Aarti Industries Ltd (AARTIIND) Q4 FY23 Earnings Concall Transcript

Aarti Industries Ltd (NSE:AARTIIND) Q4 FY23 Earnings Concall dated May. 09, 2023.

Corporate Participants:

Nishid Solanki — Investor Relations

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Shri Chetan Bipin Gandhi — Chief Financial Officer

Analysts:

Rohit Nagraj — Centrum Broking — Analyst

Lokesh Mallya — SBI Funds Management — Analyst

Anil Shah — Birla Mutual Fund — Analyst

Vivek Rajamani — Morgan Stanley — Analyst

Rohan Gupta — Nuvama — Analyst

Aditya Khetan — SMIFS Institution — Analyst

Abhijit Akella — Kotak Securities — Analyst

Rohit Sinha — Sunidhi Securities — Analyst

Chetan Thacker — ASK Investment Managers — Analyst

Siddharth Gadekar — Equirus — Analyst

Nitin Tiwari — YES Securities — Analyst

Ritesh Gupta — Morgan Stanley — Analyst

Surya Patra — PhillipCapital — Analyst

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Kunjal shah — Congress Advisor — Analyst

Arijit Malakar — Ashika Stock Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Aarti Industries Limited Q4 FY ’23 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.

Nishid Solanki — Investor Relations

Thank you. Good evening, everyone, and thank you for joining us on Aarti Industries Q4 and 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 overview, insights on growth plans, and outlook on the business. Post this, we shall open the forum for Q&A where the management will be addressing queries of the participants. Just to share our standard disclaimer, some statements that may be made in 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 stock exchange websites.

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

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Thank you. A very good evening to everyone. I welcome you all to our Q4 and FY ’23 Earnings Conference call. I hope everyone is keeping safe and healthy. We have shared our results document, and I hope that you have had an opportunity to glance through them. As all of you are aware, the Financial Year 2023 has been challenging from various aspects, what started with Russia and Ukraine conflict that disrupted the global supply chain that transpired into an inflationary surge in input prices and energy costs. This was in addition to the slowing demand in select developed markets due to deteriorating economic scenario and very recently, the banking crisis in the U.S. that sent shockwaves across the globe.

Amidst all this we display resilience thereby demonstrating strong financial performance to a challenging external environment. This was possible to do a dynamic approach of building a superior business enterprise by meticulously leveraging our strength in complex chemistry products and processes. We have built a strong team both technical and nontechnical who have consistently supported us in our growth endeavor and help us navigate through sector agree. Our EBITDA for the year ended up very close to guidance of INR1,100 crores for FY ’23. We achieved an EBITDA of INR1,100 crores in FY ’23. Our capex investment was over INR1,300 crores. Our exports were close to half of total revenues, while the share of value-added products have increased consistently in FY ’23.

If you look at a long-term journey, our chemical business EBITDA has grown over two times during the past five years. That is INR534 crores in FY ’18 to INR1,091 crores in the current year. This is despite several challenges witnessed during the periods like Pandemic and external market-linked disruption, supply chain issues as well as inflationary headwinds. The sustained EBITDA performance is testament to our vibrant business model and our ability to steer growth even in the most challenging period. We also concluded the activity related to demerger of our pharma business into a separate entity, Aarti PharmaLabs during FY ’23.

Since the demerger was effective for July 21, the financials for the historic period prior to the scheme being adopted, that is in October 22, and been recasted to consider the impact of the demerger. Moving on to product development, we collaborated for a long-term issue offtake of nitric acid, which is a key material. This secures our supply for 20 years, significantly derisked over us more. On the project plan, we commercialize the facility for third long-term contract to specialty chemical process blocks in Jhagadia in FY ’23. — [Technical Issues]

Operator

I’m sorry to interrupt you. Mr. Gogri, we lost your audio in between. It is breaking up in between so..

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Hello… Am l now audible?

Operator

Yes, now you are audible. Please go ahead. Yes.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Okay. I’ll just repeat. On the project front, we commercialized the facility for third long-term contract and two specialty chemical process blocks at Jhagadia in FY ’23. While our other expansion plans in existing products such as NCB expansion acid revamp and expansion anti and installation expansion, etc., are on track, with capex, along with the ones already commercialized will support the volume growth in FY ’24 and beyond.

I will now move to financial performance. Initially, let me summarize the annual numbers. Our revenue increased by 17% to INR7,283 crores, while EBITDA came in at INR1,089 crores, higher by 19% over a normalized EBITDA of INR919 crores for chemical business in FY ’22, excluding the termination and shortfall income. Profit after tax stood at INR545 crores. Reminds of strong performance reported during the year. The Board has approved a final dividend of INR1.5 per equity share of INR5. This is in addition to the interim dividend of INR one per share announced during the year. With this, the total dividend stands at INR2.5 per equity share, that is 50% of the face value.

So let me now share the financial highlights for Q4 of FY ’23. Revenue grew by 11% Y-o-Y to INR1,826 crores with exports contributing over 48% of the total revenue. EBITDA is at INR252 crores versus INR262 crores for FY ’22 and profit after tax came in at INR149 crores versus INR145 crores for FY ’22. Growth in revenue was on account of higher volumes from expanded capacity for key products as well as greater contribution from value-added products. EBITDA performance was marginally impacted by maintenance shutdown at asset unit and touch unit that resulted in higher cost by INR10 crores. And also some volumes have been impacted due to the lower operating rates.

Products targeted at the textile industries remained suppressed, as indicated in the previous quarter. However, it is expected to start recovering progressively during financial year ’24. So we witnessed some normalization in energy costs, while raw material prices for key inputs have increased on a Q-o-Q basis. As highlighted in the past, we have a robust pricing mechanism in place to mitigate the impact of such volatility. And the same is being passed onto the customer, thereby protecting absolute profitability. Our PAT performance was in line with the operational performance. Depreciation stood higher on account of newer capacity added during the quarter and are also factors in the onetime impact of write-back of previous period’s tax provision.

A few matters under appeals were awarded in favor of the company. Moving on to the products and details for Q4 FY ’23, production of nitro chloro benzene stood at 18,842 metric tonnes, while the same for hydrogenation came in at 3,315 tonnes per month. For Nitro Toluene the production for Q4 FY ’23 stood at 6,130 metric tons. During the financial year 2023, we collectively entailed capex of over INR1,300 crores towards growth initiatives I outlined earlier. We are targeting annual capex of around INR1,500 crores for FY ’24 and FY ’25.

This will be deployed towards building several products and chemistry, including chloro toluene and downstream, which is a complex chemistry being introduced in India for the first time. As here, we will benefit from both import substitution as well as export opportunities for global markets. As guided earlier, we expect the volume growth to be robust in FY ’24 and beyond. In FY ’24, we expect the volume growth to be around 25%. Our growth, due to global economic situation, part of this might be sold to nonregular markets, and the EBITDA growth in FY ’24 will be lower than the volume growth.

I’m excited with the upcoming opportunities in the chemical value chain and truly believe that this is a golden decade for us. We are increasingly working towards building scale for selecting high potential products and supported by our fundamental strengths and expertise. We have pioneered the introduction of several leading products and chemistries in India for global markets. And our endeavor is to continue doing that. We are optimistic and confident of exhibiting a robust growth, thereby enhancing value for all of our stakeholders. In terms of current business visibility, our EBITDA growth guidance for FY ’24 and FY ’25 remains unchanged at 25% year.

That concludes my thoughts, and I will now request the moderator to open the forum for Q&A 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 Rohit Nagraj from Centrum Broking. Please go ahead.

Rohit Nagraj — Centrum Broking — Analyst

Yeah, thanks for the opportunity. Sir, first question is, you mentioned in the presentation and in your remarks that you have commercialized two specialty chemical complexes at Jhagadia. So which industry these complexes will be catering to? Is it discretionary or nondiscretionary? And what kind of potential revenues and margins that we are expecting from this? Thank you.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

This will be also — there are intermediate going for various end users, including both agrochemicals as well as on pigments and additives. They are mostly intermediate. So directly, we will not be able to connect to top line.

Rohit Nagraj — Centrum Broking — Analyst

So will these be for our internal consumption?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Part of that will be internal consumption.

Rohit Nagraj — Centrum Broking — Analyst

Sure. And second question is in terms of the discretionary product portfolio. So is there any change which is witnessed from Q3 to Q4? And we are one month in Q1, so how has been the progress over the last few months on the distribution ay product portfolio?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, there is globally, there is a slowdown and because of the higher interest cost also, there is inventory correction. So it has impacted the demand. And from customers, we are hearing that in progress, the demand will increase on a quarter basis for this product line.

Rohit Nagraj — Centrum Broking — Analyst

Sure. Thank you. I’ll come back in the queue and best of luck.

Operator

Thank you. The next question is from the line of Lokesh Mallya from SBI Funds Management. Please go ahead.

Lokesh Mallya — SBI Funds Management — Analyst

Hi, good evening. My question is pertaining to the working capital and its funding. Can you please tell me what will be the total amount of Bank CC lines, nonfund-based lines? And how much would be the utilization level as of March 31, A. B, what would be the total amount of debt that is maturing in each of the quarters of FY ’24, both long term and short term?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. So the bank line, including the nonfund-based clients would be upwards of INR2,000 crores or INR2,100 crores…

Lokesh Mallya — SBI Funds Management — Analyst

How much of that would be CC and how much of that would be nonfund-based and what would be the utilization?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So the CC would be — I mean, in certain cases, the lines are also fully fungible. So it will not be — I will not have a specific number because at certain banks, it’s a fully fungible line between fund-based and nonfund-based. So we’ll have to assume that from an overall basis, you upwards somewhere between INR1,800 crores to INR2,000 crores of the CC based on the fungibility which is there. And the utilization of that would be in the range of around INR1,400 crores to INR1,500 crores.

Lokesh Mallya — SBI Funds Management — Analyst

INR1,400 crores to INR1,500 crores out of INR1,700 crores to INR1,800 crores, if I heard you correctly.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

INR1,800 crores to INR2,000 crores.

Lokesh Mallya — SBI Funds Management — Analyst

Okay.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

And as regards the repayment obligations repayment for the year is expected — is roughly around INR350 crores. It will be evenly spread across the quarters.

Lokesh Mallya — SBI Funds Management — Analyst

All the four quarters equally?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, yes.

Lokesh Mallya — SBI Funds Management — Analyst

Thank you, sir. I’ll rejoin the queue.

Operator

Thank you. The next question is from the line of Anil Shah from Birla Mutual Fund. Please go ahead.

Anil Shah — Birla Mutual Fund — Analyst

Yeah, hi. Can you, am I audible.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yeah.

Anil Shah — Birla Mutual Fund — Analyst

Yeah, okay. Now my question is related to other expenses and your employee benefits. While I understand your pricing mechanism kind of protects you from a gross profit or a pass-through mechanism. But over the last few quarters, you’ve been mentioning that you’ll have kind of built up your employee costs, both technical and nontechnical from a next league or annex growth phase perspective?

And as the top line starts growing and output starts increasing, we should start seeing these numbers, both other expenses and employee costs as a percentage of sales to come down quite a bit, but we haven’t seen that yet playing out. So could you just throw some color on that? That’s my first question. Second question is, is there a number that you’ve given for FY ’24 in terms of EBITDA growth, while you are maintaining, I believe your FY ’25 guidance of INR1,700 crores EBITDA? Is there a number for ’24 that you’ve given? Thank you.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Chetan, your view on the employee costs.

Shri Chetan Bipin Gandhi — Chief Financial Officer

Yes. So on the employee cost and other expenses, so there’s a bit of an increase because of the new capacities which just came in the second half. So that’s one component on that. And secondly, on the impasse, there has been an annual provision which happens because of the employee benefits such as gratuity and leaving catchment and superannuation and those are there. And there is some expenses increase on the other expense certain costs related to the inland logistics on account of the volume increase, which has been there in the quarter. So that has been the reasons for this. Sir, you want to address the other question.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Overall, we expect the manufacturing fixed cost, which is the employee as well as other costs should not increase much now in FY ’24 as well as FY ’25. So I think that is what we had mentioned earlier also. And regarding our EBITDA guidance for FY ’24, we are looking at around 25% volume growth, but EBITDA growth will be lower because part of the volume will be going to the nonregular market. So — it will be lower than that, maybe around — we can put a number around 15%, but there’s more clarity in as we go forward on EBITDA front.

Anil Shah — Birla Mutual Fund — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Vivek from Morgan Stanley. Please go ahead.

Vivek Rajamani — Morgan Stanley — Analyst

Thank you sir. Just an extension of one of the questions that were asked earlier. Could you give a little bit more color in terms of the demand trends that you’ve been seeing in April and May with respect to some of your key end markets and also with respect to your domestic and export segments? And the second question was you mentioned that you made sales to nonregular markets, given the demand condition and you also expect to do this in the next year as well. Could you just elaborate what exactly you mean by these nonregular markets? What could be the share of this in the overall mix? And what is the margin differential between your regular markets?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. The demand in domestic and export market is dependent on the segment by segment. So the discretionary market demand is a little bit slow still, but we have demand in the agro and the polymer market is sustaining. And as far as the nonregular markets are traditionally lower margin markets, which we — where we can put the product. So that’s the market that we are capturing largely China or this kind of market where we are trying to push the product. In case the demand is less from our traditional market, which can be Western market.

Operator

Vivek, you have any further questions?

Vivek Rajamani — Morgan Stanley — Analyst

Just two clarifications. So when you say nonregular markets, you mean more from a geographical perspective and less so from a segment perspective, would that be fair?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. That will be more on geographically, yes.

Vivek Rajamani — Morgan Stanley — Analyst

Got it, sir. And any color on the margin differential between these nonregular markets, some regular markets?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

It can be around ago 10%, 15% margin…

Vivek Rajamani — Morgan Stanley — Analyst

Sure, sir. Thanks so much. I’ll rejoin the queue and all the very best.

Shri Rajendra V. Gogri — Vice 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, my question is on basically on our agrochemical portfolio. If you can quantify that how much of our portfolio is catering to the products which are generics, I mean final products are generics? And how much will you probably under the [Indecipherable] — the question has also come in many generic agrochemical players globally have given a warning about the huge inventory-led losses and increasing competition from China that is impacting the global market. So are we catering to any customers who are in a tender for it or in generic? And what is the portfolio split? And are you also witnessing some — this kind of pressure in your agrochemical past?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. We’ll not have exact bifurcation between the patented and generics as we have both — but still, I think overall, generic will be a majority in the value from an overall agrochemical basket. And as I mentioned even in the last call, this agrochemical demand slowdown because mainly because of inventory correction because of high finance costs, more also on product specific also some of the products that we are seeing that kind of demand slowdown, but it is not across the board for all the products.

Rohan Gupta — Nuvama — Analyst

So even in our portfolio, also some of the agrochemical intermediates, the demand we see that is getting impacted.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, yes.

Rohan Gupta — Nuvama — Analyst

Okay. So sir, if we impose this challenge in FY ’24, we are still struggling from the recovery in the consumption-led sectors like textile, like dyes and pigment. Agrochemical may pose some challenges in the current scenario. Do we see that FY ’24? I mean [Technical Issues] or what will be the driving this growth in all these sectors are facing the headwind side now?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Now, we’ll be able to increase our overall volume I think volumes will drive the growth.

Rohan Gupta — Nuvama — Analyst

But sir, any user industry demand across our end across our segment still remains weak. So…

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Some — we should be able to pick up the market share. So I think where there is some import substitutions are there or where customers want to buy per this diversifies some extra market share will be beatdown.

Rohan Gupta — Nuvama — Analyst

So is this a demand as we are confident that even from the market share gain, we will be able to grow in FY ’24 as well as in ’25?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes ago.

Rohan Gupta — Nuvama — Analyst

Sir, second question is on this raw material prices have started falling, including energy costs globally and also in oil-based derivatives. We have seen that in the last couple of years, the energy price is going up continuously in Europe. There were many customers in Europe also was looking in alternative for the domestic manufacturers. Do we see that the trend is reversing now with the Europe witnessing the energy cost normalization also across the raw material prices have started softening? So do you see that any trend reversal has started happening? Or still we see that even the competitive cost structure, which Europe has earlier because of low gas is over now and the opportunities are there for the country like India?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Basically, what will happen is that in the future, the energy-intensive products, there will be less increase in manufacturing in Europe. Because in general, there will be a peer of higher energy cost in Europe. As far as the existing manufacturing facility in Europe, I think, definitely because of this decrease in energy prices in Europe will benefit them. But on a long-term basis, the energy intense product growth in Europe will be curtailed.

Rohan Gupta — Nuvama — Analyst

Thank you. make into for the final question.

Operator

Thank you. The next question is from the line of Aditya Khetan from SMIFS Institution. Please go ahead.

Aditya Khetan — SMIFS Institution — Analyst

Hi, good evening, sir. Yeah, thank you for the opportunity. First question was on the capex side, sir, we have given a guidance of INR1,500 crores. I believe — so during the last quarter and even in the plan is we were given — we have given a guidance of around INR1,200 crores capex. So there’s an upward revision of cost capex, which we have done now?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, we will be also doing this in our zone to combined guidance we have been having for FY ’24 and FY ’25, about INR3,000 crores.

Aditya Khetan — SMIFS Institution — Analyst

Okay. So this has been like — because earlier, we were giving a guidance of around INR2,500 crores capex for the next two years. Now we have given a guidance of INR3,000 crores.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, even last Q1 call also we had given INR3,000 crores…

Aditya Khetan — SMIFS Institution — Analyst

Okay. Sir, any of the basket of Aarti industries on the portfolio side, are we witnessing any sort of increased competition from China because there has been huge dumping which is happening from China right now [Technical Issues] — in many baskets of commodity and specialty chemicals. So are we witnessing pain in any of the portfolio in any of the product side and there has been like increased competition and we had lost any sort of market there?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No. I think that because of the general slowdown that impact was there, but we are not seeing any increase in that currently.

Aditya Khetan — SMIFS Institution — Analyst

Okay. So we have maintained our market share. So despite like if there is an increase.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, yes.

Aditya Khetan — SMIFS Institution — Analyst

Okay. Sir, just one more question on to the nonregulated market. As you have said that these markets are generally having lower margins. So how much share or you can say how much percentage would this be contributing to our overall basket?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Generally, whenever we are not able to put in regular market we try to go into a nonregular market. So percentage will not be able to — it will be more on a product to product and also over a time to time. So it will be maybe around 5%, 10%?

Aditya Khetan — SMIFS Institution — Analyst

So 5%, 10% of your total — you’re talking about?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes.

Aditya Khetan — SMIFS Institution — Analyst

Okay. Okay. And sir, one last question, sir, on to the NCB side. So when will this expansion to get commercialized?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

It will get commercialized in Q1 of this FY ’24.

Aditya Khetan — SMIFS Institution — Analyst

Okay. So volumes will start from Q2?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Thank you sir, that’s it.

Operator

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

Abhijit Akella — Kotak Securities — Analyst

Yeah, good evening, sir. Thanks for taking my questions. Just a few clarifications. One is with regard to the specialty chemical blocks, the two of them that have been commissioned. So is this part of the INR607 crores of capex in the downstream and specialty chemicals that we had disclosed in our presentation at the plan invested. I was under the impression that these will be revenue generating. So is that not the case? And if you could please just help us with how much capex has been invested in these two blocks? And how will those contribute in terms of either revenues or margin expansion for us

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. That will be around INR300 crores out of that. So partly, it will be for captive and partly, it will be for outside sales. Exact number on the sales, I will not have on that.

Abhijit Akella — Kotak Securities — Analyst

But, I mean, in terms of, say, EBITDA or EBIT or rather the payback period on this capex, would that be a rough number you could share with us?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. This has been around 25% to 30% EBITDA range.

Abhijit Akella — Kotak Securities — Analyst

And these are backward integration for our existing intermediates is it? Because I don’t believe we make active ingredients at this point, right?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Actually, this will be one of the products on this our chlorobenzene chain, the 2,5 nitrobenzene. It will increase the capacity, and it will open up — free up our current nitration capacities in other locations. We will be then used for other products. So that is what is one of the block. So there will be a shift. We’ll be able to add new products in other line and this 2,5 nitrobenzene capacity will get expanded in this line.

Abhijit Akella — Kotak Securities — Analyst

Okay. Okay. Second one, just on the nontraditional markets where you mentioned that these are at 10%, 15% lower margins. So just wanted to understand it clearly that suppose in our traditional markets, you’re making, say, 15%, 18% EBITDA margins. In the nontraditional, are we sort of indicating that it will be 10 points lower, like, say, 5% to 8%, is that the range? Or am I getting it wrong?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So do you need to see on the gross margin, the price that lower in that range.

Abhijit Akella — Kotak Securities — Analyst

Okay. So it’s 10, 15 percentage points. And on the opex numbers — sorry, the employee cost and the other expense numbers for the quarter, adjusting for this maintenance shutdown, is this a reasonable run rate to sort of trend off for the rest of FY ’24 now?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, I think that should be the run rate, maybe a little lower than that.

Abhijit Akella — Kotak Securities — Analyst

Okay. Okay. Lastly, for Chicken by just the tax rate guidance for next year, would there be any change given the low tax rate we have had in the past year?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So I would assume the tax rates to be around 15% to 17% kind of thing for next year as well.

Abhijit Akella — Kotak Securities — Analyst

Fine. So sorry, just one other last thing. I missed the volume numbers that was shared on the call earlier, you would be so kind as to share them one more time. Thank you so much.

Shri Chetan Bipin Gandhi — Chief Financial Officer

Yes. So NCB was — I mean, nitro chlorobenzene was 18,840 tonnes. — hydrogenation for the quarter. hydrogenation was 3,315 tonnes per month, and nitro toluene for the quarter was 6,130.

Abhijit Akella — Kotak Securities — Analyst

Thank you so much. All the best.

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, hello. Thank you for putting questions. One thing, just wanted to know your thoughts on how the inventory situation right now is shaping up? What you are hearing from your customers and overall, what the outlook would be for Q1 and Q2? As we are hearing two different routes from other companies that for some situation getting normalized from in saying that it will take another maybe one quarter. So how you are seeing this situation?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Currently, at least Q1, definitely, there is pressure on — because of the inventories. And as we mentioned, it will be progressively I think the situation will improve quarter-on-quarter.

Rohit Sinha — Sunidhi Securities — Analyst

Okay. Okay. And it is across your agro and polymer boat side? Or is there any scenes there?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, both sides basically.

Rohit Sinha — Sunidhi Securities — Analyst

Okay, okay. And secondly, on the raw material side, as we are talking about that approved has corrected in the recent time, but if we look at building prices, it has been slightly on the higher side as compared to crude. And I believe the increased demand and a bit of a demand supply shortage, you would likely to keep the bill prices on the higher side going forward as well. So how we should see this for us going forward?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, we have been normally the branding pass-through. So this banking price variation generally will not have any impact as such.

Rohit Sinha — Sunidhi Securities — Analyst

Okay. Okay. That’s it from my side. I’ll come back to the queue. Thank you.

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, first, just a clarification to Abhijit’s question, you mentioned that the quarterly OP run rate will be similar to what we witnessed in Q4. But before that, you highlighted that there will still be 15% OP growth. How do both of these tie up?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

15%?

Chetan Thacker — ASK Investment Managers — Analyst

For FY ’24, you mentioned volume growth can be 25%, while would be lower, but still a 15% OP growth number for ’24… What is roughly…

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, I think you mentioned the expense is not the profit, right?

Chetan Thacker — ASK Investment Managers — Analyst

The profit, sir. So our exit operating profit is lower.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Okay. No, no. I thought this — I thought was more on the expenses side as a run rate.

Chetan Thacker — ASK Investment Managers — Analyst

Okay. Got it.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, yes.

Chetan Thacker — ASK Investment Managers — Analyst

And sir, second is more on the cash flow side. So if you look at the capex that you’re doing and the cash that can be generated, so fair to assume you’ll still be adding on to debt over the next two years?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. I think there will be additional debt. So this capex will be partially funded by internal accruals and partially by net.

Chetan Thacker — ASK Investment Managers — Analyst

Okay, sir. That’s about it. All the best.

Operator

Thank you. The next question is from the line of Siddharth Gadekar from Equirus. Please go ahead.

Siddharth Gadekar — Equirus — Analyst

Sir, we have mentioned that we are looking at 15% EBITDA growth for FY ’24, which broadly utilize we are looking at roughly 40% kind of EBITDA growth for FY ’25. So can you just give a brief color on what will drive this EBITDA growth in FY ’25? And what kind of volume growth are we looking in FY ’25 or this kind of EBITDA growth?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

We expect that whatever some volume, which will go to a nonregular market in FY ’24, so that should get corrected by FY ’25. So that will be one driver, which will be for additional EBITDA coming out of that. And over and above this ’25 another 15%, 20% volume growth, which we’ll be looking at an in FY ’25.

Siddharth Gadekar — Equirus — Analyst

Okay. Sir, got it. Sir, secondly, in terms of now given that we are speaking in terms of volumes, can you give it a broad color on how has been the volume growth for FY ’23?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

FY ’23 number, Chetan, now?

Shri Chetan Bipin Gandhi — Chief Financial Officer

Yes. So FY ’23, the volume growth is upwards of 15%.

Siddharth Gadekar — Equirus — Analyst

So even this year, we have switched something to the nonregulated market looking at our EBITDA numbers for the last two quarters?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, especially the Q4, part of the material was to be sold to nonregular market.

Operator

Siddharth, are you done with your questions?

Siddharth Gadekar — Equirus — Analyst

All good.

Operator

Thank you. The next question is from the line of Nitin Tiwari from YES Securities. Please go ahead.

Nitin Tiwari — YES Securities — Analyst

Good evening, sir. Thanks for the opportunity. My question was in respect to the volume growth that we spoke about in FY ’24 and ’25. So if you could please be kind enough to highlight the capacity, which would be adding to the growth in volumes, which we have recently commissioned over ’23 and perhaps commissioning about ’24. So if you can just enlist those capacity, which will be coming up or have already come and would be contributing to the volume growth.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. The FY ’24, we have nitro chlorobenzene plant expansion will be completed and some other specialty chemical blocks. In end of FY ’24 and early FY ’25, our Acid division capacity will be expanded by around 22%. And our utilization plant tripling of capacity will happen in FY ’25 and nitro toluene debottlenecking also will happen in FY ’25. So these are the expansion, which will come up in FY ’24 and FY ’25. And what has been commissioned in this FY ’22 and FY ’23, should that further ramp up in those especially, which will drive the growth for FY ’24 and ’25.

Nitin Tiwari — YES Securities — Analyst

Understood. And sir, lastly, just confirming that our guidance of INR1,300 crores for FY ’25 at operating guidance to maintain, like there’s no change in that guide.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes.

Nitin Tiwari — YES Securities — Analyst

That’s all from me. Thank you.

Operator

Thank you. The next question is from the line of Tim Massenet [Phonetic] from Morgan Stanley. Please go ahead.

Ritesh Gupta — Morgan Stanley — Analyst

Hi, sorry, This is Ritesh from Morgan Stanley Investment Management. Sir, just to kind of — I was just looking at the numbers that you guided for. So when you say 25% volume growth and you say that, let’s say, the incremental volumes all go into a business, which probably is at a 10% lower gross margin. And let’s say 40% is a blended gross margin let’s say FY ’25, the volume effectively goes at 20%, so it implies INR eight fall through to EBITDA and your EBITDA margins are hardly, let’s say, 18%, 19%.

So the extra INR18 EBITDA margin play, which still implies we assuming your employee costs and the expenses are flat, still implies a 50% growth EBITDA. I’m just trying to see where is the — what am I missing in terms of your guidance on volume and then the EBITDA growth delta? Because you also said that opex will be flat. So either opex will not be flat or either your volume growth rate has to translate into similar EBITDA on that.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

I think opex do not have a direct Q4 number. So exactly how much was the opex in Q4. But overall, we are not looking much increase in opex in FY ’24 and ’25 on an annualized basis, not much significant increase in opex. And other thing is the entire 25% is not going to go in a nonregular market.

Ritesh Gupta — Morgan Stanley — Analyst

No, sir, I’m saying even if I assume your exported to nonregular market, it still implies, let’s say, it’s still INR100 of volume you’re doing, if you’re doing INR125 of volume mix year and with a 20% gross margin business, you still make INR eight extra gross margin. You had about INR18 of EBITDA. It’s a INR eight completely fall into an EBITDA of INR18, which still implies more than 40% growth. So I’m just trying to understand where the math is failing.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

I think that you have to connect it and separately on that. I think that will be a better idea.

Ritesh Gupta — Morgan Stanley — Analyst

Yes. Okay. Thank you.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Patra — PhillipCapital — Analyst

Yeah, thanks for this opportunity. I missed the opening portion of the call, so there could be a repetition. So sir, in first, I wanted to know, let’s say, considering the multiyear supply pack. So what is the cumulative revenue that we would have booked in FY ’23?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

For the multiyear contract or the long-term contract?

Surya Patra — PhillipCapital — Analyst

Yes, yes. All three long-term contracts put together. So you are not seeing individually, but it is all three put together.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

I would not have that number readily with me. I will separately share it out.

Surya Patra — PhillipCapital — Analyst

Okay. My next — so basic reason for that question was that I was trying to understand, sir, when you are saying, sir, 25% kind of a volume growth for FY ’24, then what portion of that growth is coming from the ramp-up in these three contracts? And excluding of this, what is the kind of volume growth that we are building for our base business?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. So the base business also on the this Contract three was just commissioned in Q3 of this year. So virtually not any significant volume coming from Contract three so that everything will go into a growth person. Contract two is more of a flattish [Indecipherable] contract. One, we are around 20% utilization. So that may go to maybe 30% to 50% utilization. Our other volume growth will come both in nitro chlorobenzene and nitro toluene also and on chloro benzene side also. So all those — which are not connected to the contracts, all of that and the downstream will see volume growth.

Surya Patra — PhillipCapital — Analyst

But when we are saying, sir, nitro toluene, so large part of the nitro toluene growth is expected to come in 2024, FY ’25, right?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

That is for the expansion, but the current year, our annual production in nitro toluene on an annualized basis or lower? Do you expect that on an annualized number to be higher next year?

Surya Patra — PhillipCapital — Analyst

Okay. Okay. And may I know, let’s say, the cumulative revenue potential of all these three long-term contracts is kind of INR1,000 crores per annum, rate on optimal. So by FY ’25, let’s say, what is the kind of utilization level that we are anticipating out of this INR1,000 crores, sir?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

As we mentioned, the Contract one is basically that is where originally, we are thinking will move towards 70% or so that is still more on a lower side. There is a contract — third contract, we should be reaching about 60% to 70% of that utilization in FY ’25.

Surya Patra — PhillipCapital — Analyst

Okay.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

And second contract is more of a flattish kind of the same.

Surya Patra — PhillipCapital — Analyst

Okay. So that means for second contract, are we saying, sir, it will still be having a kind of 50%, 60% kind of inflation on the ’25.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So that is not much linked to our regions are not much linked to the actual utilization.

Surya Patra — PhillipCapital — Analyst

Okay. Yes. Okay. Fine. Sir, and second question is on, let’s say, on the margin expectation for ’24. Sir, I’m just trying to see that the quarterly performance also, let’s say. Sir, the gross margin front, there is no issue that we are finding. But it is the elevated cost. So that is what is dragging down the margin performance. So going ahead, let’s say, if we see some moderation in the cost, overall cost. And that way, even the revenues are also likely to come down accordingly. So then percentage-wise the opex that is likely to remain elevated only. So given that understanding and there is no greater change that we should see in the gross margin. So then the margins are likely to remain suppressed only even for FY ’24. Is my understanding right, sir?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So basically, there will be a volume and as the volume growth — but part of that, that is what we are saying that it will not go to will go to nonregulated also. So the entire benefit of volume growth will not come. That’s why the EBITDA growth will be lower. That is a broad thing. On an opex basis, exactly, I think we’ll have to see. Okay.

Surya Patra — PhillipCapital — Analyst

Okay. And just last one, sir, this the shutdown of what we have taken in the fourth quarter, it is the specific period — I mean, say it is an annual shutdown and that happens in the fourth quarter always or how is it, sir? — for both the…

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Division is down. And our tax division was more of an opportunistic, it’s not an annual shutdown. But we had to do a lot of asset maintenance and revamp — for that, we had taken… Yes.

Surya Patra — PhillipCapital — Analyst

Okay. Just last one, sir. This EMEA expansion. So we are multiplying the capacity. So we have already utilized — I mean, sir, of the current capacity, we have already utilized majority of it. And so when we are talking about the full inflation of the expanded unit. So why are we saying FY ’25 is a period when the money will be really realized or business as we really realized out of that expansion because the entire one year is there, and we have been seeing a kind of good progress on the MEA side. So anything that you were finding any difficulty in ramping it up or anything?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

It will be commissioned in FY ’25. The expansion is going to get commissioned in FY ’25. It will not see an increase in volume in FY ’24 coming out of that plant that expansion.

Surya Patra — PhillipCapital — Analyst

Okay. Okay. Sure. Okay. These are the questions I have. Thank you.

Operator

Thank you. The next question is from the line of Dhruv Mucchal from HDFC Mutual Fund. Please go ahead.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Yes sir, thank you so much. You commented earlier that there is — you see excess inventory in the system. So I’m just trying to clarify, is it the products that you manufacture or the products — the final products where your products go, — where are you see excess inventory? Or is it the early both ends?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, Actually, it goes from the ultimate customer and that back-end entire supply chain because of this high interest cost and all, and people are trying to reduce the inventory in the supply chain. That is coming more from the customer side back end.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Okay. So the products are facing excess inventory, which is causing an impact for your products demand?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Correct.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

So it’s not — so I’m just trying to understand, it’s not at the both ends. I mean not — it’s not — that your products are also facing excess inventory and the final products are also facing excess inventory.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Both are actually connected in [Technical Issues] — so because they — their side, the inventory is built up. So there they want to postpone for few depend customer for different weeks or months, they want to postpone the purchase. That’s how they were trying to reduce their inventory.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Okay. And sir, when you’re guiding for this 15% upwards of approximately 15%, as you mentioned, on 25% volume growth, are you also building in the benefit that you will get because the opex is likely to reduce last year, we had higher coal costs, higher freight cost, everything, which has normalized significantly. So does your guidance and 50% of business is exported, I believe you would have got impacted there. So does your guidance factor in that benefit that you will get because of the reduction in cost?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Generally, those are also direct cost, coal and trade cost, a substantial portion of that gets passed on to the customer? And part of the benefit remains. So that part benefits be accounting. But generally, even whatever the huge increase that shall took place in FY ’21 or ’22, we had to pass on we cannot bear those kind of the particular.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Sir, lastly, when you mentioned that there is a margin difference of about 10%, 15% in the nonregular market versus the regular market. This is at the EBITDA level or the gross profit level? Contribution…

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Gross profit level.

Dhruv Mucchal — HDFC Mutual Fund — Analyst

Okay, got it now fixed. Sir, thank you so much and all the best.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Thanks.

Operator

Thank you. The next question is from the line of Kunjal shah [Phonetic] from Congress Advisor. Please go ahead.

Kunjal shah — Congress Advisor — Analyst

Hi, sir. First of all, my question would be on the — as we have presented, we are showing a growth strategy. And we are saying that we are being something developing in battery games, electronics, chemicals and age. So can you just give a broad way, what are the types of products? How the market share is evolving? And when we have been ramping up all this capacity and revenue stream will be coming on like in which year specific?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, our existing product line, all this expansion will get over in FY ’24, except the utilization, and that volumes will come up. But the new at our zone for chloro toluene and multipurpose plants, that commissioning will start from FY ’25 and the major volume growth from that will come from FY ’26 onwards.

Kunjal shah — Congress Advisor — Analyst

And what are the market? Like how is the market evolving? And what are you seeing on that part, like how the demand will be favorable for our company and compared to global competitors like China and XYZ?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes, the product line, what we are putting up there. Basically, they are, in general, growing globally between 3% to 7%, 8% growth rate.

Kunjal shah — Congress Advisor — Analyst

So any ballpark activation market sizing any idea like if you can go to?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Chloro toluene plant we are putting the capacity for us will be around 20% of the global capacity.

Kunjal shah — Congress Advisor — Analyst

Okay. Got it. Thank you so much.

Operator

Thank you. The next question is from the line of Arijit Malakar from Ashika Stock Broking. Please go ahead.

Arijit Malakar — Ashika Stock Broking — Analyst

Thanks for the opportunity. My question is what the asset turnover you were expecting in FY ’25 and beyond, post ramping up of the capacities.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Asset turnover then will all depend on the benzene and toluene prices. Direct asset turnover will be more towards still, I would say, around 1.5% kind of thing? On a gross block level.

Arijit Malakar — Ashika Stock Broking — Analyst

Okay, thank you. That’s it for me.

Operator

Thank you. The next question is from the line of Aditya Khetan from SMIFS Institution. Please go ahead.

Aditya Khetan — SMIFS Institution — Analyst

Thank you for the opportunity. Sir, first was on to the PDA volume, Sir, we have not shared that volume can or open on. And secondly, sir, what would be the breakup of exports and domestic for FY ’23?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

The PDA volume for the quarter is 348 tonnes per month. And FY ’23 exports was roughly around 48% and domestic is 52%

Aditya Khetan — SMIFS Institution — Analyst

Just a question on to your working capital. So in this FY ’23, we had witnessed that the cash conversion cycle has been almost 110 days. I think this number is close to — so 2016, ’17 level. So this is the — so working capital has been drastically went down in. Is there any particular reason like there has been sharp dip into your — into the receivables and also into inventory days also. Any particular reason you [Technical Issues] foresee? And what would be the rate which we can take for the next few years.

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

So on the receivables, certain product profile, the product mix change has moved to a bit of a product where the working capital, the receivable credits are lower than what used to be historic. So that product exchange is benefiting on the receivables front. Plus on account of demerger, historically, the Pharma business had a bit of a higher working capital, both on the inventory as well as on the receivables. Further to the demerger got reduced from the Aarti number. So that is where you are able to see the decline on working capital as well.

Aditya Khetan — SMIFS Institution — Analyst

Okay. Got it. And just one more question on to our first long-term contract, so terminated contract — so currently, I believe it is operating at 20%, 25% utilization and mentioned that it would be at around 70% by FY ’25. So just want to know, so the intermediate, what is used to make this dye comeback so to come up by DCB. So that currently, what is the utilization level?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

No, that was utilized at 100% and now the new plant will come up there, the further ramp-up will happen.

Aditya Khetan — SMIFS Institution — Analyst

Okay. So DCB, we are operating at around 100% level?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. It was — we are making it at other location, and now it will be starting in Jhagadia and other location nitrogen facility will get feed.

Aditya Khetan — SMIFS Institution — Analyst

Okay. And the 70% utilization. So for the next two years, there would be like [Technical Issues] — so this business would grow at a much faster rate for long-term?

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. This is still on next year, FY ’24, it is 3250 and then we see that how it can be further ramp…

Aditya Khetan — SMIFS Institution — Analyst

Okay, thank you, sir.

Operator

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

Shri Rajendra V. Gogri — Vice Chairman and Managing Director

Yes. Thank you, everyone, for taking out the time to join us on our Q4 and FY ’23 earnings conference call. I hope we have addressed all your queries. If you have any further questions, please feel free to contact our Investor Relations team, and we’ll 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]