CMP: 430 & Market Cap: Rs 15,599 cr as on 25/07/2025
–RAHUL VASHISTHA
Aarti Industries is a leading manufacturer & exporter of specialty chemicals, fuel additives, APIs & other products with its global dominance across NCB & DCB (Nitro & Di-chloro benzene) value chain.
End user Industry catered by Aarti are Oil & Gas (Energy), Ag-chem, Polymer & Additives, dyes & Pigments, Pharma, electronic & automotive mfg. among others
Major chunk of the topline is contributed by the energy (MMA) vertical, i.e. around 35%. Second is Agro-chem technical that contributes about 20% to the topline followed by Polymer & Additives which is around 15% & Dyes & Pigments at around 12%.
Key Raw Materials: Benzene, aniline & Toluene, that are being derived from Crude oil, hence a lot of fluctuation in RM pricing is linked to crude.
Dedicated production Lines: Chlorination & Nitration
Fungible production lines: Ethylation, hydrogenation & ammonolysis
Outlook for each End-User Industry
Ag-Chem:
Aarti majorly produces Agro-chemical technical which are generic in nature & hence are highly vulnerable to Chinese competition due to low or negligible pricing power.
For the past 2-3 years, the sector has been reeling under tremendous pressure both in terms of high channel inventory & deteriorating pricing environment led by the excessive dumping by the Chinese players across the globe.
Volume scenario: from the past quarter it has become evident that channel destocking has been done & channel inventory is at its low. This is also substantiated by the results of Sharda Cropchem & UPL (Q4), which are also reporting volumetric growth & Aarti had suggested the same in its Q4_FY25 earnings call. There have been some initial positive signs as the Chinese exports to Brazil & the US have slowed, though these are encouraging but quite premature to jump onto any conclusion.
All & all this could lead to volumetric growth across the industry, but pricing shall still be a distant dream as the Chinese players continue to add to their existing capacities.
Polymer & Additives
In this category Aarti supplies majorly to electronic manufacturing & automotive companies based mainly In the USA & Europe. With the manufacturing activity picking up in the US, Aarti is hopeful for a strong volume recovery in this segment, but the margin recovery shall not be reflected immediately & will only play out with a lag.
Major contribution in this segment is from exports.
Electronic Manufacturing is 30% & Automotive share is also 25-30% for this segment.
Over the next half a decade these manufacturing will largely get concentrated b/w India & China.
Dyes, Pigments & printing inks
End user industries are textile, Paints & printing inks. Within the pigments section Global consolidation driven by M&A was the theme for the past year with Sudarshan Chemical acquiring Heubach Group (2nd largest pigment player in the world) for approx. Rs 1200 cr
Textile sector & Paints sector are improving but only gradually for AARTI.
We could only witness growth led by volumes, but the pricing pressure shall be persistent in this segment.
CAPEX:
Aarti has generated a CFO of approx. Rs 3800 cr & did a capex of Rs 4000 over FY23-25, their CFO to EBITDA conversion is extremely strong i.e. > 100% & W.C days ranging b/w 70-80, suggests efficient execution & working capital management by the firm.
The guidance for FY26 stands at Rs 1000 cr which will be mainly allocated towards their new initiatives of zone 4 & MPP plant at DAHEJ.
About 60- 70% of the new capacity of zone 4 & MPP shall be dedicated to Ag-chem & rest will be distributed among the remaining segments.
Over the past couple of years, a lot investment has gone into replacement, refurbishment & Expansion of NCB plants & thus making it ready for the next 20 years. As a result of which the Maintenance cost as a % of topline has come down.
DECODING THE MMA Business
MMA or Mono Methyl Aniline is used as a fuel additive to boost the octane level of gasoline also in the conversion of naphtha to gasoline
MTBE was ubiquitously used as an octane booster & Russia was a major exporter, Post the sanctions imposed on Russia due to Ukraine war & also due to red sea crisis there was scarcity of MTBE, this is where Aarti Industries came in & offered MMA as the alternative to fulfil the demand.
Understanding the octane game:
For gasoline to be commercial it needs to have a RON of 91+, High speed Gasoline has a RON of 97-98, & Aviation fuel has a RON of 100+, hence fuel additives such as MMA or MTBE are used to shoot up the octane rings in gasoline
Naphtha has a RON of 80 while crude oil has a RON of 82-85. Hence more blending is done in Naphtha using MMA or MTBE. Whenever the Spread between Naphtha & Gasoline is higher, Naphtha is converted to gasoline & MMA is used as a fuel additive.
MTBE has a Ron of 110 whereas MMA has a RON of 400, though the Pricing of MMA is almost 2x as compared to MTBE, but the tonnage requirement is almost 1/4th. Making it much more viable
Supply Chain Mechanics
The supply of MTBE is around 2.5 MnT/Year Globally, whereas the MMA capacity is still 300KTPA globally of which aarti holds 2/3rd i.e. 200 KTPA as of FY25. Having a huge leeway of growth.
Hurdles
- MTBE is dominated by large pet-chem players. For this precise reason aarti can’t supply MMA to East Asian countries such as Malysia due to dominance of PETRONAS in that region.
- Blenders have a critical role to play in terms of what fuel additive they recommend to the refineries. They act as a key man in the trade.
- Also, Refineries take about 1.5- 2 years to adjust their process chemistry according to the MMA usage.
- MMA is restricted in Russia but Not in China. Currently China does produces MMA but only for captive consumption. US is a net importer of both MTBE & MMA.
All of the above-mentioned factors play a critical role in new customer acquisition & hence we expect only gradual pick up in the business & not an immediate rapid expansion.
Aarti is currently working with 5-6 refiners across Middle east, US & Europe.
Trade Nuances
Working capital engaged is about 25-30 Mn US$ for a shipment of MMA for aarti.
Aarti has intentionally created international subsidiaries to preserve the identity of international clienteles.
The Capital employed for MMA business is about Rs 700 cr & Aarti Industry has set a target to make this vertical 2x of all other businesses combined.
ENTERING Q1-FY26
The RM pricing (Benzene) has declined 16% QoQ & 30% YoY, which will also take a hit on the realization of the end products
Street has built in an estimate of Flattish to single digit growth at a consol level on a YoY basis & some minor correction in EBITDA Level on a sequential basis. This is led by correction in benzene derivatives pricing as well as decline in MMA. There were shipment delays of MMA due to congestion & non-availability of containers at Kandla port. This disruption was caused during Indo-Pak conflict as well as during Iran-Israel conflict.
Street will be looking forward to the management commentary on revival in MMA volumes entering Q2_FY26 & also on the ag-chem industry scenario.
MMA business is the key contributor to the stock price.
Tactical stock price play: High Naphtha-Gasoline spread & High Crude oil price,
Structural stock price play: New client acquisition in MMA, Higher volumes of MMA on a sustainable basis, AG-chem pricing revival, GM revival.
| In Rs Cr | FY25A | FY26E | FY27E |
| REVENUE | 7272 | 8215 | 9475 |
| EBITDA | 1002 | 1125 | 1416 |
| PAT | 345 | 367 | 582 |
Stock Currently trades at 17x -Ev/Ebitda & 45x -P/E basis for FY26E.