Capitaline

Analyst Meet / AGM 10-Feb-15

Conference Call

Aarti Industries

Volume growth of about 15-20% and profitability 20-24% over the next 3-4 years

Aarti Industries conducted conference call to discuss the results for the quarter ended December 2014 and way forward. Senior Management of the company addressed the conference Call
Highlights of the Concall

For Q3FY'15 Income from operations rose 7% to Rs 692.24 crore while net profit rose 16% to Rs 42.89 crore. Exports during the quarter were 53.55% of total sales

On a segmental basis specialty chemicals which formed 82% of total sales rose 2% to Rs 567.7 crore and had an EBIT margin of 15.5%.

Pharmaceuticals segment formed 10.8% of total sales which grew 45% to Rs 74.8 crore and had an EBIT margin of 11.8%.

Home and personal care formed 7.2% of total sales which rose 22% to Rs 49.74 crore but had a loss at EBIT level of Rs 0.92 crore.

The company produced 1600 tonne per month in Q3FY'15 compared to 1800 tonne per month (TPM) of hydrogenated products in Q2FY'15 and 1563 TPM in Q1FY'15.

Towards the end of Q3FY'15, Indian rupee had witnessed sharp depreciation which bounced back again in Jauary 2015. Steep depreciation towards the end of the quarter resulted into a mark-to-mark foregin exchange loss of about Rs 4 crore.

Q3FY'15 also witnessed unusually sharp fall in crude oil prices whcih had resulted into sharp fall of crude linked products as well. Benzene which is one of the major raw material had also followed the trend and had fallen from the prices of Rs 85 per kg for Q2FY'15 to about Rs 70 per kg in Q3FY'15. Since Aarti Industries operations are on a cost plus model, absolute EBITDA is largely based on volumes and thus the impact of above unusual fall is largely on the valuations for various WIP and finished products, limited to the extent of benzene component in those products. Some of this had been recouped as the prcing to the contract based export customers is with a time lag. Hence on a overall basis, the impact of these markdown during Q3FY'15 was about Rs 9 crore.

Lower raw material prices would benefit the company over long term by better operating margins. Also as the operations are working capital intensive, lower prices reduces the working capital quantum, debt and finance costs.

The standard annual maintenance shut down for Acid division is taken up in October- December quarter every year which impacts the EBITDA for the quarter by about 4-5 crore on account of loss of volume and higher maintenance cost.

The company did commercialization of the first phase of expansion of NCB capacities in December 2014 and the final phase is expected to come on stream in Q1FY'16.

In respect of the proposed expansion of PDA capacities from 250 tpm to 1000 tpm, the company is in the final commissioning stage for first phase of expansion scaling the capacities upto 450 tpm. The balance capacities are expected to be going on stream in phases by Q3FY'16.

Expanded capacities would enable the company to increase its volumes in the high growth end user applications of polymers, specialty pigments and agro chemicals.

The company has been undertaking various expansion activities and is targeting to start commissioning these projects progressively in FY'16. The company is hopeful to meet the volume growth estimates of about 15-20% and profitability to grow at about 20-24% over the next 3-4 years on account of margin expansion and volume growth across all segments.

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