Aarti Industries share price climbs 3.5% to 5-month high as UBS upgrades to 'buy', lifts target price to ₹625

Stocks to buy: Shares of Aarti Industries rose nearly 3.5% in early trade on Wednesday, May 28, to hit a 5-month high of ₹495 apiece, after global brokerage UBS issued a double upgrade on the stock, citing expectations of a gradual improvement in the company’s performance.

UBS upgraded its rating on the specialty chemical major from 'Sell' to 'Buy,' while raising the target price to ₹625 from an earlier ₹615 per share. The revised target implies an upside potential of about 31% from the stock’s closing level on Tuesday.

The brokerage had previously maintained a 'Sell' rating due to concerns over a peaking chemical cycle and downside risks to guidance and consensus expectations in the energy segment, particularly in n-methyl aniline (MMA). According to UBS, these factors have now largely played out, with signs of bottoming in the chemical cycle and a reset of MMA volume growth expectations, following a sharp correction in gasoline-naphtha spreads.

Looking ahead, UBS sees a meaningful improvement in Aarti Industries' performance, driven by strategic initiatives under the new CEO to optimize costs and tap into new growth drivers. The brokerage noted three key expectations:

. Gradual recovery in the chemical cycle, supported by lower channel inventory levels.

. Despite range-bound spreads, there has been a steady pickup in MMA volumes over the past two quarters.

. Strategic efficiency measures aimed at boosting margins and performance.

UBS added that the company’s focus on market development is helping cushion MMA volumes against ongoing volatility. Despite these positive developments, UBS believes the stock is not fully pricing in the recovery, as it currently trades below its five-year average EV/EBITDA multiple.

As a result, UBS turned bullish on Aarti Industries, citing continued improvement in MMA volume and profitability, along with a likely recovery in broader demand.

Aarti Industries share price trend

After remaining under pressure for seven consecutive months, buyers stepped in during March, leading to a 4% gain. The positive momentum continued on Dalal Street over the next two months, with the stock rising 8% in April and another 14% so far in May.

Despite this notable turnaround, the stock is still trading 37.5% below its recent peak of ₹765 apiece. However, from a long-term perspective, Aarti Industries remains a strong performer, delivering a robust return of 650% over the past 10 years.

Aarti Industries is one of the world's largest manufacturers of specialty chemicals based on the benzene and toluene value chain. It has large capacities for chlorination, nitration of benzene and toluene, and further processing with fluorination, hydrogenation, and ethylation.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.