Aarti Industries Ltd (NSE: AARTIIND) Q1 2026 Earnings Call dated Aug. 01, 2025
Corporate Participants:
Unidentified Speaker
Suyog K. Kotecha — Chief Executive Officer and Executive Director
Chetan B. Gandhi — Chief Financial Officer
Surya PatraSurya Patra
Analysts:
Unidentified Participant
Nishit Solanki — Analyst
Vivek Rajamani — Analyst
Nitesh Dutt — Analyst
Archit Joshi — Analyst
Abhijit Akella — Analyst
Jignesh Kamani — Analyst
Arun Prasath — Analyst
Pratik Oza — Analyst
Tushar R — Analyst
Aditya Khetan — Analyst
Huseain Bharuchwala — Analyst
Presentation:
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Ladies and gentlemen, please stay connected. The conference call will begin in next few minutes. Thank you ladies and gentlemen. Good day and welcome to RT Industries Limited Q1FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Solanki from CDR India.
Thank you. And over to you.
Nishit Solanki — Analyst
Thank you. Good morning everyone and thank you for joining us on Aarti Industries Q1FY26 earnings conference call. Today we are joined by senior members of the management team including Mr. Suyog Kotecha, Executive Director and Chief Executive Officer and Mr. Chetan Gandhi, Chief Financial Officer. We will commence the call with opening remarks from Mr. Kotecha followed by a question and answer session where the management will address participants queries just to share a standard disclaimer. Certain statements that may be made in today’s conference call may be forward looking in nature and a disclaimer to this effect has been included in the results presentation that has been shared earlier and also uploaded on stock exchange websites.
I would now like to invite Mr. Kotecha to share his perspectives. Thank you. And over to you sir.
Suyog K. Kotecha — Chief Executive Officer and Executive Director
Thank you. Nishid. Good morning everyone. Thank you for joining us today. We appreciate your continued interest in RP industry as we discussed the performance for the first quarter. As you may all know, the quarter commenced with several external headwinds, both geopolitical and market driven. However, our strategy and operational discipline have helped us remain agile and forward focused. Let me start with a brief overview of broader macro environment that shaped the quarter. Q1 was one of more complex quarters that we have navigated in recent times. A steep correction in key input prices, particularly benzene and aniline which declined by about almost 15 to 20% led to pricing volatility and inventory adjustments across the value chain.
On the other hand, global trade dynamics also lack stability. The initial tariff announcements by the United States created uncertainty among customers. The tariff landscape continues to remain unpredictable compounding the already challenging global trade dynamics and leading to sustained pressure on product pricing and profitability. And the latest and new US announcement of a 25% tariff on Indian imports along with an unspecified penalty has created even more market uncertainty. We are currently assessing the impact of potential of these measures on our products in the US market going back in Q1 the Israel Iran conflict in May June 25 time frame also had effect on our logistics temporarily impacting the regional supply chains and shipping schedules, especially affecting the export flows and consequently some of our shipments experienced delays in rerouting spilling over into Q2 domestically.
The India Pakistan tensions in April May 25 timeframe also briefly impacted our operations especially at our Kutch facility. Blackout periods led to intermittent productions curtailing our capacity utilization. In parallel, the Kandala port which is one of our critical export routes faced temporary shutdowns and subsequently significant congestion at Kandla port due to the conflict also further strained our outbound volumes. Despite these challenges, I think underlying demand conditions remain stable. Our business continues to demonstrate strength rooted in product diversification, multi process expertise and long term thinking. Our resilient operations enables us to navigate through regional segment specific disruptions and diversified exposure across energy, agrochemicals, dyes and pigments and polymer additives also provides support and balance to the business.
As you may be aware we had undertaken major capacity announcements in the last financial year. We scaled up our Nitro toll beams from 30 to 45 kilo, ethylation from 10 to 30 kilo. These facilities are now in ramp up phase. They proved their design capacity and sort of positions us to meet the rising demand in some of these end applications. Further, during the last quarter we have also scaled up our MMA capacity from 200 KTPA to about 260 km and we have more room to expand it further with limited CapEx. We have also taken several initiatives linked to inventory and cost optimization in line with the plan shared earlier.
Now let me walk you through the financial performance for the quarter. Revenue stood at 1867 crore, a decline of 16% POQ. While volumes largely remained intact. We faced pricing pressure due to raw material corrections, inventory adjustment and deferred export realizations. EBITDA came in at rupees 215 crore reflecting a decline of 19% on a Q OQ basis impacted by inventory valuation losses to the tune of roughly 30 odd crore. Temporary production issues due to domestic conflicts and some of the export deferments due to global geopolitics and margin pressure of course continued on some of the value chains that I know sort of account of overcapacity situations globally.
As a result, profit after tax was rupees 43 crore while interest and depreciation costs remained largely in line with the expectations. CAPEX for the quarter was at about rupees 280 crores and expected to be below rupees 1000 crore for the year 26 as guided earlier, Zone 4 projects are progressing well, expected to commission in phase manner from the second half of FY26. This project will add host of new products with better margin profile and support the margin improvement over the long term. While the reported numbers reflect a soft quarter, I think the underlying health of the business remains robust.
We are confident of a strong recovery in the ensuring quarters driven by ongoing demand revival and our supporting capacity expansions. Coming to key segmental highlights, Energy applications in the Q1 volumes in the energy segment remain flattish on a Kyoki basis. Combination of planned disruptions on account of Indo park conflict and also shutdowns taken for the expansion purposes. Continued efforts to increase the customer base and geographic reach will support us the faster ramp up of these expanded capacities. Demand for MMA remains strong. Pricing was under pressure due to increasing competition and decreasing raw material prices. However, AI’s ability to manage large volume shipments and first more advantage will support us in continuing to maintain the higher market share.
Further improving crack spirits are also expected to support the business in the coming quarters. So summarizing our focus remains on driving volumes for optimal capacity utilization and improving our market leadership position on non energy application. The agrochemical intermediate segment continue to segment continue to sort of experience pricing pressure While demand recovery was visible, dyes, pigments, continuance, pharmaceutical application remained steady and stable. The polymer and additive segment showed a mixed picture across different product value chains. DCB had shown certain pressure on the demand versus the other part of the polymer IoT segment actually showed very good demand recovery.
With the recent developments on the US tariffs we see potential impact on our US businesses which accounts for roughly 15 to 20% of our revenue. We are closely monitoring the situation as it evolves to ascertain the impact and then what potential mitigation measures we need to take to minimize the same. On some of the strategic updates on two JVs, the first one which is JV to perform project execution is progressing well. We are expected to Commission it in H1 of calendar year 26. The market development activities have already been initiated to establish the presence of the domestic markets and the second JV VRT which is with RESL and through 100% owned subsidiary RP Circularity Ltd.
I think that project achieved a key milestone in terms of completion of technology selection and awarding technology contract. I think the pre processing design, capital expenditure finalization are currently under progress. We expect commercial operations also from this JV in early FY27. To conclude, Q1 was shaped by external headwinds and temporary Disruptions. These issues had bearing on our financial performance, but we view them as a short term in nature. Demand conditions remain intact, capacities are scaling up and our core portfolio continues to expand with regional revenues. Our future performance will be steered by key strategic pillars.
First one being successful foray into high value and advanced chemistries with commissioning of targeted in phase manner from second half of 26 at our zone four focus on advanced materials and long term partnership, leveraging our robust manufacturing infrastructure and R and D expertise. And third one is driving the new growth initiatives, particularly in circularity and other emerging sunrise sectors. That concludes my initial remarks. I now invite the moderator to open the floor for the questions.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We’ll take our first question from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.
Vivek Rajamani
Hi sir, thank you so much for the presentation. The first question was you’ve given us to understand that the strength in the gasoline NAFTA margins would be a good indicator for your own MMA margins. And obviously for this quarter the spreads were quite strong compared to the last quarter. So would it be fair to say that if it wasn’t for these various disruptions that you faced, the performance from the MMA business would have been a lot more better. Just wanted to get a bit more clarification on that. Thank you.
Suyog K. Kotecha
I think the answer is yes and I think to answer it simply, Vivek, maybe we should look at our July export numbers of mma, which are now I guess available in public domain. Roughly. I think we clocked somewhere in the range of 20, 22,000 tons of MMA exports in the month of July, which was combination of deferred shipments from June due to geopolitics issues and then further additional orders during the month of July.
Vivek Rajamani
Sure sir. And just the other question with respect to the expansion that you’ve mentioned, I think before this there was another expansion as well, which you had completed in the previous quarter, if I’m not mistaken, and now this one more meaningful expansion. Just wanted to get your thoughts with respect to what is the kind of potential that you’re seeing for this product as well as the competitive landscape. If you’re feeling confident to continue this expansionary process on this product. Thank you.
Suyog K. Kotecha
Look, I think we maintained the stance over the last few quarters. I think it’s an important product. We fundamentally feel very confident about the product performance potential which is now validated by several global customers. We have a market leadership position globally in this product and we would like to continue to maintain that. And we have the least cost position as far as our internal benchmarking exercise goes with respect to competition. Now if you look at broader strategy point of view, we obviously started increasing our customer base, diversifying our geographic reach. I remember talking about it almost one year back in my first investor call and I think we have progressed quite significantly on that dimension.
One of the aspect of that was where we built us as a strategic market for this product and we really scaled it up very significantly over the course of last six, nine months. The latest tariff announcement do put some pressure on that strategy. So we have to now obviously figure out a mitigation measure at the same time develop additional new markets which we will continue to do so given the fundamental performance of the product is still very robust in the downstream end application, we are very confident of finding new markets. So from a volume point of view we remain confident and that’s what leads to our conviction on expanding capacity, which is at now roughly 260ktpa level.
We can further go up with a minor capex that provisioning has already been done as we expanded the latest dewaterneaking effort that we did in the last quarter. Coming to margins, I think yes, we are dependent on annealing, which is one of the key raw material on imports, which means that we have to at any given point in time have to keep one and half to two months of inventory. Given there are so many supply chain disturbances globally that keep happening from our production. From a security point of view, we do keep one and half to two months of annealing as a inventory stock, which means we carry pricing risk on that particular stock.
But that’s a strategic call that we have taken. And the last aspect is competition. There is emergence of some domestic competition. I think Chinese competition has been around for quite a while and in that context we have taken certain strategic calls from a pricing point of view to ensure that we maintain our global leadership positions in all of the global major accounts. But that’s sort of broadly the sum and substance of the strategy around that product overall remain pretty confident about the market potential. Yes, I think the tariffs and the geopolitics sometimes do create some of the speed bumps, but we have to be agile enough to sort of revise our strategy to go Back to achieve the true potential for this product.
Vivek Rajamani
Sure sir, thank you so much for the explanation. I’ll rejoin the queue. All the very best.
operator
Thank you. Next question is from the line of Nitesh Dut from Anandrati Institutional Equity. Please go ahead.
Nitesh Dutt
Hi, good morning team and thank you for the opportunity. My first question is on dcb. So DCB volumes have declined both year on year and sequentially. Is this purely cyclical or is there a structural shift in the downstream demand and when do you expect normalization to happen?
Suyog K. Kotecha
Thank you Nilesh for that question. Yes, bcb, I think it was potentially one of the weakest quarters and it was driven by significantly lower demand from our US customers where they convert this into advanced polymer which ultimately gets utilized in automotive application. This combination of our customers going through inventory liquidation at the same time uncertainty around automotive demand profiles within the U.S. market itself. So combination of the two, DCV exports to U.S. were significantly lower even if you take YOY or QRQ comparison. But given we have sort of annual contract secured with some of the major customers, we are confident of recovering these volumes in the second half.
So as soon as the demand stabilizes and the inventory correction phase gets over for two of our customers in US in the second half, we should see significantly better volumes compared to the first quarter.
Nitesh Dutt
Right sir. So next question is on zone four and the NPP timeline. So basically you waited for phase commissioning from the second half. So can you just share some more granular details in terms of customer tie ups and expected ebitda contributions for FY 2017?
Suyog K. Kotecha
I think as you rightly mentioned, we’re going by phase wise commissioning in the first phase. The multipurpose plant and a calcium chloride unit we are expected to commission by the end of this year. So around December 2020. Around December of this calendar year is when the first phase one will go live. From a commissioning point of view, both of these units, along with associated utility infrastructure ETP are at advanced stages of, you know, mechanical completion and handover. So that is what will go live within this calendar year. The remaining blocks, there are five additional blocks, they will go through phase wise commissioning from Jan to May next year kind of a time fr.
And then of course post commissioning there is a sort of ramp up and stabilization and then ultimately kind of a phase from a profitability point of view. I think we have given the overall number that we expect from all of this Zone four investment in our three year guidance. We continue to stick to that. That is pretty realistic and achievable. The full potential of it I think will come one and a half year down the line. But the multipurpose plant and calcium chloride unit at least should start contributing from the next calendar year itself.
Nitesh Dutt
Right. So just one last question before I.
Nitesh Dutt
Get into the queue.
Nitesh Dutt
So given, you know, given the sharp drop in EBITDA this quarter and the volatility quarter after quarter especially, you know, sorry to say, but almost every macro event does impact us negatively, can we also have an annual EBITDA guidance along with our three year guidance of 1800 crores? I mean if you could just share some outlook for FY6.
Suyog K. Kotecha
Thank you. As a management, we have taken a call to three year guidance and we stick to that and I think we remain committed at the same time confident on that three year guidance outlook. I think yearly guidance is a practice from which we are moving away and we actually feel a student given there is. There are so many uncertainties going around in the market right now, both from a trade barriers as well as from a geopolitics standpoint. We would like to continue to maintain the same practice.
Nitesh Dutt
Alright, so thank you so much.
Nitesh Dutt
I’ll get back in the queue. Thank you.
operator
Thank you. Next question is from the line of Arshit Soshi from Nuama Institutional Equities. Please go ahead.
Archit Joshi
Hi, good morning gentlemen. Thanks for the opportunity. First question on these logistical challenges that we faced. Could you quantify what would be the extent of, let’s say our sales for an EBITDA deferment that we saw during the quarter which we are expecting to.
Archit Joshi
Recoup July and onwards?
Suyog K. Kotecha
I think a broad estimate would be roughly anywhere in the range of 15 to 20 crore of EBITDA and I guess you will see that in sort of export volumes for the month of July.
Archit Joshi
Got it sir. So second question a little more nuanced on the NPP and Zone 4 plans. You did mention that you’re planning to startup the phase one from December 25th. But any layout that you could share with regards to what kind of products, platforms, chemistries that you are planning to incorporate in both zone 4 and the 1 that you are starting in December, the mpp. Any broad understanding on that if you can.
Suyog K. Kotecha
So I think overall if you look at the product portfolio, the original design of the Zone 4 was done for fluoro toluenes and dichlorotoluenes downstream. Actually it was done only for chlorotoluene and downstream we added the entire dichlorotoluene and the downstream product portfolio also to the same design to make it bit fungible. So that’s the significant chunk of the product portfolio. But at the same time There are almost 15 to 20 new products which are downstream of some of our existing product portfolio which can also be made in the same set of blocks combination of Zone 4 and the multipurpose plans.
So at any given point in time there is a roughly 35 to 40 products that we can manufacture as a combination of zone 4 and multi purpose plan. And the logic is to pick and choose the products where we feel we can maximize the contribution and they are sort of in line with our long term strategy from a value chain integration standpoint. Specifically talking about phase one for mpp, I think at any given point in time, sort of we have kind of list of 10 odd products from which we prioritize four to five products that we want to take in the first phase of MPP commissioning.
And that decision is typically driven by the demand pull, the profitability potential of these products and they will keep evolving every three to six months. So it’s difficult to answer your question in terms of specific products because by nature it’s multi purpose and we want to use it as a multipurpose to maximize contributions.
Archit Joshi
Understood, sir. So I was actually trying to understand how margin accretive would it be, which is why I asked you and also alluding to a comment that you made in the annual report, would this be true for the multipurpose plant or the Zone 4 expansion we are doing to enter newer spaces like defense and electronics and advanced polymers. I think the comment that I catch from an annual report. So if you can elaborate a bit on the summarized sectors that you have spoken of and how margin accretive these products could be, that would be my last question.
Thank you.
Suyog K. Kotecha
So they would definitely be margin accretive. I think we’re talking about sort of historical five years back. If you look at what was the margin profile, I think we’re targeting to go back to those kind of margin levels with these new products coming in. So 20% plus EBITDA kind of margin profile for most of these products. In terms of end segments there is wide variety, including advanced polymers, including agrochemicals, including pharmaceuticals. I think these three remain right now the largest target end market applications for Zone 4 and MPP. I think some of the defense and electronics might require very specific investments because the quality specifications and the nature of the assets that you require to serve these end markets look slightly different and will require sort of specific tailored made assets for that.
We have a separate, separate effort ongoing. But from an existing NPP point of view if you start plotting end market profile based on the current products which are shortlisted I think it is more towards advanced polymers, advanced materials, pharmaceuticals and agrochemicals.
Archit Joshi
Sure sir. Thank you. Thank you. All the best.
operator
Thank you. Take our next question from the line of Surya Patra from Philip Capital India. Please go ahead.
Surya PatraSurya Patra
Yeah, thanks for this opportunity. So first the clarification I wanted. You just mentioned about a impact of around 50 odd crores that at the EBITDA level or it is the kind of revenue impact that you have witnessed in this quarter EBITDA level.
Suyog K. Kotecha
So it was 15 to 20 crore from a. From a delayed shipments point of view and 30 odd crore from inventory point.
Suyog K. Kotecha
Sure. The second point was that about the capacity expansion that we are on. See in the recent times what we have observed that capacity additions without any customer backing was not really helpful. So since we have been there in the capex mode for some time and we have also recently added the capacities like MEA and all that has not been really helpful given the demand situation. So the upcoming CapEx, let’s say the multi purpose client or the zone 4 other capacities, any of those are backed by any contract or anything.
Suyog K. Kotecha
So we continue to do this evaluation in terms of which product we want to manufacture and in that context, you know the capital allocation decision is made wherever there is a demand pull. I think maybe a bit longer answer to your question. I think overall from a capital allocation point of view we have become quite stringent in last one year time frame. Many of the CapExes that you see which are completed or which are getting completed right now, I think construction of these assets started practically two and a half years back. So these are committed CapExes and to some extent they were kind of half done in the last one year where we changed our capital allocation strategy in terms of stringent criteria to decide on the investment profile and that’s why we are on a taper down mode when it comes to overall capex.
I think last year we, I think somewhere around 13, 1400 of capex this year 1000 crore and next year the number will drop dramatically. So we are mindful of global demand supply balances and where should we allocate incremental capital going forward. At the same time the projects which we have taken on, I think we are going through them while optimizing the design and the portfolio of those CapExes to ensure we get best returns out of it. That’s the sum and summary of the overall CapEx strategy. The latest CapEx expansions that we are announcing for example MMA 200 to 260.
These are done very thoughtfully with very, very limited CapExes to ensure that return on that investment is significantly better. And wherever there is a significantly higher CapEx involved, I think they will go through a very regressive valuation from both demand supply dynamic point of view as well as from a return calculation standpoint.
Suyog K. Kotecha
Sure. Second point was about the quarter specific impact. What we have seen, see most of those are external factor, I believe, let’s say a war issue or it is the kind of raw material price crash impacting the inventory or those kind or trade deferrals because of the tariff related aspect. But if you can add your thought process about the pricing angle to it, how should we see a pricing aspect for API means for the raw materials going ahead and hence impact to the overall profitability and also the pricing scenario for the product basket and ultimately what changes that we are anticipating in the product mix going ahead in the second half.
So hence these three things are likely to have some implication on the profitability. So if you can address that, sir.
Suyog K. Kotecha
So yeah, a bit of a longish question but three aspects. One, raw material. We have been in falling price environment not only in last quarter but I would say in fact for last five or six quarters. So if you plot raw material Trends for last five, six quarters, Annulin has practically come down from $600 per ton to $1,000 per ton. Right. Benzene, which used to be as high as 85,86 rupees, it’s come down to 59,58 rupees kind of level. So we have been in falling price environment for a very long time. But at least current judgment of the management is we practically bottomed out in terms of key raw material pricing.
We are not seeing further room for raw material to go down. So it stabilized at that level at least for last one and a half to two months. There is some minor uptick as well in some of the raw materials. And in that context I think the only thing we can do is to ensure that we are most optimized on inventory and we are able to pass on the pricing volatility as soon as possible to the market. It’s not always possible because there’s always some lag, but that’s the best thing we are doing at this point in time.
I think when it comes to product mix, I think there are two types of assets. We have, we have certain dedicated chemistry plants and then we have certain assets where we can do multiple products of similar chemistries in the same asset, likes of chloro anilines for example or different hydrogenation based product, different nitrogen based products. So we are optimizing our product for the second category. I think we continue to optimize our product portfolio depending on the demand pool and the margin profile available. And that exercise is continuous. So if you look at our ammonolysis product footprint, what it was 1/4 back versus what it will be in the next 2/4, or if you look at chloroalines, what it was 2 3/4 back versus what it will be for the next 2 3/4, they will look different in terms of exact products produced and sold both in domestic and export market.
Again linked to demand and margin profile. However, there is a decent chunk of our asset which is dedicated chemistry. So if you look at our assets portfolio, if you look at our MCB portfolio, DCB portfolio, PDA portfolio, there the focus remains to ensure that we have the leadership position, we have the lowest possible cost and we retain the global market share, so in some cases even gain market share. So I think different strategies for different assets, but that’s how we are playing it right now.
Surya PatraSurya Patra
Sure. So just one simple question now, sir, what is the export number for this quarter? This is Chetan, sir. And also if you can give some clarity, how has been the domestic performance in the difficult time of this quarter?
Suyog K. Kotecha
Just give me a minute. The exports for the quarter was roughly around 950. Got close.
Surya PatraSurya Patra
Okay. And the domestic performance, if you can just comment, how is Windsor?
Suyog K. Kotecha
I think frankly the overall trend is not that different when it comes to domestic and export. I think the raw material price, falling raw material price environment does impact both domestic as well as export market. Of course the, the supply chain disruptions that were caused in the month of June, those mostly impacted sort of export portfolio quite significantly. While there, I think the domestic market continued to do well during the month. We also had certain operational challenges in the month of June, especially in our NCB asset for example, or in our, you know, some of the chloroaniline related assets.
So that has some impact on the domestic market. But broadly at overall level, I think from a falling price, falling raw material price environment point of view, both got impacted to somewhat similar level.
Surya PatraSurya Patra
Yeah, sure sir. Yeah, thank you. Thanks for the question.
operator
Thank you. Next question is from the line of Abhijit Akela from Kotak Institutional Equities. Please go ahead.
Abhijit Akella
Yeah, good morning and thank you so much. If you could please just help us understand a little bit more about the possible impacts of these new tariffs from the US on your business. I know you mentioned 15, 20% of the business comes from there. So which specific products are these? Primarily MMA and PDA or any others also. And how you see the puts and takes playing out here?
Suyog K. Kotecha
Look, I think it is early but I will give anyway the perspective because we have been evaluating this now for last quite a few months. So different products have different sort of nature of impact. Let me start with positives first. Right. I think on the phenyl Indiamine chain if we continue to see differential tariffs between India and China then that helps us. That is visible in sort of significant volume recovery. In Q1 we don’t know where the tariffs are going to settle with India versus China. But if there is a differential tariff then it will support that particular value chain from a demand recovery point of view.
Second, there are decent number of products where we have good exports to us which are part of quote unquote annexure to exemption risk. So there are key agrochemical intermediate that we export to us or even some of the decent volume products like dms, ona. All of these are part of exemption list and in that context there is no as such visible impact, either positive or negative. From a US tariffs perspective I think two more value chains. DCB is where we typically end up competing with European competition and in that context it looks like right now there would be a preferential tariff towards Europe compared to India based on the current announcements.
In that context we will face increased competition on the DCD portfolio that is exported to us. But still given our cost competitiveness we we are targeting to retain the market share maybe at the slight expense of margins. But that is where we expect some headwind given the differential tariffs between Europe and India. And the last one is mma. MMA of course is sort of a very large market that we developed in the US in the last six to nine months. And frankly there it’s less about competition, it’s more about affordability to the end customer and the 25% tariff on that will impact the affordability for the end customer.
We are in process to understand what actions we can take to mitigate the same. We will have better clarity on it in the coming two to three weeks. But as I said, in addition to that we also continue to focus on expanding the global markets for that product, including European region where we are putting significant efforts as we speak. But that’s broadly our current understanding of potential impact of US tariffs on our product portfolio. I do want to caveat it, it’s very early. We’re still studying the new regulations which just got Published yesterday late night in terms of exemption list in terms of relatively geographic comparison of different tariff lines and different exemptions and also we frankly also don’t know where it will settle.
Right. We are expecting this is just a start but there could be further rounds in terms of where it actually settles.
Abhijit Akella
Thank you. Appreciate the color. And just one other thing on the financials. So one is there was a significant foreign exchange gain this quarter of about 16 crores. So why exactly did that come about? Just a couple of. Yes, sorry, please go ahead sir, I can ask, I can come back some more.
Suyog K. Kotecha
Okay, so this is more of a regrouping. It was earlier part of export revenue but this is the clarification and other stuff which is coming. So we just regrouped it separately. So in all the historic numbers it was part of revenue only it is more of the currency fluctuation on the export revenue which is there.
Abhijit Akella
Okay so this is the reason why there’s some deviation in the expense line items compared to what were reported in previous quarters.
Suyog K. Kotecha
Right.
Abhijit Akella
It was part of revenue so but yeah this is a new requirement on disclosures and the stuff we’ve started showing it separately.
Suyog K. Kotecha
Okay. And just one last thing from me. The working capital seems to have increased a little bit if I look at the ratios at the back and the debt has also increased but the finance cost is down sequentially. So if you could please just help us understand that.
Suyog K. Kotecha
So the working capital has gone for two reasons. One is as you know there are a couple of shipping which has to go in June that got postponed to July. So the inventory got locked up at port and at the plant. So that was one component. And also some customer receivables were by a week or 10 days which is where you go seen a temporary uptick in working capital. And so on the debt level the finance cost reduction is structurally we’ve been witnessing a bit of softer rate regime and we expect that the softer rates to continue.
So it is a result of that.
Abhijit Akella
Great. Sorry, just one last quick thing. The tax rate, do you still maintain your expectation for mid single digits this year or could it be lower?
Suyog K. Kotecha
It could be anywhere between. Yeah, it could be a bit lower than maximum digit.
Abhijit Akella
Okay, thank you so much.
operator
Thank you. We’ll take our next question from the line of Aditya Ketan from Smith’s Institutional Equities. Please go ahead.
Aditya Khetan
Yeah, thank you sir for the opportunity. First question is when we add back this what is one of items like the inventory loss of 30 crore and 20 crore of the deferment volume still the number looks weird only like when we compare on quarter, on quarter basis it has been relatively flat. So it looks like so there is a good pressure on the demand side. And also you alluded to the fact that the volumes have been lower in DCB and in ncb. How you these are like the coming quarters will optically look higher compared to this.
And are we on track to achieve a 2025% EBITDA growth like to achieve that guidance of 1800 crore 2025%. So CAGR should be inside how that looks sir.
Suyog K. Kotecha
Look I think the growth levers are very clear and those growth levers are getting implemented which is ultimate aim of achieving that agencies of the road. And as we deploy that what we feel confident of executing on all of these actions there are of course certain detours that you have to take depending on how the market evolves. Right. I think for example, you know we did scale up, you know US business of MMA quite significantly and it was expected to contribute, you know, quite significantly over the course of next for the full year or for the course of next nine months.
Now we are altering that plan. We are figuring out alternate way of scaling up that volume in case, you know, in case there is some impact from a US tariff point of view. So overall if you look at the strategy, I think fundamentally the product portfolio, the strategy around cost optimization, ensuring sort of operating leverage from the existing assets to maximize the volumes, I think that is not changing. I think the entire Zone 4 commercialization along with MPP and some of the JVs, I think that’s not changing. So from an activity we are doing on the ground there is practically no change.
But yes, the strategy around product placement and market mix needs to evolve. I think the fact is the frequency with which geopolitical events have been happening and the supply chain disruptions that have been coming has definitely been higher in the last five, six months time frame which puts additional onus on the management team to remain agile so that we reflect and respond to those disruptions. And that is what we are doing right now.
Aditya Khetan
Got it sir. On its lower volumes in DCB and NCB you mentioned like it is because of the lower volumes to lower export into the US market and also with the tariff uncertainty coming ahead, you expect like this number will materially not improve. So from the current level.
Suyog K. Kotecha
So different answer for these two chains. I think DCB is export dependent. NCB is mostly, you know, 99% domestic market. So DCB yes, I think there are large customers in US and as I said we end up competing with European competition for that share ideally at least till 24, 48 hours back. I think the clients were pretty confident of recovering and increasing the volumes in the second half and we will have the conversations with them to ensure how to mitigate the tariff impact. But in general expectation was the second half to be better than the first half on NCB which is purely domestic market.
I think it was a combination of some of our strategic customer going through certain challenges. We also had operational challenges in the nitrochlorobenzene unit in June, certain maintenance and breakdowns because of which the volumes were down. Those volumes ideally should come back going forward.
Aditya Khetan
Got it. Sir, you are stating the fact that competitive intensity has increased sir, in our product basket on a base of hundred. I believe you remember. I remember in one of the calls we have stated that out of one direct, so 70, 75, 70 to 75 products have still competition with China. Has that gone up materially?
Suyog K. Kotecha
No, I don’t think it has gone up. I think it remains somewhat at a similar level. And as we continue to optimize our product portfolio with sort of unique chemistries in value chain, potentially we are now creating a product portfolio which should be less dependent on that pricing pressure. But at the same time, look, even the Chinese players continue to evolve. So it’s not a, not a status quo kind of situation. It’s a dynamic strategy which keeps evolving. I don’t think it has materially gone up. I think as I had mentioned in the previous call, we fundamentally feel that everyone has reached the kind of pricing levels where it is difficult to go down from here, at least on the core product portfolio.
And now it’s a matter of being efficient to survive at this level and then you know, use, use that market share gains when the cycle turns around.
Aditya Khetan
Got it. So just one last question onto agrochemicals and dyes and pigment side. Sir, we were stating this fact that so volumes have picked up but pricing pressure remains. So sir, like when we look at the cycle for the last one year. So global inventories have come down, inflation also in select economies have come down and rainfall has been also good. So what is the reason why the pricing is not getting improved in this select and user segments?
Suyog K. Kotecha
So I think it will take, it will take some time. I think in some of the value chains we are seeing improvement also in realizations but at a broader generic level we can still quantify it as pricing pressure continues. And that’s also because of the reason that there are two steps in the value chain. There’s an intermediate and then there is a finished product as the downstream demand improves at a farmer level. I think the first segment to see uptake is the people who are closer to downstream consumer the guys who are doing the technicals and the formulations.
I think the intermediate guys will see impact of that a bit later in the time frame.
Suyog K. Kotecha
Any particular, any particular quarter like you believe like by second half it can improve or by FY27.
Suyog K. Kotecha
I would not hazard a guess but my personal belief is it’s not about one or two quarter. I think it’s about a bit longer time frame because you know it’s a combination of demand uptick and capacity absorption. So it’s not only one of the two. Both has to happen for realizations to improve materially and we feel it will take. It will take bit longer time.
Aditya Khetan
Thank you.
operator
Thank you. Next question is from the line of Jignesh Kamani from Nippon Mutual Fund. Please go ahead.
Jignesh Kamani
Yeah, hi Jill. Just on the profitability part if you take about. If I even I close to 58 crore profitability because of the inventory write down and the delay. So we are closed on 258 crore kind of hundred and this was much lower yy and if you think about this last second second half it was similar run rate on the profitability but if you take what volume like 3 to 4 percentage kind of energy volume. If I include the deferment of 20202000 in July we are close to double digit kind of volume growth energy while on the non energy YUI we are already close to 10% kind of volume growth.
So despite our 10% plus volume growth YUI and maybe around 5, 16% QE5HS our profitability has materially come down. So fair to assume that profitability pressure is so severe and more particular in the MMA vertical and we have to live with the situation in near term.
Suyog K. Kotecha
No, I think, I think there’s a bit more nuanced understanding of that market. I think as I said there are certain strategic calls that have also been taken to maintain the market leadership position in some of the segments which sometimes get reflected in the pricing and the profitability. I think in the long term, as I said from an overall margin point of view it’s kind of bottomed out. I think it should improve going forward. It’s not going to happen immediately in a quarter’s time frame but on a steady state basis as we move along the margin profile should actually improve.
Jignesh Kamani
But in near term the profitability materially lagged the volume growth safe to Assume because of the market share initiative we are taking in the current market environment. Understood. And there’s any material in the core structure on the QQ basis because we are taking a series of cost structure measure also. So has anything contributed in 1Q which was not there earlier?
Suyog K. Kotecha
There are, I think that remains sort of ongoing exercise. I think we are well on track, in fact slightly ahead of track when it comes to implementation of some of the cost saving initiatives. So multiple initiatives there including you know, for example, you know, the new back pressure turbines that got installed, you know, in WAPI unit or some of the initiatives around yield improvement, steam consumption improvement, all of those have also got implemented and they will start reflecting as they become relatively steady in the operations. So that is one aspect of the business where you know, the focus remains very strong and all of it is currently on track as per the plan.
Jignesh Kamani
So had we not taken our cost saving initiative, probably profitability could have deteriorated much sharper.
Suyog K. Kotecha
Yeah, it could have definitely been lower than where we are today.
Jignesh Kamani
Thanks a lot.
Suyog K. Kotecha
Jignesh. Does that answer your question?
Jignesh Kamani
Yeah, I’m done. Yeah, thanks a lot.
operator
Thank you. Next question is from the line of Arun Prashad from Aventus Park. Please go ahead.
Arun Prasath
Good morning everyone. Thanks for the opportunity. Sir, my first question is on the DCB utilization. We are talking about 60 percentage, 65 percentage. Whereas all the downstream, most of the downstream to the DCP is at a higher utilization even during this quarter. So does it mean that auto is overall globally also Auto, we haven’t seen this kind of a decrease. So how should we look at this DC utilization and what factors or what sectors apart from auto we should track to see whether there will be an improvement in the volume. Yes.
Suyog K. Kotecha
So look, I think bcb, especially pdcb, that mostly goes into PPS manufacturing which is one of the very large end application and for pps Auto is one of the major end markets. I think that we have two or three large customers in US who have gone through their own sort of, I would say balance sheet corrections. At the same time, inventory corrections for this particular product as well as the downstream PPS product. And that is what I think is leading to impact on the DCD volume in the first half. I think the kind of contracts that we have with some of these customers ensure that as soon as their demand comes back from a production point of view, our consumption will go up.
And that’s what sort of we are hoping for in the second half. Tariff does create certain amount of uncertainty because 25% is not a small number but however, we are in conversation to figure that out.
Arun Prasath
So can we use the, I mean can we switch between the other auto customers outside us for the PPS demand? Is it not an option for us?
Suyog K. Kotecha
We can. I think there are multiple initiatives that we have on the plate, including this other application of that particular product which goes into a different form of a product which we have scaled up actually quite significantly, both in domestic as well as exports market. Globally, we do have a leading market share in that product. So frankly we are actually quite deeply penetrated and we of course try and gain market share into each of these clients. Typically these guys do yearly contracts and hence the share of the volume gets locked in upfront at the start of the year.
So depending on those contracts and how your customers are performing during the year, switching of volumes is difficult. But when you go through the next contracting cycle, you have another opportunity.
Arun Prasath
Understood.
Arun Prasath
On the question related to the competitive intensity, you spoke that things are finally looking to be turning for good. And we are also hearing that in China, in a lot of sectors where there are overcapacity, there is a government initiative to actually reduce it. So comparing in our product or a value chain, do you see that that happening or some signs already appearing?
Suyog K. Kotecha
I think I would not say establishes a firm trend. We see of course stray incidences where realizations have been taken up in the last few months. But I would still hesitate to characterize it as a generic trend. I think we are a bit further away from sort of staying with confidence that the margin profiles or the realization levels from a Chinese competition intensity are turning around. But yes, we have started to see a few incidences where the margin profile and realizations have started to change.
Arun Prasath
Okay, just to our understanding in our products, say BCB and cb, what is the extent of overcapacity in China? Can you quantify this?
Suyog K. Kotecha
No, I would not go in that direction. The fact is there is a significant overcapacity. But I think depending on what is the real operating capacity and also what is the real capacity available to compete in the global market, the answer will look significantly different. But it’s fair to say we are talking about a significant overcapacity and the demand supply balancing will not happen with one year of capacity demand growth. I think that helps you get a perspective.
Arun Prasath
Oh, okay, understood. Finally, the question on cost optimization. We have three buckets for our EBITDA to reach our three year guidance. One is cost optimization. You are we are talking about 150 to 200 crores. And where we have already done this co generation initiative done. So can you quantify what percentage of this 150 to 200 crores is already in the Kindle and what is it to be realized over the coming months?
Suyog K. Kotecha
So from an implementation point of view it’s relatively at advanced stages. I think it’s just that many of these initiatives will accrue at a different point in time. For example, the two initiatives that we announced on renewable power purchase, which are supposed to add significantly to this cost saving, I think one of that, the solar component of that is expected to get one component of that is expected to get commissioned from November, December this year versus the hybrid component of that is expected to get commissioned around April, May next year. Right. So I think the actual accruals to the bottom line will start from those time frames.
So this is all the actions implementation sort of has contracts has already been done and completed. So at a very advanced stages of completion of this cost saving initiative is just that the timing of the accrual will get triggered whenever the, whenever the sort of the overall implementation of the activity takes place.
Arun Prasath
Right.
Arun Prasath
And I understand it’s implemented. I’m just trying to understand what is already reflected in the PML. What percentage of this 150200 crore is already reflecting in PML as of today.
Suyog K. Kotecha
I think we will come back to you on that one later. But roughly I think from an implementation point of view we should be done up to 60, 70% of it should get implemented within this year. I think remaining balance 30 odd percentage can get spilled over to the next year. From an accrual point of view it will take time. But from an implementation point of view I think 65 to 70% of it should get done this year.
Arun Prasath
Got it? Got it.
operator
Thank you. Take our next question from the line of Hussain Baruch Wala from Carnelian Capital. Please go ahead.
Huseain Bharuchwala
Yes, you’ve already said about the US.
Huseain Bharuchwala
Exposure that you have an exposure around a 15, 20 odd percent but want.
Huseain Bharuchwala
To know if exposure that you have said is combined of both the direct exposure as well as the indirect exposure that you say?
Suyog K. Kotecha
No, 15 to 20% is direct exposure. I think indirect exposure could be even higher. What the numbers that we mentioned is our direct exports to us.
Huseain Bharuchwala
Got it. So how do you see the impact of the indirect exposure and what could be your ballpark sense of the indirect exposure? Because I think you sell a lot of products in the domestic market which eventually gets exported to the us so what is the end result and how.
Huseain Bharuchwala
Do you see that getting impacted?
Suyog K. Kotecha
So as I said, the story is yet to play out. I think apart from a direct exposure, from an indirect exposure point of view, the largest segment where we have indirect exposure is actually agrochemicals where we sell intermediates to our local partners who ultimately convert that into either a technical or formulation for final exports to us. And how will that story pan out? Frankly we are yet to ascertain the full impact. I think we remain in conversation but everyone is in kind of evaluation mode right now to give sort of conclusive perspective on the same.
Huseain Bharuchwala
Okay, I think that’s it from my.
Huseain Bharuchwala
Side for the, for the time being. Thank you. I’ll return the chan back to you.
Huseain Bharuchwala
Thank you.
operator
Thank you. We’ll take our next question from the line of Pratik Oza from Systematics. Please go ahead.
Pratik Oza
Yeah, thank you for the opportunity. Just one question from my side. If you can please provide the cash with the patience for lunching.
Pratik Oza
We don’t have the number right now. We will separately share it with you. Secondly on I guess in previous call you had stated that a peak that would be at around 3500 and. I’m sorry to interrupt. Can you use your handset mode please? Your audio is not very clear.
Pratik Oza
Yeah, one second. Is it clear now?
Suyog K. Kotecha
Yeah, yeah.
Pratik Oza
So I guess in previous call you have peaked at around 3,500 crore and we will be reducing it by 200 to 300 crore in FY26. So was that guidance? You are sticking to that guidance?
Suyog K. Kotecha
I think we will. We will remain roughly at around that level. I think of course from working capital optimization point of view you will see, you know, 100, 200 crore upside downsides but we don’t expect material increase to that number. But broadly we should remain around that level.
Pratik Oza
Got it. Thank you sir.
operator
Thank you. Next question is from the line of Tushar R from Omega Portfolio Advisors. Please go ahead.
Tushar R
Thank you for the opportunity. I just wanted to know earlier in the call you mentioned that currently 75% of our product basket is competing with Satna. So I’m coming from calendar year 2027. So after your zone four started contributing like in quantitative terms how much like do you see that reducing to an extent with some numbers given?
Suyog K. Kotecha
I think, look, I think there are different ways to look at it. You know the fact of the matter is if you today in today’s chemical industry coming up with a product which China is not manufacturing would be kind of an exception. I think it’s also about intensity of capacity and intensity of players in that particular domain. And at the same time domestic demand pool versus Export demand pool.
Suyog K. Kotecha
Right.
Suyog K. Kotecha
So that is what will lead to potentially less competition intensity as we broaden the product portfolio with commissioning of Zone 4. It would be unfair to say that there would not be any Chinese competition because fact of the matter is practically present in sort of broad sector of chemical industry. As a presented.
Tushar R
Very much sir and.
Pratik Oza
Sir in the in MMA business of yours. So considering the 30 years spread, 13 years spread, my bad, it coming out to be $13 per barrel. Just wanted to note in order to get double digit, high double digit kind of margin, what sort of spread, you know, RP would need because energy has been a major contributor to our revenue, you know, considering the past and will be going to forward to the EBITDA in weighted terms as well.
Suyog K. Kotecha
Yes, I think current spread level sort of are leading to a good demand growth. I think we see demand coming from different regions, from different customers, which is relatively healthy at this stage at the current spread. So they’re good enough to have the pull for our products. As I say geography by geography. You know, sometimes the spreads are different and hence the demand pull looks do look different depending on the specific market. I think us which was very attractive I think with the tariff it’s a kind of a speed bump there, but we figure that out.
But the current spread levels to answer your short question are good enough to generate pull for demand of this product.
Tushar R
Last question. Since the fluorine chemistry, do you see any contract coming in going forward post your zone 4 or commercialization and any JVs are you expecting for technicals? You know, you being the intermediate provider going forward?
Suyog K. Kotecha
Not nothing at this stage which we can provide you on that one.
Suyog K. Kotecha
Fair enough. In the as a percentage of your sales as you mentioned shown the validation in your annual report should the fluorocompan would be what percentage of your total sales in that building chain. Would be in single digit? Single digits. Single digits.
Tushar R
Fair enough.
Tushar R
That was really helpful. Thank you.
operator
Thank you ladies and gentlemen. That was the last question for today. I now hand the conference over to management for closing comments. Over to you sir.
Suyog K. Kotecha
Thank you. Thank you everyone for joining us today. We appreciate your continued support. We hope we have been able to address all your questions. Please reach out to us if you have any further queries and we would be glad to address the same. Thank you.
operator
Thank you once again thank you members of the management on behalf of RT Industries. That concludes this conference. Thank you for joining us and you may now disconnect your lines.