Aarti Industries Ltd Q1 FY23 Earnings Conference Call Insights

Key highlights from Aarti Industries Ltd (AARTIIND) Q1 FY23 Earnings Concall

Management Update:

• [00:05:18] AARTIIND said it has started seeing volume ramp up from the facility linked to first long-term contract and expect to reach a utilization level of 70-80% by next year.

• [00:05:59] AARTIIND said that since a large part of fixed cost will be built in by FY23, the company doesn’t expect major increase in fixed cost in FY24. Additionally, volume ramp-up as expected in FY24 will significantly lead to increase in EBITDA.

Q&A Highlights:

• [00:09:46] Surya Narayan of PhillipCapital asked about the ramp up level seen in the second multiyear supply contract. Rajendra Gogri MD replied that first year will be around 40%, 50% kind of utilization level. But overall, the way it is structured, the top line may be less, but the EBITDA level won’t be impacted linked to the capacity utilization.

• [00:11:41] Surya Narayan from PhillipCapital enquired about the reason for sharp jump in export shares. Rajendra Gogri MD answered that the second contract is for 100% export, which leads to increase in export. In general, AARTIIND is seeing export in the range of 40-60% to remain.

• [00:16:23] Surya Narayan with PhillipCapital also asked about pharma segment separation and how will it impact the long term outlook. Rajendra Gogri MD said that pharma itself will grow in a sizable manner in addition to chemicals.

• [00:18:36] Rohan Gupta of Edelweiss asked that considering decent EBITDA growth in a challenging environment in the current quarter, if the guidance for FY23 remains intact. Rajendra Gogri MD answered that the company won’t like to change the guidance at this level. However in 2Q23, AARTIIND will look at overall situation and see if guidance needs to be changed.

• [00:22:30] Rohan Gupta of Edelweiss enquired about demand challenges and a weak environment, if it’s affecting AARTIIND or in general the larger economy. Rajendra Gogri MD clarified that the company’s main business dyestuff is in domestic, and export is more in engineering, polymers, agro and pharma side. So AARTIIND is not seeing much impact on the demand side.

• [00:24:16] Aditya Khetan from SMIFS Institutional enquired about slowdown in textile and FMCG impacting AARTIIND. Rajendra Gogri MD said normally sale to this segment is in the range of 10-20%. AARTIIND continuously try to rejuggle the product portfolio if one segment is down.

• [00:25:34] Aditya Khetan with SMIFS Institutional asked about pharm intermediate, what kind of intermediate AARTIIND is manufacturing in Dombivli plant. Rashesh Gogri VC answered that Dombivli plant is manufacturing Pharma intermediates as regulatory starting materials required for APIs. And AARTIIND is also supporting the generic players in India and abroad from that site.

• [00:28:08] Abhijit Akella of Kotak Securities asked about the volume growth in 1Q23 of the total revenue growth. Rashesh Gogri VC said 25% plus has come from raw material side and 15-20% from volume growth.

• [00:28:41] Abhijit Akella of Kotak Securities asked about capacity of first long term contract for 2,5-dichlorophenol. Rajendra Gogri MD answered that the capacity was set up for about 9,600 tons.

• [00:31:18]  Rohit Nagraj from Centrum Broking enquired about potential revenues from the new contracts in FY24, if an incremental revenue of INR800-1,000 crores can be expected from the three contracts. Rajendra Gogri MD answered that that kind of a number can be expected.

• [00:34:46] Trilok Agarwal with Dymon Asia asked that on the slowdown if it’s similar to the one seen in the last 3-4 cycles or it’s different this time. Rajendra Gogri MD replied that in dyestuff sector there’s a more significant slowdown in Indian market. Hopefully, things should start getting better in the next few months.

• [00:35:45] Akul Broachwala of IIFL Securities asked about gross debt trend going forward and the peak debt-to-equity ratio. Rajendra Gogri MD answered that debt-to-equity ratio has to be seen how the entire nitric acid scenario pans out. If a substantial investment is needed then debt will move higher. In general, the target will be around 0.7 to 0.9, on the higher side.

• [00:36:54] Akul Broachwala of IIFL Securities enquired about the capex expectation for nitric acid.  Rajendra Gogri MD commented that currently it’s around 150-200 ton per concentration plant. But for a weak nitric acid plant, it can be additional INR500 crore plus.

• [00:44:08] Nitin Agarwal with DAM Capital asked how is contract one shaping in terms of supplies, to whom is AARTIIND supplying to and its visibility. Rajendra Gogri MD said AARTIIND is supplying to various domestic and export customers. Also, AARTIIND added that qualification quantities have been given in 1Q23 and a ramp up will be seen in 2H23.

• [00:52:48] Pankaj Singh from Trustline asked about the expected capacity utilization levels for FY23 and FY24. Rajendra Gogri MD replied that capacity utilization will be different for different plants. In Nitrochlorobenzene, virtually, AARTIIND is running at almost 100% capacity. And new projects are on the ram up.