Aarti Industries shares fell more than 8% on May 10, a day after the speciality chemicals company’s fourth-quarter earnings call. Management highlighted weak demand in key markets and discretionary sectors.

“Carte blanche demand is slow, while demand from the agricultural and polymer markets continues. Products related to the textile industry, such as dyes and pigments, remain sluggish,” management said.

The stock was quoted at Rs 512.25 on the NSE at 11.10 am, down 8.07% from its previous close. The stock is down 16% so far in 2023.

The company also supplies discretionary products to “informal markets” such as China, resulting in lower-than-normal profit margins. Demand in “regular markets” such as North America and Europe remained weak.

Aarti Industries’ profit rose 2% year-on-year to Rs 149 crore in the quarter that ended March 2023, while revenue rose 15% to Rs 1,656 crore. However, revenue was flat sequentially.

EBITDA margin declined to 15.2% from 17.3% in the previous quarter and 18.2% year-over-year. The company’s net debt rose to Rs 2,700 crore from Rs 2,500 crore in September 2022.

That said, brokerages are still optimistic about the stock. Yes, Securities maintained its Buy call on the stock with a target of Rs 730. “Management expects demand sentiment to normalize in FY24 and maintains Ebitda guidance of around Rs 1,700 crore for FY25, growth in FY26 and beyond will be driven by the commissioning of chlorotoluene capacity,” it noted.

Nuvama Institutional Equities also has a Buy rating of Rs 776. “We believe Aarti Industries offers a favourable risk-reward of 30x FY25E EPS given the recovery in earnings and returns,” it said in a recent note.

However, analysts at Nuvama have cited project commissioning delays and slow demand recovery as key risks for the company.

Meanwhile, Kotak Institutional Equities has a Neutral rating with a target of Rs 557. It sees the revival of competition from Chinese producers, evident in some areas, such as agrochemicals, as an added challenge.