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On Wednesday, Aarti Industries (NSE:ARTI) Ltd (ARTO:IN) received an upgraded stock rating from UBS, transitioning from Sell to Buy, along with an increased price target of INR625.00, up from INR615.00. The revision reflects a shift in perspective following significant changes in the chemical market and the company’s strategic direction.
UBS analysts noted that the previous Sell rating was influenced by concerns over the peak of the chemical cycle and potential risks to the energy segment’s performance, particularly regarding n-methyl aniline (MMA). These issues have since been addressed, with signs of a bottoming out in the chemical cycles and a recalibration of MMA volume growth expectations after a sharp decline in gasoline-naphtha spreads.
The stock has seen a considerable drop, approximately 35% from its peak in August 2024. The upgrade to a Buy rating is supported by expectations of a meaningful improvement in Aarti Industries’ performance. This optimism is partly due to the new CEO’s strategic initiatives aimed at optimizing costs and identifying new growth drivers.
UBS anticipates a gradual improvement in the chemical cycle, supported by low channel inventory, and a steady increase in MMA volume, which has been evident in the past two quarters despite range-bound spreads. The company’s focus on market development is expected to stabilize MMA volume amid market volatility.
In addition to these factors, strategic initiatives are underway to enhance efficiency across operations. UBS suggests that the market has yet to fully appreciate these developments, as Aarti Industries’ stock is currently trading below its five-year average EV/EBITDA ratio. The upgrade reflects a confidence in the company’s continued improvement in MMA volume and profitability, along with a likely rebound in broader market demand.
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