Aarti Industries Ltd
NSE:AARTIIND
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
425.6
755.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Aarti Industries Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Aarti Industries Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you. And over to you, sir.
Thank you. Good afternoon, everyone. And thank you for joining us on Aarti Industries' Q1 '24 earnings conference call. Today, we are joined by senior members of the management team, including Mr. Rajendra Gogri, Chairman and Managing Director; Mr. Rashesh Gogri, Vice Chairman and Managing Director; and Mr. Chetan Gandhi, Chief Financial Officer.We will commence the call with opening thoughts from Mr. Gogri, who will take us through the performance overview, insights and outlook on the business. Post this we'll open the forum up for question and answer where the management will be addressing queries of the participants.Just to share our standard disclaimer. Some statements that may be made in today's call will be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that has been said earlier and uploaded on stock exchange website.I would now invite Mr. Rajendra Gogri to share his perspectives. Thank you, and over to you, sir.
Thank you. Good afternoon and a warm welcome to everyone on Aarti Industries' Q1 FY '24 earnings conference call. I will speak our initial thoughts on the performance, evolving market trends, and outlook.While last year was mad with headwinds around inflation in input costs and supply chain disruption, this year commence with a set of renewed challenges like oversupply situation in China due to weak domestic demand, global inventory restocking, and slowdown in key developed markets. These have impacted the end user demand and affected the fuel and pricing environment, thereby moderating the revenue trajectory for the chemical industry including us.Our team really nicely worked towards augmenting the product portfolio and delivering sustained value to our customer in this difficult environment. At the same time, we channelized our deep expertise to maintain the market share, optimize the product mix, et cetera. Products linked to dyes, pigments, and other discretionary in the industry continue to suffer due to prolonged demand weakness as well as inventory correction, while several products within agrochemicals face pressure due to excessive inventory in the market. Having said that, we believe that this is transitory in nature and the medium to long-term outlook remains broadly intact. Our discussion with the customer will indicate the volume recovery to pick in gradually from second half of the current fiscal year.Let me now cover the key performance highlights. Our revenue declined by 10% to INR 1,571 crores, while EBITDA was down by 29% to INR 201 crore in line with weak industry trends. Profit after tax stood at INR 70 crores. Overall performance was impacted due to reasons mentioned above. Export demands were significantly affected due to prevailing weak demand.Moving your attention to the production details for Q1 FY '24, production of nitrochlorobenzene stood at 17,293 metric tonne as compared to 20,515 metric tonne in Q1 of last year. For hydrogenation, this came at 2,868 tonnes month over 3,295 tonnes per month in the same period last year. For nitrotoluene, the production for Q1 FY '24 stood at 9,327 metric tonne as against 5,252 metric tonnes in Q1 of FY '23.Now let me share some update on projects. The project timelines remained broadly intact, bear in mind the alteration, as we continue to believe in long-term structural story of India, especially the China Plus One opportunity and growing consumption of chemicals. The scale up from expansion of NCB capacity from 75,000 to 108,000 tonnes per annum has been completed recently. Our other CapEx initiative in addressing product portfolio such as expansion of NT and downstream insulation products et cetera are progressing well as planned.During the quarter under review, we undertook a CapEx of about INR 260 crores and expect the CapEx about INR 2,500 crores to INR 3,000 crore in the next 2 years to elevate our manufacturing capabilities are expansion in our value-added product portfolio. Our new project initiative for fluorotoluene and multipurpose plants are expected to start gradually, coming on stream from FY '25 and will drive growth beyond FY '26. While we expect the demand recovery to gradually occur in the second half of this year, our EBITDA performance will be moderated in FY '24. This is in line with weak industry trends. We will be in a better position to access the situation as we move along.To conclude, I would say that we firmly believe in India as having a potential within several chemical value chains. We will leverage our strengths across process chemistry with nuanced understanding of market complexity to deliver robust performance. The ensuing year will see introduction of many high-quality products, we might run 4 R&D Conference, which will cement our leadership position in the market and help deliver sustained value for our long term stakeholders.I will now request the moderator to open the forum for Q&A session. Thank you.
[Operator Instructions] First question is from the line of Vivek Rajamani from Morgan Stanley.
Thank you so much for the presentation. Just a couple of questions from my end. Firstly on demand, you mentioned that you're not still quite challenging. Just wanted to get a sense if in the month of July you've seen any sort of improvement? And just in terms of normalized levels, how much below are we with respect to key segments? And that was the first question on demand. And the second one that I had was on the unit margins. Given that your volumes were broadly intact in the Q1 Q2 perspective, it appears that unit margins are compressed. Could you maybe share some thoughts in terms of your sales mix? What's the share of the non-regular customers in your mix and how the margins are trending in those new customers? Thank you very much.
Yes. Basically the demand is more expected to be recovering more towards in third and fourth quarter as compared to the second quarter. And actually some of the agrochemical, first quarter was, of nitrotoluene efficiency, the numbers were good. But slowdown in those product lines are now being seen in Q2 of this year. So this inventory destocking is taking place for different products in different timeframes in general. And because of overall slowdown, even in Chinese domestic economy, and actually Chinese currency also has actually depreciated against Indian currency by about 4%. That is also putting some margin pressure in general.
Just to clarify, so, no big change in July, you're basically expecting a bigger improvement to come from Q3 and Q4. Is that fair?
Yes.
And just, sir, on the question on the sales mix, if you just share any comments on what's the share of your non-regular markets?
Actually non-regular market also becomes difficult because of the slowdown there, so that's why that share has not increased much.
The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.
I had a couple of questions. Sir, first question, so when you say that the demand is weak, so considering a base of 100, now taking agrochemicals, pharmaceuticals, dyes and pigments, so how much would the number be, so below 100?
Maybe down by, overall on a 10% to 20% decline in demand depending on the product lines.
And, sir, in this quarter, sir, we had made 14% margin. If, sir, we can also separate it into specialty and commoditized product wise margins, like for things that was specialized portfolio is around 70%. So ideally, so, even the specialty product portfolio, so that is also facing pressure from China or you think that segment is still not impacted and the pain could be there in coming quarters? How you see those?
Yes, the volume impact is there across the board, basically, whether it's a specialty chemical or valuated chemical or the base chemical because that base chemical only goes into the manufacture of value-added products. But the margin pressure is more towards the base chemicals compared to the more value-added products.
So the 70% of the segment, that shouldn't have been that impacted, right? If you are staying commoditized, there's lower impact then?
Yes. So relatively, the impact on value-added products on the margin side is less, but the demand side is across the board, actually.
And sir, this quarterly run rate, like -- so we used to generally clock a profitability of INR 130 crore to around INR 150 crores in profit. But this quarter, we had given a INR 70 crore profit. So you think this number can again go back to that range in second half?
Yes. Basically, there will be a substantial jump at PBT level because once the EBITDA increases and that EBITDA directly virtually increase on profit level. So those kind of numbers are possible towards the end of second half at the Q4 levels.
The next question is from the line of Abhijit Akella from Kotak Securities.
First of all, just on the EBITDA outlook for the next couple of years now. We had earlier spoken about, say, 15% growth for this year and then sharper growth in FY '25. Would you like to sort of offer any updates on that at this point? Or is that -- there's just not enough visibility to do that right now?
Actually it will be too early to give FY '25 guidelines. And our previous guideline was INR 1,700 crores. Some, I think, decline may take place in that. But really, whether it will be in the range of 5% to 10% or maybe even a little more. That kind of more clarity will emerge in the next couple of quarters based on the -- how the further demand visibility and the margin visibility comes in. So it will be difficult to give any fresh guidance as of now.
On the performance of the long-term projects that we have, the 3 of them, have those also been impacted in terms of deliveries because of the demand weakness? Or have those held up and it's more of the base business that has been impacted?
In the first contract, actually, which got canceled, which is this -- that came by intermediate. That is actually severely impacted because of the demand slowdown in that product line. Whereas second contract is more of a structural where our EBITDA is kind of assured. It is a factor of the movement of the volumes. And that contract, it is on stabilization. And overall has good demand visibility in that third contract. So second half will show a good number coming in that contract.
And the new projects that we were trying to set up, the new multipurpose plants or the specialty chemical units. Are those sort of on track for the expected ramp up? Or could there be some delay in their ramp up as well given the demand scenario?
They're going to happen more towards the end of FY '25. I think that by that time, all this -- because you see the majority is the inventory correction. It is not that the products are ultimately the consumers are not going to consume. It is in the system, so much inventory was built up over the last couple of years. One is that the containers were not available and also in general, people picked up more inventory. And second is because of this higher interest cost globally, which was nearly maybe only 1% or 2%, the dollar rates are now maybe 7%, 8%, and increasing inventory carrying cost also has made people to reduce the inventory. So I think by end of FY '25, the entire chemical industry has to come to a normal consumption level after all the destocking. So we don't see those to continue for a very long time as such.
And just one last thing from my end. Maybe more for Chetan Bhai. Just the finance cost and depreciation expense related to the newer project, et cetera. Have they already hit the books in the June quarter? Or will there be some more impact in the upcoming quarters? And also the tax rate is very low this quarter. So if you could please just update your guidance for this year and next year.
So the finance cost and depreciation to the extent of the ones which are getting operationalized towards the end of last quarter and this quarter [indiscernible] books. On the tax, because we have a couple of tax exemption [indiscernible] power facilities. And also we have the depreciation that as per income tax is higher than the -- what is there in the books. There is a lot of tax offset in rates available. This is where the tax outflow -- sorry, the tax rate would be lower. We will have max credit in this year substantially.
Yes. So should we expect like a sub 10% tax rate for this year or?
That will be sub 10% this year.
The next question is from the line of Rohan Gupta from Nuvama.
Sir, first question is on our specialty chemical, which is roughly 85% kind of our total basket is on specialty nature, where we have always understood that the pricing is contracted and the margins are also broadly seen. So in that business environment you are seeing that customers have defaulted or deferred their volume offtake, and that has led to lower volume? Or it is also some price impact is also there and that would lead to margin erosion and profitability impact?
No, that value-added product also, but that -- typically, we expect the per kg margin to be steady and a lot of products, it remains steady. But some products, there will be some sort of up and down also happening and increase or decrease of margin. So that is the phenomenon, which is playing out. It's not like customers are defaulting or something.
They're are not defaulting. [Indiscernible] the volume, if you're 85% volume in specialty and then we see roughly 40% erosion in EBITDA, where the EBITDA per kg margin is likely stable. That will only be possible if there is a significant deferment in volume. The volume of offtake would not have happened until unless we had some new inventory debt losses or our 15% or 20% business, which is noncontractual. That has seen significant losses. So if you can explain more on that front?
Yes. Basically, this 85% is not like also 100% contractual. And as I earlier mentioned, the demand slowdown is in both value-added products as well as on base products.
Sir, what we see right now and you have a strong growth visibility in H2 and [indiscernible] making any guidance, we expect that growth to recover significantly. And you have mentioned that probably for FY '25, maybe that's a 5% to 10% kind of dilution to the EBITDA number. So is it something coming from the customers that you see there's a strong recovery in H2 that will compensate the volume decline, which we are seeing at H1? Or you see that it is just an expectation that the inventory in the system will be corrected and then we will see destocking? I mean what is the basis from where we are making a strong opinion that H2 will be a significant improvement?
Yes, a lot of customers have given guidance that what kind of material they will need in October to March, indication, we have received for a lot of customers, that which we are not buying, some of them are not buying for 3 months also. So there's kind of -- basically, a lot of inventory correction, what is happening, seems to be getting over maybe this Q3 and Q4 of this year.
Sir, you also highlighted the currency -- Chinese currency depreciation is helping the global market and China to [indiscernible] the system. Sir, in that business also, do we see that our 85% once again, the business which is contracted in nature, had these contracts has to be renegotiated with our customers with a lower margin [indiscernible] or the currency depreciation shouldn't impact us at all?
No, that was for our contractual business, what happened between Chinese and Indian currency generally is not -- actually, they are currency neutral. Generally, they will be in U.S. dollar terms. So on exchange rate, it will be always with us. So there is no change in the contract term because of any change in whether the U.S. dollar to Indian rupees or U.S. dollar to Chinese currency.
So actually, sir, in a sense that the Chinese currency and the China dumping shouldn't be impacting our large part of the business, which is 80%, 85%. But amid that we have a huge uncertainty and very weak numbers. So I mean, something which we are missing that, what actually would have led such a sharp kind of decline and we see that just for the volume and the inventory destocking that is impacting the profitability. So that's what you are trying to [indiscernible].
Yes, China, some of the products in India also, basically, the competition comes from the China because some of the products are imported into India from China. So that -- those kind of products where it is -- which we sell in domestic market where we are seeing those impacts. There the currency impact also will kick in.
So just last from my side and I'll come back in queue. Sir, on the project -- intermediate, any sense because right now we are going through the potential global weakness. And there is no contractual arrangement which we need for the intermediate. What kind of utilization maybe you see, have you found out any strategy given that the global weakness in agrochemicals market continue? Have you decided anything on this project [indiscernible]?
Yes. As we mentioned, it's a very specialized plant. It's a continuous plant and difficult to use for other products. But we will take some call on that maybe in the next 1 or 2 quarters. That we can really make a substantial modification in that facility and introduce new products because we have 2 different lines there. So maybe one line we can repurpose also. So that decision may be in the next couple of quarters we will take.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, first question is on the domestic market. So we've been talking about global inventory destocking and interest of China material. How has been the performance in the domestic market, which segments are showing growth or in domestic market also there is overhang of inventory destocking? Just your thoughts on this.
No. As we have mentioned in earlier also, our direct export is now around 45%, 50%, and there is indirect export around 20%, 25%, where our customers export -- make the product and the downstreams are exported. So effectively 70% of our business is linked to international market. And within the 30% products which are going in pharmaceutical and all, we are seeing there is no change in demand. But there we see there's a lot of -- in pharma sector, the China has been very aggressive when they are exporting to India. So they are finding some pressure in that product line. But the demand is intact on those products.
And for the 30% domestic market, we are still growing. I mean there is no real issue of inventory destocking as far as the domestic demand is concerned.
Not significantly, no.
Second question is in terms of China. So there is a good amount of material, which is coming from China, and you also alluded to that. So has there been any change in terms of your capacity additions, which have come up in recent times and that is also posing some kind of a threat for -- with newer material coming into the system?
No, there's no change about what actually the Chinese material coming into India because actually our new PNCB capacity does come up in this month. So there we'll have more availability of the material, which will help in reducing the import from China.
And generally, in the base benzene chemistry, are there any new capacities which have come in China, I mean, as per your understanding?
No, one particular plant which was closed down, that has restarted last year.
And just one last clarification from Chetan Bhai. In terms of -- given that this year, our absolute EBITDA will get impacted because of the external factors. How are we covered in terms of our debt repayment? And given that our CapEx program will continue at INR 2,500 crores, INR 3,000 crores for this year and next year, what is the peak debt that we are looking at?
So our annual debt repayment is roughly around INR 350-odd crores. So relatively that number can be easily managed from even the current situation where we are prevailing in. As regards the CapEx program, which we have secured a long-term 10-year money from IFC of around $130 million, which will be available for us to utilize for the new CapEx initiatives. Plus the contraction in the demand and the revenue in business will also result into releasing working capital requirement. So there will be some cash flow reduction on working capital, which will also benefit in terms of managing the tax law reform.
The next question is from the line of Surya Narayan Patra from PhillipCapital India.
Sir, first question is on the export decline Q-o-Q what we are witnessing 27%. So can you split that decline in terms of volume as well as value, sir, or in terms of price?
As we mentioned, the price in a lot of our product prices are linked to raw material and Y-o-Y the demand of benzene price was lower. So impact of that also has come in at the top line level. And both volume also, it will be difficult to bifurcate.
Is it fair to believe, sir, this -- the number what you have mentioned, the volume decline would be in the range of 10% to 20%? So that would be the range for export business?
No, it is more towards 10% -- around 10%, 12%, not for the 20%.
Because here, if I see the domestic performance also, Q-o-Q it is flat for funds. So that means if we are believing that the volume scenario is there that way, maintaining, no more kind of a slowdown that we have witnessed in the domestic market. Then is it fair to believe that the price pressure what we have witnessed because of the Chinese dumping. So that has not been reflected practically in the first quarter. And hence second quarter could be the key period during which we will see the full impact of this Chinese dumping as well as even to the domestic business?
Some impact is already seen in the Q1 also, that additional impact maybe not that significant.
Because since we are seeing, sir, there is some impact in the volume and there is some impact that has already been seen in terms of pricing. But domestic sales Q-o-Q is flat despite of also all of these challenges. So that is why [indiscernible].
Yes. The sales value wise is flat, but some impact on the margin is coming down.
So my next point was that only. Sir, in fact, the gross margin, if you see, that is the weakest gross margin that we are witnessing this quarter. So weakest ever possibly, 35% kind of gross margin. So is it because of the kind of impact on the prices or product prices or it is the cost still that is impacting you?
No. As a percentage, it becomes difficult. As we mentioned, the benzene price has gone down Y-o-Y. That is going to be always an impact of that. So the percentage becomes difficult, the absolute gross profit and absolute EBITDA becomes more better number.
Sir, just practically, this quarter's performance industry-wide, if you see, it is the challenge of the volume only or demand situation, that is a key challenge for the quarter. And on the top of that, this dumping in the meanwhile, by China. So that is the second problem, creating a pressure on the prices. So sir, could you give some sense after interacting with your customers and all of that. So what is the level of inventory they generally used to maintain pre-COVID and currently, what is the level of inventory they are maintaining? So that is one. And regards this Chinese dumping thing. So how long that you think that there could be a kind of this dumping pressure could we see in the external non-U.S. market or, let's say, in the international global market?
Yes. Basically, this dumping also relates to original overall demand. If the overall demand increases globally, dumping is going to go down. And second thing is now the inventory carrying cost is high. The dollar interest rates are high. Typically, if any company wants or is keeping inventory of 3 months, they will say, now, you keep it 2 months because of the cost of money and availability of money. That is really in every -- each and every businesses that we look at, those kind of inventory they should keep. Previously, it was the availability was the issue. The shipping was a big problem. So at that time, everybody has taken maybe somebody who's keeping normally a 3-month inventory will make it 4 months and high inventory carrying cost, now they will think they will make it 2 months. So that is what is really moving from a high inventory to a lower inventory than a normal, that is -- that's why this inventory correction has become -- like they are saying agrochemical $75 billion market at a $65 billion inventory in the entire value chain. So that's a huge inventory.
That means 8, 9 months of inventory that you mean to say, sir?
Yes, in the entire value chain, from the intermediate to active ingredient to the farmers, dealers, and everything. So it's a very high level of inventory. But now with the cost of money and the availability of money, that is getting corrected. So the new normal will come like at this kind of interest level, interest also is picking up, U.S. interest rate also be virtually now get stabilized. So new normal of an inventory, I think, will come in maybe by end of this year, calendar year.
Sir, just last one about the debt. So what is the gross debt currently, sir? I think after the recent addition, what is the gross debt that we are currently having?
The debt position, the net debt would be close to around [ INR 2,650 crores ] or so. Gross debt, because we've taken the term loan draw down towards the last week of June, and we are not fully utilized, so I've got something like close to gross debt of almost INR 3,000 crores and cash or liquid money of INR 400 crores.
The next question is from the line of Akul Broachwala from Ocean Dial Asset Management Limited.
I wanted to get your thoughts on chlorotoluene's initial phasing that you are planning to do in FY '25. Can you just share some details as to what would be the initial capacity? And I believe this is an import substitution strategy product. So what's the current imports? And basically, what's your thought behind fast-tracking this entire project?
Yes. Actually, project will get commissioned in FY '26. And chlorotoluene capacity, we have taken about 42,000 tonnes as a base capacity, but it will be the entire value chain because the current import of chlorotoluene is not that significant as it is. But a lot of downstream products based on chlorotoluene currently imported into India.
And what's the CapEx intel for this first phase of chlorotoluene?
Yes. First phase will be more of around INR 1,500 crores or so in the first phase of those. And then further some multipurpose plan and additional addition will take place.
So basically, eventually, we also plan to introduce downstreams and would cater it through multipurpose.
Beginning itself, we'll announce it. So we'll have a few downstreams along with the fluorotoluene itself. Simultaneously downstream also will be. Otherwise, we do not consume that much because there's not that much demand in India, the base growth always. So a few downstream chemistry, along with the fluorotoluene will be commissioned in the first phase. So there will be more or less a continuous various plants will get commissioned in FY '26, some may go in FY '27, but most of the commissioning will happen in FY '26.
And given the kind of situation that is there, do you sense that there would be some realignment that would be required eventually if things not improve or you will still go ahead with the kind of CapEx program that you've built in?
Because this is -- we see this as more of a transition because of the inventory correction, as I mentioned earlier. But structurally, the chemicals are required by the end user, whether it's a pharma, agro, or for paint or car or all the end users, there is no change. There's no new chemicals or -- which has come in. So structurally the demand is there. And secondly is that demand appetite from India also is remaining. So anything around the long term which is going to come up in FY '25 and '26. Because by the time, I think all the stabilization will have taken place. So there's no question of changing anything on that.
And secondly, whatever legacy issues that we faced with availability of nitric acid. So can we assume that most of those issues are behind us now? And considering your contract with Deepak Fertilisers as well, maybe considering this down cycle, even if the demand might remain volatile. But otherwise, in terms of production, there aren't any such challenges for us.
Yes, yes. Yes, because we set up at this 20-year contract. So nitric acid availability has not been an issue at all.
And lastly, on other expenses, the run rate of 1Q, like do you expect to -- gradually that to increase to the earlier levels? Or will it be pertaining to the production levels that will depend on the market situation?
The other expenses are a substantial [indiscernible] correction which has really -- in this because even though it is a direct variable expense, it comes in the other expenses. And we have really seen huge volatility in last couple of years.
The next question is from the line of [ Anubhav Sahu ] from [indiscernible] Research.
Couple of questions. So now given the headwinds we are seeing from China side, which was quite unexpected as far as the aggressiveness on the dumping is concerned. Now any estimate or any estimate for the volume growth for the rest of the year? I mean, particularly when we also have a strategy of being aggressive in nonregular markets.
Yes, it's difficult to give any volume because of China itself, what we are supplying there also is becoming difficult as a nonregular market. To give you any specific volume guidance at present will be difficult.
But sir, coming from expectation of 25%. So like would you have any broad range to talk about even for the remaining 9 months?
So instead of 25%, maybe overall will be around 10% growth or something, those current numbers.
And sir, on the domestic market, could you provide any qualitative guidance for near term given that it looks like on the volume terms, it looks stable, if we just look at Q-on-Q basis? And relatively profit [Technical Difficulty] there is a bit of an impact on the margins. So particularly on 30% of the business, if you can provide some guidance for [indiscernible].
Yes, the 30% business which is going for domestic consumption. I think we are seeing a fairly stable demand, and I think that will continue like that.
And sir, the last on the -- wanted just currently, our net debt to equity is about 0.56. So could you provide what could be the peak metrics for this as well as this current CapEx cycle is for the next 2 years?
So debt equity is also going to be a function of how the working capital and the input prices prevail. So if we assume the constant prices, I believe this should be between 0.6 or 0.7 max, won't go beyond that number. But yes, working capital is going to be a major play in looking at the debt number as we move forward.
I mean given status quo, I mean, 0.7 is what we're looking at?
0.7 on a worst case outer limit, I guess, 0.56 or 0.6 is the number which we are currently targeting.
The next question is from the line of Archit Joshi from B&K Securities.
Sir, if I heard you right in the opening remarks, on micro toluene, production volumes have gone up quite a bit year-on-year. Sir, is it that there is decent enough demand in the base toluene or the end users of this eventually going to agri, MEA and DMA? Is that what is driving growth? Or is there something else that we would like to highlight.
Yes. Basically, the agrochemicals in that product line was doing well in Q1. That's why we got a good number of nitrotoluene. As I mentioned earlier also, now that inventory impact has started coming in now in Q2. There will be some Q2 and Q3, we may have some subdued numbers there in our utilization range. But we'll try to sell the product to other markets and try to keep the volumes. But nitrotoluene volumes will be impacted in Q2 for sure.
Sir, just another clarification that I wanted from the previous calls about the arrangement in the second long-term contract. Just wanted your thoughts. What exactly is the arrangement there? Do we -- are we working on a fixed EBITDA basis because given the size of the contract, division of the total size of the contract over the tenure that you have planned, INR 500 crore annual turnover and the EBITDA range that we had given earlier in terms of margins. Would that be achievable from this year onwards? Or is there any delay on that end also?
No, no, that has kicked in. So we are getting -- that's what I mentioned earlier also. So the second contract, the EBITDA is not connected much to the volumes.
So basically, sir, the EBITDA or the per tonne or the absolute margin that we are envisaging to make sure, will make it any which way in this year and going forward also, the same number from…
It's not related to the volumes. It's absolute EBITDA virtually not going to change much.
Exactly, sir. So the absolute EBITDA run rate from this year will be constant from this financial year, from FY '24 and going ahead? That's what I'm trying to ask. Okay. Understood.Sir, just one follow-up on the first question. So the incremental nitrotoluene capacity and the [indiscernible] when would you assume it to come online in terms of timeline?
Yes. We are targeting Q1 of FY '25 that both nitrotoluene and [indiscernible] block should go in commissioning.
The next question is from the line of Ankur Periwal from Axis Capital.
First question on the decline in RM prices that we are seeing. Would it be fair to say that all the RM deflation has been passed through across our value-added as well as basic products? And if not, then what is the proportion of the contractual pricing that we have?
No, basically, generally, domestic market, it gets passed on in a month-to-month basis and export, it is generally quite a lag. So that is a typical structure. So actually now, again, the RM has started going up. So if you see the downward move was more towards in the June, July and now the prices are going up.
And in that sense, in that case, probably in the near term, there could be some flux in terms of margins because of pass-through delays or given the volatility of the RM prices?
Yes. But there has not been a very huge variation. It's not like INR 60 becoming INR 90 or INR 60 becoming a INR 30. So the changes are not very huge to have a really substantial impact.
Sir, secondly, on the value-added products. Now we say our revenue share from them is around 75%, 80%-odd. How much of this will be contractual? And the question there is how do you define value added? Is it number of steps required? Or is the margin that we earn?
There are a number of steps basically. So like the first nitrochlorobenzene, nitrotoluene and all, sulfuric acids, they are consumer-based products. And then as you add more chemistries, that become more value-added products. So value-added products, typically we have a long-term structured contract also and other places where we don't have structured contracts. But generally typical delta when we discuss with customers, that is the pricing are generally typically done based on the base raw material plus delta. So that's how the pricing is done even if it is not contractual. But generally, the pricing structure remains of that.
And this delta will be, broadly speaking, in what percentage terms higher than the basic ones? So let's say, the basic margin is maybe INR 100 kg, then what is the delta here for value-added? I know it will be a range, but broadly?
Depending on the number of chemistry. So we have products which we sell at INR 2,000 also. We have a products which we sell INR 1,000 also, INR 500 also. The INR 2,000, the raw material cost may be only INR 500 because so many chemistries are added. So it's all product to product on that side. Depending on the -- actually every step, the delta gets added and gross profit to sales number goes on increasing.
So in our annual report, we again talk about the value-added products and the high potential products, margin accretive being, there will be ramp-up there given our CapEx plans as well. The margins that we'll be earning on these value-added products, how should one look at them maybe in terms of number of steps you can suggest or in terms of absolute margin? How should one look at them?
Like fluorotoluene, actually of the product will have at least typically 3 steps, entire range from -- there'll be virtually everything will be 90% will be value-added kind of products there. There the EBITDA margin and everything will be higher.
The next question is from the line of Bhavya Gandhi from Avendus Wealth.
Sir, just one question. Have we seen historically this kind of situation of destocking? And what is the time period for this kind of situation? What was the time period which was taken for destocking in the past? If you can throw some light on this. Maybe in the last 10, 15 years, have we seen or is it a one-off situation this time?
It is similar to what had happened in 2008. 2008, if you see, after Lehman shock, across the world, a lot of plants have closed down and a very sharp -- that was more of a financial crisis, finance was a problem. But the interest rates were low, then the interest rates were going down. But this time, what has happened is that the interest rates also has increased. In 2008, there was no impact on agrochemicals because agrochemical demand were -- everything was because the inventory carrying cost was zero. Now what has happened in this time, it is that interest cost also has become a big factor. Sir, this time the impact has come both on discretionary as well as on agrochemicals.
So in 2008, what was the time period for which the cycle lasted, I mean, the destocking thing, was it like…
Two quarters -- Lehman shock. So October to March, the 6 months, there was a -- and that time it was much sharper. This time it is more of slower and more prolonged compared to the earlier. At that time, it was very, very sharp, [ BASF ] had announced many plants closed across world and all of that. Lehman shock was really shocking and very sharp impact.
And how do we assess that it's only the channel inventory issue and not the demand issue? Like do we have any ground level reading saying that the demand is not impacted. So how do we assess that? Because everybody is talking about 2-quarter thing. So what gives us certainty when it comes to demand on the ground level?
So basically all of these products are required mainly for your auto or construction and textile and electronics and all, consumer products. And overall, I think there is no replacement of this chemical, what are used there. And we don't see any structural change in the consumption pattern. Actually, all these EV and all, they need more specialty polymers than regular vehicles.
But is it like China trying to squeeze again, our margins are, on a longer-term basis, are they going to come back and affect demand?
Actually, the demand from India will remain because the China Plus One story and demand, we don't have to worry much about the volumes, specific product to product where some margin pressure will come. But once the demand becomes normal, the appetite to buy from India is there, and that is going to continue too. Personally, I don't see that the volumes will be impacted. Once thing normalizes, Indian companies will be able to get those volumes in the international market.
The next question is from the line of Siddharth Gadekar from Equirus.
So first, in terms of the sectors that we cater to; agrochemicals, dyes and pigments, polymers, autos and others. So in terms of the slowdown, where would you see the sharpest slowdown? And in terms of recovery, are we seeing any green shoots in any of these segments at least in July, August or all are still at the similar levels as 1Q?
Actually, textile is something which is everybody is wondering if you talk in textile sector. It is has been a very, very prolonged one because that was the first one we started impacting even in FY '23. It's much longer. Pigment side, some sort of a green shoot may happen in Q2 onwards. And agrochemicals are very, very product specific. As I mentioned, Q1, nitrotoluene [indiscernible] products were really booming and suddenly Q2 and Q3, those things happen, whereas the [ dicamba ] correction started happening in Q1. So this has become much more volume specific.
So in terms of our second quarter, should we be at a similar level in terms of our EBITDA? Or could we even go below the current INR 200 crores EBITDA that we reported in this quarter?
It should be of a similar range that I would look, certainly at present, it should be of a similar.
But do we have any volume contracts or volume visibility that third quarter will be better than the first half? Or it will be entirely pushed to the fourth quarter or FY '25?
No, we have some volume visibility for third and fourth quarter. But sometimes what may happen, happens, by the time they become nearer, then they may say that sometimes they may say, I will 1 month earlier, sometimes they get pushed out to the next month. But with the current indication, what we are getting from the customer, definitely Q3 volumes are higher, and Q4 are still further higher.
The next question is from the line of Pujan Shah from Congruence Advisers.
My first question would be on the dyes and pigment. If you look at the specific segment, so how would be -- like what you will be -- like how the outlook would be? What would be the parameter? And I just wanted to know that view on for the FY '24 basis?
Yes, textile is really a surprising situation. No. Textile is still not showing any significant increases. It's still struggling. Time to time we feel that it is getting very back to normal, but still not happening. But the pigment seems to have bottomed out.
And what are the views on polymers and additives?
Polymers and additives, actually, the corrections have started more happening now. That might get bottomed out more towards Q3, Q4.
And just wanted to ask you about the benzene. If we look at it from the top, what the price would be? So can you just give a certain percentage point, how the percentage fall would be from the top to current price?
Can you repeat this question?
Yes. So if we look at the benzene prices, so benzene prices, let's suppose it's 100. And now it's currently, if this price is trading at INR 90 or INR 80. So it would be around 10%, 20% for from the top, what the price has been made. So what could be the price percentage fall in the -- from the top 2 at the current price?
The benzene, I've not seen INR 100, it may be around INR 90, I've seen, INR 90 to INR 60 kind of range, which has happened.
And can you just spell the volume [indiscernible]?
Pardon?
Volume split, what you have provided in the initial remarks, I actually missed out that volume.
Yes, nitrochlorobenzene. Nitrochlorobenzene volume.
So the nitrochlorobenzene volumes were 17,290 metric tonnes for the quarter as against last year Y-o-Y number of 20,515. The nitrotoluene volumes was 9,327 for this quarter versus 5,250 for last year. The hydrogenation volumes were 2,868 versus 3,295 previous year.
The next question is from the line of Aditya Khetan from SMIFS Institutional Equities.
Sir, you had not mentioned the PDA segment volume.
PDA volume for this quarter -- this quarter is [ 172 ] tonnes per month whereas last year it was [ 370 ] tonnes per month. This is [indiscernible] segment.
I believe, so phenylenediamine segment, so majority of the volumes is for the export market and because of the external headwinds. So this is one of the reasons why this this segment is impacted more?
Yes. It's domestic, it's goes in dyes and export, it goes in polymers. So this has been -- that's what I was mentioning that correction indices have started more recently in the polymer side and all. So that's why we saw a sharp decline in this.
And sir, what was the base reason of the nitrotoluene strong volumes in this quarter?
That is going into agrochemical and those agrochemicals [indiscernible] strong in Q1.
Why that has been impacted in second quarter? You mentioned that, so that has got weakened now?
Now the inventory correction, everybody has calculated the pipeline inventories, big multinationals, when they come back with their revised supply chain. That's where we are seeing there's no -- now we see that they want to reduce their year-end inventories.
Sir, into the agrochemical segment, you had stated that, so the -- inventory. So I believe, so this figure could be -- so 3 to 4 months back. So when we actually have started, if you can provide the current figures of how much inventory is left in the pipeline?
So Aditya, we lost you midway? Could you just repeat your question?
Sir, I was asking on to the agrochemical inventory situation. So [Technical Difficulty] has stated. So I believe [Technical Difficulty] so 2, 3 months back -- how much inventory has been rationalized?
Yes. That, I think, we'll have to talk to [indiscernible] again that from where we get to this kind of number. So maybe we'll be able to get some idea that how much correction already has taken place. But I think most of the correction in next 2, 3 quarters because everybody wants to keep lower inventory at the year-end because of higher inventory carrying cost. So I think all those should settle down by Q3 of this year, calendar year-end.
And sir, just one. Now we had again started witnessing, so crude prices have started to inch up, and they have crossed $85 or so a barrel. So if suppose -- so now the base chemical prices also would start to go up [indiscernible].
Yes, yes.
So could there be a situation, sir, where we -- so we would not be able to pass on the incremental prices and we could see for -- from this level.
Generally, we are able to pass on. So there's not so much issue there.
Ladies and gentlemen, we will take that as our last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for taking out the time to join us on our Q1 FY '24 earnings conference call. Hope we have addressed all your queries. If you have any further questions, please feel free to contact our Investor Relations team, and we'll address them. We look forward to connecting with all of you again in the next quarter. Thank you, once again.
Thank you. On behalf of Aarti Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.