The company will be evaluated considering a group of 5 peer companies according to the market classifications. Aarti Drugs shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.
- Divi’s Labs
- Jubilant Life Sciences
- Granules India
- Aarti Drugs
About the Company:
The Company is engaged in the manufacturing of Active Pharmaceutical Ingredients (APIs), Pharma Intermediates, Specialty Chemicals and also produces Formulations with its wholly-owned subsidiary – Pinnacle Life Science Private Limited. Products under APIs include Ciprofloxacin Hydrochloride, Metronidazole, Metformin HCL, Ketoconazole, Ofloxacin etc. whereas Specialty Chemicals includes Benzene Sulphonyl Chloride, Methyl Nicotinate etc.
Over the years, the Company has been able to carve a niche for itself and is looking forward to expanding the volumes. With the government initiative to encourage private health insurance schemes, consumer spending on medicines is expected to increase, which will spur growth in the generic sector in the domestic market.
Get the Excel Dashboard used for this analysis from below:
1. Market Capitalization (★ ☆ ☆ ☆ ☆)
Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Aarti Drugs has the lowest market capitalization. This shows the below-average Enterprise Value amongst the peers. Therefore this category gets 1 star in Aarti Drugs shares relative valuation.
2. Price/Earnings Ratio (★ ★ ★ ★ ☆)
The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Aarti Drugs shares have the second-highest P/E and its above industry average, so its shares are overvalued. Therefore this category gets 4 stars in Aarti Drugs shares relative valuation.
3. Price/Book Value Ratio (★ ☆ ☆ ☆ ☆)
The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows undervalued and higher P/B shows overvalued. Aarti Drugs shares have the highest P/B amongst the competitors. Therefore this category gets 1 stars in Aarti Drugs shares relative valuation.
4.Dividend Yield (★ ☆ ☆ ☆ ☆)
The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out. Dividend yield above-average line is considered good and vice versa. Aarti Drugs has the lowest dividend yield amongst its competitors. Therefore this category gets 1 star in Aarti Drugs shares relative valuation.
5.Price/Sales Ratio (★ ★ ☆ ☆ ☆)
The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Aarti Drugs has the second-highest P/S ratio amongst the competitors which makes its shares highly overvalued. Therefore this category gets 2 stars in Aarti Drugs shares relative valuation.
6.ROCE (★ ★ ★ ★ ☆)
ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Aarti Drugs has the second-highest ROCE amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Aarti Drugs shares relative valuation.
7. Return on Assets (★ ★ ★ ★ ☆)
The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Aarti Drugs has the second-highest ROA amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Aarti Drugs shares relative valuation.
8. Price/ FCF Ratio (★ ★ ☆ ☆ ☆)
This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Aarti Drugs has the second-highest Price/FCF ratio amongst its peers and its way above the Industry average line. This shows that Aarti Drugs shares are highly overvalued. Therefore this category gets 2 stars in Aarti Drugs shares relative valuation.
9. Earnings Per Share (★ ★ ★ ☆ ☆)
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Aarti Drugs is in the 3rd position with EPS also lower than the industry average. Therefore this category gets 3 stars in Aarti Drugs shares relative valuation.
10.Return on Equity (★ ★ ★ ★ ★)
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Aarti Drugs has the highest ROE amongst the Peers and its also above the industry average. Therefore this category gets 5 stars in Aarti Drugs shares relative valuation.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.
Overall Relative Rating:
AARTI DRUGS SHARES (2.7/5)
This means the stock is Slightly Over-Valued at the current price levels.
★ ★ ★ ☆ ☆
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|Relative Valuation Summary|
|Market Capitalization||★ ☆ ☆ ☆ ☆|
|Price/ Earnings Ratio||★ ★ ★ ★ ☆|
|Price/ Book Value Ratio||★ ☆ ☆ ☆ ☆|
|Dividend Yield||★ ☆ ☆ ☆ ☆|
|Price to Sales||★ ★ ☆ ☆ ☆|
|ROCE||★ ★ ★ ★ ☆|
|ROA||★ ★ ★ ★ ☆|
|Price/ Cashflow||★ ★ ☆ ☆ ☆|
|Earnings Per Share||★ ★ ★ ☆ ☆|
|ROE||★ ★ ★ ★ ★|
|Overall Peer Rating||★ ★ ★ ☆ ☆|
(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)