Aarti Industries Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Aarti Industries Ltd (AARTIIND) Q4 FY23 Earnings Concall

Management Update:

• [00:08:20] AARTIIND said its EBITDA growth guidance for FY24 and FY25 remains unchanged at 25% CAGR.

Q&A Highlights:

• [00:09:10] Rohit Nagraj from Centrum Broking enquired about the commercialization of two specialty chemical complexes at Jhagadia. Rajendra Gogri MD said the intermediates will go for various end uses, including agrochemicals and pigments and additives. AARTIIND added that they are mostly intermediate and will not directly connect to the top line.

• [00:10:11] Rohit Nagraj from Centrum Broking asked if there has been any change in the discretionary product portfolio from 3Q to 4Q and the progress on the distribution of the product portfolio. Rajendra Gogri MD said that there is a global slowdown and inventory correction due to higher interest cost, which has impacted demand. AARTIIND expects demand to progressively increase on a quarterly basis.

• [00:10:58] Lokesh Mallya from SBI Funds asked about the total amount of Bank CC lines and nonfund-based lines and its utilization level as of March 31. Rajendra Gogri MD said the bank line, including nonfund-based clients, would be upwards of INR 2,000 crores or INR 2,100 crores. The CC lines are fully fungible in certain cases and the overall amount would be between INR 1,800-2,000 crores based on fungibility. The utilization of that would be in the range of around INR 1,400-1,500 crores.

• [00:11:20] Lokesh Mallya from SBI Funds enquired about the total amount of debt maturing in each quarter of FY24, both long term and short term? Rajendra Gogri MD replied that the repayment obligations for the year are expected to be around INR350 crores and will be evenly spread across the quarters.

• [00:14:30] Anil Shah from Birla Mutual asked about other expenses and employee benefits. Rajendra Gogri MD said that there has been an increase in employee cost and other expenses due to new capacities and an annual provision for employee benefits such as gratuity and leaving encashment. There has also been an increase in expenses related to inland logistics due to volume increase.

• [00:14:43] Anil Shah from Birla Mutual asked if there is a number given for FY24 EBITDA growth while maintaining the FY25 guidance of INR 1,700 crores EBITDA. Rajendra Gogri MD replied that the manufacturing fixed cost should remain stable in FY24 and FY25. The EBITDA guidance for FY ’24 is 25% volume growth but EBITDA growth will be lower due to nonregular market volume. The estimated EBITDA growth is around 15% but more clarity is expected in the future.

• [00:18:35] Aditya Khetan from SMIFS Institution enquired if the capex guidance has been revised upwards from INR 1,200 crores to INR 1,500 crores. Rajendra Gogri MD replied that combined guidance for FY24 and FY25, is about INR3,000 crores.

• [00:29:04] Abhijit Akella from Kotak Securities asked if the employee cost and other expense numbers for the quarter, adjusted for maintenance shutdown, a reasonable run rate for the rest of FY24. Rajendra Gogri MD said that that should be the run rate, maybe a little lower than that.

• [00:30:27] Rohit Sinha at Sunidhi Securities asked about the current inventory situation and outlook for 1Q and 2Q based on customer feedback and other companies’ reports. Rajendra Gogri MD replied that there is pressure on 1Q due to inventories, but the situation is expected to improve quarter-on-quarter.

• [00:32:14] Rohit Sinha of Sunidhi Securities asked how will the high benzene prices due to increased demand and supply shortage affect AAERIIND going forward. Rajendra Gogri MD said benzene price variation will not have any impact due to branding pass-through.

• [00:33:57] Siddharth Gadekar at Equirus asked what will drive the 40% EBITDA growth in FY25 and what kind of volume growth AARTIIND is looking at for this growth. Rajendra Gogri MD replied that volume going to non-regular markets in FY24 will be corrected by FY25 and will drive additional EBITDA growth. An additional 15-20% volume growth is expected in FY25.

• [00:43:08] Surya Patra with PhillipCapital asked about the the anticipated utilization level of INR 1,000 crores per annum from three long-term contracts by FY25. Rajendra Gogri MD said that contract one is expected to reach 70% utilization, which is still on the lower side. The third contract should reach 60-70% utilization in FY25.

• [00:50:02] Pujan Shah with Congruance Advisors asked about the types of product AARTIIND is looking into and how the market share is evolving. Rajendra Gogri MD replied that the expansion of company’s existing product line will be completed in FY24 and the volumes will increase. The commissioning of new chloro toluene and multipurpose plants in company’s zone will start from FY25 and major volume growth will come from FY26 onwards.