Aarti Industries held conference call on February 07, 2022 to discuss the performance for the quarter ended December'21. CMD - Mr. Rajendra Gogri, VC & MD - Mr. Rashesh Gogri and CFO - Mr. Chetan Gandhi of the company addressed the call.

Highlights of the Concall

• Q3FY22 revenue increase was led by a mix of price and volume growth. Price hikes were taken to reflect the increase in raw material prices, fuel and logistical costs. The complete impact of price hikes will reflect in coming quarters.

• The company is confident of a complete pass through of crude oil prices to end customers. The company maintains that crude oil prices have no impact on demand as Aarti's components comprise only a small part of the end products.

• Specialty chemical business was impacted in Q3FY22 by a shortage of nitric acid. The company expects shortage to impact revenue by around Rs 50 crore. The nitric acid problem continues to impact the segment.

• The manufacturing unit built for first long-term contract is being used. The company indicated that it should reach full utilisation by FY24 and has a revenue potential of Rs 400 crore at peak. Margin profile would be lower (around 30%) compared to the original contract terms. The company has received around US$18 million in 9 months as remuneration for termination of the contract and the remaining amount will be received in the last quarter and it will be the final payment.

• The facility for second long-term contract is under commissioning and it will get completed by Q4FY22. Similarly, facility for third long-term contract will get commissioned by Q2FY23 or Q2FY23. Second long-term contract is believed to have lower margins (around 14-15% range, with annual revenue run-rate of Rs 500 crore) and third long-term contract will have better margins (around 30-35% range). In the future, revenue share from long term contract will definitely increase and the company is also in talks for newer long-term contracts

• Pharma business saw margin and volume improvement on a sequential basis led by improvement in API prices, volume uptick and capacity expansion. The company expects to maintain EBIT margin of 18-20% in this segment as it is seeing incremental demand from anti-cancer and steroids where the market is not overcrowded. Demand for pharma is also strong led by higher volumes from regulated markets where Aarti is getting approval for its products

• The company's R&D pipeline has 40 plus chemical and 50 plus pharma products at different stages of development. It is working on multiple chemistries involving 5-6 steps on the toluene and benzene chain.

• Import of Chlorotoluene products currently stands at Rs 1500 crore in India. The comp[any believes around 50-60% of the total imports can be replaced by domestic manufacturing

• The company has maintained its guidance of 25-35% EBITDA growth

• The company did capex of Rs 312 crore in Q3FY22 and Rs 920 crore in 9MFY22. The company expects capex of Rs 1200 crore in FY22 and Rs 1500 crore in FY23.