Aarti Drugs Ltd and Aarti Industries Ltd:-What to be done with them?

Scripscan:Aarti Drugs Ltd
cmp:49
Code:524348

Story:The Indian pharma sector comprises a diverse set of players. There are somnolent multinationals, dictated by the policies of their remote parents. The larger Indian ones, like Dr Reddy’s and Ranbaxy, have tried to go down the path of patent challenges but got entangled in litigation launched by US pharma companies.Smaller and medium-sized Indian pharma companies have continued to play their strengths of launching bulk actives at low cost and generating steady export revenues. One such company is Aarti Drugs Ltd (ADL). Part of the Aarti group of industries, ADL manufactures vitamins, anti-arthritis, anti-fungal antibiotics and ACE inhibitors, in addition to a range of anti-diabetic, anti-cholinergic, sedatives and anti-depressants. ADL specialises as a source of generic bulk actives, advanced intermediates and specialty chemicals while, on the R&D front, it provides cost effective process development. One interesting aspect of the success of mid-sized pharma companies is their ability to provide contract research and manufacturing to partners in the developed markets. ADL too has been looking at harnessing this growth opportunity. It is focusing on contract manufacturing and direct exports and is also emerging as a supplier of APIs (active pharmaceutical ingredients) to the domestic formulation manufacturers in regulated markets.ADL has been growing at a decent rate in the recent past. What makes this stock attractive is its extremely cheap valuation.A safe bet among the pharma fraternity.A good buy at sub 30 levels.

Scripscan:Aarti Industries Ltd
cmp:37
Code:524208

Story:Aarti Industries is the flagship company of the Aarti group and is the market leader in benzene derivatives, with more than 50% market share. It has a diversified end-user profile manufacturing basic chemicals, speciality chemicals, agrochemicals and pharmaceuticals. It enjoys economies of scale from its large installed capacities for nitro- and chloro-benzene derivatives. What is turbo-driving the business is speciality chemicals.Manufacturing of APIs is done in Maharashtra (Tarapur and Dombivli) and Gujarat (Vapi, Sarigam and Jhagadia). The units are ISO/GMP certified. The API business at Tarapur managed by Aarti Healthcare recently got the approval of United States Food and Drug Administration (US FDA). This will help to increase sales volume in the US market for various high-value APIs used in manufacturing cardio-vascular, anti-asthmatic, anti-cancer, anti-thalassemic, anti-hypertensive, anti-depressant drugs, etc. It has also backward-integrated its business so that it has access to intermediates of most of the APIs it manufactures. Aarti Healthcare has also been able to obtain a Certificate of Sustainability (COS) from the European authorities for one of its key high-growth anti-hypertensive API – Ramipril. The manufacturing units with backward integration and the logistic advantage of stocking points in the US, Europe and Japan are the strengths of the company. Aarti is in discussions with a multi-billion Japanese chemical major, Sojitz Chemical Corporation, for a 50:50 joint venture to manufacture various speciality chemicals with applications in high-growth markets such as polymers, additives, high-purity electronic chemicals, etc.Finally, what is great about this company are its promoters. It is rare to find technocrats running Rs1,000 crore companies. Here is one. Chandrakant V Gogri, the chairman, is a chemical engineer from University Department of Chemical Technology (UDCT), Mumbai. He set up the Aarti group starting as a small unit three decades ago. His brother Rajendra Gogri, vice chairman, is a brilliant chemical engineer also from UDCT, Mumbai; he went on to do his master’s in chemical engineering from Iowa University of USA. Another director, Piramal Desai, is also a chemical engineer from UDCT, Mumbai.A great stock to buy for the long term and also worth adding on declines.
Source:ML