Aarti Drugs Ltd Term Buy Call: Fairwealth Securities


The top-line of the company grew by 25.21% YoY to Rs 4714.2mn` as against Rs 3765.0mn The EBITDA expanded by 26.70%Y-O-Y to Rs.720.9mn.

The net profit improved by 73.60% on Y-o-Y basis to Rs.261.1mn due to lower interest rate.

The Company announced a dividend of Rs.5 per share. The current dividend yield stands at 3.70%.

Aarti Drugs Ltd (ADL) is a part of the Rs.12.65 Bn Aarti Group. ADL was established in 1984. The company focuses on anti-diarrhea, antiinflammatory therapeutic groups. ADL is into manufacturing of APIs and intermediates. The customer profile of ADL includes Pfizer, Searle, Knoll Pharmaceuticals, Glaxo, Etc. The company is a market leader in antidiarrhea, anti-inflammatory & anti-biotic therapeutic segment. Two of its major API’s, Ciprofloxacin Base used for Anti Biotic Segment and Diloxanide Furoate used for Antidiarrhoeals Segment are among the top exported Bulk Drugs in India.

During the quarter ended 31st March, 2010, the net sales of the company appreciated 18.84% on y-o-y basis to Rs
1269.2Mn as against Rs 1068mn during the corresponding quarter last year.

The operating performance of the company witnessed an increment of 13.62% YoY to Rs 186mn as against Rs 163.7mn. This is due to higher raw material cost during the quarter which resulted in a decline in OPM by 68bps to
14.65% as against 15.3% during the similar period last year. The raw material cost increased 27.5% to Rs 593.2mn as against Rs
465.1mn during the corresponding quarter last year.

The bottom-line of the company expanded by an impressive 58.55% Y-o-Y to Rs 72.3mn as against Rs 45.6mn during the quarter, largely on account of a fall in interest cost by 35% to Rs 33.1mn as against Rs 50.8mn. The effective tax rate fell by 500bps to 38.7% from 43.7% during the corresponding period last year.

On a Q-o-Q basis, the top-line of the company reported a marginal growth of 8.5% to Rs 1269.2mn as against Rs
1170.3mn, the operating profit of the company expanded by a massive 25.42% to Rs 186mn as against Rs 148.3mn largely due to improved top-line and better operating margins. The OPM for the quarter improved 198bps to
14.65% against 12.67% on a sequential basis.

The net profit of the company grew impressively by 50.63% to Rs 72.3mn as against Rs 48mn on sequential basis. This can be attributed to higher operating profit coupled with lower effective tax rate.