Post by Bhakti Ghag

When we analyse the specialty chemical company, revenue growth alone is not enough. Because this is not a simple buy-and-sell business. Specialty chemical companies need large plants, continuous capex, working capital, R&D and long customer approval cycles. So, along with revenue growth, we also need to check the quality of growth. So, let's talk about the important ratios that help to analyse Specialty chemical companies: 𝟭. 𝗘𝗕𝗜𝗧𝗗𝗔 𝗠𝗮𝗿𝗴𝗶𝗻 This tells us how much operating profit the company can generate from its revenue. For Aarti Industries, FY26 operating margin stood at 𝟭𝟯.𝟬%. The EBITDA margin contracted mainly because of higher material costs. As per the recent management guidance, Aarti Industries is targeting margin expansion by FY28 through cost optimisation and backward integration. 𝟮. 𝗡𝗲𝘁 𝗗𝗲𝗯𝘁 𝘁𝗼 𝗘𝗕𝗜𝗧𝗗𝗔 Specialty chemical companies need heavy investment in plants and capacity expansion. So debt is not bad by itself. But the question is: “Is the company earning enough EBITDA to manage that debt?” For Aarti, FY 2026 Debt to EBITDA is 𝟰.𝟭𝟵𝘅. This means the company’s debt is approximately 4 years of EBITDA.  The ratio is on the higher side because the company has undergone a large capex cycle, partly funded by debt. Aarti Industries has targeted to bring this ratio down to below 2.5x. 𝟯. 𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗱 Specialty chemical companies invest heavily in plants, reactors, technology and capacity expansion. Aarti Industries’ ROCE is around 𝟲.𝟬%. This needs to improve as new capacities ramp up. The company has targeted around 15% ROCE over the medium term. 𝟰. 𝗙𝗶𝘅𝗲𝗱 𝗔𝘀𝘀𝗲𝘁 𝗧𝘂𝗿𝗻𝗼𝘃𝗲𝗿  Aarti Industries’ fixed asset turnover is around 𝟭.𝟭𝟬𝘅. This means for every ₹1 of fixed asset, the company is generating around ₹1.10 of revenue. For a capex-heavy company, this ratio becomes very important because new assets may take time to fully contribute. 𝟱. 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 𝘁𝗼 𝗘𝗕𝗜𝗧𝗗𝗔 Profit is important, but cash flow tells us whether that profit is actually converting into cash. Aarti Industries OCF to EBITDA is 𝟬.𝟲𝟳𝘅. This means around 67% of EBITDA is getting converted into operating cash flow. This indicates better working capital management by the company. In specialty chemicals, growth is important, but the quality of growth is even more important. Follow Bhakti Ghag for more interesting content. Save this post for later ✅ Repost to help others 🔁 Day 30 #100DaysWithTVS #Linkedin #equityresearch #finance Parth Verma | The Valuation School