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Aarti Industries Ltd
Earnings Call Analysis
Q2-2024 Analysis
Aarti Industries Ltd
Aarti Industries Q2 FY '24 earnings call kicked off with an optimistic yet cautious tone, as the company showcased its agility in overcoming global headwinds such as inventory destocking, high interest rates, and geopolitical tensions. With a 16% increase in EBITDA, they signaled a tentative recovery in demand, particularly in specialty chemicals. Management anticipates a few more quarters before a full market normalization but is optimistic about the second half of FY '24 and regards FY '25 as a year of normalizing growth.
Revenue nudged up by 2% quarter-on-quarter to INR 1,597 crores, while EBITDA saw a more substantial 16% rise to INR 233 crores, attributed to volume expansion and better product stabilization. This led to a 30% sequential increase in profit after tax, reaching INR 91 crores. Despite a higher interest cost due to revaluation losses, the company's performance has improved, suggesting a firm handle on operational execution during challenging times.
Aarti Industries reported varied production volumes for its key segments. Nitro Chlorobenzene production dipped year-on-year but improved from the previous quarter. Iodination saw a month-on-month increase both year-on-year and sequentially. Nitro Toluene depicted a mixed trend with increased production year-on-year but declined from Q1 FY '24. These figures underscore a dynamic production environment responding to the shifting market demands.
The company completed significant expansions, with several key projects slated to start contributing in the coming year. Continuing its strategic investment, it deployed INR 575 crores in CapEx during the first half of FY '24 and aims to spend INR 1,200 crores to INR 1,300 crores for the year. Over two years, the planned investment is a hefty INR 2,500 crores to INR 3,000 crores, targeting high-value products and expecting superior asset turns of 1.2 to 1.3 times.
The company witnessed an improvement in product mix and margins, pushing it to optimistically forecast an EBITDA of around INR 950 crores to INR 1,000 crores for FY '24. Though hesitant to provide exact figures for FY '25, they project a 5% to 15% decline compared to their general guidance of INR 1,700 crores, attributing this to new plant commissions and demand recovery.
Despite a challenging competitive environment, particularly from China, Aarti Industries sees signs of diminishing intensity as global demand recovers. They report no new significant changes in global supply capacities and anticipate that raw material volatility will have a limited impact on pricing, thanks to their pass-through model. This positions the company to potentially boost margins as the market stabilizes.
The company highlighted a shift towards export markets as domestic sales experienced a downside pressure, mainly due to Chinese dumping and global demand changes in products like agrochemicals. They maintain a global perspective, balancing direct and indirect exports, and indicate a possibility of sustaining this strengthened export mix in the future.
Aarti Industries exercised caution when discussing debt levels. Although mentioning a current cash reserve of over INR 400 crores, they acknowledged the likelihood of escalating net debt, potentially reaching INR 2,700 crores to INR 2,800 crores by the end of FY '24. The company's strategic investments and balance sheet management will remain critical as they navigate this period of tight cash flow and substantial capital expenditures.
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Good day, and welcome to Aarti Industries Limited Q2 FY '24 Earnings Conference Call. As a reminder, all participants lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note the conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you. And over to you, Mr. Solanki.
Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries Q2 FY '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. Rajendra Gogri, who will take us through the performance overview, progress on the growth plans and outlook on the business. Post this, we shall open the forum for Q&A where the management will be addressing queries of the participants. Just to share our standard disclaimer. Certain statements that may be made in today's call may be forward-looking in nature, and the disclaimer to this event has been included in the results presentation that has been shared earlier and also uploaded on stock exchange website. I would now invite Mr. Rajendra Gogri to share his perspective. Thank you, and over to you, sir.
Thank you. Good afternoon, and warm welcome to everyone present on the call today. We are here to discuss Aarti Industries Q2 FY '24 earnings. Firstly, festive greetings to each one of you, I would like to take you through the performance, update on growth initiatives and strategies. We have executed strong resilience and delivered robust performance on a sequential basis, which came on the backdrop of continued external pressures reflected by 16% gain in absolute EBITDA compared to the previous quarter. While the challenge with respect to global inventory destocking, high interest rates, recessionary trends across various end markets, slowdown in export markets and geopolitical tension persist, we witnessed some recovery on Q-o-Q basis. In light of this situation, I believe our teams have displayed remarkable agility to swiftly navigate to products that are experiencing more favorable demand scenario. This was possible due to our comprehensive understanding of the market conditions coupled with dedicated efforts for enhancing our market position and driving operational excellence. While I anticipate these headwinds to persist over the next few months, we are witnessing gradual recovery quarter-on-quarter for various products. We maintain optimism about potential demand revival in the end use segments such as agrochemical, polymer additives and other discretionary application as we move forward. That said, we have observed some recovery in nice and huge specialty applications. My other end user segments are yet to recuperate. We expect work to be over in H1 FY '24 and anticipate that it will take a few more quarters for normalized demand across various end segments and product lines. Thus, we expect consequentially better performance in H2 FY '24 and 4Q FY '25 to be a normalizing year considering the current pace of recovery. We are continuously engaging with our customers to increase the market share and to widen the market base. Now let me cover the key performance highlights. Financials are on a consolidated basis. Our revenue increased by 2% to INR 1,597 crores in Q2 FY '24 over previous quarter Q1 FY '24. EBITDA grew by 16% on Q-o-Q basis to INR 233 crores in Q2 FY '24. The better EBITDA performance was a result of volume expansion with near stabilization of realization for some products. Interest cost was higher account of revaluation loss of about INR 12 crores with respect to longterm loan. Profit after tax stood at INR 91 crores in Q2 FY '24, higher by 30% over previous quarter Q1 FY '24. This was in line with better operational performance, further aided by lower tax provisions and accrual of deferred tax assets. I'll now share the production details for Q2 FY '24. Production of Nitro Chloro benzene stood at 19,014 metric tonnes as compared to 20,276 metric tons in Q2 of last year and 17,293 metric tons in Q1 FY '24. For iodination this came at 3,136 tonnes per month over 2,558 tonnes per month in the same period last year and 2868 tonnes per month in Q1 FY '24. For Nitro Toluene the production for Q2 FY '24 stood at 7,560 metric tons as against INR 4,954 metric tonnes in Q2 of FY '23 and 9,320 metric tonnes in Q1 FY '24. Moving to updates on key projects. [indiscernible] unit has been completed recently. All the other projects, including capacity increase of [indiscernible] and anti and introduction of chlorotoluene among others, are progressing well and will start committing in a paced manner from next year. In addition to this, we are looking at unique opportunity in the Sunrise sector. We'll tell more as we achieve some breakthroughs. During the 6 months period, we assessed a CapEx of about INR 575 crores towards various expense and opportunity shared previously. Our target annual CapEx will be in the range of INR 1,200 crores to INR 1,300 crores for FY '24. Overall, we are committed to deploying INR 2,500 crores to INR 3,000 crores for the outline growth initiative over 2-year period as we anticipate rapid growth for the Indian chemical industries in the foreseeable future. We will not only enhance our proficiency and capability in existing as well as new high-end chemistry but also expand our addressable market size. In line with current demand scenario, we believe FY '24 to be a transitional period with moderated performance over last year. However, FY '25 onwards, we will see [indiscernible] to earnings in a phased manner as the macro challenging result. On ground demand improves and also with newer projects beginning to contribute. I'll now conclude by saying that we are fully ready to unlock newer opportunities as India remains a sweet spot for global measures. We continue to believe that this will be a golden decade for Indian even it's for competitiveness, huge talent pool growing domestic market and favorable manufacturing from other Asian Western countries. Aarti industry will remain nimble and capitalize these opportunities backed by manufacturing expedite and R&D capabilities. With this progress, we will be able to enhance value for all our stakeholders. This concludes my initial remark, and I now request the moderator to open the call for a Q&A session. Thank you.
Thank you very much, sir. [Operator Instructions] We'll take the first question from the line of Vivek Rajamani from Morgan Stanley.
Two questions from my end. Firstly, if you could just touch upon the demand trends that you're seeing in October or this quarter for your end markets. Just wanted to get a sense which sectors are actually seeing the biggest recovery and which are the sectors which are being the biggest drag. That was the first question. And secondly, sir, I think you mentioned in your opening remarks that you're starting to see some ASP stabilization in some products. So just from either an ASP or margin perspective, if you can you just talk about how it has moved on a Q-on-Q basis between your regular and your nonregular markets, that will be very helpful.
Yes. Overall, demand in discretionary side, whether it's big segments, polymers up that we are seeing improvements in quarter-on-quarter even in Q3. But agrochemicals are still more on a molecule specific. So there, we are seeing more challenges as far as segment-wise demand recovery is concerned. What was the second question? [Technical Difficulty].
Can you please come closer to this...
Yes. For margin, yes, we have the margins for the product. I think we are doing better than what we were doing in last quarter in this discretionary in this segment, which Mr. Rajamouli mentioned. So we are doing better there. Where the demand is coming back. I think we are seeing some margin improvements, whereas some drag in agro and pharma end market, I think we are seeing. So that is the overall mix in terms of margin that we are seeing.
Just one small clarification. This margin improvement that you're seeing in discretionary segments, is it coming both from your regular markets and your nonregular markets?
More on… Yes, I would say on both.
We'll take the next question from the line of Abhijit Akella from Codex Securities.
Just on the margin point, willing there a little bit longer. So the sequential increase in margins, what exactly would that be attributable to? Is it that there's been some favorable shift in product mix? Or is it -- I mean an expansion spread in some of our base products itself? Or is it inventory gains on benzene, for example, what exactly might it be? And can we expect this to sustain into 3Q and 4Q as well the same level of margins going forward?
Yes. Product mix also is a factor where the more higher-margin product sales is there. And specific product to product, there's some demand increase, stabilizing is taking place. There is some sort of a margin increase also we have observed and in general, as the demand also start recovery, we see that some margin benefit also starting to accrue.
We are seeing recovery in our traditional market. And so this is not a dumping market that nontraditional market where we are seeing increment. We are seeing improvement in the traditional market, which was always a better margin market. So again, the orders have come back so that our overall mix of margin has improved basically.
Okay. So it sounds like this is sustainable in 2H FY '24 as well?
Yes.
Okay. And also just curious whether monomethyl aniline might be a product on which we make better margins than on our overall portfolio? Or is that not the case?
So this is basically, as we have been always saying, it is more on EBITDA per KG. So as a percentage margin, different products will have different percentages.
And then on the demand side, so you pointed to a gradual recovery in the second half. So I mean, when we look ahead sequentially 3Q versus 2Q, maybe 4Q as well. How much of an improvement can we expect in the revenue or EBITDA run rate? Or maybe if I could ask it another way, what sort of EBITDA guidance should we work with for FY '24 and then the FY '25, please?
So second half, we see that the first half total is about INR 433 crores. So second half of quarter of INR 500. Overall, annual, we see that now around INR 950 crores to INR 1,000 crores is the current visibility for EBITDA for this year FY '24. And FY '25, it will be difficult to give guidance now, but I think our general guidance only as it was INR 1,700 crores. So we see that at least 5% to 15% there is a maximum decline over that number. But overall, FY '25 also quarter-on-quarter, there will be increase. As the demand also recovers and our new plant of [indiscernible] commissioned. So FY '25 will quarter-on-quarter kind of increase in EBITDA.
Also just 2 last things from my side if that's okay. One is if you could please just help us with the capacity utilization rates on your long-term projects, the 3 long-term projects basically. And number two, on the balance sheet, you see that the payable days have gone up quite sharply in 1H, offsetting an increase in inventories. So if you could please just highlight the reason for that. Thank you so much.
Yes, capacity utilization of the long-term contract in the first contract, we got canceled. We are suffering on the demand side, so not much significant improvement. Second contract, which is the way it is structured, it is more or less capacity utilized as an agnostic. And third contract, we have just commissioned. So this year is more of a product stabilization. We don't see any significant EBITDA coming in from the third contract in FY '24. The major thing will come in FY '25 for the third quarter, right?
And on the payable days, we had a couple of imports happening, which were the credit period is generally more than the domestic sourcing. So that's where the payable days are higher than the previous quarter levers.
Okay. Is this more of a tactical shift towards import? Or is this more of like – could you explore that option?
Materials are not the major one on the [indiscernible], but for a couple of other raw materials, we do have imports coming at a better pricing. So as of now, that seems to be the strategy.
The next question is from the line of Rohit Nagraj from Centrum Broking.
Sir, the first question is on the first contract. So we were planning to change the structure of the plant so that we can manufacture something else from the dedicated plant. So any more new things that we have worked on? And is it a possibility that next year, we will be able to at least use part of that plant for manufacturing any new products? So any thought process on that?
Yes. No, we have not taken any firm decision on that. We are still evaluating the possibility of using it for the same product. As I mentioned earlier also, maybe a couple of more quarters will need for us to know whether we should do partly use it for some other products or something. That all has not been taken yet.
And second question in terms of our guidance. So this year, we are planning to reach about INR 1,000 crores next year, INR 1,700 minus something. So from INR 1,000 to 1,700 what could be the increase from the base set of capacities that we are currently having? And what could be the contribution to EBITDA from the newer projects that will get commissioned during next year.
The ramp-up of like nitro chlorobenzene expanded, so that ramp-up will happen. This contract also will come into the picture. And next year, a major project, which will get some installation and an expansion, and some other debottlenecking. So that will be the mix. A ramp-up of the project, which has been commissioned in past FY '24 as well as a new project of this utilization and NP, which would be the commission in FY '25.
So the expectation on the volume, which has currently not been there. So the recurring of the prop volumes will also add on to this.
And one just last clarification on the debt credit. So again, by first half, the debt has gone up to INR 200 crores. Now what is the peak debt that we are looking at? And when are we likely to hit that run rate maybe in FY '25, '26, any thoughts to that?
We do have a cash of INR 400-plus crores. So the net debt would be around INR 2,700 some. I don't think -- so the debt numbers will significantly go up from here towards the end of FY '24. So on a net debt basis, we should be somewhere between INR2700 crores to INR 2800 crores.
The next question is from the line of Ankur Periwal from Axis Capital.
First question on the global demand as well as supply scenario. If you can share your thoughts on the overall competitive intensity, the demand slowdown as well as intensity, especially from China? Are there new capacities coming in or shutting down? Your thoughts there, please?
As we mentioned that global demand is gradually recovering and we see next 2, 3 quarters, there will be demand revival. And because of the Chinese economy also going slow down, in general, the Chinese competitive intensity has increased in last few quarters. But as the global demand improves, we see that that the competitive intensity also will reduce. So that's why we see that both demand revival as well as some decrease in competitive intensity.
Any change in the global supplies capacities there?
No significant new changes.
Okay. Great. Sir, secondly, on the pricing bit, there has been pretty volatility across the pricing for our products. Do you believe more or less that there is stability now or probably looking at maybe October or the recent rail that price volatility still remains?
Generally prices, we have a raw material pass-through. So raw material volatility is not impacting much. Generally, a little bit margin improvement, as already mentioned in earlier election for some of the products we are seeing.
Sure, sir. And lastly, on the CapEx bit, so around INR 1200 crores- INR 1300 crores, INR 1,500 crores for this year. And I think you had guided for around INR 2,500 crores of CapEx over FY '24 and '25. How much of this will be on productive CapEx and expected asset turns there?
Yes, total was INR 2500 crores to INR 3,000 crores, that the new assets which are coming up in our new zone, that is a more high value-added product. So there were asset turns will be more towards around 1.2 to 1.3 time. Yes.
Okay. And presumably, this would be margin accretive to our current business.
The next question is from the line of Aditya Khetan from Smith Institutional Equities.
My first question is when we are listening to all the global and domestic hydrochemical and the pigment companies. So most of the companies have given out a very weak guidance on to the demand side. And most of them have also shifted and actually at the improvement in demand outlook towards the first half of the next calendar year. So there still some we had witnessed improvement in volumes and margins. So just want to know that disconnect between the global commentaries and our improvement in volumes.
Yes. Basically, we have a very wide product and like the end use market. That is kind of helps us to put the product whether more demand. And overall also, enrolls become product specific. In general, obviously, the improvement will come more in the calendar year FY '24 because the last quarter was generally multinationals tend to buy less. So Q3 FY '24, the general international buying is less. So calendar year FY '24 first half, we'll see more demand growth.
Okay. And sir, the volume improvement on quarter-on-quarter basis into the NCB and into the hydrogenation business. So which are the like major geographies doing we have like increased our exports because of what we believe U.S. and Europe, so these markets continue to remain weak. And so these are the markets like which have shown an uptick like in terms of your volume --
Yes. No, we have been exporting to various markets, including China and other Asian and European countries also, very, very well-spread geographical market.
Any specific geographies, sir, so which has witnessed an improvement, that's what I want to do.
Yes, some of the Asian markets, we have been able to see improvement in some European countries also.
Okay. And sir, if you can share the PDA volumes for the quarter 2?
PDA volumes was 316 tonnes per month.
Okay. Sir, just one last question, sir, into our end user industries, home and personal care business and how much would be that contribution and some things for the last few months, you are reflecting that -- so because of higher inflation, the volumes were not able to pick up. So how this segment is like changing now? And can this be a segment which can like further lead to improvement in volumes going ahead? Or it could be at the same level, which is at currently?
Yes. Our exposure to Home and Personal Care is very limited. I will not have very detailed, but some of the products or we see -- some price is there in the demand, but overall as a company, as a whole, at a very big output.
We'll take the next question from the line of Hussain Bharuchwala from Carnelian Capital. Mr. Bharuchwala, you can hear me. I would request you to kindly rejoin the queue. We'll take the next question from the line of Rohan Gupta from Nuvama.
Sir, first question is on our user industry-wide growth which we have seen in a Q-on-Q basis in volume. I understand that global agrochemicals is still challenging. Can you give some sense that with as the individual industries, which have given a sharp growth? And how has been the agro [indiscernible] growth for us?
Yes. Agrochemical is continuing to be challenging. But on polymers and additives, and bastide and all, we have seen growth.
Sir, any ballpark number and user industry-wise, like how much agrochemical was big growth? And what kind of volume growth you have seen in polymers and LT, a very ballpark number.
That number we do not have.
Okay. Sir, we have seen that the crude has started going up, and that may have some follow-up impact on benzene prices as well. Have you seen any kind of improvement in our margins because of low raw material cost benefit, or you expect going forward, we will have some benefit because generally, we tend to gain in a rising raw material price scenario?
So generally, basically, we have a pass-through. So raw material pricing impact is not -- the local is cut immediately pass through an export sometime in quarterly pass-through.
Okay. Sir, third question is on net debt. You mentioned that maybe we can see net debt peaking at INR 2,700 crores to INR 800 crores, while given the current weakness, we are still looking at maybe a best case EBITDA of almost INR 1,450 crores to INR 1,500 crores for FY '25 while we are continuing with the 102 CapEx of INR 2,500 crores to INR 3,000 crores. So that seems that our cash flows may not be sufficient enough to meet this CapEx, including working capital requirements. So any change there because earlier, the projections were on a higher side. But now given the weakness, so we are expecting a lower cash flow generation. So how we see that our peak net debt or net debt level next year with us keeping the CapEx in?
No, I believe the question because there earlier was referenced to the debt numbers for this year and not on a peak net debt. So it was more related to by end of FY '24, where we see the debt numbers since you rightly said that we do have CapEx of per plant, and there are also the volume of tickets going to be gradual over next few quarters. So the debt level will increase. At this point of time, it will be a bit difficult to work on a net debt basis because we still have a lot of areas to look into such as raw material prices have started moving up the impact of that you'll have to be evaluated and see. So on a debt number basis, I guess the net debt would increase in FY '25. I believe it should peak out in somewhere in FY '26. And from there, it will start tapering off. Putting a number at this point of time would be a bit difficult, probably we can take it up at maybe next quarter.
Okay. So just last from my side, and I'll come back in queue. Sir, in terms of our capacity utilization level. So we have already definitely increased -- have invested significantly. And our CapEx plans are still going on while we see that the recovery will be slower and China, where the competition is still pretty large in terms of commodity side of the business. So do you see that the threat from China is likely to continue in terms of the pricing because we have heard that huge capacities you have built up in China at least in a lower end of the total value chain, they are 25% to 35% of our core market company. So how do we see? And is there any possibility that we may revive CapEx plan over the next 2 years and slow down a little bit?
Basically, the impact of the Chinese competition increase is already there. So we don't see any further change much in that. And these projects are whatever we are doing, we have already started working on that, and we don't have any plan to change on overall whatever we have guided INR 2,500 crores to INR 3,000 crores over last 2 years.
The next question is from the line of Surya Patra from PhillipCapital India Private Limited.
Yes. Congratulations with a good set of numbers in a difficult time. Sir, my first question is on the export and domestic mix. So there is a 10% swing in this quarter from the earlier period. In fact, there is a strong growth in the export that is what we are witnessing while the domestic market is remaining subdued. So how should one read the one should think that, okay, the domestic market is suppressed by the dumping Chinese dumping and all that, whereas you would have seen some export demand in, let's say, hydrogenation-based products annually and all that. So in the export side, that would have supported the export mix. So practically, your sense, how should one really rate this?
So basically, overall direct export and India export is one component. So we are majorly being a global player. So we'll have to count both direct export and indirect export, which is counted in local sales. Another thing which is only for local demand. So sometimes this decrease in local sales maybe is also because of the downstream pressure, especially in the agrochemical side where our customers buy the product locally and then make the products and export. So that's our situation.
So that means -- is it fair to believe that the direct export is seeing a kind of a stronger movement than in the domestic market?
Yes.
And this mix is likely to sustain in the future going ahead again, sir? Or it may, correct?
No, overall, we will see that we'll have stand good export...
Because, in fact, for a very long period, we always used to have a revenue mix of export mix of more than 50%. But when we witnessed post-COVID or an during COVID domestic momentum gaining, then there was a kind of 10% swing downward for the export that we had witnessed, which is reversing again. So that's why my question is. So is it now fair to think that export will be a dominant pace going ahead?
Yes. currently. But then again, once we have a contract fee there, that is full export. So generally, we don't see on that way local is more depending on where our product demand is there. Sometimes end use consumption ships that the product gets sold locally and the finished products exported. But overall, we have been saying this 40% to 50% -- 40% to 55% range of export, that kind of thing should continue.
Okay. Just a clarification relating to this factor. Is this contract as well as contract 3, both are in the optimal exploration level for the quarter?
No, Contact 3 is still in the first year, it's more of a stabilization.
Okay. Sir, second question is on the volume mix. So what we are witnessing that there is a kind of a strong recovery in the PDA sequentially. And even in the hydrogeneration as well [indiscernible] all on a temporary peak base of the previous quarter, we have seen some sequential listing. But otherwise, across both, there is a kind of first more than strong double-digit kind of a recovery in the volumes that we are witnessing. So is this indicating that despite this demand weakness, what we are generally witnessing in the global market, we are kind of displacing some Chinese competition. And hence, this is this position. And that's why this can sustain even in the second half. So is it the right understanding? Or how should we think this volume recovery Q-o-Q?
So magically, overall, the volume was down and the recovery is taking other. Then ultimately, you'll have to move from company to company, within company product to product. So the kind of product that we have, we are seeing that the demand is picking up. And we see that the Q-o-Q from Q2 to Q3, Q4. Generally, the demand forecast what we are getting from customers, it is getting more and more normalized.
Okay. One question on the margin, sir. See, in fact, we know that your model is a part through model where it is better to look at the absolute EBITDA basis. But given the fact for this crore fluctuating, appreciating because of the geopolitical tens and then normalizing again during that situation continuing that way, then the recovery what we are witnessing for our products, basically, and the China dumping aspect, which is still continuing. Considering all these factors and the recovery, what you are guiding for the second half. So at least on the margin front, it is fair to believe that you have already bottomed out in the first quarter in terms of the margin, which was the lowest ever.
Yes. [indiscernible] margins, what were to first quarter were lower and margins are yes, I should say it is bottomed out.
Okay. Just last one clarification then form a side. See, obviously, we know that while the base business is likely to see a kind of sequential progression, both in terms of volume as well as margin now in the way that you have indicated. The additional or the incremental link boost to the performance is likely to come from the installation and the Italian products in the Nitro expanded PACE. So which is practically, I believe, [indiscernible] from FY '25. So if you can give some sense in FY '25, when do you really expect these incremental Italation1 and literal expansions are likely to contribute?
So we are currently targeting commissioning in Q1 towards the end of Q1 of FY '25 or this installation and Nitro Toluene, so progress is that's what I mentioned earlier also that FY '25. Also, we'll see a progressive increase in volume and EBITDA. So second half will be better than the first half because of volume.
Okay. So your sir, basically, you are saying this will start from the first quarter, but since these are like ready projects for us, and we have been working on this in some time. So do you have a contract means order book base is sure about the ethylation and the nitrotoluene downstream products to give a kind of guidance here? Or any order book position that you are already having or how is it, sir?
Yes. We have a good volume visibility on those expanded capacity.
Irrespective of the demand situation, whatever that is prevailing in the market currently?
Hopefully, by the time the demand also is expected to get normalized, right? Calendar year first half '24.
[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.
Sir, there has been over this first half, reasonable control, which has been there on the staff cost and the expenses. So on the other expenses, barring the reduction in power costs, is any other factor that is contributing?
Freight is a major component of the other cost act.
Okay. And sir, are there more opportunities to optimize costs on staff costs and other expenses for us going forward?
Yes, basically, as we had mentioned earlier also, there's operating leverage on, everything will kick in. And we'll be more or less stabilizing on our employees' level. So some more optimize may happen.
Okay. And sir, on the volumes, is there a volume growth number that you have in mind for next year or that's the business in overall and deliver?
So it's become difficult too many products to different prices. But overall, in general, the volumes across the board, we will see growth.
The next question is from the line of Sanjesh Jain from ICICI Securities.
First on the volume growth on the industries where we are seeing recovery is that they are bit favorable please, because I think the destocking phenomenon started [indiscernible]. And the crude price is also driving the restocking because this year the enterprises may remain high. Is that what we are seeing? Or do you see there is a strong underlying demand recovery? Because if you look at the segment rises or the textile that doesn't show the optimism we are sharing on the volume side of it.
Yes. I think once the inventory kind of reaches to an optimal level. It was mainly of inventory correction and I think different products that is getting to a level -- some actual end-user demand also is a factor because overall crude inflation also. But the major demand issues were mainly because of the inventory correction. And I think that is getting -- there is a level for different products. I think it is reaching a level where they would operate at that particular level of inventory.
No, I appreciate that. But my question was on our confidence of CY '25, having the strong volume recovery. If it is a restocking based volume recovery without underlying completely recovering, are we still very comfort to the volume delivery?
Yes, the volume degrowth this year also is also substantially driven by inventory correction. If you see FY '24, the amount of in the volume degrowth has taken place. And some demand increase underlying also, but it will be still mainly that inventory correction related degrowth, which will be coming back.
Fair enough. Sir, my last question is on the margins. Are we sitting on any of the inventory gain because there was a sharp rise in the crude derivative prices. And has that given any tailwind or that is not really a major factor in the margin expansion?
No, no significant any inventory gains.
The next question is from the line of Archit Joshi from BNK Securities.
So just trying a bit on the margins front. Earlier so we used to sort of give a split of our 5 blocks wherein you to operate, wherein you used to classify chlorination and nitration more of commoditized products and the hydrogenation monies and Alex chemistries, [indiscernible].And the split used to be somewhere close to 80 20, 18 per specialty, of course. Would it be safe to assume that maybe in the first half, we have experienced more of specialty products in the mix and the inferior margin products are not a part of the current first half sales, which is why we have been able to see decent margins for this quarter?
So that was not petawatt value-added. In general, the value-added percentage are increasing overall. So that value-added percentage increase gives us increase in EBITDA margin to sales in general. So that is where the impact comes.
Sir, just another confusion that I had on the CapEx front, we have mentioned that INR 100 crores to INR 1,300 crores of CapEx for this financial year and INR 2,500 crores to INR 3,000 crores of CapEx, would that be on the top of this? Would this be FY '25 and FY '26 or the current INR 1,200 crores, INR 1,300 crores as part of this INR 2,500 crores to INR 3,000 crores CF?
Yes, current INR 1,030 crores for this year will be part of that. So we have been guiding for the 2-year period. So 2,000 to 3,000 guidance includes the FY '24 numbers.
Sir, I think previously, when we had met during the plan business, we were expecting CapEx from asset restoration, debottlenecking, sustainability and plant infrastructure with some R&D-related CapEx that got capitalized in FY '24. And currently, we are largely working on the NP [indiscernible], coupled with the Zone 3 or Slide 3 projects for MPP and [indiscernible], what is either a part of the CWT or some of it is capitalized. Would that be a fair assumption?
Yes. Most of the WIP or the installation and zone 3 and some of the regular also sustainability related CapEx and other value-added products also is part of the WIP. So I think -- but by FY '24, and I think a lot of that will get capitalized.
The next question is from the line of Nitesh Dhoot from Dolat Capital.
So my question is with reference to one of your products, which goes in for octane boosters. So if you could explain the demand for this particular product? And is it part of any contract long or short term? Or how sustainable is the ongoing demand that we are witnessing there?
As a growing product and we see that on the kind of demand, what we have seen, we should be able to sustain and maybe grow also. And it is also other end use also.
Okay. So sir, of this product, has there been a significant growth in the other exported products also? Or this has been one of the drivers, if I may ask?
Yes. So the growth in other also, and this also is a substantial part of it here.
Okay. And sir, just lastly, on the sunset review on MTGA. I mean just trying to understand if MTGA's contribution in the overall revenue is anything significant? Or whether the nonacceptance of this review by [fablite] would impact us in any way?
No, the demand has been very slow on that between the local. This contract revenue is not going to have review -- is not going to have any significant impact. But I think we should be able to continue that antidumping duty.
All right. And just lastly, maybe, I mean, if you could just explain on the sequential decline of 17% that you're seeing on the domestic side, which end users would have been the key contributors there.
The agrochemical is the major.
The next question is from the line of Krishna Kumar from Avendus Park.
Sir, following on the previous caller's question on the top, one of the key products that we are -- our export growth has been good. Any key reason why we are gaining market share on this particular product? Is it the competition is lower? If you could just help us understand reasons why we are growing a good traction on this particular product?
So we're trying to spread our market base and develop newer markets for these products.
But this is primarily any particular end market segments that this product that goes into?
No, it is a specialty product going into different end uses.
Understood. Sir, if I see your export -- I mean, domestic and export run rate, our exports are more or less holding around this INR 800 crore run rate mark, whereas our domestic realizations have come from INR 550-odd crores INR 100 to INR 150. Now we understand the flea pricing increase actually coming down and exports is the only one that is holding. And if agrochem is not doing well globally. Is it that dive and other markets we are kind of gaining market share versus other countries? Any specific reason for this export shift, if you could help us understand?
No. Basically, this demand contraction, whether it happens in domestic or export, that's what becomes important. Some of this decline in domestic sales is because of the ultimate agrochemical demand in the global market is impacted. So customers who are buying within India and then exporting the product. Those has got impacted. That's what I earlier have also mentioned that because we have a lot of domestic sales, which is indirectly exported and that is an impact.
So the export sale is also not for any agrochem markets just for the other sectors where we are gaining.
No, no, that also there are so many different products. So sometimes what happens, that agrochemical interim is going in export, the impact if it is less than intermediate which is going in the domestic market impact is more. So that's how things move become very product-specific ultimately.
And sir, in one of your previous comments, you mentioned that the INR 1,700 crore run the guidance that you have given, that can be down by 5% to 15%. Is that what we heard right? I mean we are seeing that guidance would be 5% to 15%.
Yes. So current estimate, and then we will see how we are able to get fine-tuning as we go on.
So basically, the INR 1,700 crores can read as INR 1,450 crores to INR 1,600 crores.
Yes. If you take the 5% to 15%.
We'll take the next question from the line of Ranbir Singh from Nuvama.
Sir, 2 clarity. One that our fixed contract revenue that from Unit 2 and 3. So what was the total contribution of that unit?
The project contractor, as I mentioned, it is more on stabilizing, and contract to the way it is structured that EBITDA is not directly connected to the sale.
Yes. Just wanted to understand. I understand the FX EBITDA. But what portion of it is currently contributing to our total either revenue or that [indiscernible]?
That number, we will not have already been available, right?
Okay, fine. And secondly, when we say that FY '25, we'll see the normalization of business. So exactly what is in our mind? What is the normal level? What kind of growth normally we consider in normal. So that is -- I understand this would be a gradual improvement there. But is there any number in our mind that we are expecting FY '25?
No, whatever is a sudden decline, which has happened in this year, a very, very sharp decline in demand for various products, which we have seen in this year because of the destocking. So those kind of should become normal. So the inventory decrease in sales because of the inventory correction, I think will get normalized, and we'll move to a consumption and sales kind of a matching.
And the last one that you mentioned the production number of nitro chloro [indiscernible], Actually, I missed this number. So if you put helping to...
Nitrochlorobenzene is 19,014 tonnes, and hybridation is 3,136 tonnes per month.
Okay. And just for basic conversion of this category, which one is better margin product. Just to understand that how the mix is actually impacting our margins. So whether it's a nitrochlorobenzene gives us better margin than aggregation, or [indiscernible] margin?
[indiscernible] products. So there is a margin per KG, but rupee will be lower. And hydration and those are more value-added products. But as a percentage of sales, those margins are higher.
We'll take the next question from the line of Neerav Jimudia from Annual Research.
So sir, on the nitro toluene side, our volumes have fallen on a Q-on-Q basis. So is it because of our O&T chain not doing well and that's why we have restricted the production and sales of NTI's because of the P&T and the other products which come along with the production of [indiscernible] products not doing well. That's why we have restricted the production of anti in this quarter.
It's more related to agrochemical side demand. So we have taken some shutdowns also to sort of production was impacted [indiscernible].
Sir, was there any restrictions on the sale of Metallo in Europe or predominantly in France and because of which probably the demand restriction or demand fallen would have happened on the OT chain. Is this a right understanding on the falling the volumes for MT?
No, I'm not aware of any of those special geography and restrictions.
Okay. And sir, on the metric acid side, the prices have fallen. So last year, the prices are very high now. The prices have fallen. So does the raw material benefit of the fall of those nitric acid prices are reflected fully in Q2 or further improvement in our margins could come up with fall in the prices which have happened in the first half of FY '24?
Basically, we have a contractual structure. So it is more or less ammonia [indiscernible].
Okay. Sir, just a last clarification on the number which you mentioned that next year, we could do INR 1,700 crores, plus or minus 5% to 15%. So hypothetically assume that there could be some margin per kg improvement in the margins with the product mix also changing next year. What sort of volume growth we would require to do so that, that sort of number could be achieved? So across the board in various product line, there will be volume growth, as we have mentioned earlier also the night on rough understanding of the blended volumes, which need to be clocked so that we could achieve those numbers of EBITDA?
No, that we are not taking out that kind of a blended number because some very difficult because our total product range is very wide and the pricing of the products are INR 1,000 plus to INR 5 sulfuric acid. So that volume becomes difficult. Is margin improvement as well as volume improvement. So it is a mix of both that we expect that will improve our number.
The next question is from the line of Sutat [indiscernible] from Equiris.
Yes. So just wanted to understand the split between -- in the exports between our Exelerate and the non-agile markets?
It's more or less substantially on regular market, nonregular will be more about 10%. Because we had highlighted that as the nonregular markets, our margins would be 10 percentage points lower. But despite some higher exports, our margins have improved substantially. So is there any particular reason I mean?
No, the nonregular market, margins are generally lower. So that impact is that, that is what we see that once we move to a more regular market, that benefit is going to accrue in the future.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you.
Thank you, everyone, for taking out the time to join us on our Q2 FY '24 Earnings Conference Call. I hope we have addressed all your queries. If you have any further questions, please feel free to contact our Investor Relations team, and we will address them. We look forward to connecting this to you again in the next quarter, and thank you once again.
Thank you, members of the management. Ladies and gentlemen, on behalf of RT Industries Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.