have now largely played out.
According to the brokerage, the chemical cycle appears to be bottoming out, while volume expectations for MMA have also been reset following a sharp correction in gasoline naphtha spreads. The share price of Aarti Industries, down nearly 35% from its August 2024 peak, is now showing signs of revival.
According to UBS, “We now expect meaningful improvement in company performance aided by the new CEO’s strategic initiatives to optimise costs and new growth drivers.”
UBS on Aarti industries: Chemical cycle bottoming out
UBS points out that the chemical sector is showing early signs of recovery. “There’s low channel inventory, and a gradual cycle improvement is underway,” it noted. In particular, the MMA segment, which faced sharp volume pressure due to volatile gasoline naphtha spreads, is seeing a comeback.
Over the past two quarters, MMA volumes have picked up steadily, even though spreads have remained rangebound. UBS believes this is largely due to the company’s focus on market development
UBS on Aarti industries: Reset under new leadership
With a new CEO at the helm, Aarti Industries is rethinking its strategy. UBS believes the company is taking clear steps to reduce fixed costs, improve efficiency, and ramp up high-margin segments.
“We do not believe the market is fully pricing in these factors as the stock is trading below its five-year average EV/EBITDA,” UBS observed in its note.
UBS on Aarti industries: EBITDA growth looks achievable
The company has projected an EBITDA increase of Rs 8,000-12,000 crore by FY28, supported by three key drivers: cost optimisation initiatives are expected to contribute Rs 1,500-2,000 crore; volume and margin improvements are likely to add Rs 3,500-5,500 crore; and capex-led expansion could bring in an additional Rs 3,000-4,500 crore.
UBS is optimistic but cautious. “We believe the range is achievable, considering initial green shoots across chemistries, however new capex contribution could be lower,” the report said.
The brokerage expects an EBITDA increase of around Rs 10,000 crore over FY25-28, largely driven by cost reduction and capacity utilisation, while assuming only modest contributions from new capex.
UBS on Aarti industries: MMA volumes to build gradually
One of the most crucial segments – MMA is expected to recover gradually, backed by actions like Geographical diversification, customised shipments, and better pricing mechanisms.
“The gasoline-naphtha spread has been healthy (average $13/barrel) during Q1FY26TD, despite a sharp correction in crude oil,” UBS added.
UBS on Aarti industries: Valuation and outlook
UBS has rolled forward its estimates to June 2027 and now values Aarti Industries at 30x PE, in line with its long-term average. The revised price target of Rs 625 mirrors a valuation of 15.5x EV/EBITDA on FY27 earnings.
That said, the firm has trimmed its FY26 and FY27 earnings per share (EPS) estimates by 32% and 25%, respectively, citing a weaker FY25 base.