At a Glance
Aarti Surfactants makes the chemicals behind your shampoo foam and dishwashing glory — but its own balance sheet needs a little personal care. Margins are slippery, ROE is underwhelming, and while it’s up 40% from lows, this soap stock still trades at a premium to peers. Here’s the dirty-laundry breakdown.
1. Introduction with Hook 🧽
What happens when a specialty chemical stock is born from a demerger but doesn’t inherit the parent company’s swag? You get Aarti Surfactants, the milder cousin of Aarti Industries — spinning out in 2018 with dreams of becoming the next Pidilite.
But after 5 years, investors are wondering: is this a Head & Shoulders moment or a Clean & Gone situation?
2. WTF Do They Even Do? 🧴
- Core business: Home and Personal Care Ingredients (HPCI)
- Makes ionic and non-ionic surfactants, i.e., chemical compounds that make your soap foam, your detergent effective, and your shampoo luxurious.
- End industries:
- FMCG (soaps, shampoos, detergents)
- Agrochemicals
- Oilfield chemicals
- Industrial cleaning agents
- Product segments:
- Fatty Alcohol Sulphates, Ethoxylates, and Blends
- Works closely with large FMCG clients (no public names, but think HUL, P&G, etc.)
3. Financials – Profits, Margins, ROE 💸
| Metric | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| Revenue (₹ Cr) | 466 | 576 | 601 | 590 | 659 |
| EBITDA (₹ Cr) | 46 | 32 | 48 | 62 | 42 |
| EBITDA Margin | 10% | 6% | 8% | 11% | 6% |
| PAT (₹ Cr) | 22 | 5 | 13 | 21 | 15 |
| ROCE | 13% | 7% | 11% | 15% | 8% |
| ROE | 25% | 6% | 14% | 25% | 17% ➡️ 5% |
🧠 TL;DR:
- Margins are foam-based: rising in FY24, falling again in FY25.
- FY25 PAT dropped 28% YoY, EPS down to ₹17.2
- ROE collapse shows return on capital is not compounding as hoped.
4. Valuation – Cheap, Meh, or Crack? 🤯
| Metric | Value |
|---|---|
| CMP | ₹557 |
| Market Cap | ₹473 Cr |
| EPS (FY25) | ₹17.2 |
| P/E (TTM) | ~32x |
| Book Value | ₹275 |
| P/B Ratio | ~2.0x |
🧮 Fair Value Estimate:
Let’s assume normalized FY26E EPS = ₹22
Apply a reasonable multiple of 20–22x (due to mid-cap size, volatile earnings)
→ FV range = ₹440 – ₹485
🎯 At CMP ₹557, the stock is pricing in a lot of turnaround optimism. Not cheap.
5. What’s Cooking – News, Triggers, Drama 🍳
- Recent Rating Upgrade by CARE in June 2024
- Volatile quarterly results (Mar 2025 PAT = ₹9.7 Cr vs ₹0.8 Cr QoQ!)
- Rights issue in Jan 2023 – dilution overhang
- Promoter holding steady at 49.92%
- No blockbuster capex or new product expansion announced
- Still highly dependent on input cost volatility (fatty alcohol, ethylene oxide etc.)
6. Balance Sheet – How Much Debt, How Many Dreams? 💀
| Metric | FY25 |
|---|---|
| Total Debt | ₹110 Cr |
| Equity + Reserves | ₹232 Cr |
| Debt/Equity | 0.47x |
| Fixed Assets | ₹206 Cr |
| CWIP | ₹13 Cr |
Not bad — debt has come down from ₹162 Cr (FY22) to ₹110 Cr (FY25). D/E ratio is manageable. No major working capital stress, but cash flow isn’t exciting.
7. Cash Flow – Sab Number Game Hai 🧾
| Metric | FY25 |
|---|---|
| CFO | ₹11 Cr (↓ from ₹52 Cr FY24) |
| Capex | ₹16 Cr |
| FCF | Negative ₹5 Cr |
| Financing Cash Flow | Neutral |
| Net Cash Flow | -₹5 Cr |
From +₹52 Cr CFO in FY24 to just ₹11 Cr in FY25 — ouch.
8. Ratios – Sexy or Stressy? 😬
| Ratio | Value |
|---|---|
| ROCE | 8.5% |
| ROE | 5.1% |
| OPM | 6.3% |
| Inventory Days | 92 |
| Cash Conversion Cycle | 71 Days |
| Working Capital Days | 81 Days |
🧼 Inventory bloat + low ROE = classic chemical sector curse. Unless volumes pick up or margins jump, these ratios will struggle.
9. P&L Breakdown – Show Me the Money 🧮
- FY25 Revenue = ₹659 Cr
- EBITDA = ₹42 Cr
- Interest = ₹12 Cr
- Depreciation = ₹17 Cr
- PBT = ₹21 Cr
- PAT = ₹15 Cr
- EPS = ₹17.19
📉 FY25 PAT down 28% YoY, with operating leverage weakening.
10. Peer Comparison – Who Else Is in the Game? 👀
| Company | P/E | ROE | OPM | Sales (₹Cr) |
|---|---|---|---|---|
| Vinati Organics | 50x | 15.7% | 26% | 2,248 |
| Deepak Nitrite | 38x | 13.7% | 13% | 8,281 |
| Aarti Surfactants | 41x | 5.1% | 6.3% | 659 |
| Navin Fluorine | 84x | 11.5% | 22.7% | 2,349 |
🧨 Aarti is priced like a mid-tier performer, but operating like a junior player. Valuation mismatch?
11. Misc – Shareholding, Promoters, Etc. 🧑💼
- Promoters: 49.92%
- Public: 49.13%
- FIIs: Practically exited
- DII: Minimal stake
- Shareholder count shrinking: down to 38,500 in Mar 2025
- No pledging, no ESOP dilution — clean corporate governance
12. EduInvesting Verdict™ 🧠
Aarti Surfactants looks like a small-cap FMCG ingredient play with low capital intensity and a modest product moat. But…
- FY25 performance was weak
- ROE crashed
- Cash flows shrank
- Valuation is frothy, not foamy
📉 Unless gross margins expand or volumes grow, the current 40x P/E looks more luxurious than Lux soap.
📊 Fair Value Range = ₹440–₹485, which is 20% below CMP ₹557
🧼 Sometimes the cleanest stocks aren’t the clearest investments.
✍️ Written by Prashant | 📅 July 8, 2025
Tags: Aarti Surfactants, specialty chemicals, FMCG ingredients, surfactants, valuation, ROE, stock analysis, EduInvesting
