Aarti Industries Ltd (AARTIIND) Q2 FY23 Earnings Concall Transcript

Aarti Industries Ltd (NSE:AARTIIND) Q2 FY23 Earnings Concall dated Nov. 15, 2022

Corporate Participants:

Rajendra V. Gogri — Chairman and Managing Director

Rashesh C. Gogri — Vice Chairman and Managing Director

Chetan Gandhi — Chief Financial Officer

Analysts:

Nishid Solanki — CDR India — Analyst

Aditya Khetan — SMIFS Institutional — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Abhijit Akella — Kotak Securities — Analyst

Rohit Nagraj — Centrum Broking — Analyst

Rohan Gupta — Nuvama — Analyst

Meet Vora — Axis Capital — Analyst

Chetan Thacker — ASK Investment Managers — Analyst

Mihir Damania — Ambit Asset Management — Analyst

Vishnu Kumar — Spark Capital — Analyst

Bobby Jayaraman — Falcon Investments — Analyst

Tejas Sheth — Nippon India AMC — Analyst

Archit Joshi — B&K Securities — Analyst

Pujan Shah — Congruence Advisors — Analyst

Rohit Sinha — Sunidhi Securities — Analyst

Nitin Agarwal — DAM Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Aarti Industries Limited Q2 FY’23 EarniFngs 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 Q2 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-answers where the management will be addressing two queries of participant. Just to share our standard disclaimer here. Some statements that will be made on today’s 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 the stock exchange website.

I would now invite Mr. Gogri to share his perspectives. Thank you, and over to you, sir.

Rajendra V. Gogri — Chairman and Managing Director

Thank you. Good afternoon, everyone, and welcome to our Q2 FY’23 earnings conference call. We have shared our results document and I hope you’ve had an opportunity to go to them. We have reported a resilient performance during the period under review, which has come on the backdrop of continued inflation in key input costs, both on raw materials and utilities, some slowdown in end-user industry like, linked to dyes and pigments, extreme foreign exchange volatility, as well as uncertainty prevails in the global market.

Our performance was the culmination of solid expertise attended — in managing multiple chemistry processes with superior execution track-record we added to our delivery commitment, thereby winning customers trust and further deepening our relationship with them. Our knowledge and capabilities demonstrated in several product value chain linked to benzene and toluene is best-in class and we are replicating the same to create strong foundation across other adjacent chemistry value chain.

In a significant development, we received honorable NCLT approval to demerge our Pharma our business into a separate company named Aarti Pharmalabs Limited. This will extensively enhance value for our stakeholders and also help us achieve better operational efficiency. Mainly this will help both the companies to take appropriate strategic decisions in view of the growth opportunities available. We have been expediously working to conclude this and expect the listing of Aarti Pharmalabs Limited to take place sometime in December 2022.

Let me quickly share some of the key financials for Q2 FY ’23. Before that, let me inform you that the financial for Q2 FY’22 — Q1 FY’23 and H1 FY’22 were retested to consider the impact of scheme of arrangement for the demerger of Pharma segment from the appointed date of 1st July 2021.

Our revenue by 29% Y-o-Y to INR18,047 crores, with export contributing over 50% of the total revenue. EBITDA improved by 5% to INR267 crores, normalizing the impact of shortfall fees in Q2 FY’22 of INR52 crores, the EBITDA growth in Q2 FY’23 is over 30%. Profit-after tax stood at INR124crores. Our revenue momentum was fueled by a stable demand category for these products under the essential end usages, further aided by volume gains. As was highlighted in the past, we are seeing slower demand for products associated with end-user industries of dyes, pigment, etc. And to that extent, the performance is moderate. However, we expect demand to recoup from Q4 of FY’23.

While the raw material and utility costs have remained during the quarter, we have a strong pass-through mechanism in-place to pass on this cost pressure, thereby protecting absolute profitability. We expect the elevated input cost scenario to soften in Q3. EBITDA was higher, supported by product optimization and increased export revenue. Absolute profitability levels were maintained during the period, considering the slowdown in demand due to global factors.

We have utilized this time to take-up the maintenance work in our Jhagadia location. As as result, the volumes for a few products were lower in Q2 FY’23. Profit-after tax appears muted owing to the higher finance cost due to negative forex mark-to-market impact of INR20 crores, an increase in depreciation in line with new capacity added in recent past. The current performance for H1 FY’23 and the visibility that we have for H2 FY’23, we expect our FY’23 EBITDA to be around about INR1,100 crores.

Now let me turn attention to the production details for Q2 FY’23. Production of nitro chloro benzenes stood at 20,276 metric, while the same for hydrogenated came in in 2558 tons per month. For Nitro Toluene, the production for Q2 FY’23 stood at 4,954 metric tons. Production levels were lower due to the maintenance shutdown that was taken at the Jhagadia activity. This will benefit us to maximize on the operating time when the demand resumes back.

Let me now move your attention to some of the expansion initiatives announced and updates around that. Projects into the first long-term contract is scaling up as expected and we anticipate that high utilization levels of about 70% by next financial year. The recently commisioned facilty that houses a second long-term contract is getting utilized in a phased manner, and we expect to generate the EBITDA as guided by the contract terms and shared earlier. Construction and other plant related activity associated with the long-term contract at Jhagadia is progressing well and we expect commissioning towards the end of this quarter.Several other projects, including brownfield expansion of NCB facility at Vapi are underway and will start getting operationalized progressively in the next fourth quarter, and thus will be contributing meaningfully from next financial year.

In this respect for our capacity at Dahej SEZ, which is operating nearly at 90% now, is being tripled with an investment of about around INR200 crores and is expected to come on stream as Q1 FY’25. We are also planning for further debottlenecking of nitrotoluene capacity. The product will enable us to cater to few high growth agrochemical molecules and application.

During the half year ended September 2022, we entailed a capex of INR377 crores towards the growth initiatives outlined, and target the annual capex to be about INR1,100 crores to INR1,200 crores. Full benefit of various — of our current ongoing projects will be visible in FY’24 and FY’25, as we anticipate some demand recovery from Q4 of FY’23. While volume ramp up from new capacity will come in the next two years, the fixed cost will not generally rise to that level, thereby resulting in strong gross profit to EBITDA conversion from FY’24 onwards. With this volume ramp up, we anticipate our EBITDA to grow at a CAGR of about 25% for FY’24 and FY’25. Collective capex for FY’24 and FY’25 is expected to be around INR3,000 crores and will steer our momentum in the forthcoming periods. So this we plan to be at newer chemical value chain and also introduce high-potential product that will expand our addressable market opportunities, and we also cater to increased demand from key end-user customers.

We have built a very strong R&D team with 250 plus engineers and scientists working on several high potential projects across segments, including some of the sunrise sectors. Our expertise in wide-ranging chemisty, we’ll focus on technological expertise, driving gains in a sustained manner. Currently, we have 50 plus products in the R&D pipeline of chemicals at various stages and this will help accelerate our performance trajectory. Our utilization level across plants are being rampedup based on steady demand. We have created through an integrated and well-diversified business model with relentless focus on R&D and chemistry capabilities. our deep connectin with key customers will drive sustained growth and profitability going forward as well.

The roadmap looks encouraging and we’ll continue to capitalize the opportunities created through rapid shifts in global chemical supply chains. Focus on R&D based product offerings together with incremental gain from existing value chain will propel our value proposition. That include concludes my initial thoughts, and will now request the moderator to open the floor for QA session. Thank you.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [ Operator Instructions ] The first question is from the line of Aditya Khetan from SMIFS Institutional. Please go ahead.

Aditya Khetan — SMIFS Institutional — Analyst

Yeah, thank you sir for the opportunity. Sir, first question sir, if you can provide the break up into the top-line — so coming from our core business and from the custom synthesis business that is the contract one, two, sir now we can provide the breakup of revenue into core and into the custom synthesis part.

Chetan Gandhi — Chief Financial Officer

So again the revenue from the contract would be relatively lower, we’ll have to — I don’t have the numbers right now. In some signal digit numbers. We’ll have to see the numbers and come back to you later on.

Rajendra V. Gogri — Chairman and Managing Director

We can just add that are value-added product which we generally guide, 78% sales is coming from value-added products.

Chetan Gandhi — Chief Financial Officer

Okay, Okay. So what I wanted to know — so this quarter-on-quarter growth of 5% into topline, how much was it from the core business and how much was it from the contract one and contract, sir.

Rajendra V. Gogri — Chairman and Managing Director

Contract one is already terminated, so there’s no connection of contract one as such. And as Chetan mentioned, the contact two will not have any significant addition in in Q2 I think. So that number will not be available.

Aditya Khetan — SMIFS Institutional — Analyst

Okay okay. Sir, we have also taken maintenance shutdowns, so what was the one-off impact into this quarter? How much volumes have been impacted?

Rajendra V. Gogri — Chairman and Managing Director

See, our Nitro Toluene, PDA and chloroaniline all those volumes were impacted. That’s why the numbers of Nitro Toluene are also low and PDA also are low in this quarter comparatively.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. Sir, also debottlenecking of the Nitro Toluene capacities as said by into your initial remarks, so how much would — so we are planning to expand on the base capacities of 15%, 20% addition we can take and what would be the capex figure for the same?

Rajendra V. Gogri — Chairman and Managing Director

Yeah, we are fine-tuning the capacity. Current capacity is about 30,000 tons and we are now fine-tuning the debottlenecking. I think around 45,000 ton is what we are targeting to debottleneck.

Aditya Khetan — SMIFS Institutional — Analyst

45,000 tons, and what would be the capex similarly?

Rajendra V. Gogri — Chairman and Managing Director

No, that is still being worked, whereas the utilization is brownfield plant. So that — the construction and everything is started. So that capex is about INR200 crores. And there we are increasing the capacity to three times for current capacity of 7,000 to 10,000 tons will become a 3 times.

Aditya Khetan — SMIFS Institutional — Analyst

Okay got it. And, sir, just one last question, srir. Are we witnessing the benefit of the freight cost as of now?. In this quarter we had got the benefit and that should continue or still we are witnessing that freight cost is elevated for us?

Chetan Gandhi — Chief Financial Officer

The freight cost is coming down in the current quarter. Son in Q3 we will see freight costs coming down.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. So from the current quarter so we should see improvement into the margins from the freight cost.

Chetan Gandhi — Chief Financial Officer

Yeah, the freight part, but largely we had done freight pass-through for most of the larger contracts. So overall we may see some improvement, but it may not be a very meaningful number.

Aditya Khetan — SMIFS Institutional — Analyst

Okay, okay. Sir, just one last question, sir. Onto the raw-material side, so how is the trend now? So we have been witnessing that the raw material prices are going down, like benzene, toluene, and thioanhydride, so this should benefit the company and like in case when the raw material prices decline, how confident are we can maintain the gross [Technical Issues] in the coming quarters, like.

Chetan Gandhi — Chief Financial Officer

Yeah, so basically the raw-material prices are definitely coming down and we have a pass-through mechanism where we have a quarterly or a monthly lag of pass-through. So whatever those lags are, we wil get advantage to that effect. But largely the raw materials also on a one month tryout procurement basis so. On exports side, wherever we have three-Month lag of pass-on, so there we will get benefited.

Aditya Khetan — SMIFS Institutional — Analyst

Okay. Sir, just one last question, sir. So generally like — so now we are only focusing into the specialty chemical business, so would it be possible from next quarter so we can give the revenue breakup of of the Nitro Chloro Benzene, the PDS segment, the Di-Chloro Benzenes, so that would help use dwell more deeper into the company’s specialty Chemical business, because now the pharma business has been excluded. So if possible sir, if you can provide more breakup on to the numbers that would be helpful.

Chetan Gandhi — Chief Financial Officer

I think anyway we are providing you the quantity breakup side. So I don’t know further because we will have to delibrate and get back to you how we can do.

Aditya Khetan — SMIFS Institutional — Analyst

Sure, sir. Thank you, sir. That’s it from my side.

Chetan Gandhi — Chief Financial Officer

Thank you.

Operator

Thank you. That’s from the line of Vivek Rajamani from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Hi, sir, thank you so much for this. Two questions and just two small clarifications from me. Firstly sir, you’d obviously highlighted in the previous quarters regarding some challenges on the raw material sourcing side. If you can just provide an update in terms of how the situation was in this quarter and how do you see this evolving in the next few quarters? That’s the first question.

And secondly if you could just provide an update on some of the — some of your own remedial measures that you’re doing which you’d indicated in the past quarter? Thank you very much.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, the nitric acid there was no significant impact any nitric acid in Q2. And in second half also we don’t expect much impact of nitric acid because some demands are also overall in the market is subdued. And some more capacity will also come out of nitric acid in the second half. So even the next year there wil not much issue regarding of nitric acid. What we had announced our plan, that will get — our planning was to commission in Q4 of FY’24 for a concentration plant.

Vivek Rajamani — Morgan Stanley — Analyst

Understood, Understood, sir. And just two clarifications on the maintenance side which you had this quarter, did you specify what was the period of the maintenance shutdown?

Rajendra V. Gogri — Chairman and Managing Director

About three weeks in Jhagadia.

Vivek Rajamani — Morgan Stanley — Analyst

Got it, and I’m not sure if I missed this. You give the volume breakup, but did you also give the numbers for the PDA volumes?

Chetan Gandhi — Chief Financial Officer

Yeah, the PDA Q2 numbers are around 242 per month.

Vivek Rajamani — Morgan Stanley — Analyst

Thank you so much sir, I get back to the queue.

Operator

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

Abhijit Akella — Kotak Securities — Analyst

Yes. Good afternoon, sir. Thanks for taking my questions. Just a few data related request, if it’s possible to share this on the call. One was saw with regard to the restated financials, if it’s possible to share with us the base EBITDA impact for the years FY’22 and FY’21, that would be helpful.

Chetan Gandhi — Chief Financial Officer

Come again. What are you looking at for?

Abhijit Akella — Kotak Securities — Analyst

So under the — as per the — following the restatements, following which we have only the specialty chemical financials now. So is it possible to get the base numbers for FY’22 and FY’21, just in terms of EBITDA impact for the quarter remaining business?

Rajendra V. Gogri — Chairman and Managing Director

Nine-Month number will be available, which is from July ’21 to March ’22, I think that number is available.

Abhijit Akella — Kotak Securities — Analyst

Okay, okay, but a full-year base won’t be available.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, because. I mean, in fact the appointed date was 1st July ’21. So post 1st July ’21 we have all the quarter number for both chemical and pharma separately.

Abhijit Akella — Kotak Securities — Analyst

Okay fine. I understand. Thank you. And the second thing was just with regard to the demand softness that you pointed to. So what exactly are the factors that lead us to expect a recovery in demand in 4Q of this year? And what exactly were the reasons for the margin pressure that we saw this quarter? Was it combination of higher raw material costs as well as the softness in demand, how would you describe that?

Rajendra V. Gogri — Chairman and Managing Director

Yeah, demand, you know, we have been in touch with the customer basically and generally there is a feedback as now some recovery of, especially on the dye stuff side to start coming in. Actually pigment side the impact has started a little later on. So. I think pigments recovery also might be little later on. So that is mainly coming from our customer side. That’s how they see the demand shaping up.

Abhijit Akella — Kotak Securities — Analyst

And the margin pressure this quarter was primarily because of falling benzene costs and maybe some inventory-related pressures because of that or was it something else?

Rajendra V. Gogri — Chairman and Managing Director

No overall margin I think there is not much difference than in product mix and some raw material price then everything. Broadly I think the EBITDA will be down by 5%.

Abhijit Akella — Kotak Securities — Analyst

Okay. Fair enough. One last question is…

Rashesh C. Gogri — Vice Chairman and Managing Director

On the benzene side also just to add on it. The benzene prices are also fairly similar. So the reduction — actually who we shared that the pricing actions would start seeing from this quarter onwards.

Abhijit Akella — Kotak Securities — Analyst

Okay understood. And one last thing for me was just if it’s possible to share a volume growth number for this quarter?

Rashesh C. Gogri — Vice Chairman and Managing Director

This year the volume growth will be very substantially flat, it won’t be anything because we had shutdown which was taken up.

Abhijit Akella — Kotak Securities — Analyst

Okay. Got it. Thank you so much.

Operator

Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah. Thanks for the opportunity. First question is in terms of exports on a sequential basis the number looks quite promising. So was there any currency benefit? And a light question to that, Q2 has been pretty strong in terms of exports and in Q3 we are already 1.5 months done with, so any demand related challenges from the export side that we have faced in the last one and a half months? Thank you.

Rajendra V. Gogri — Chairman and Managing Director

Yes, some of the pigment intermediate, as I mentioned earlier, we are seeing some challenges but the other sectors we don’t see much challenges as far as exports are concerned.

Rohit Nagraj — Centrum Broking — Analyst

Thanks. And any currency benefit on a sequential basis?

Rajendra V. Gogri — Chairman and Managing Director

I think Chetan will be able to answer. Currency benefit there was…

Chetan Gandhi — Chief Financial Officer

Structurally, rupee depreciation benefit are, so to some extent there will be a benefit of that, which would have been there in Q2 as well. The numbers would be in the range of around INR8 crores to INR10 crores.

Rashesh C. Gogri — Vice Chairman and Managing Director

But the affect is that we do have forwards for part hedging export over the next three years, so there is also a limitation in terms of not everything which is there is a part of our export is completely open. So then the benefit is limited with those forward and there is anyway accounted by the mark-to-market accounting.

Abhijit Akella — Kotak Securities — Analyst

Right, right. Got. The second question is just a bookkeeping question. So we have restated the numbers for FY ’22. Can give the gross block by end FY’22? We have given the net block.

Chetan Gandhi — Chief Financial Officer

Gross block of FY’22 should be around INR5,000 crores.

Rohit Nagraj — Centrum Broking — Analyst

This is only pertaining to specialty chemicals, the business which has now remaining.

Chetan Gandhi — Chief Financial Officer

INR5,000 crores, yes.

Rohit Nagraj — Centrum Broking — Analyst

Okay, and just one last clarification. I missed the number on NCB volumes.

Aditya Khetan — SMIFS Institutional — Analyst

NCB volumes was so 20,276 for the quarter.

Rohit Nagraj — Centrum Broking — Analyst

Got it. Thanks a lot and best of luck.

Rajendra V. Gogri — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Rohan Gupta from Nuvama. please go ahead.

Rohan Gupta — Nuvama — Analyst

Yeah, hi sir, good evening, and thanks for the opportunity. Sir, a couple of clarification. First is on our Dicamba intermediate sales. So if you can just give some sense that how has been the utilization level for the current quarter on Dicamba intermediate?

Rajendra V. Gogri — Chairman and Managing Director

Overall I think current quarters is not significant, about 10% level we have on that. Progressively, I think we will go on increasing.

Rohan Gupta — Nuvama — Analyst

Okay, so 10% is only utilization, while I think that by FY’24 next year we are looking some 70% utilization level to go up, right?

Rajendra V. Gogri — Chairman and Managing Director

No, no, actually my mistake, around 25%, sorry. The number were around 720 tons per quarter and that will be on against quarter capacity of 2,400, sot it will be around 25?

Rohan Gupta — Nuvama — Analyst

So, like 25% utilization level, is this entire block related to this intermediate? Will it be breakeven or it will be draging the profitability?

Rajendra V. Gogri — Chairman and Managing Director

No, we’ll expect progressively from second halfe onwards capacity utilization to increase.

Rohan Gupta — Nuvama — Analyst

Okay. I am asking at 25% in the current quarter.

Rajendra V. Gogri — Chairman and Managing Director

[Speech Overlap] It will not breakeven.

Rohan Gupta — Nuvama — Analyst

Okay, it will be some losses there.

Rajendra V. Gogri — Chairman and Managing Director

Yes.

Rohan Gupta — Nuvama — Analyst

Okay. Sir, second is in terms of guidance of roughly INR1,100 crore for this year your looke in EBITDA, while almost half of that we have already done the first half. So you are clearly indicating that in second half there won’t be any growth while we have a large capex commissioned already and current quarter is already weak. So just wanted to understand the thought process that second half and we’ll be just exactly first half well [Speech Overlap]

Rajendra V. Gogri — Chairman and Managing Director

Yeah, I think the Dyes and Pigments segments are weak. So. I think that will continue in the second half also. So I think that is the main reason there is for lower guidance. Hopefully the things started recovering in Q4 and so next year no we don’t have any impact of this slowdown in this segment. Couple of occupancy good are coming on stream in the second-half so there will be component of fixed cost by way of manpower, which will also start kicking in.

Rohan Gupta — Nuvama — Analyst

Right. And sir in the segment wise you mentioned the dyes and pigments is a drag right now. It’s primarily coming from the European market because of the inflationary scenario or what is the particular reason for it? And also in which segment, I mean, like agrochemicals and all we must be seeing a good growth. So if you can just give some segment, which are the segment are drag and which segment you are seeing the good growth?

Rajendra V. Gogri — Chairman and Managing Director

The pigment impacted global basically, whereas dyes generally impact is more on within India, most of the dyes intermediates comes in India, some export also. Rather than — some of the other chemical and quite a few business are quite strong.

Rohan Gupta — Nuvama — Analyst

Okay, sir. Sir, that is from my side. Thank you.

Operator

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

Meet Vora — Axis Capital — Analyst

Yeah, hi. Thanks for the opportunity. My first question was towards our earlier guidance that we are seeing that we are facing shortage of nitric acid and as a result volumes might be impacted. So two, hree questions regarding that. So Q2 is generally a seasonally weak quarter for nitric as monsoons are going and nitric is basically used in ertilizers. So is it that we are facing — so demand was down because of the seasonal quarter and how do we look at it from a Q3 or Q4 perspective.

Secondly we say that while new capacities are coming on stream in Q4, what kind of visibility do we have that volumes will be shared with us? And thirdly, more clarity on our — the capex plan, whether we will setup a concentration plant or a backward integrated plan? That be helpful.

Rajendra V. Gogri — Chairman and Managing Director

Yeah as I mentioned basically, earlier — that this year we don’t anticipate much impact of nitric in the second half because overall also there is a demand slowdown and some capacity will come up. And as of now we have a concentration plant — order has been placed. Comprehensive nitric strategy, actually we are planning to share by in this call, but I think it may take some more time, and we’ll come out with the comprehensive strategy.

Meet Vora — Axis Capital — Analyst

Sure, sir. And secondly our volume growth guidance for FY’23?

Rajendra V. Gogri — Chairman and Managing Director

FY’23.

Meet Vora — Axis Capital — Analyst

Yeah.

Rajendra V. Gogri — Chairman and Managing Director

I think overall we had given an EBITDA growth, specifically because as you mentioned earlier, now the value-added products are increasing this year to 78%.

Chetan Gandhi — Chief Financial Officer

Okay. And, sir, stable number on the working capital since it has gone up in H2 FY’23. I guess, there could be a potential of back to renewal because the way of working — I mean the freight rates and raw material price is there. Some softness which is getting visible. So working capital cycle in number of days should remain quite similar, but on a value basis I expect some reduction to happen.

Meet Vora — Axis Capital — Analyst

Okay. And last question from my side. Sir, has there been any change on presentation of our numbers from gross sales and a net sales perspective, because last quarter our spec chem revenue was around INR1,750 crores and right now it’s somewhere around INR1,680 crores. So should we look at once the net numbers or gross numbers, because last quarter our breakup of spec chem and pharma, in that the spec chem revenues INR1,705 crores and now it’s around INR1,610 crores. What is the ultimate to look at? And am I missing something or to the presentation stage or it has remained the same?

Rashesh C. Gogri — Vice Chairman and Managing Director

Well, I guess the numbers — I don’t think so the numbers are different. We can probably separately connect it [Indecipherable]

Meet Vora — Axis Capital — Analyst

Sure, sir. Thanks sir. That’s all from my side.

Rashesh C. Gogri — Vice Chairman and Managing Director

I think the GST impact — there is a. Basically in whatever number comparison that you are doing, so those numbers there is a growth and also in that number also there is also a growths. So one number that you have said it is with GST and one is without GST.

Meet Vora — Axis Capital — Analyst

Sure. So our presentation has not changed in any form, right?

Rashesh C. Gogri — Vice Chairman and Managing Director

No, no, no. So we’ll connect separately.

Meet Vora — Axis Capital — Analyst

Sure, sir. Okay, okay. Thank you so much. Thanks so much. That’s all from my side.

Operator

Thank you the next question is from the line of Chetan Thacker from ASK Investment Managers. Please go ahead.

Chetan Thacker — ASK Investment Managers — Analyst

Good evening sir. Sir just a question on the gross block that has been transfered to the pharma business and working capital that has moved there.

Chetan Gandhi — Chief Financial Officer

Okay. So we have to pull out some numbers because the transfer is effective for us — like ’21, and those numbers will not be — that number keeps on changing. I think the gross block which should have been transfered would be upwards of INR1,200 crores. And working capital I will have to pull oujt numbers and check on that.

Chetan Thacker — ASK Investment Managers — Analyst

Sure, sir. I’ll connect with you separately then for that. Thank you so much. All the best.

Operator

Thank you. The next question is from the line of Mihir Damania from Ambit Asset Management. Please go ahead.

Mihir Damania — Ambit Asset Management — Analyst

Yeah. I hope I’m audible. So you mentioned in your earlier commentary that you are expecting a 25% growth for FY’24 and FY’25. Do you have a potential range of numbers you are targeting either on the EBITDA or profitability part with business?

Rajendra V. Gogri — Chairman and Managing Director

Yeah. Current year our target is around INR1,100 crores. So correspondingly 25% CAGR. So within two years targeting around INR1,700 crores.

Mihir Damania — Ambit Asset Management — Analyst

Got it. got it. And I just have another clarification. What will be the potential impact on profitability for the maintenance shutdown which we did in one of our plants?

Rajendra V. Gogri — Chairman and Managing Director

That will be around INR15 crores.

Mihir Damania — Ambit Asset Management — Analyst

Okay, okay. And just a related question. Do we expect the EBITDA margin — the absolute EBITDA number to be range-bound to what we have done in Q1 and Q2 for the next half of the year? Is what we are looking yet.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, I think some change may happen because where there is a demand pressure, then it may go a little bit down and where there are some opportunity also because of some shortages of European shutdowns. So on a product-to-product there may be some variation. Because of little bit unusual situation. Oone is on the demand side of certain products and second is on supply side because of European natural gas scenarios some shortages are taking place.

Rashesh C. Gogri — Vice Chairman and Managing Director

Got it. So what I wanted to allude was, so the majority of benefit of any further capex will only be visible from FY24 onwards, not any material impact we are seeing in either Q3 or Q4 of this year.

Rajendra V. Gogri — Chairman and Managing Director

So mainly now because next two years we expect the direct transfer of gross profit to EBITDA because we don’t expect much fixed costs or employee cost increase in next couple of years other than the normal increment. So that’s why we are targeting a 25% CAGR.

Mihir Damania — Ambit Asset Management — Analyst

Got it, got it. Thank you and all the best.

Operator

Thank you the next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.

Vishnu Kumar — Spark Capital — Analyst

We have a [Indecipherable] of about INR1,300 crores and INR1,400 crores, so if you just, help us understand what are the major projects that will be getting capitalized in the next 18 months and the capex for the current year?

Rajendra V. Gogri — Chairman and Managing Director

Yeah. I was just — given contract three will get capitalized and some other specialty chemical blocks. And Nitro Chloro Benzene which will get capitalized. Actually, second half we expect capitalization above INR1,000 crores in this year.

Vishnu Kumar — Spark Capital — Analyst

INR1,000 crores, okay.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, approximately INR1,000 crore capitalization, now this third contract and few other specialty chemical blocks also will get commission. Okay how much is the capex for the current year and how much have we spent till now, sir. Current year we have spent INR557 crores in first six months. And overall annually around INR1,000 crores to INR1,200 crores will be the capex.

Vishnu Kumar — Spark Capital — Analyst

Got it. Next year what are the projects you will be capitalizing, major projects?

Rajendra V. Gogri — Chairman and Managing Director

No, whatever some of the specialty chemical and Nitro Chloro Benzenes expansion may grow towards the first quarter of next year. So most of capital WPI, except this utilization loop, we expect WIP get capitalized by the Q2 of FY’24, excep this utilization loop which will be commisioned in first half of FY’25. And subsequent to that will be all the new product line at the new location in Jhagadia, where the the construction is expected to start from Q4 of this year onwards.

Vishnu Kumar — Spark Capital — Analyst

So INR1,300 crores of CWIP and current year capex of about INR1,200 crores, so INR2,500 crores will get capitalized by first-half of next financial year, after that the new capex is only going to come after ’25, ’26. Is that right understanding.

Rajendra V. Gogri — Chairman and Managing Director

The utilization loop and also will come in the next year because that also they’re going to spend. So at least around INR2000 crores will get capitalized. And subsequent to that wil be more of a normal capex and some debottlenecking, and also there not be any significant capitalization, other than this loop, which is about INR200 crores and some normal capex for about 12 month period.

Vishnu Kumar — Spark Capital — Analyst

Okay, sir. Currently, I mean if you could just give us a broad mix of revenues from end-user segments, say agro, pharma, dye stuff, or if you could give us what is the broad number, let’s say, how has been the revenue share. And once you execute your new projects as in ’24, ’25 the capex, how should this look like, in terms of end-user segment.

Rajendra V. Gogri — Chairman and Managing Director

Overall, which is basically agro, pharma, and FMCG which are not that much economically linked, so we are around 50%. And 50% will be more on our dyes, pigments, polymers and additives. So that’s broadly. So 50 means basically 40 to 60 quarter-to-quarter in that respect, be more around that number. And as we go-forward also this may not change in because across the board in some pharma also will increase — will be increasing numbers across the board in all the segments. So even after two years I would not say that it is going to be a significant change.

Vishnu Kumar — Spark Capital — Analyst

Okay. So, I mean just to conclude what you’re saying, you’re saying it will be more or less similar but slightly towards the agro pharma, is that the right understanding?

Rajendra V. Gogri — Chairman and Managing Director

Currently tis is a 50:50, agro, pharma and FMCG, and others 50:50. So those kind of number will remain. It’s not like something will become 70 and other will become 30.

Vishnu Kumar — Spark Capital — Analyst

Understood, sir. Sir, given the global slowdown, people are at least talking about and maybe if there is a slowdown our export division which is probably the second segment which is the dyes pigment, would this be a larger chunk of exports? or which segment is currently contributing to a majority of their exports? I’m trying to understand if there is a slowdown next year, I mean which segment would probably see an impact?

Rajendra V. Gogri — Chairman and Managing Director

Actually, exports are more on polymer and additives, and then agro and pigments.

Vishnu Kumar — Spark Capital — Analyst

Okay. Would any consideration be done if you’re seeing some slowdown for the next 12 to 18 months, we’re not seeing much growth then will our capex intensity slowdown or we’ll continue today, I mean the plants are going to continue?

Rajendra V. Gogri — Chairman and Managing Director

We have a long-term visibility of the products. We are not looking at any slowdown in the capex.

Vishnu Kumar — Spark Capital — Analyst

Understood, sir. And one final question, sir. The closing net block as of March was INR4,400 crores, which is as of 30th September only INR4,000 crores. So is it right to understand that INR400 crores is the net block transfered to the Pharma division as per the statements given?

Rashesh C. Gogri — Vice Chairman and Managing Director

Comparing March versus September, the net block transfer to pharma will be more than that.

Vishnu Kumar — Spark Capital — Analyst

How much would that number be, sir.

Rashesh C. Gogri — Vice Chairman and Managing Director

I believe the net block transfer to pharma should be in the range of around INR700 crores to INR800 crores, if I’m broadly looking at. We just have to leave any type of number, but it should be in this kind of range.

Vishnu Kumar — Spark Capital — Analyst

Got it. Sir just one comparable number. I know a couple of guys have asked earlier also. If you could just give annualized EBITDA for the company, I mean only for this division or now as the company exists for the previous year, the comparable of the 1,100 we’re talking last year, if you could just give that number if you have.

Chetan Gandhi — Chief Financial Officer

We have to work on it because as per the scheme, the pharma business continued to be part of the continuing, I mean Aarti Industries for the quarter of April to July ’21, as April to June 21 went off. So, see how we look at — dissecting that number, we’ll have to spend some time and work on that. It won’t be available right now with us.

Vishnu Kumar — Spark Capital — Analyst

Okay, sir. All the best. Thank you.

Operator

Thank you. The next question is from the line of Bobby J from Falcon Investments. Go ahead.

Bobby Jayaraman — Falcon Investments — Analyst

Regarding dyes and segments, what is the end-user industry that’s being affected? Is textile?

Rajendra V. Gogri — Chairman and Managing Director

Yeah, it is textile, printing ink, and also coating for the automotive. So all these segments had been affected during last quarter.

Bobby Jayaraman — Falcon Investments — Analyst

But the auto industry at least in India is supposed to be picking-up, so how has it affected?

Chetan Gandhi — Chief Financial Officer

Yeah, so its basically global auto industry and also I think in the pigment sector there is destocking which is happening and there has been lot of consolidation amongst the players. So all that has also come into the impact — effect of overall slowdown in the pigments.

Bobby Jayaraman — Falcon Investments — Analyst

I see it. this is in India or globally?

Chetan Gandhi — Chief Financial Officer

Yeah it is a global.

Bobby Jayaraman — Falcon Investments — Analyst

Okay, so you actually produce the pigment intermediates, right, and supply it to the pigment formulation companies like Sudarshan, etc. Is that correct?

Chetan Gandhi — Chief Financial Officer

Yes, yes, yeah. We supply to the pigment manufacturers, then who in turn they supply to the printing guys and the plastic master batches guys as well as the coating for automotive paint manufacturers.

Bobby Jayaraman — Falcon Investments — Analyst

Okay, Understood. Thank you.

Operator

Thank you. The next question is from the line of Tejas Sheth from Nippon India AMC. Please go ahead.

Tejas Sheth — Nippon India AMC — Analyst

Yeah, hi sir. I had two questions. One, on the INR3,000 crore of capex which we are doing over next few years, that is FY24 and FY25. What would be that cost? And secondly, INR3,000 crore capex for two year and INR3,000 crores odd or EBITDA for two years. So we see our borrowing increasing on FY’23 levels as well considering that we will be having outflow and a dividend outflow on that EBITDA level.

Rajendra V. Gogri — Chairman and Managing Director

This will be mainly for the new range of product. Chloro toluene and is down since, And also some other specialty chemical which we have identified. And some of this already ongoing expansion also will take place, the capex spend will take place for this second installation loop and also will take place in the next two years. So its a mix of both, the Chloro Toluene blocks, multipurpose plants at the new location, and this installation loop Nitro Toluene debottlenecking and several ongoing which will get commissioned in first half of FY’24.

Tejas Sheth — Nippon India AMC — Analyst

And on the tax flow side, as I said INR3,000 crores of EBITDA we would be doing, and if we separate the tax outflow and dividend outflow and also that we incurred INR3,000 crore of capex, there would be debt increase.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, yeah there will be debt increase.

Tejas Sheth — Nippon India AMC — Analyst

Okay, okay. And just lastly, what will be the tax rate for this year and for FY’24.

Chetan Gandhi — Chief Financial Officer

I guess the tax rate should be in the range of around 18% to 20%, 21%. Next year it should become — it should be around this 18% to 20% or 21% broadly.

Tejas Sheth — Nippon India AMC — Analyst

Thank you.

Operator

The next question is from the line of Archit Joshi from B&K Securities. Please go ahead.

Archit Joshi — B&K Securities — Analyst

Hi sir. Thanks for the opportunity. Sir, we have listed five-prong strategy in our presentation. So just wanted to understand if you can share some rough timeline and also a question linked to the same. Is it that they are inter dependent, I mean they are setting up a multipurpose plant, would that translate into more custom manufacturing opportunities or so far that you have listed that we are looking for more strategic alliances, or is it that we are already in budget some customers to look at this opportunity with the base business, so becoming elaborate on these two points. Thank you.

Rajendra V. Gogri — Chairman and Managing Director

You are right. On the multipurpose plants, simultaneously there will be contract manufacturing. Partly the multipurpose plant will be used for contract manufacturing. Where as strategic alliance and all are there, more of a different kind where maybe dedicated plant for certain customers and all that. They will be at individual leve, bigger opportunities. The contract manufacturing maybe for variety of product and a number of the product maybe more but individual product sales maybe less. That kind of a thing will happen in multiple.

Archit Joshi — B&K Securities — Analyst

Understood, sir. And continuation of the previous participant’s question. We are looking at commissioning most of this project, say, before the end of FY’24. So just wanted to — just see what kind of timelines you are looking at, be it the new chemistry that we are adding, the Fluro Toluene and when would we have some multipurpose plant setup. And this is — other than the parts which you are doing in the base business such as debottlenecking of the Nitro Toluene adding more ethylation capacity. So the newer initiatives, when will those start contributing with respect to revenues or strength?

Rajendra V. Gogri — Chairman and Managing Director

[Indecipherable] mainly starting from second half of FY’25. Second half of FY25 and FY26 will be where all the new initiatives will start getting commissioned. Whereas the ethylation route is expected to be in first half.

Archit Joshi — B&K Securities — Analyst

First half FY24, right?

Rajendra V. Gogri — Chairman and Managing Director

FY’25.

Archit Joshi — B&K Securities — Analyst

FY23, got it. Sir, just one last question. So I think we are looking at FY’24 as our transition year, we had a significant volume growth with a lot of capex that has already gone by. What I was trying to understand is the major projects which have got the commision in the last maybe two to three years, most of them have been in the same part of the chemistry that we were into, except for the two contracts that we might have a full-fledged utilization on. So barring these two, what exactly is materially changing going from the second half of FY’23 to FY’24 that we are kind of assuming that a lot of fixed cost will get subsumed and operating leverage will start kicking in and then there will be volume growth, because currently as you have been pointing out that certain pockets where we have supplying products with dyes or pigments, those still continue to be under pressure. So is it that we do expect a meaningful recovery happening in FY’24, or is there something else to it that some new customers have been added or some new products have come into the portfolio?

Rajendra V. Gogri — Chairman and Managing Director

Some new products are also coming in, and our Nitro Chloro Benzene will be additional thing where substantial goes also into pharma and polymer also, and all this slowdown in dyes and pigment also we don’t expect that to be continuing for very long time. So definitely by FY’25, so I think it has to become a normal year. So whatever is the slowdown which we are witnessing in current year, we expect that to be in by FY25 at least — dyes segment also become normal and contribute to the volumes.

Archit Joshi — B&K Securities — Analyst

Thanks thanks a lot for the clarification, sir. Have a good day. Thank you.

Operator

The next question is from the line of Pujan Shah from Congruence Advisors. Please go ahead.

Pujan Shah — Congruence Advisors — Analyst

Hi sir. My first question would be, let’s suppose — if we didn’t do this maintenance, so what would be the volume growth in H1?

Rashesh C. Gogri — Vice Chairman and Managing Director

Sorry, could you just repeat the question?

Pujan Shah — Congruence Advisors — Analyst

Yeah. If we haven’t gone for the three-week maintenance close down, so what are the volumes would be like — volume growth would be, it would be around 5% odd so or like it would be less than that?

Rashesh C. Gogri — Vice Chairman and Managing Director

I mean, you’re talking about the current, I mean Q2 FY.

Pujan Shah — Congruence Advisors — Analyst

Yeah, yeah, so I’m talking for H1. I’m talking for H1 which we are saying that the volume has been flat. So due to one of the reason is because there was a maintenance shutdown in our plant, so I I’m talking about — let’s hypothetically think that the plant haven’t gone for the maintenance capex, would the volume would be flat or would it be something more marginally improvement we have seen in the volumes.

Rajendra V. Gogri — Chairman and Managing Director

One of the reasong for maintenance shutdown was lso there is a pressure in demand. So overall it won’t be much different, maybe 2%, 3%.

Pujan Shah — Congruence Advisors — Analyst

Okay. And sir I just wanted to know your outlook on dye and pigement for the next — like let’s, suppose as to FY’23. So would it be like this sluggish demand as we have witnessed in Q2 or it would see some improvement or we’ll see the weakness of the base? We have built the base and now there is only an improvement going-forward for the dyes and pigment.

Rajendra V. Gogri — Chairman and Managing Director

Dyes side will recover faster. The pigment side impact also will come later on and as Rashesh Bhai mentioned some destocking and everything taking place. So some recovery on the dye side maybe in Q3 and pigment might take to Q4 and all that slowly.

Rashesh C. Gogri — Vice Chairman and Managing Director

So year, so we are like — the demand has been strong. We are witnessing this could due to destocking. So we are been expected improvement in demand coming forward after this destocking get concluded over the distribution side, so that’s what our idea is?

Rajendra V. Gogri — Chairman and Managing Director

Yes, yes.

Pujan Shah — Congruence Advisors — Analyst

Yeah, okay. Thank you so much.

Operator

Thank you. The next question is from the line of Rohit Sinha from Sunidhi Securities. Please go ahead.

Rohit Sinha — Sunidhi Securities — Analyst

Yeah, thanks for taking my question sir. Some my questions are already answered. Just wanted to know understand as we are mentioning that almost 70%, 75% kind of products are value-added product for us. So which industry where we are having this kind of exposure or is it across the industry where we are supplying? And going forward which — again, industry would be focused for us to add more value-added products in that particular industry?

Rajendra V. Gogri — Chairman and Managing Director

Our [Indecipherable] are quite varied across-the-board and now this chloro toluene range will be more dominated by pharma and agro and intermediates. So we don’t see much polymer intermediates and all coming in that new range of products. So that will be more on pharma and agro, some in dyes and pigment.

Rohit Sinha — Sunidhi Securities — Analyst

Okay and that would be benefiting obviously to our margin expansion?

Rajendra V. Gogri — Chairman and Managing Director

Yeah, they’re going to be more valuable products also, so EBITDA per kg also is expected to be higher in that range, but that will start impact only over from FY’26 onwards.

Rohit Sinha — Sunidhi Securities — Analyst

Okay, okay. That’s it from my side, sir. Thank you.

Operator

Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Hi, sir. Thanks for taking my question. On other expenses which are there, they’re going up pretty sharply on a future Y-O-Y basis. So are there any specific drivers for that sir?

Rashesh C. Gogri — Vice Chairman and Managing Director

So one of the component will be the — if we look at the exports which gernerally was in the range of around 40%, 45%, this quarter is around 50%. And the higher freight cost on the exports kind of move the other expenses up. So I don’t see any major uptick apart from the export and so. Something related to some maintenance spending and other. But other than that it is fairly in line.

Nitin Agarwal — DAM Capital — Analyst

Okay. You know typically in the past you’ve given for the combined business 3-year guidance is for ’24 and ’27. Now in the context of where the chemical business is, how should we look at maybe FY’23, we have numbers for FY’24, ’25, ’27, you’ve guided in the past for the chemical business.

Rashesh C. Gogri — Vice Chairman and Managing Director

Yeah, FY’25 already we have guided [Indecipherable] FY’27 guidance I think we’ll come up with, I think next couple of quarters — we’ll have a comprehensive guidance for FY’27 also.

Nitin Agarwal — DAM Capital — Analyst

So we should assume that FY22 our EBITDA for the spectrum was INR1,100 crores, so we have had gross compounded 25% for the next two years.

Rajendra V. Gogri — Chairman and Managing Director

Yeah, that is for the last two years.

Nitin Agarwal — DAM Capital — Analyst

Okay. Thanks.

Operator

Thank you. The next question is a follow-up from the line of Rohan Gupta from Nuvama. Please go ahead.

Rohan Gupta — Nuvama — Analyst

Yeah, hi sir, and thanks for the follow-up opportunity. So in terms of our nitric acid problems which we faced in first half, so you mentioned that definitely in Q2 we have not faced any such challenges, but did you see that the raw material, I mean nitric acid prices were still volatile and that has some impact on our gross margins or you see that the ability and the pricing both are corrected.

Rashesh C. Gogri — Vice Chairman and Managing Director

Yeah, basically the nitric acid prices are dependent on the ammonia prices and globally due to the Ukraine war, overall the ammonia prices have increased significantly and they are at around $1,000 level. So due to that overall the nitric acid prices for the first half has remained significantly higher due to the ammonia price mix. And once the war and other external pressures ease out, then the prices will come down.

Rohan Gupta — Nuvama — Analyst

Sir, in the current scenario when we see that the benzene prices should start — have started moderating and nitric acid also, so you see that the raw material prices broadly have started coming down, how you will see that in terms of our percentage margins, should we go back to in EBITDA margins of almost 24% kind of the range. And with the moderation in the raw material prices or with the value picture you see that the margin profile maybe be better than the ealier?

Rajendra V. Gogri — Chairman and Managing Director

No, I think EBITDA margin — generally more on absolute EBITDA depending on some correction in raw materil takes place, then obviously margin as percentage will increase. But any specifice numbers will be difficult.

Rohan Gupta — Nuvama — Analyst

Okay. I fell largely [Indecipherable] Nitro Toluene chain, the product development which you are working on and expecting to commission by ’25, how has been the customer acceptance and have you started demonstrating the products and started doing the sampling for these 10 products or still some time from the customer acceptance towards that?

Rajendra V. Gogri — Chairman and Managing Director

No [Indecipherable] we are already making those product, which are more of a volume expansion for the same range of products.

Operator

Hello. Mr Gupta. Sir, your voice was not like.

Rohan Gupta — Nuvama — Analyst

Yeah, I’ll take it offline. Thank you.

Operator

Thank you. Ladies and gentlemen as there are no further questions, I now hand the conference back to the management for their closing remarks.

Rajendra V. Gogri — Chairman and Managing Director

Well thank you everyone for taking out the time to join us on our Q2 FY’23 earning 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 all of you again in the next quarter. Thank you once again.

Operator

[Operator Closing Remarks]