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Aarti Industries Ltd
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Ladies and gentlemen, good day, and welcome to the Aarti Industries Limited Q4 FY '22 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 evening, everyone, and thank you for joining us on Aarti Industries' Q4 and FY '22 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, key milestones achieved and outlook on the business. Post that, we shall open the forum for question and answer that the management will be addressing to the queries of the participants.
Just to share our standard disclaimer here. Some statements that may be made in today's call may be forward-looking in nature, and the disclaimer to this effect 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 perspectives. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to our Q4 and FY '22 earnings conference call.
We have shared our results document, and I trust you had an opportunity to go through them. Financial year 2022 was highly unpredictable and challenging period for everyone. First started with a resurgent second wave of COVID-19 pandemic turning to a significant inflationary surge in [ input ] crisis, and then the Russia-Ukraine conflict, which disrupted the global supply chain and resulted in elevated price of crude oil and other petrochemical intermediates, and other fuels such as coal, et cetera.
Given this backdrop, I am elated to share that we demonstrated agility and navigated through these pressures to deliver robust financial performance during the period under review. We scaled new peaks backed by our high-quality business enterprise that has been built over several decades with solid execution capabilities.
Let me share some of the key numbers for FY '22. Our revenue increased by 58% to INR 7,919 crores, while EBITDA came in at INR 1,930 crores, higher by 96% profit after FX to INR 1,307 crores, higher by 144% over last year. FY '22 financials include an impact of termination fee received with respect to the first long-term contracts to the tune of INR 631 crores.
Excluding termination fee, our annual revenues were at INR 7,288 crores, while EBITDA was at INR 1,320 crores. We achieved this highest ever EBITDA in the company's history in FY '22, even after netting of the impact from termination income. Normalizing the termination income for FY '22, the EBITDA growth for FY '22 was about 35% over FY '21.
In Q4 FY '22, we registered 50% gains in revenue to INR 2,018 crores, driven by better realization trends going to our ability to pass on sharp spikes in raw material costs and other [ rudilee ].
This was supported by healthy volume uptick during the quarter, led by continued demand outlook for our products in the key [ end user ] industries. EBITDA enhanced by 30% to INR 339 crores, while EBITDA margin stood at 16.8%.
Having said that, we were able to maintain the absolute delta margin, despite cost pressure in the system, further normalizing the impact of a shortfall fee of INR 37 crores for Q4 FY '21. We recorded about 50.2% Y-o-Y growth in EBITDA for Q4 FY '22.
Also when compared with Q3 FY '22, which included a shortfall fees of INR 47 crores, the Q-o-Q EBITDA growth, net of termination income and shortfall fee, was about 11% for Q4 FY '22.
Also, the commissioning of a few projects, which generated an increase in depreciation and fixed overage during Q4 FY '22. Our profit after tax [ aligned ] by 39% to INR 194 crores in line with operational performance.
Despite a healthy performance during the year, the Board of Directors approved a final dividend of INR 31.5 per share of FY '22. This is in addition to an interim dividend of INR 2 per share distributed during the year.
This gives a total dividend of FY '22 stands at INR 3.5 per share, that is 70% of the face value. During Q4 FY '22, we witnessed significant volatility in the prices of [ see and postalavi ] largely due to various issues, including the 1% into the Russia-Ukraine conflict. We wish to clarify that while we don't have any significant business in the region, and I see no significant impact of the same in our business.
Moving to the segmental performance overview. Revenue from Specialty Chemicals business in Q4 FY '22 increased by 49% to INR 1,629 crores, while EBITDA expanded by 19% to INR 246 crores. As I highlighted, we were able to pass on this variation to our customer in a structured manner.
More importantly, our ability to suitably optimize the product mix sustained the overall volume. Having said that, we are closely monitoring this development and will take appropriate steps as and when required.
I now share the production details for Q4 FY '22. Production of nitro chloro benzene was about 19,551 metric tons compared to 19,100 metric tons in the corresponding period of last year, and close to INR 18,504 metric tons for Q3 FY '22.
Likewise, for hydrogenated product, we attained a production mandate of 3,029 metric tons compared to 1,935 metric ton last year and 2,878 metric tons in Q3 for FY '22. For nitrotoluene, the production for Q4 FY '22 stood at 5,155 tonnes compared to 2,935 tonnes in Q4 of last year, and 3,633 metric tons in Q3 FY '22.
The quarter went by some -- we saw some production and revenue impact due to supply shortage of key raw material nitric acid, as indicated in the previous call. We have been closely working with the supplier to minimize the impact and optimize the product mix to protect the profitability. We continue to be engaged with the supplier to find alternatives to improve the situation, which has a significant bearing on our performance.
Turning your attention to projects commissioned during the quarter, we began commercial manufacturing in respect of the project related to certain long-term contracts in Q4 FY '22. This will add incremental revenues to the tune of INR 500 crores by end of FY '23.
Other major projects, such as projecting to the third long-term contract integrity at the NCB capacity expense, et cetera are expected to come on stream in FY '23. And we'll see ramp-up over FY '23 and FY '24. Further with respect to the unit, with respect to the first long-term contract, we have seen some volumes in FY '22, can expect a progressive ramp-up of the same over next 2 years, targeting the utilization to be about 70% to 80% by FY '24.
I believe that we are well poised to capture incremental market opportunity in the Specialty Chemicals space, based on our leadership position and expertise in [ turen ] chemistry. This including healthy demand in both the domestic and export markets, combined with capacity expense and [ in chadu ], will elevate our performance momentum in the continuing years.
Now switching our focus on the pharma business. We reported 52% revenue growth to INR 388 crores in Q4 of FY '22. EBIT came in at INR 67 crores, higher by 30% Y-o-Y. In line with the overall operation, we were able to pass on part of the spike in raw material costs and in [ through this ] segment as well, resulting in better realization.
We demonstrated strong volume growth, backed by continued positive demand landscape and higher offtake from generic pharma companies and resin businesses. Business visibility continues to be high, and we are very well placed to realize the growth potential in this segment based on our strong product lineup, timely introduction of newer products and attractive pipeline of approvals in [ pareo ], anti-hypertensive, oncology and corticosteroids.
With respect to expansion of the new block at the U.S. FDA, Food API facility at Tarapur, we are in the final stage of commissioning and expect this to be commercialized in the current year Q1 of FY '23.
Moving on, as you are aware, we have witnessed significant inflationary trends in the input costs, logistic costs, fuel costs, commodity price, et cetera for FY '22.
For instance, for various key raw material input, the price has gone by about 50% to 100%. It [ must be ] noted that while a significant part of this price increase is passed on to the customer, there is a working capital cycle gap for some [ things ] to be [ targ and ] converted into cash. [ Reason ] Aarti is a company the resource is getting deployed in working capital. We are closely examining the same and taking efforts where possible to reduce it.
Overall, the entire CapEx of over INR 1,300 crores in FY '22 with about INR 360 crores spent in Q4 FY '22. This was in line with our planned CapEx outlay for the year. As you are aware, over the years, we have invested into various projects. Of these, 2 have been commercialized during the last 12 to 15 months. The ramp-up of these projects has been impacted due to the various challenges related to the pandemic availability of key raw material, and also partly due to the cancellation of the long-term contract.
We are now reaching a good ramp-up of this capacity, and I expect most of this to see its capacity reached about 70% to 90% utilization by FY '24. Going forward, we remain committed to investing INR 3,000 crores plus by FY '24 to achieve our growth aspirations.
Our focus will be to undertake R&D and innovation-led projects, where we have 40-plus products for Specialty Chemicals and 50-plus products for pharma in the pipeline. This will enhance visibility and help achieve our growth guidance for FY '27, as shared earlier. To manage and execute this, we have also onboarded close to 1,500 personnel in FY '22 across various functions.
Before I conclude, let me share a couple of important developments. As you are aware that we have been witnessing shortages in multiple plants for [ arinobiasa ], one of the key raw materials for concentrated nitric acid. This had a significant impact on our operations.
In order to mitigate this risk, we proposed to set up a backward integrated unit for concentrating nitric acid from dilute nitric acid, with a capacity of about 225 to 250 tpd, to partially meet our requirements. The free stock for this is expected to be sourced mainly from global market. We are tied up with a technology partner for the same, and expect the facility to be commercialized by end of FY '24. This will assist in easing of our challenges to [ restore ] the reference to the sourcing of nitric acid in the future.
During FY '22, Aarti Industries was awarded the prestigious Responsible Care status by Indian Chemical Council. Responsible Care is a global initiative to drive continuous improvement in safe chemical management and achieve excellence in environmental health, safety and security performance.
Further, we [ resupply ] our reference for our ongoing process for demerger of pharma business into Aarti Pharma Labs Limited. We wish to appraise at the NCLT and [ we have our ] schedule the hearing on our application in June 2022. We are hopeful to get favorable approval from NCLT in the aforesaid [ meeting ].
Subsequently, it would take 2 to 3 months for completing the formalities related to demerger allotment of new shares by RP Pharma Lab Limited and listing of those in their respective exchanges.
As you are aware, India is at a very sweet spot and the road ahead is encouraging. We are excited to lead India in its aspiration of becoming a preferred [ mars ] partner for global chemical measures. Our focus on value addition and product expansion will seize the momentum in the ensuing years.
This will further cement our leadership position while enhancing value for all the stakeholders. With these rationales and the stronger visibility available, we are better placed to meet the guidance for FY '24 and for FY '27 as shared last year.
That concludes my initial thoughts, and we'll now request the moderator to open the floor for the Q&A session. Thank you.
[Operator Instructions] We have the first question from the line of Umesh Patil from Reliance Nippon Life.
Congratulations Rajendra for putting good numbers. Couple of questions, as you mentioned about backhaul integration, I just need to understand that 250 PBD that you mentioned, that transferred into 60,000 metric tons per annum for nitric acid. What would be the CapEx that will be incurred?
This will be basically a concentration plan from weak nitric acid to concentrated nitric acid. We are, overall, evaluating the entire nitric acid scenario. And I think by Q1 we'll be able to guide on the CapEx front on this. But it will be more around this plant itself cost maybe around INR 150 crores to INR 200 crores range.
Sure. So that will take care of the entire requirement of your nitric acid? Or it would be something like 50% to 60% of the requirement?
No. Actually, this will be more of a balancing where we cannot get nitric acid from the market. We can buy weak nitric acid and concentrate it to concentrated nitric acid. And this weak nitric acid also can be imported from outside India, whereas concentrated nitric acid cannot be imported into India. So that is one of the reasons why we are putting up this facility, so that even the nitric acid importing and then converting to concentrated nitric acid will become feasible.
Sure. And the second question was related to your Pharma segment that you mentioned about API facility that will get the approval from U.S. FDA, and that is in the final stage. I just need to understand what will the revenue potential of this facility? And what would be the EBITDA margin that will contribute to your company?
Yes. So basically, the new facility will start operationalizing some...
Sorry to interrupt, sir.
Next quarter...
Mr. Rashesh, sir, your audio is not coming through clearly. If you could speak a little louder.
Yes. So the new facility is going to come on stream from the current quarter later, and it is going to add initially -- that it will be a ramp-up in the next 3 years, and we'll be able to utilize the total potential and total revenue portion to reach $25 million to $30 million. In this new site, the EBITDA margin will be in line with our other EBITDA margin of 17% to 20%.
Sure. And the last question is related to the recent -- if you look at the China recently. If I recollect properly, in 2019, when there was an issue in China, it helped us in reporting a very good set of numbers in terms of profitability. So again, in this quarter also, April to June, there was a supply disruption in China [ how long does that ] happen.
Definitely, do we expect that, again, the similar kind of situation realized for Aarti Industries being market leader in most of the toluene-based as well as nitrogen-based derivative products?
No. Currently, we are not seeing any significant impact of this Chinese -- material going into China is a bigger problem than material coming out of China, in general.
We have the next question from the line of Surya from PhilipCapital.
For participated numbers, so particularly on the margin front, what I see that, okay, if adjusted for the termination fee what we -- or the conference what we say in the recent previous quarter, I think our margin, on my opinion sank, despite also this elevated cost in terms of merge activities and all that.
So I believe the partition of the elevated RM cost is possible, but may not be the case for utilities alone. So if you can just talk something on that, how did you manage that margin remaining same? Or what has prevented incrementing other ones?
Yes. Generally, logistics costs get transferred. Because the ocean freight has increased so much, it becomes difficult for us to bear the ocean cost freight chain.
Utility mainly?
On utility, sometimes becomes difficult, but I think utility was already high. So on a Q-o-Q basis, there is not much change in utility cost.
Okay. So last thing, having seen whatever kind of cost situation now, and it seems that, that situation is the related cost situation is likely to present mostly, possibly entire of this year FY '23. So given that, could you give some sense on the your cost line items?
So because you are also indicating that you have added some 1,500-odd people in FY '22 possibly throughout the year that you would have added. So the incremental cost will be added because of that. So what is the kind of change that we should be seeing in terms of the cost credit? And can we maintain or see some improvement in the gross margin trend having seen the peak RM cost scenario currently? So some sense for FY '23 will be much clearer to state.
Yes. Actually, the number of people which have been added is also for whatever was commissioned in the second contract, as well as some of the people have been onboarded for startup of this third contract, and some of the other projects, which are going to get lined up. So they'll be utilized mainly for the newer facilities. And I think corresponding expenses will be absorbed in volumes generated out of it.
Okay. So obviously, you do not guide on the margin side, sir. But given the kind of absolute cost expense and what is visible, so do you think your absolute EBITDA growth will be in line with the earlier guided tend?
Overall because correspondingly, there will be a volume increase also. So at the EBITDA level, we feel that whatever the guidance which we have viewed FY '24, we should be able to reach those levels in next year.
Okay. Sir, in terms of the people, so now with 1,500 addition what it becomes total?
Check that total maybe, combined both, so it would be around 9,000. It will be roughly around 8,000, 8,500-odd crores.
Okay. And about the second content that you have commissioned. So given the challenging situation that is prevailing. So do you think it will be kind of very [ excited ] one than the earlier expectation? So versus the INR 500 crores kind of per 100. So -- are we going to start the year with, let's say, 50% utilization of that optic program or some change in the...
No, it will be very at a high wheel level of percentage utilization from the first year itself. So the contract has been structured. There'll be a significant highly percentage utilized.
The same thing for plastic-oriented. So don't you think given the [ benefit ] that you're giving the local economy [ soken ] -- so there will be kind of a moderation in the volume expectations out of that unit also?
NO overall, the way we have our contract structure, we don't see much issues there.
[Operator Instructions] We have the next question from the line of Aditya Khetan from SMIFS Limited.
Sir, my first question is on the API capacity expansion. If you can highlight the affiliate capacity figure in the [ total ] and how much in terms of percentage also if the capacity is increased too, how much would be that in terms of percentage increase?
The API capacity, basically, we are putting a high volume line and the products which we will be manufactured in India will be $200 to $500 of KG product. So what we are doing is from the current line, we are moving the high-volume products in the dedicated lines.
So we will have very high occupancy overall because of that, because we already are having significant occupancy of these in our current multi-purpose lines. So we have now raised it to a level where the production shift to dedicated lines.
Okay. So the [ amount ] of $200 to $500 per kilo, so this would be done from the existing like so from the increased capacity on. Most of products are mix of existing products and mix of new products. So basically, large volume will be by existing growth and 1 or 2 [ are actually ] new products, for which we have already done the revelation and other things. So the products are now getting launched in mature.
Okay. Okay. Sir, second question is from the raw material [ part ] so what are we taking that in China. So there are some of the raw materials which are reported from China. So there is a disconnect in domestic prices and China prices. Because of this, so we are replacing that imports have started to increase and China is offering at a much lower price as compared to the domestic peers.
So because of this long [ ban and all ], so there is a disconnect in many of the raw material prices. So are you reflecting for the next quarter, there could be some sort of impact from the China shift [ its upper bero ] offering at a lower price, so volumes can be shifted to a channel?
You're asking pertaining to Pharma or chemical or both?
So for chemicals specifically.
No. Chemicals, basically, as we are totally backward integrated. And we don't see any movement, any shifting towards China for our product line.
But in terms of pricing, so then the discount is [ maintained ] so for the raw materials is the data point correct, sir?
Maybe for some strategic products, but no, overall, we are not seeing any significant impact.
Okay. Okay. On the revenue part, sir, for this fiscal year, we have roughly 42% revenue growth. This is excluding the termination income. So how much of this will be from the volumes and realization? [ What ballpark figure will be, sir ]? If you will be able to guide on that?
Yes. So the volume growth would be in the range of around 12% to 14% kind of stuff.
Okay. So okay, so 10% to 12% would be from the volume. So sir, my next question, so when we look at the revenue growth, so majority of the part is from the realization only?
So for the last 2 years, we had done CapEx of roughly INR 3,000 crores to INR 4,000 crores. I think, sir, that number has not flowed into our financials yet, considering we are only [ flopping ] 10% value growth in the guidance. So in terms of numbers, sir...
You're talking in terms of the annual volume growth or what?
In your volume growth, sir, means for the last...
That would be in the range of 18% to 20-plus percent.
Okay. 18% to 20% is the volume growth for FY '22?
As your question on volume growth, the first contract because it was canceled, we already got the assets online. On those assets, we have just started the production in that plant. And as I mentioned in our speech, by FY '24, we'll have a 70% to 80% capacity utilization for that product.
And actually, that's a value-added product of 4 steps for [ starting ] back impact of the entire value chain volumes will come in. And the second contract has been commissioned in Q4. So that volume will come in. And this year, partly nitric acid also had impacted. So we -- even once the nitric acid stabilizes, we expect that 70% to 90% capacity utilization by FY '24 for most of our clients.
Okay. Got it. Sir, the nitric acid part only. So when I was looking at your number for the -- so for the last 7, 8 years, so nitric acid contribution in the overall raw material is only about 7% to 8%. So considering if there is a shortage also, so does it impact us much on the cost front like, that I wanted to know.
Yes, because nitric acid is a raw material price is a one factor. The ability is a bigger factor. So if you have less material available. But overall, we see that nitric acid situation will improve, because in second half of this year, some new nitric acid capacity will come up in India. We feel that on the availability front should ease out in FY '23.
Okay. Sir, just one last question from my side. So on this INR 2,500 crores to around INR 300 crores -- to around INR 3,000 crores of CapEx for the Specialty Chemicals, which we are doing from FY '22 to FY '24, if you can give some rough breakup on this, sir -- of INR 3,000 crore revenue of CapEx on to the Specialty Chemicals?
No, the existing activity and our running contracts, what we have guided was around INR 1,500 crores. And rest will come up for the new products, which sales will start coming more in FY '25 onwards. That will be a multiple, which we had planned for INR 3,000 crores of CapEx on Specialty Chemicals. So I believe -- so one part is for the chlorotoluene, second is for the -- so universal multipurpose which are the auto -- and some of the existing product downstream also we'll be expanding capacity. We can do that in a new range of products.
In terms of number, if you can give us, sir...
I think that we will work out, and then come out in maybe next few quarters is a detailed breakup of this CapEx.
We have the next question from the line of Ritesh Gupta from Morgan Stanley.
Sir, I just wanted to understand something. So if you look at the last 2 quarters' commentary, you talked about nitric acid and logistics costs, et cetera have also gone up. Going forward, the challenge also lies in terms of probably the U.S. recession, et cetera.
So I just wanted to sense that if I sum up all the one-offs in the last 6 months, and there I see the headwinds in the next 6 months. What looks better, I mean the kind of margin [ figures you ] saw in the last 6 months or probably next 6 months again, energy costs, et cetera, have also been higher or [ every ] quarter, energy cost, et cetera, also on the higher side?
So should we see -- what I mean to ask is that from second half as we go to the first half this year, should we see momentum improving? Or should we see a similar sort of challenges sustaining in the first half?
Yes, basically, overall, the discretionary side demand has some impact. But we are able to rearrange our product mix. And agrochemical side, demand is quite strong. I think because agri-commodity price are also strong. So overall, we see as far as volume possibility, there should not be much issue. And nitric acid may still -- this year first half may still remain challenging. Compare maybe second half the capacity in India will increase. This will stabilize the availability.
Got it, sir. And sir, if I just extrapolate your guidance of EBITDA doubling over '21 and '24, -- are you looking at a 20% growth over the next 2 years in -- so is it something that -- and given that even when I look at your efforts to give commentary you have said that is an issue and the lack of operating [ guidelines ] , higher fuel and power costs and logistics, et cetera, as -- so do you think that there could be a potential upgrade to the '24 numbers?
I mean, or is it that you want to convert all the -- is there some sort of upside, which is there, which let's say, if I [ look at ] all the buyer contract and I mean the contract 1 contract 2 contracts all which are not leading? And [ let them all ] of the capacity expansion that you've seen in the [ end of the fishfid ban ] issue that you have seen in the last year normalize. Or is there something else which I need to keep in mind when I see your guidance of doubling of EBITDA up to [ '24 ]?
Yes. I think more or less, we can still maintain the guidance. Overall, I think 1.7 to 2x what we have guided for FY '24. I think those are the kind of numbers we should be able to make.
Sir, the question is that when I look at the lower end of the guidance, we look at 1.7 number, you already moved to 1.34 this year. So when I look at the lower end of sales, so talking about different improvement on a base of 1.25. So you're talking about, like, say, a total of 35% or 7% EBITDA growth over the next 2 years combined?
But the first -- this year, there was a INR 138 crore shortfall fee, which is part of the EBITDA of this year.
Right.
So that gets in FY '23 and FY '24.
We have the next question from the line of Abhijit Akella from Kotak Securities.
Sir, for FY '22, you had guided to 25% to 35% growth. And of course, you've exceeded those numbers. Is there a rough number you could sort of guide us to for FY '23 as well, on the revenue and EBITDA growth?
Overall, as I just mentioned now that this FY '22 as we had about INR 138 crores as a shortfall fee for our first contract, which was mainly accounted in the top [ 5 3 ] quarters so -- which will not be available going forward in the next year. I mean, we have a volume ramp-up for a lot of projects. So this will be more of a consolidation. And we see high single-digit growth in EBITDA for FY '23.
High single-digit growth in EBITDA. And on revenue, should we expect a similar kind of growth rate as the high single digits, or...
Revenue growth may be higher because that shortfall fee was without any revenue. Revenue growth will be more.
Understood. Yes. That's helpful. And just on the situation in the export markets, particularly Europe where, I mean, there has been talk of a significant impact to the economy because of gas costs and everything. If you could please just help us understand what the situation is like there in terms of our key customers or end user industries? And whether you're seeing any softness? And if so, I mean does that impact business in the year ahead?
Actually, because we make value-added intermediates and then subsequent valuation, whatever is done in the year. The requirement of energy in that value addition will be limited.
Actually, energy requirement in our range of products is more. We see that some of the products where we compete with Europeans, there may be some issues. What is our customer side? We don't see much issue on the demand front.
Okay. Okay. Understood.
And the European companies are making, most of our customers, they make the product for a global market. It's not for a European market. The way chemical industry structure, we may supply something to North America, but the product what they make there, that is for a global market.
I see. And one last thing from my side, sir, just on the nitric acid project. So if you could please just share some information about what our total requirement is on an annual basis? And how much of that will be catered to by this expansion that is coming?
Yes, there will be more of a backup kind of an arrangement. If CNA is not available, we can import weak nitric acid from overseas also, and convert it into concentrated nitric acid. So this will be more of a kind of a weather backup arrangement.
We are yet to work out the overall comprehensive nitric strategy. That is in, still in development, what should be our long-term strategy on nitric acid.
We have the next question from the line of Rohit Sinha from Sunidhi Securities.
So just wanted to understand on this employee cost, as you have mentioned that you added INR 1,500 crores. So probably, I think it has been added in the second half of FY '22. And since second contract was executed so most of that was maybe dedicated to that side.
So just wanted to understand which -- at which level this large number has been employed? And probably with the third contract coming up, and obviously, the projects are commissioning, so do we see another addition on these numbers?
Yes, this number, INR 1,500, was for throughout the year for the projects which were commissioned and also the project we are going to get commissioned over this third contract and some other intermediate plant, which will be mostly commissioned in the first half of FY '23. So we have already onboarded the people for the plant, which are going to be commissioned mainly in this first half of FY '23.
You see, overall, now there is a talent pool in the chemical market because a lot of investments are coming up by a lot of companies. And one of the key challenges going forward will be how do you manage the talent. So that's why we'd like to have some cushion in the talent and also do a continuous internal training to update the people. We are coming up with a very large expansion. It is very important to know that human resources are properly taken care of. Hello?
Sir, this is the operator. It looks like this participant got disconnected.
We'll move to the next question.
[Operator Instructions] We have the next question from the line of Archit Joshi from Dolat Capital.
Congrats on good set of numbers. So from the presentation and from your introductory remarks, you had mentioned that there are about 40-odd products in the Specialty Chemicals division that we are targeting to introduce.
So just would like to understand if there is any particular chemistry that we are focusing on? Or if you can just throw some light on what kind of products will these be that might be coming in the next 2 to 3 years? Will it be application-specific or can you see to it if you can also mention the rationale as to why we are introducing them?
Yes, basically, one big range will be entire chlorotoluene range and the chemistry, what will come is first will be what we call [ in ] chlorination, which is different than what GHCL has announced. They have announced, which is called side chain chlorination.
So first will be [ in ] chlorination, which is similar to what we do for benzene. And there will be a new chemistry, first time will be for chlorination -- then chlorination using hydrochloric acid and aminoxylation [ we can have ] reaction domination. So these are the kind of chemistry which will be there.
And this again is an integrated chain. And most of the products in this will be going in main pharma, agro and dyes and pigments. That will be the major outlet for this product range. And the main drivers here is, again, there will be import substitution as well as customers wanted to shift -- a global customer wanting to shift some of the demand from China to India. So that is a major driver in this entire chain.
Understood, sir. Sir, this sort of curiosity in the earlier chemistry that you were into, we had sort of a dynamic model that we adopted from [ amonyl ] nitration or [ emission ]. And this is a completely different basket of chemistry that you are speaking about right now.
So how different would it be from our existing business model of manufacturing, those 5 chemistries in which we were in the top 3, maybe top 4 globally? How will we be placing ourselves? Would this be again through having dedicated plants for certain chemistries because you're also speaking about setting up a universal multipurpose plant? And these chemistries are completely new to what we were doing compared to -- in our existing business model. So if you can also share some of your thoughts.
[ So the proto in on ] what we call, it will be single chemistry multi-product plant. So we'll be running on campaign different [ photo emission ] products or [ hydro hydrop HF fluorination ]. This will be dedicated chemistry with multiproduct lines. [ Amoxidation ] will be also kind of totally dedicated multi. So we'll have a dedicated chemistry multiproduct.
And there will be this multipurpose where we'll be able to do multi chemistry, where we can do [ rignat ] and all other dominations and all those chemistries, more advanced chemistries generally typically are than done in multipurpose plant.
So we also have this kind of a complex chemistry in our existing business, but they are like [ diazodization ] and all. But there most of our plant up till now we were dedicated to those chemistries. And now we'll have a more of a regional multipurpose kind of a facility on ground.
Got it, sir. That was helpful. So just one last question. I think in some of the previous calls, had already mentioned about the kind of market from the import substitution angle for chlorotoluene. And if you can similarly also speak about this new chain that we are targeting in photochlorination. What kind of applications? And what kind of size we might be targeting? If you can just speak also on the competitive analysis of this, sir.
[ Florodon ] is part of chlorotoluene chain itself. So basically, we will be the [ chlorotoluene ] and [ parachlorotoluene ]. But there, we can also do direct photochlorination, which is also being done by Lanxess, and which GHCL also is planning. So those kind of products also can be done because this will be dedicated to the chemistry butt we can move the products around.
Understood, sir. Also, this being a part of chloropene itself, would there be any difference on the chemistry side or this is just like a whole, you can say, supporting [ inical ] so basically will the organization be a subset of your [ overlay ]?
No, no, no. You'd say like PNC and others, our nitrochlorobenzene, we do first chemistry, then some products will go to the second, third, fourth, fifth chemistry, et cetera.
Got it.
Photo [ benzo ] is in the second chemistry after [ putting ] chlorination.
Okay. So basically, this will be quite similar to our existing model from [ certain ] chemical somebody else?
Very similar. I think that is a very, very robust model what we see because that we have done for [ toluene and nitrotoluene ] I think.
We have the next question from the line of Rohit Sinha from Sunidhi Securities.
Sorry, my line got disconnected. So just on the -- I mean, as we were talking about this employee thing. I was also looking at this thing that the completion right now in this chemical segment has identified and the talent in and retaining the talent been a challenge as of now.
And maybe going forward, it could be more like that. So -- so that is where I think -- I don't know whether you have commented on that part or not since my line was disconnected. So if you can touch upon that part also?
Yes, yes. The same thing I was mentioning that overall because a lot of investments are coming in chemicals and specialty chemicals. And there is obviously a talent shortage, which is expected going forward.
So our idea will be always to be one up on our manpower requirement and also do a lot of internal training because howsoever you may do, there will be some turnover, which may happen. So we have a dual strategy. One is to have a deep robust internal pipeline ready, and also try to be proactive in filling the requirement at least 5, 6 months in advance.
Okay. Okay. And secondly, on the R&D side, I mean, how much has been our total spend for the segment in FY '22? And how we are basically planning with this R&D thing going forward with a lot of new chemistries we are coming up?
So I mean, just kind of investment would be a bit on the higher side on this R&D side, or it would be in line with what we have in there? And if there at all, you have also onboarded some of the maybe scientists or [ militized ] personnel?
Yes. We have already also onboarded a lot of people in R&D also. The R&D spend will be around INR 60 crores to INR 80 crore range? And may go further ramped up a little bit in the next 1 or 2 years.
We have the next question from the line of Rohit Nagraj from Emkay Global.
Congrats on a good set of numbers. So first question is we have completed 2 months of current quarter. So from the demand side or from the logistics and wars too, have we faced some challenges in terms of deferment of orders or any translation of orders?
Yes, we missed a word. You are talking about Russia, Ukraine war?
All right. I mean that is one part plus the logistic challenges and the increase in raw material because the benzene [ quotas ] have gone up and particularly [ benzotoluene ] has also gone up.
Overall, this has not impacted much in demand side. Because of finished products, the impact of our increase in these costs in the finished product is not very high. But some, in general, overall inflation increasing, seeing some pullback in demand on a dyes and pigment side, in general. That is for the broader inflation, which is kind of some of the discretionary spend.
We are seeing some pushback coming in. But agro side is more robust for us. And we are continuously trying to reshuffle our product mix as well as the geographical mix to have a high capacity utilized.
Right, right. Sir, second question is for the second long-term contract, I understand that we were supposed to get the CapEx upfront from the customer. I think was about INR 40, INR 50 crores.
So we had commissioned the product last quarter. So have we received that particular amount is probably [ is in ] incremental invoices?
Yes. I think we have received almost 80% plus.
Okay, fair. And you also mentioned that we have added a significant amount of employees during last year. So Q4 is a base employee cost run rate that will continue, given that incremental additions will be relatively limited as we have sufficient banks probably created?
Some number because Q4, some of the employee for contract 3 and all, there, the cost right now will go in our capital WIP. So will -- some number will -- an employee cost will increase in next year. But substantial portion, some other revenue expenditure in Q4.
Right. And just one last clarification on the guidance of the high teens EBITDA increase. So does this, on a basis of FY '22 base of organic EBITDA excluding the INR 130 crores fee, plus the INR 630 crores termination fee?
No. The termination fee is obviously excluded. But the INR 138 crore shortfall fee will be considered part of that FY '22.
And on that high teens -- high single digit is what we are. That is what we are looking at.
[Operator Instructions] We have the next question from the line of [ Sadad Kadeka ], from Equirus.
Sir, I just had one first question pertaining to the capacity utilization. Now if we look at your gross log over FY '19 to FY '22, we have added roughly INR 3,000 crores of gross log out of which, I think, INR 500 crores would be for that bar contract, which was nominated. So over FY '19 to FY '22, how has our capacity utilization grown?
Yes, it will be always on a product -- to product. Like nitrotoluene, we have reached almost 80% capacity in Q4. So individual process block-wise, the capacity utilization will be different. So that we are saying by FY '24, virtually all the blocks will reach 70% to 90% of capacity.
What is capitalized in FY '22? Is that understanding right?
No, what will be capitalized in FY '23 also.
Okay. So by FY '24, we will be in the 70% to 80% capacity utilization?
Yes.
Okay. Sir, and secondly, in terms of volume growth over FY '19 to FY '22, how have our volumes grown? Ballpark numbers will do.
I have to work on that. It will not be very simple to give that number right now.
We have the next question from the line of Ranjit from IIFL Securities.
The first thing, you have said a different chemistry reactions that you intend to take in future. Would you be able to give some idea on the realization, maybe a ballpark or an EBITDA on a ballpark, I think. The idea is to understand whether these are going to be structurally different from what we have been doing until now?
Basically, this is the more value-added products. EBITDA to sales, definitely at the constant raw material prices will be higher. In this range of products because the value-added composition will be significantly higher in that. And being more advanced chemistry also tend to give a higher EBITDA or asset.
Just to put the number to it, would it be the situation that it could be at least 30%, 40% higher than what we are doing currently?
Yes. Generally, if it is 20%, then it can at a similar level, this will be more towards 25%. The incremental this kind of range of products.
[Technical Difficulty]
Hello?
Operator? Moderator?
Tanya. I'm sorry, We moved on the question? Mr. [ Maran ].
Mr. Gogri, onto the new chemistry, could you please as what are the user industries involved? Which kind of sectors would you be addressing?
Yes, it will be basically mainly in pharma, agro and dyes and pigments. Pharma and agro will be more or less maybe 70% to 80% and maybe 20% will be other sectors.
All right. And these would be growing volume?
To the molecules, which are there in this both for pharma and agro, pharma will need to a lot of import substitution and agro molecules are growing molecules.
We have the next question from the line of [ Lee Kora ] from [ Axis Capital ].
So just wanted to understand one thing again on nitric acid. Sir, basically, just wanted to understand the cost dynamics between importing diluted nitric acid and then concentrating it, versus if we are directly procuring concentrated nitric acid from India.
And at the same time, since we are having nitric acid as a key raw material for a majority of on -- for our products, why don't we set up a plant for manufacturing nitric acid itself rather than setting up a plant for concentrating it from the diluted nitric acid?
As I mentioned, we are in process of developing the comprehensive strategy for both ammonia to which nitric acid as well as weak nitric acid to concentrated nitric acid.
The first phase now immediately, we have decided to go ahead with -- they are 2 separate parts. In a nitric acid plant, they are 2 separate plants. One is to make weak nitric acid. How many companies like a fertilizer company make weak nitric acid and use it for fertilizers. And some of the companies, they make concentrated nitric acid. So there are 2 different parts.
So at the first phase, what we have decided that immediately go ahead, putting up a concentrated nitric acid from weak nitric acid, and which can be imported also. So this will be more on your availability mitigation. But longer-term, a comprehensive strategy is being worked out. We should be able to clarify maybe by Q1.
Sure, sir. And there are concentration part that we'll be doing right now, our plan is to import that entire nitric acid, or we will be procuring it locally?
It can be procured locally also, but that is at least one raw material which can be imported also. Whereas nitric -- concentrated nitric acid, in principle, cannot be imported. That kind of really restricts.
Here, we can import. So that availability will not be a problem. My price may be INR 5 or 10 higher. No, the multiplier effect for us is much more if the material is not available.
[Operator Instructions]
We have the next question from the line of Aditya Khetan from SMIFS Limited.
I have the question on to the volumes. I missed your initial commentary. If you can share the volume for your [ CV and toluene ] business, PDA business?
Yes. Chetan, if you can give the volume.
Yes. So for the nitrotoluene, we had the volumes of around 5,155 tonnes for the quarter. Then you wanted for which product?
PDA and [ CV ]
PDA, we were at roughly around 527 tonnes a month. and CV, we were at 19,550.
19,550.
19,550.
19,550. So sir, when you -- for the last 3 years in terms of your stated -- so assuming we had done from FY '19 to '22 some sort of 27% is the group into our [ tipit ]. Consider to the EBITDA side, we are witnessing only 11% growth and on to the revenue there would be 15% growth.
It seems that the CapEx, what we have done for the last 3 years have not yet flowed into your top line and consequently into your EBITDA. So there's a disconnect between them in terms of numbers. So if you can highlight a bit more like what is this -- which are the CapEx, which we had done into our past and to like give out the number? If you can bring out more on to that as well.
Yes. As we mentioned earlier this year, again, because that cancellation, that contract will be still at around 35%, 40% utilized in FY '23. Also the FY '23 guidance also we have given only a single-digit growth because there will be higher depreciation and other expenses.
But beyond FY '23, FY '24, FY '25, we will see a significant increase in EBITDA because depreciation and manufacturing expenses will be more or less will be covered. There will not be much increase in that.
So if we can jump in the next 3 years, EBITDA will happen. Because by the time, our capacity utilization will reach 80% to 90%.
Sir, even if I exclude that contract figures also, so that was roughly around INR 490 crores for the [ nitric acid ] plant. And for the second was also roughly [ so that was meri ].
But since a large part of the CapEx, what we have done, that means that yet for the numbers would still come on to the top line -- is there any sort of additional CapEx we had done like on to the specialty chemicals or pharma, which is yet to flow into our numbers?
So we have this CapEx done through the entire chain. And so that entire chain will get ramped up. There is one global chain, which is at a slower ramp rate right now. And this will see the next 2 to 3 years, we should -- 90% of capacity utilization in that chain.
Sir, talking also, so roughly, what would be the CapEx in the -- what we had taken historically into our number? Rough CapEx figure would be [ perfectly ]
Overall, this entire CapEx, some of them is still in our WIP. But this chain CapEx will be the almost INR 800 to INR 1000 crores CapEx will be in this chain.
INR 8,000 crores?
INR 800 crores to INR 1,000 crores range.
INR 800 to INR 1,000 crores. Okay. So that would flow into our numbers for the next 3 years. But still on your guidance, for the next year in terms of EBITDA, you are saying that is into price in the digital business considering the...
Yes, that's what I was trying to mention that next year is still a ramp-up because the previous year INR 138 crores is a shortfall fee, which is going off. We are including shortfall fee number, we are seeing a single-digit growth in EBITDA. And the major jump will come in FY '24 and FY '25.
We have the next question from the line of Abhijit Akella from Kodak Securities.
Just wanted to clarify on the previous point you mentioned. This -- for the [ bikemba ] project, overall, it's INR 800 crores to INR 1,000 crores CapEx, is it? Because earlier, I think you had guided to a revenue of about INR 400-odd crores from the project. So I just wanted to sort of reconcile those 2 numbers.
No, this is entire chain. [ bikemba ] by the last would be INR 400 crores. But then you have a chain of another 3 more chemistry before that. This entire plant -- entire chain is moving in a ramp up fee. That's how we achieved.
And then on the revenue from the previous chemistries, I mean what would the revenue from the entire chain be?
That number we'll have to take out.
But it will be in the same bulk of say, 1:1 CapEx or so asset terms?
We'll have to see the number.
Ladies and gentlemen, that was the last question, and we will now close the question queue. I would like to hand the conference back to Mr. Rajendra Gogri for closing comments. Please go ahead, sir.
Thank you, everyone, for taking out the time to join us on our opening conference call. Let me close by saying that we are moving the right direction, [ everything is ] in place to demonstrate superior [ performance for all 3 ] in the forthcoming years, not only amplify our leadership position, but also enhance value for all the stakeholders.
I hope we have addressed all your request questions. If you have any further questions, please feel free to contact our Investor Relations team. CDR India, and we'll address them.
Stay safe, and we look forward to connecting with all of you again in the next quarter. Thank you, once again.
Thank you, members of the management. Ladies and gentlemen, on behalf of Aarti Industries Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.