Aarti Industries held a conference call on August 9, 2021 to discuss the results for the first quarter ended June 2021 and way forward. Mr. Rajendra Gogri - CMD, Mr. Rashesh Gogri - VC & MD, and Mr. Chetan Gandhi - CFO of the company addressed the call.

Highlights of the Concall

• The company consolidated revenue grew by 41% YoY in Q1FY22 wherein specialty chemicals and pharma segments grew by 50% YoY and 24% YoY, respectively. Growth was largely contributed by the domestic business, which grew by around 59% YoY as against exports growth of 29%.

• The company derived 70% of its revenues from value-added products in Q1FY22. Capacity utilisation was 80-85% for the quarter.

• The company has largely passed through higher raw material and freight costs were with a short time lag of one month in the domestic market and one quarter in the exports market.

• Nitro chlorobenzene production stood at 18,155 tonne in Q1FY22 versus 19,100 tonne in Q4FY21 and 13,170 tonne in Q1FY21. Hydrogenated production was at 2920 tonne per month (tpm) in Q1FY22 versus 1935 tpm in Q4FY21 and 2050 tpm in Q1FY2021. Nitrotoluene production stood at 3440 tonne in Q1FY22 versus 2935 MT in Q4FY21 versus 2140 tonne in Q1FY21.

• The company has partly commercialized its new chlorination plant at Jhagadia in FY21. Capacity was expanded from 110,000 tpa (tonne per annum) to 175,000 tpa

• The phase-I of the NCB (Nitro Chloro Benzenes) capacity expansion was expected to be commissioned in H2FY21. However, considering the recent logistics issues and labour non-availability, the company expects to complete it with some delays. Phase-II would be completed in FY23 due to some equipment unavailable. Capex would be Rs 150 crore. The NCB capacity is being expanded from 75,000 tpa to 108,000 tpa.

• The US government granted a five-year extension for Dicamba-related formulations. The company is seeing revival and improvement in Dicamba demand.

• The first long-term contract was cancelled last year. The plant was commissioned in Q4FY21 and the company will manufacture intermediates for Dicamba. The ramp-up will happen from H2 FY22 and achieve optimum utilisation in FY24. Currently, the plant is in the validation and approval process from customers.

• Earlier, the second long-term contract was expected to be commissioned in Q1FY21 and was delayed by almost a year. The major reason for the delay was the lockdowns in the first and second waves. The company now aims to this project in Q3FY22. It expects optimum utilisation in FY23.

• The third long-term contract would come by Q4 FY22.

• The company did capex of Rs 295 crore during Q1FY22 and expects a total capex of Rs 1500 crore during FY22 adding chloro-toluene and downstream products for future revenue growth. These products will be import substitutes and support export growth.

• The company has also planned additional capex of Rs. 3000-3500 crore over FY22-24 for a pipeline of projects of which Rs. 2500-3000 crore would be for chemicals and Rs. 350-500 crore would be for the pharma business. This would drive EBITDA margin to 25-30% and drive growth for FY25 and beyond.

• The company plans to fund the capex through Rs1200 crore of QIP, internal and external borrowing

• The company expects net debt to be in the range of Rs 1600-1700 crore as on March 2022, provided raw material costs remain stable.

• The company expects 25-35% growth in revenue and profit for FY22.

• The company expects long-term revenues growth at 2.5-3.5 times while PAT at 3-4 times by FY27 over FY2021.