Aarti Industries Ltd (AARTIIND) Q1 FY23 Earnings Concall Transcript

Aarti Industries Ltd  (NSE: AARTIIND) Q1 FY23 Earnings Concall dated Aug. 11, 2022

Corporate Participants:

Rajendra V. Gogri — Chairman and Managing Director

Rashesh C. Gogri — Vice Chairman and Managing Director

Chetan Bipin Gandhi — Chief Financial Officer

Analysts:

Surya Narayan Patra — Phillip Capital — Analyst

Nishid Solanki — CDR India. — Analyst

Rohan Gupta — Edelweiss Securities — Analyst

Aditya Khetan — SMIFS Institutional — Analyst

Abhijit R. Akella — Kotak Securities — Analyst

Pujan Shah — Congruence Advisers. — Analyst

Rohit R. Nagraj — Emkay Global — Analyst

Unidentified Participant — — Analyst

Akul Broachwala — IIFL Research — Analyst

Nitin Agarwal — DAM Capital — Analyst

Ranjit R. Cirumalla — IIFL Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Aarti Industries Limited Q1 FY ’23 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.

Nishid Solanki — CDR India. — Analyst

Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries Q1 FY ’23 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, update on growth initiatives and outlook on the business. Post this, we shall open the forum for question and answer where the management will be addressing to your queries. Just to share our standard disclaimer here. Some of the statements made on today’s conference call could be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that has been said earlier and also uploaded on stock exchange website. I would now like to invite Mr. Rajendra Gogri to share his perspectives. Thank you, and over to you, sir.

Rajendra V. Gogri — Chairman and Managing Director

Yes. Thank you. Good afternoon, everyone, and welcome to our Q1 FY ’23 earnings conference call. Hope everyone is keeping safe and in good health. Our results document have been shared earlier and I trust you had opportunity to glance through them. We have commenced a new final year on a positive note. The performance was resilient given the backdrop of challenging macroeconomic scenario led by continuous inflationary trend in key input costs, higher utility costs as well as disruption in global supply chains arising due to conflict between Russia and Ukraine, uncertainty arising due to global inflation and fear of various economies going into recession. While we have navigated through some of these chocks, we witnessed demand slowdown from few end-user industries like textile and FMCG. This moderation is largely on account of prolonged cost pressure across the manufacturing value chain and global recessionary fears. Having said that we are actively monitoring the situation, and our performance in the ensuing period will be aligned to this trend. Now let me share the key financial trends for Q1 FY ’23. Our revenue grew by 45% Y-o-Y to INR2,173 crore. EBITDA stood at INR369 crores, higher by 18% Y-o-Y. Profit after-tax came in at INR189 crore, an increase of 15% over last year. Our revenue trajectory was steered by realization gains as well as the higher volume uptick for certain products. A substantial increase in the revenue was also on account of the robust pricing structure wherein the variation and improved prices are passed on to the consumer. As envisaged, we saw revenues coming in from the newer capacity added in the recent past, along with the incremental volume gain from existing capacity.

This was further supported by a planned ramp-up in — with respect to units from the first and second long-term contract. We’ve been able to pass on the cost pressure linked to the raw material prices and utility to our customers, thereby protecting our absolute EBITDA. As you would recollect in Q1 FY ’22, there was a shortfall fees income of about INR32 crore. Normalizing the Q1 FY ’22 numbers for this shortfall income, the Y-o-Y EBITDA growth will be closer to 30%. During the quarter under review, we also witnessed mark-to-market impact on ECBs on account of steep depreciation of INR versus U.S. dollar, which negatively impacted our PBT performance to the tune of INR30 crores. Excluding this impact, the performance would have been even better. Our utilization level at across plants continues to improve, resulting into better profitability at the company level. We have built a strong integrated business model through a well-diversified model — diversified product portfolio and consistent focus on R&D capabilities as it is. I believe this, along with our lead connect with the customers and [Indecipherable], will drive sustained growth and profitability going forward as well. I will now move to segment-wise performance overview. In Q1 FY ’23, revenue from Specialty Chemicals business stood at INR1,766 crore, a growth of 44% over INR1228 crores. We reported in the same quarter of last financial year. EBIT improved by 8% to INR250 crores. Normalizing the impact of shortfall income during the last year, the Q1 FY ’22 of INR32 crores, the absolute EBIT growth would be about 25%.

In addition to favorable pass-through of elevated input and utility cost to the customer, the performance was bolstered by improved product mix with high contribution of value-added products at 74%. Moving to an update on production details for Q1 FY ’23. Production of nitrochlorobenzene was at 20,515 metric ton. Similarly, for hydrogenated products, production stood at 3,295 metric tons per month. For nitrotoluene, the production for Q1 FY ’23 stood at 5,252 metric ton. As was the case until last quarter, the quarter also we witnessed some impact on our business into short supply of key raw material nitric acid. We have been working closely with the vendors to maximize our requirement. We have witnessed a situation — has been June ’22, as you are aware that in the last quarter, we are informed that we are already tied up with technology partner for setting up a unit for concentrating nitric acid — from dilute nitric acid with a capacity of close to 225 to 250 TPD. Currently, we are working on a long-term comprehensive strategy to mitigate this risk. Let me now share updates on our expansion projects. We have started seeing volume ramp-up from the facility linked to first long-term contract and expect to reach high utilization level of 70% to 80% by next year. With respect to the second long-term contract where we commenced commercial manufacturing in the previous quarter, utilization level has been progressively increasing. This capacity will see a ramp-up as planned and expected to reach 80% plus utilization level by FY ’24. Other capacity project initiative with respect to third long-term contract at Jhagadia, NCB expansion at Vapi, et cetera, are underway and expected to be commissioned in the forthcoming quarter, which will start contributing to our revenues from FY ’24. Since a substantial part of the fixed cost will be built in by FY ’23, we don’t expect major increase in the fixed cost in FY ’24. And the volume ramp-up as envisaged in FY ’24 will significantly lead to increase in EBITDA.

Now moving your attention to Pharma business. In Q1 FY ’23, we reported revenue of INR407 crores, higher by 48% as compared to INR276 crore in Q1 FY ’22. EBIT stood at INR76 crores, an increase of 46% Y-o-Y. Performance was driven by continued high demand for key products, leading to better volume trajectory from generic pharma companies and Xanthine business. While a major part of the elevated input and utility costs were passed on to the customers, in some cases, the same had to be absorbed. In a significant development in month of June, the audit by USFDA was conducted at our Dombivli API unit. They have raised two points under 483, which we are confident of addressing the same and getting an EIR tool. With that happening the Dombivli unit will become the third USFDA approved facility for us, while the other 2, the API unit at Tarapur and the intermediate unit at Vapi has been approved by USFDA since last 10-plus years. We have commissioned the new API block at USFDA approved API facility at Tarapur in early Q2. We are witnessing a positive demand scenario pharma intermediates, landing strong visibility to the business. Our performance going forward will be anchored by international gains from newly introduced products, higher capacity for the steady lineup of existing products and exciting pipeline of upcoming approvals in cardiovascular, antidiabetic, anti-hypertensive oncology and corticosteroid segments. For the quarter under review, we entailed a capex of INR200 crores, are on track for our planned expansion initiative for FY ’23 and FY ’24. Over the next two years, FY ’23 and ’24, we’ll be investing close to INR3,000 crores in capacity addition and augmentation to support our growth plans. Our emphasis on innovation and R&D-led projects where we have 40-plus products for Specialty Chemicals and 50-plus products for pharma in the pipeline will help propel our performance and achieve the stated guidance by FY ’27. Before I conclude, let me share other key important developments. With respect with the proposed demerger proposal of the Pharma business to the Aarti Pharma Limited labs limited.

The hearing at NCLT were concluded on 1st August ’22. We expect the order to be issued soon, and we’ll take up the necessary action items for making the demerger effective immediately. Overall, we are very well poised to deliver buoyant performance in the forthcoming year. Superior execution capabilities, combined with the ongoing scale-up and introduction of new chemical value chain like chlorotoluene, will define our growth trajectory. This is in addition to positive tailwinds arising from the shift in global supply chain towards India. All in all, we are excited and will focus on demonstrating sustained growth in revenues and profitability, thereby creating value for all stakeholders. That concludes my initial thoughts, and we’ll now request the moderator to open the floor for the Q&A session. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Surya Narayan from PhillipCapital. Please go ahead

Surya Narayan Patra — Phillip Capital — Analyst

Congratulations for the good set of numbers, sir. Sir, a couple of questions. First of all, that about the second multiyear supply contract. Sir, I just wanted to understand what is the level of ramp-up that we have witnessed. So — and we have also mentioned that for that particular project, by ’24, it would be around 80% kind of utilization. So that means in the first year, whether it would be like something like 40%, 50% kind of utilization level one should consider after annualizing to INR500 crore run rate?

Rajendra V. Gogri — Chairman and Managing Director

Yes. First year will be around that level. And — but overall, the way it is structured, even the top line may be less, but the EBITDA level, there will not be much impact linked to the capacity utilization.

Surya Narayan Patra — Phillip Capital — Analyst

Okay. But my understanding was that — so since the second contract was supposed to be a low-margin supply contract, so with the ramp-up that we are seeing in the first quarter, whether there is any impact in the sequential 100 basis points kind of weakness in the gross margin what we are witnessing, is it because of that? Or it has not ramped up to that level to influence the margin of the overall business?

Rajendra V. Gogri — Chairman and Managing Director

No. The margin — gross margin is mainly because of the raw material increase. Even Q-o-Q, also, the raw material has substantially increased. The benzene has also gone from INR77 to INR94. Sulfer from INR27 to INR37, so the main reason on that the gross margin level is because of the core raw material increases.

Surya Narayan Patra — Phillip Capital — Analyst

Okay. Okay. Sir, second question is this quarter, suddenly that we are witnessing it, sharp jump in the export shares. So let’s say, in the previous quarter, it was below 40. It is down to 46. And this is after a kind of a long — many quarters that as we are seeing kind of a change in the export mix, so whether it is because of the pricing scenario, which is better in the export market, that is why we have tweaked our supply situation here to take the advantage or it is a sustainable one now? And what has led to this kind of swing, sir?

Rajendra V. Gogri — Chairman and Managing Director

Yes. The second contract is for 100% export. So there is a leads to the increase in export. And overall, we are trying to see the — which market is — have better realization. It also depends on the product mix and market mix. But in general, we see that export in the range of now 40% to 50% will remain.

Surya Narayan Patra — Phillip Capital — Analyst

Okay. And just one further clarification on the second contract, sir, whether the currently, the utilization level would be around 40% or so, that should be phased assumption for the quarter one?

Rajendra V. Gogri — Chairman and Managing Director

Yes, I think.

Surya Narayan Patra — Phillip Capital — Analyst

Okay. Sir, third question on the futuristic project, what we have said that around 90-odd project are — which are there in the pipeline currently under development, and those are likely to bring in margin profile of something like 25% to 30% beyond ’24. So here, I’m just trying to understand whether these products are customers’ products, that is why — because we know that our business is, to some extent, is — in terms of margin, it can be volatile because of the commodity prices. But we are confident about those new product opportunities and saying that it — definitely, the margin profile could be beyond 25%, up to 30%. So that means those products are like customized products, and hence, the clarity about profitability is assured.

Rajendra V. Gogri — Chairman and Managing Director

Basically, commodity prices will always impact. But in general, at a similar commodities, these raw material prices — there is much more value-added. Currently, we are now at 70, 30 kind of a range, 74, 26, but the chlorotoluene we’ll have almost 90% of value-added products and only about 10% maybe the chlorotuluene itself. And further valuation, whatever — now we are planning for our normal nitrochlorobenzene, nitrotoluene, DCB chains. So it’ll be all value-added products. I think our baseline products capacity we have already expanded. So any further going forward, our new existing value chain will be a value-added [Indecipherable].

Operator

Sorry to interrupt you. Sir, your voice is breaking. You need to reconnect your line, sir. [Operator Instructions] Sir, you may go ahead.

Rajendra V. Gogri — Chairman and Managing Director

Yes. Basically, the entire chlorotuluene chain and all, there will be some significant portion of will be high value added, and we’ll be adding additional 4, 5, six chemistries over — the base chemistry of chlorination.

Surya Narayan Patra — Phillip Capital — Analyst

But not of the project is currently tied up with some other customer or something like that, sir?

Rajendra V. Gogri — Chairman and Managing Director

No. It is — will be so many different products or some different end use as well as customers, which are full basket of products with very different end use in pharma as well as in agro. And so we’ll have same import substitution as well as customer pool because there’s no other Indian source. So we are quite well mapped up the market. It is not linked to a single product, single customer situation.

Surya Narayan Patra — Phillip Capital — Analyst

Okay. Just last question on the Pharma now — separation Pharma segment. So see, whether — how would that impact the outlook — long-term outlook guidance that we have given?

Rajendra V. Gogri — Chairman and Managing Director

Yes. I think Pharma itself also will grow. As we had announced, we are going to put up — we had taken a new land in — near Dahej, in Atali. So we’ll be setting up a new greenfield site in Pharma. And USFDA, we have already commissioned in this Q2 at our Tarapur plant. So we see a sizable growth will continue to be in Pharma also in addition to the chemicals, which there’s the product I already discussed just now. So both the segment will see a substantial growth.

Surya Narayan Patra — Phillip Capital — Analyst

Yes, sir. So in fact, in last few quarters, let’s say, or generally, Pharma, although it is a — share while it is smaller, but the profitability-wise it is better than specialty in the recent times that we have observed. So with the separation, do you think there will be some pressure in the interim period before you — before the specialty picking up and the aim long-term supply contracts are ramping up and protecting the profitability? But till the time there is some challenge, should we consider that?

Rajendra V. Gogri — Chairman and Managing Director

No. Actually, FY ’24, as I mentioned in the speech that most of the fixed cost will be covered in FY ’23, which guidance — what we have given. So FY ’24 will be mainly of a ramp-up. So the gross profit virtually will translate to EBITDA. So in Chemicals segment, we expect a substantial jump in EBITDA in FY ’24 and ’25. And then the new project will start kicking in from FY ’25 onwards.

Operator

Next question is from the line of Rohan Gupta from Edelweiss. Please go ahead.

Rohan Gupta — Edelweiss Securities — Analyst

Sir, a couple of questions. First is on our product number one, where you have said that you have seen a significant improvement in utilization level. Just tell me some more numbers in terms of are we planning to sell this intermediate for this product I mean for their — international market? And are we still selling in the open market or we have been able to get into some long-term contracts with the intermediate — with the other players?

Rajendra V. Gogri — Chairman and Managing Director

We already started the production in intermediate and supplied qualification material to various customers. So it will not be linked to one customer will be supplying to various — both domestic as well as export customers of that product. So we are in discussions with potential long-term tie-up also for that, but that is just not totally finalized.

Rohan Gupta — Edelweiss Securities — Analyst

Sir, any ideas you can share in terms of utilization level of this product in the current quarter?

Rajendra V. Gogri — Chairman and Managing Director

Current — it’s very less, actually. We’ll be more on — around 25% or so. But overall, this year, we see 30% to 40%, and the second half may be around 50%. And next year, 70%, 80%. So that’s how we are looking at that.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. And at 50% in terms of margin profile of this product will be in line with our Chemical business margin or it will be much lower than that?

Rajendra V. Gogri — Chairman and Managing Director

Overall, it has been a value-added product. I think margin will be also a similar type, yes.

Rohan Gupta — Edelweiss Securities — Analyst

Similar means, in line with the company’s business?

Rajendra V. Gogri — Chairman and Managing Director

Yes.

Rohan Gupta — Edelweiss Securities — Analyst

Even at 50% utilization?

Chetan Bipin Gandhi — Chief Financial Officer

On the gross margin business, yes.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. Okay. Sir, second question is, though we have seen the current quarter performance in terms of absolute EBITDA growth of say, 17% – 18%, pretty decent given the challenging environment. Last quarter, if I remember that you were guiding for maybe a single-digit kind of growth in terms of profit or bottom line growth given the lower utilization on the new plant, new commission plants. So do you see that the guidance remains intact or there is a possibility that you like to guide for a higher number at the bottom line for the current year?

Rajendra V. Gogri — Chairman and Managing Director

Yes. Overall, if you do the annualization of the first quarter, I think, we had more than, 13% – 14% growth in EBITDA compared to the last year. But looking at some challenges in terms of the demand side also on the higher side and all. So we’d not like to change the guidance at this level, maybe after Q2, we’ll look at overall situation and see whether to change the guidance.

Rohan Gupta — Edelweiss Securities — Analyst

Okay. And there’s the weakness which you mentioned in the business is more importantly in local demand, you talked about the textiles and FMCG. Are there any other sectors also, which you’re seeing any challenges? What I understand as far as the domestic market is concerned more or less these products are import replacement. By the global market, I think the large part of agro and pharma remains intact. So just wanted to understand that though the global economy will be shaking and some countries will be impacted by the high inflation, but as far as our business is concerned and also the benefit, which we are probably enjoying from China Plus One and also, do you see that this weak environment is really affecting us or it’s affecting general in larger economy?

Rajendra V. Gogri — Chairman and Managing Director

No. Globally, you rightly mentioned dyestuff our main business is in domestic. Export is more on the generating, polymers, agro and pharma side. So there we are not seeing much impact on the demand side.

Rohan Gupta — Edelweiss Securities — Analyst

Sir, just last from my side, then I’ll come back in queue. Some of the building blocks, which we are in the chlorobenzene business and also in toluene, we were supplying some part of this and some products to some of the players based out of Europe and primarily in Germany. Do you see that this recent energy crisis in European markets have impacted some of our order intake or some customers have started giving some indication in terms of slowdown in orders?

Rajendra V. Gogri — Chairman and Managing Director

No. Because the people who buy product from us, they are moving into further value additions where the energy input to value addition is very significantly less. And so we have not got any feedback that there’ll be impact on demand from their side because of that.

Operator

The next question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead

Aditya Khetan — SMIFS Institutional — Analyst

Sir, my first question is continuing with the earlier participant question on to the end user segment like textile and FMCG-based which are witnessing slowdown. So how much percentage — so these two sectors would be contributing to our end user industries? And how are you seeing that the things are turning up today?

Rajendra V. Gogri — Chairman and Managing Director

Normally, our sales to this segment will be in the range of — in between 10% to 20% that — we continuously try to re-juggle the product portfolio in a particular segment is down by going into the other segment or other market in general.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. But sir, like in this quarter, so most of the FMCG companies like the HUL and Nestle they have witnessed good volume growth. So where are you feeling that pain in FMCG now?

Rajendra V. Gogri — Chairman and Managing Director

In general that side we are seeing some pigment and all also, so — which will be then going into the — both housing as an FMCG side, some slowdown in that track segment.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. Okay. Sir, on the Pharma intermediate, so this Dombivli unit which you have mentioned, so which sort of Pharma intermediates are we manufacturing over there, like the intermediates or formulations? And this third new plant, are of generally the similar margins as compared to our current product profile?

Rashesh C. Gogri — Vice Chairman and Managing Director

Yes. The Dombivli plant is actually manufacturing Pharma intermediates regulatory starting materials required for the API. And then we are supporting the generic players in India and abroad from that site. So the audit was figured based on our DMF — secondary DMF that we had filed for a particular intermediate. And there are a host of intermediates, which we manufacture in that site, which are going for the regulatory — as a regulatory starting material for different APIs. But overall, the Pharma — capacity Pharma intermediate internal capacity on this site is limited because this site is actually attached to our R&D and a lot of low-volume, high-value products are being manufactured there.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. So this would be of the similar margin profile as compared to our current product profile into Pharma?

Rashesh C. Gogri — Vice Chairman and Managing Director

Yes, margin profile will be better actually because these are low-volume high-value products that are being manufactured here. But the volume — value as such is smaller. So it may not have a significant impact on the overall EBITDA percentage.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. Okay. And so the volume ramp-up, which you are paying in this quarter, so that has been primarily led by the first and second contract. Apart from this, our own business growth would be flattish right, still we are operating at peak utilization levels?

Rajendra V. Gogri — Chairman and Managing Director

Yes. I know some — nitrotoluene volumes have been better, but the PDA volume is down. So some of the impact on product mix continuously happens because of the nitric acid.

Aditya Khetan — SMIFS Institutional — Analyst

Sir, PDA volumes or for further quarter, you haven’t mentioned in your initial commentary.

Rajendra V. Gogri — Chairman and Managing Director

Yes. Chetan, do you have the number, right?

Chetan Bipin Gandhi — Chief Financial Officer

Yes. The PDA volumes were roughly around 370 tons per month.

Aditya Khetan — SMIFS Institutional — Analyst

370.

Operator

The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead

Abhijit R. Akella — Kotak Securities — Analyst

Just a couple of clarifications. One is, any — is it possible to break out the volume growth in 1Q, the total revenue growth?

Rashesh C. Gogri — Vice Chairman and Managing Director

Basically, no, 25% plus has come from the raw material side, maybe around 15% to 20% income from the volume growth.

Abhijit R. Akella — Kotak Securities — Analyst

Got it. And also just capacity of the first long-term contract, sir, for the 2,5-dichlorophenol, if you could just tell us how much capacity we have set up right now.

Rajendra V. Gogri — Chairman and Managing Director

Capacity is — was set up for about 9,600 tons.

Operator

Next question is from the line of Pujan Shah from Congruence Advisers. Please go ahead

Pujan Shah — Congruence Advisers. — Analyst

Sir, I have just a basic question, what — in the growth estimate, we are estimating a turnover of like, let’s say, FY ’21 growth is like we are estimating of 2.5 times of FY ’21 and a PAT of three times. So after all this capex has been done in FY ’24 and all this revenue will start generating, utilization from our capex, why doesn’t we seem to use like we are not getting an operating leverage? Like it’s a similar line of EBITDA and PAT also the growth has been similar on turnover and taxes-. So could we just touch upon that, that would be a great thing for me.

Rajendra V. Gogri — Chairman and Managing Director

Yes. This leverage will come in this FY ’24 number based on the ramp-up of our current plans for which the projects have been commissioned or will be commissioned in this year. There’s a new site of chlorotuluene and all, there’ll be a new greenfield site on that. So that will have a totally separate impact of leverage as the volumes get ramped up. So there’ll be a — because they’re totally new sites, no? And new greenfield sites.

Pujan Shah — Congruence Advisers. — Analyst

And sir, for the new capex, which we are incurring, what can be the asset turn we are expecting in that term?

Rajendra V. Gogri — Chairman and Managing Director

And that asset turn will be lower, maybe more towards between one to 1/3 files because they are more value-added products.

Operator

Next question is from the line of Rohit Nagraj from Centrum Broking Emkay Global Financial Services..Please go ahead

Rohit R. Nagraj — Emkay Global — Analyst

Congrats on a good set of numbers. Sir, just one clarification in terms of the potential revenues from the new contracts in FY ’24. So based on the commentary of, say, 80% plus utilization for the first two contracts, and then the third contract will also start sometime during this quarter, in FY ’24, can we expect close to about, say, INR800 crores to INR1,000 crores of incremental revenues put together from all these three contracts?

Rajendra V. Gogri — Chairman and Managing Director

Yes. Those kind of numbers we’ve got.

Rohit R. Nagraj — Emkay Global — Analyst

Right. And apart from this, there will be organic growth for the other projects, which are where we are continuously investing based on the requirement and demand for capacity expansions? Correct?

Rajendra V. Gogri — Chairman and Managing Director

Correct. Yes.

Rohit R. Nagraj — Emkay Global — Analyst

Sir, second question on the nitric acid, the concentrated nitric acid project, so where are we currently? And when do we expect that this project probably will come to fruition given that we have faced this challenge from the past maybe three or four quarters?

Rajendra V. Gogri — Chairman and Managing Director

Yes. So we already placed the order with the technology supplier. And right now, it is in a retail engineering phase and construction will start shortly. And we are planning to commission in FY ’24 by around Q4 of FY ’24 for this concentration launch.

Rohit R. Nagraj — Emkay Global — Analyst

Right. Great. Sir, just one last question. So after these three long-term contracts, we have not seen any long-term similar kind of contracts. So is there any kind of apprehension from the global players due to the volatility in the market? Or probably we are awaiting that our projects — the capex comes to commissioning and then probably will go in for some long-term arrangements? Any view on this?

Rajendra V. Gogri — Chairman and Managing Director

No. We have been having contracts around 4, 5, seven years earlier also. And certain contracts getting rolled over four, five times. So these larger ones, which are getting into public domain. And we see the potential of this larger ones also going forward. The larger tenure and — yes.

Operator

[Operator Instructions] The next question is from the line of Trilok from Diamond Asia.Please go ahead

Unidentified Participant — — Analyst

Sir, actually, in the initial remarks on clarification, you said the revenue growth realization must be 40% to 45%. So understanding of volume growth could be in the low mid-single-digit or high-single-digit, is that correct or maybe I’m missing something?

Rajendra V. Gogri — Chairman and Managing Director

The raw material — 50% is contributed by the raw material price increase. So volume growth will be in the range of 15% to 20%.

Unidentified Participant — — Analyst

Okay. And when you said with respect to slowdown witnessed in 2, three sectors in domestic market, you are not — are you not seeing trends in the export markets or you think that’s still holding up well so far?

Rajendra V. Gogri — Chairman and Managing Director

Yes. Export market is generally not that much impacted.

Unidentified Participant — — Analyst

And when you — is the slowdown is like similar to the last — seen in the last three, four, five, I mean, cycles or it’s like quite different this time around? If you could just comment on that, that’ll be…

Rajendra V. Gogri — Chairman and Managing Director

No. Dyestuff sector is really — you might have seen in the news also — there’s this significant slowdown in Indian dyestuff market, being very, very severe. But hopefully, things should start getting better in the next two months.

Unidentified Participant — — Analyst

The next few months, you think, right?

Rajendra V. Gogri — Chairman and Managing Director

Yes. Yes.

Unidentified Participant — — Analyst

Because the cotton price also were very high — now cotton prices…

Rajendra V. Gogri — Chairman and Managing Director

[Indecipherable].

Unidentified Participant — — Analyst

Sure. Sure. And that was a single digit for you as a contribution, correct, in revenue terms?

Rajendra V. Gogri — Chairman and Managing Director

Yes.

Operator

The next question is from the line of Akul Broachwala from IIFL Securities. Please go ahead

Akul Broachwala — IIFL Research — Analyst

Just wanted to check whether you’re sticking to your original EBITDA guidance of single-digit growth this year or would it be much better as compared to earlier guidance?

Rajendra V. Gogri — Chairman and Managing Director

As of now, we are not revising the guidance, Q2 we will see.

Akul Broachwala — IIFL Research — Analyst

Understood. And secondly, like how are we seeing the gross debt trending going forward? I mean what would be the peak debt-to-equity ratio that you would be looking at?

Rajendra V. Gogri — Chairman and Managing Director

Debt-to-equity ratio, we’ll have to see how the entire nitric acid scenario pans out. So if you have to go for a substantial investment in nitric acid plant, then the debt will move higher because we will continue with our other ongoing expansion. So it will depend on that. But in general, our target will be between around 0.7, all on a higher side.

Akul Broachwala — IIFL Research — Analyst

Okay. So for this nitric said, how much capex do we envisage at the moment?

Rajendra V. Gogri — Chairman and Managing Director

Currently, it’s around 150 to 200 tons per concentration plant. But if you go for a weak nitric acid plant, we are just evaluating the project cost for that. But that can be any additional maybe INR500 crore plus.

Akul Broachwala — IIFL Research — Analyst

Okay. Understood. So the way I understand it is, earlier, you were alluding to the fact that you will import WNA then probably processing into CNS. So probably, we are also evaluating to set up WNA as a part of sourcing.

Rajendra V. Gogri — Chairman and Managing Director

Yes, that is also under evaluation. That’s what we had mentioned in the last call also that we are now evaluating a comprehensive nitric acid facility, whether to go for our own WNA plant also or not. So if you decide to do that, an additional PAT plus the capex will roll in.

Operator

Next question is from the line of Gaurav Shah from Harshad Gandhi Securities.. Please go ahead

Unidentified Participant — — Analyst

My question is on the growth estimate you’ve shared on your slide 23 of your presentation. Sir, so in the current penetration, you have mentioned on the growth estimate in terms of EBITDA multiple, while on the last quarter presentation, it was mentioned in the EBIT terms. So any particular reason for such change?

Rajendra V. Gogri — Chairman and Managing Director

In general, I think what we see most of the analysts and all, they talk the more of EBITDA than EBIT. That is the reason that it was changed.

Unidentified Participant — — Analyst

But sir, you have mentioned the absolute amount like 1.72, if you talk about FY ’24. You kept the number same. So it will change the valuation, so that way.

Rajendra V. Gogri — Chairman and Managing Director

No. The benchmark number goes on changing. As of the original EBITDA and EBIT number were also FY ’21 also will be different. There’s a multiple we are maintaining a similar number.

Unidentified Participant — — Analyst

Okay. But are you sure — because earlier, you mentioned an EBITDA multiple of 1.7 to two times, for example for FY ’24. Now you are mentioning in terms of EBITDA. So valuation will change accordingly.

Rajendra V. Gogri — Chairman and Managing Director

But again, the baseline also will be EBITDA, not EBIT. So EBITDA itself — yes.

Operator

The next question is from the line of Meet Vora from Axis Capital. Please go ahead

Unidentified Participant — — Analyst

Sir, just wanted to understand a bit more on what the issues that you are facing on the nitric side. So is it the availability issue? Is it a pricing issue? Is it that the supplier is not able to ramp up their capacity? Or — because we are saying that we will commission our capacity by FY ’24. So is it that for the next two years, we’ll still be facing this issue of nitric acid?

Rajendra V. Gogri — Chairman and Managing Director

Yes. Nitric acid’s overall capacity in India is a little bit short, currently. Then the demand is going to grow. So that’s why we are doing — for a long-term strategy, we are putting up that plant of — which we have already announced. On a medium-term basis, the second half, we see that some capacity in India will come up for nitric acid. So in FY ’24, we don’t see any significant shortages of nitric acid.

Unidentified Participant — — Analyst

Sure. So for the next two years, the nitric acid still remains to be an issue for us, right?

Rajendra V. Gogri — Chairman and Managing Director

FY ’23, the second half can still be an issue, but once the new capacity in India by other manufacturers comes in into second half of FY ’23. We don’t see much impact coming in FY ’24. And by that time, we’ll have our own concentration plant also. So beyond FY ’24, I think it will not be an issue also.

Unidentified Participant — — Analyst

Sure, sir. And secondly, what percentage of our total spec-chem revenue will be the nitrotoluene change?

Rajendra V. Gogri — Chairman and Managing Director

Nitrotoluene change you are saying?

Unidentified Participant — — Analyst

Yes.

Rajendra V. Gogri — Chairman and Managing Director

Yes. That number will have to take out.

Chetan Bipin Gandhi — Chief Financial Officer

We’ll have to pull out that number. It won’t be readily available, but we’ll pull it out and send it to [Indecipherable]

Operator

Next question is from the line of Nitin Agarwal from DAM Capital Advisors. Please go ahead

Nitin Agarwal — DAM Capital — Analyst

Sir, on the consolidated — the weak nitric acid plant, what was the decision — we’ve got to make it — what factors will make you go for it versus not just staying with a concentration plant?

Rajendra V. Gogri — Chairman and Managing Director

Yes. We’ll see the overall how the economies is working out on that. So availability of — long-term availability of WNA, and what kind of pricing and whether or not to start from ammonia to WNA itself will make more sense. So that we are trying to waive between the 2. Because WNA to CNA will definitely will ensure the supply security. But the cost-wise, once you have ammonia base, then you are on a par with everybody on ammonia base. That differentiation — we are just trying to see what is the best long-term strategy.

Nitin Agarwal — DAM Capital — Analyst

Okay, sir. And sir, for the WNA you’ll have to — you will have to backward indicating ammonia also or ammonia is what something you’ll source and then put up a WNA?

Rajendra V. Gogri — Chairman and Managing Director

Okay, sir. And sir, for the WNA you’ll have to — you will have to backward indicating ammonia also or ammonia is what something you’ll source and then put up a WNA?

Nitin Agarwal — DAM Capital — Analyst

Right, sir. And at this plant, assuming you go ahead with it, would be what — entirely for the captive consumption or you look to become — do a third-party supplies of WNA also?

Rajendra V. Gogri — Chairman and Managing Director

No, no, no. It’s basically economic size of the plant is needed. So we’ll be putting about 500 TPD plant. So out of that 70%, 80% will be active consumption initially. And then going forward, maybe as our demand goes up, it will become 100% captive. It’ll not be much for merchants.

Nitin Agarwal — DAM Capital — Analyst

Got it, sir. And just secondly, on the first long-term contract, you’ve talked about in the presentation that the first and the second both will be about 70%, 80% — to 70% utilization, rather 70% of the peak price ’24 end. So how will — specifically in that, how is the contract one shaping up in terms of supplies? Whom are you supplying to? And what kind of visibility is there on it?

Rajendra V. Gogri — Chairman and Managing Director

Yes. We are supplying to various domestic as well as export customers for that. But the qualification quantities have been given in the Q1. And we’ll see a top line in the second half of those quantities.

Nitin Agarwal — DAM Capital — Analyst

And so the plant continues to be dedicated for the same old — same older intermediate only?

Rajendra V. Gogri — Chairman and Managing Director

Yes, yes, yes.

Operator

Next question is from the line of Mr. Kumar from Spark Capital. Please go ahead

Unidentified Participant — — Analyst

On your growth projects, which you have already mentioned about anywhere about INR3,000 crores to INR3,500 crores between Chemicals and Pharma and considering the current year capex of INR1,500 crores, wanted to understand broadly how many projects you have firmed up and construction or construction is likely to start next six months? And how many projects will take some more time to kind of take a final firm decision in terms of capex, let’s say, in FY ’24? So if you could just give a broad [Indecipherable] of the capex, how much has been firmed up? How much you still need to take a call and — basically if you could roughly give us an idea on this?

Rajendra V. Gogri — Chairman and Managing Director

Yes. We’ll start construction of a few process blocks in this FY ’24 itself like multipurpose plant and some of the other process blocks. So if you say basically from September to this October to next June, this nine months, virtually, most of the expansion plans will go under construction. That is a typical construction cycle — you start from October to June because July, August, September has [Indecipherable] in general. So going forward from October onwards, we will have construction of various process blocks, which are at a different level of detail engineering and basic engineering.

Unidentified Participant — — Analyst

So the entire INR2,500 crores, INR3,000 crores worth of products for Chemicals will — somewhere between October to June, you will have most of these projects. At least some work will be done, and the restart construction will happen. Is that the right understanding?

Rajendra V. Gogri — Chairman and Managing Director

Yes, yes, yes.

Unidentified Participant — — Analyst

Got it, sir. So this year will be INR1,500 crores capex. And next year, can we take will be another INR1,500 crores of capex?

Rajendra V. Gogri — Chairman and Managing Director

Yes. That’s two we have combined, we have put INR3,000 crores this year may be going a little bit up and down, depending on how much it happened. But over the combined two years, we are looking at INR3,000 crores.

Unidentified Participant — — Analyst

Okay. Got it, sir. And second question is that wanted to understand the impact of — I mean impact of prices having — I mean crude has also come down from $1.15, $1.20 to $0.95. And the previous quarter, it went up sharply. So just wanted to understand, because you have almost 2.5 month of inventory days, what would have been the inventory gain? And on the reversal also, should we expect anything in 2Q? Broadly, if you could touch upon this.

Rajendra V. Gogri — Chairman and Managing Director

Part of this inventory gain or loss just negated by some of these contracts or businesses are lagging in the pricing. So prices gets [Indecipherable] into the next quarter to the customer. So that’s the kind of balance sheet each other out in general.

Unidentified Participant — — Analyst

Okay. But the contractual volumes, my understanding was not very high, if I’m not wrong…

Rajendra V. Gogri — Chairman and Managing Director

No, no. We have a lot of other businesses, which are linked to the raw material rollover kind of a — U.S., mainly, mainly international. But within India also something like two to three months.

Unidentified Participant — — Analyst

Okay. Okay. So the average pricing is same as the average pricing will be based on an average of one to two months based on which you will charge to the customers. So that will…

Rajendra V. Gogri — Chairman and Managing Director

For exports, a lot of these businesses are like that. So exports generally to have two to three months lag take place. Domestic generally is on a month-to-month basis, sometimes let’s say one to two months.

Unidentified Participant — — Analyst

Understood, sir. And finally, just on the capex bit, how much have we spent until now out of the INR1,500 crores?

Rajendra V. Gogri — Chairman and Managing Director

This year — just for Q1, was about INR200 crores.

Operator

The next question is from the line of Ranjit from IIFL Securities. Please go ahead

Ranjit R. Cirumalla — IIFL Research — Analyst

First, wanted a bit of clarification in the presentation you have mentioned a INR30 crore impact on the PBT due to ForEx. So if you can be a bit more detailed on that. Was it largely on the foreign debt or was also a part of that would be under the EBITDA part?

Chetan Bipin Gandhi — Chief Financial Officer

Just majorly on the foreign currency debt. That’s where it is.

Ranjit R. Cirumalla — IIFL Research — Analyst

Which is largely the finance cost.

Chetan Bipin Gandhi — Chief Financial Officer

Yes, it’s added to the finance cost.

Ranjit R. Cirumalla — IIFL Research — Analyst

Okay. And second again coming to the nitric acid. So whether you’re also finding it a bit more difficult to source the weak nitric acid globally. So how is the demand supply dynamics on the nitric acid globally? In India you have said that the demand has been rising and capacities are not coming up. How the situation that is there globally and on the back of the [Indecipherable]?

Rajendra V. Gogri — Chairman and Managing Director

Globally also, generally, we see the kind of volume. What we will need the availability will not be an issue. At a global level, the amount requirement of around 25 to 50 TPD because some volumes, we can source domestically also. We don’t see availability of the weak nitric acid as a challenge overall.

Ranjit R. Cirumalla — IIFL Research — Analyst

[Indecipherable] how much would we take to set up 500 TPD plant for nitric acid?

Rajendra V. Gogri — Chairman and Managing Director

Pardon?

Ranjit R. Cirumalla — IIFL Research — Analyst

The cost that would be — the capex for a 500 TPD plant of the nitric acid.

Rajendra V. Gogri — Chairman and Managing Director

That will be INR500 crore plus capex for nitric acid — weak nitric acid plant from ammonia. So that’s the current estimate. Everything is getting now fine-tuned on that. And we are evaluating whether to go ahead with that.

Ranjit R. Cirumalla — IIFL Research — Analyst

So it’s INR500 crores.

Rajendra V. Gogri — Chairman and Managing Director

Yes.

Operator

Next question is from the line of Pankaj Singh from Trustline. Please go ahead

Unidentified Participant — — Analyst

Sir, congratulations for the decent numbers that you have posted. First of all, I just want to understand that in the Q1 FY ’23.

Operator

[Indecipherable] Sorry, your voice is breaking. Can I request to come in a better reception area?

Unidentified Participant — — Analyst

Am I audible now?

Operator

Yes, sir.

Unidentified Participant — — Analyst

First of all, I just want to understand that in the quarter one FY ’23, been able to pay the GST of around INR200-odd crores, and that last quarter we have paid GST of around INR262.18 crores. Even though the gross revenue has increased would paid more GST, on the field.

Unidentified Participant — — Analyst

Pankaj, sorry, we lost your audio. Can I request you to repeat your question once again?

Chetan Bipin Gandhi — Chief Financial Officer

I guess I understood your question. So the point was that we do have export transactions and in export there are two ways of dispatches when the factory movements are happening. So one is with payment of GST and another is without payment of GST under bond. So we had some shipments which has happened under bond in this quarter, and that is where that GST component was lower. It’s more like in terms of balancing the GST balances, which has accrued and try and optimize the same.

Unidentified Participant — — Analyst

Okay, sir. Next there’s expected capacity utilization level for the full year and then for ’24 also.

Rajendra V. Gogri — Chairman and Managing Director

Yes. The capacity utilization will be for different plants will be different. Like nitrochlorobenzene, virtually, we are running at almost 100% capacity. nitrotoluene, we are at 70% plus. So it could be all individual plant base, and there’s new projects are on a ramp-up, which we already discussed.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Rajendra V. Gogri — Chairman and Managing Director

Thank you, everyone, for taking out the time to join us on our Q1 FY ’23 earnings conference call. Hope we have addressed all your questions. If you have any further questions, please feel free to contact our Investor Relations team, and we will address them. Stay safe, and we look forward to connecting with you — all of you again in the next quarter. Thank you once again.

Operator

[Operator Closing Remarks]