AARTI Industries (NSE:AARTIIND) Q1 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Aarti Industries Q1 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be opportunity for you to ask question after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Solanki from CDR India. Thank you, and over to you, sir. Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries q one FY twenty seven earnings conference call. Today, we are joined by senior members of the management team, including mister, executive director and chief executive officer, and mister, chief financial officer.

0:48 We will commence the call with opening remarks from mister followed by a q and a session where management will address participants' queries. Just to share our standard disclaimer, certain statements that may be made in today's conference call may be forward looking in nature. A disclaimer to this effect has been included in the results presentation shared with you earlier and also uploaded on stock exchange websites. I would now like to invite Mr. Kutheja to share his perspectives. Thank you, and over to you, sir. Thank you. Good afternoon, everyone. Welcome to Aarti Industries Limited's earnings call for the first quarter of the financial 2027. We will walk you through our financial and strategic performance for the quarter along with key milestones we've achieved across our growth initiatives.

1:35 The quarter was characterized by a challenging macro environment with persistent geopolitical tensions in The Middle East, disrupting global supply chains, increasing freight costs and driving inflation, including raw material prices. Despite these headwinds, demand across our core products remained broadly stable, supported by our diversified customer base, operational resilience and market development efforts. Our ability to optimize the product mix in such a constrained macro resulted into higher margins despite the elevated prices. The West Asia crisis had a direct impact on our energy business, temporarily halting exports to the region. The region's share in our revenues declined from about 15% to 2% in this quarter. We successfully redirected a significant portion of these volumes to other markets, limiting the overall business impact.

2:23 We are working on opportunities to open new friends for the supply in the region, which we expect to regain the volumes in the upcoming quarters. The quarter also witnessed elevated prices of key raw materials, particularly benzene, sulphur, methanol and aniline amongst others. High prices impacted the purchasing power in specific end applications such as dyes, selected agrochemicals and polymer compounds. This impacted our volumes during the quarter. However, our robust supply chain and efficient inventory management resulted into market share gains and inventory gains, which contributed to our overall EBITDA growth. Let me now take you through our financial performance for the quarter. I think overall, the company reported revenue of INR 2,627 crores, representing a growth of 41% Y o Y, primarily driven by higher input prices passed on to the customers.

3:13 EBITDA of INR $3.85 crores, growing 79% Y o Y, driven by a combination of product mix optimization, moderation of low cost inventories. This was also supported by stable demand, improved realizations for select products and resilient execution despite temporary disruption. Profit after tax of INR 155 crores, resulting a growth of 266% Y o Y. Working capital requirements expanded during the quarter, driven by higher feedstock prices and increased export volumes. Consequently, debt levels and finance cost rose to support these requirements. Our business continues to driven by two key segments, the Energy business and the Non Energy business. In the Fuel AdditiveEnergy business, demand visibility remains robust. West Asia's contribution to revenues has declined primarily due to the ongoing regional conflict, thereby impacting sequential volumes. Meanwhile, the other international markets continue to perform well, while our efforts to develop the other potential markets has strengthened our ability to diversify volumes across geographies.

4:14 We have completed Aarti Fuel Additives capacity expansion to three sixty KtPA from two ninety KtPA, providing additional flexibility to serve newer markets with newer products as demand evolves. Against the volatile backdrop, we maintain an agile strategy, dynamically balancing our volume growth with spread optimization to safeguard the overall profitability despite ongoing fluctuations in feedstock cost, refining margins and gasoline naphtha crack spreads. Within non energy business, the demand trends remain mixed. Polymers demand remains soft during Q1, primarily due to weak demand for downstream products in U. S. And China, with recovery expected in Q2. Dyes and pigments continues to face demand headwinds driven by subdued demand amid a higher raw material pricing environment and seasonal factors.

5:02 Pharma demand continued to remain stable and agrochemical volumes were marginally lower, primarily owing to customer resistance to source at elevated RM prices. Volume recovery here also is expected in Q2, supported by underlying stable demand. The suspension of export tax rebates in China has created favorable opportunities for NCP value chain for us. While short term export headwinds may persist due to West Asia conflict, we expect sustained volume growth, supported by capacity expansion and deeper market penetration. Overall, our business continues to demonstrate underlying strength anchored by steady volume growth, enhanced operational efficiencies and disciplined execution of our strategic road map. Barring the three, six months delay due to labor constraints and war related issues, our Zone 4 project expansion continues to progress.

5:53 The project is being commissioned in sales manner this year, FY 2027, with ramp up expected over FY 2020 and FY 2029. Our Pela project is progressing through market setting activities and is expected to commercialize very soon. We are also looking to debottleneck our DCB capacity to 140 ktpa backed by volume increase supported by PDCB and downstream demand. In line with our earlier guidance, the FY 'twenty seven CapEx remains on track to be within range of INR 700 crores to 800 crores, with about INR 180 crores already deployed in Q1 FY 'twenty seven. With our major expansion programs nearing completion, the CapEx intensity is expected to reduce significantly starting next year. Going forward, our capital deployment will pivot toward high growth, high return niche projects.

6:38 Aarti Industries is also accelerating its long term strategy through high impact collaborative partnerships and ESG led growth initiatives. Our JV with Superform for downstream amine derivatives exemplifies this approach, leveraging complementary commercial and manufacturing strengths to unlock significant market potential, reflecting the strategic model we intend to build upon. Strengthening this collaborative approach, our partnership with Super Form Chemistry through Origin Chemicals combines our deep chemistry expertise and raw material backward integration with their market application insights to build a differentiated specialty This joint venture remains firmly on track for commissioning in Q2 FY twenty twenty seven. We are seeing demand tailwinds in primary end use application, which provides opportunity for faster ramp up.

7:24 Parallelly, our commitment to sustainability and circularity is anchored by our plastic recycling initiative with the sustainability through Aarti circularity. That is slated for commissioning in second half of FY twenty twenty seven, which utilizes advanced recycling technologies for hard to recycle waste streams. Reinforcing this ESG led direction, we were pleased to achieve the EcoWardice Platinum Rating 2026 during the quarter with a score of 87 out of 100, placing Aarti Industries among the top 1% of the companies globally for the sustainability performance. Our business expansion through our subsidiaries globally, that is in UAE, UK and USA, is progressing well and supporting better growth trajectories in various markets. We then endeavor to expand our global footprint and be a step closer to the potential markets. We have planned to set up a subsidiary in China.

8:15 This entity shall facilitate our plans to expand our base in one of the large global chemical markets accounting for more than 45% of the global market. Our presence there will also enhance our sourcing capability for some of our key raw materials and support a cost and time efficient supply chain arrangement. Execution across all long term contracts remains stable, continuing to underpin baseline volume growth and safeguard revenue visibility. Despite near term uncertainties, we remain confident in our long term growth prospects, supported by our diversified portfolio, expanded capacities and strong customer relationships. Backed by disciplined capital allocation, continuous process optimization and deeper integration with global key accounts, our focus on execution ensures we maintain operational resilience in the near term while building long term sustainable shareholder value.

9:09 Thank you for your continued trust and support. With that, I would now request the moderator to open the floor for the Q and A session. Thank you so much, sir. Ladies and gentlemen, we will now begin with a question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are request to use handsets while asking a question. Our first question comes from the line of Rohit Nagaraj with three sixty one Capital. Please go ahead. Thanks for the opportunity. Just one question in terms of the Zone four CapEx, given that it's got delayed.

9:58 However, our FY 'twenty guidance remain intact. Also how confident are we to reach the lower end of guidance given that at least six months delay in this project and we were probably considering a decent amount of scale up happening in FY 'twenty eight, which will give additional EBITDA? That's all from my side. Thank you. Hi, Rohit. No, that's the one area where we continue to work upon. We in our guidance, we had given the numbers that will come from the CapEx led programs. And in CapEx led, Zone 4 was a significant contributor. In that overall CapEx led section, the JVs are expected to remain on track. I think Aarti and Aarti will commission. Even the NPP, the multipurpose plan and the calcium chloride unit in Zone 4 is also expected to commission now. So it should get ramped up. The other blocks, there are five different chemistry blocks in Zone 4, is where we are seeing the delay and which might lead to a bit slower ramp up compared to our original anticipation that we had given in our target aspirations for FY 2728.

11:08 We continue to remain watchful while being fully transparent in terms of where we stand against our strategy. As and when we commission these blocks and we see the ramp up phase of these units, we will come back and clarify, know, once we have better understanding of what is the speed of ramp up of these five different chemistry blocks. Perfect. And just one question on the numbers. What was the inventory gain during this quarter, although we have specified the ForEx gain in the press release? I think the FX and inventory gains are difficult to estimate correctly, but I think the impact would be anywhere in the range of 50 to 60 crores. But it is difficult to quantify that precisely because a lot of it is also...

12:01 Within the quarter, we saw significant volatility. Right? We had April and May where the raw material prices were elevated. We saw towards the end of the May, some part of June where the prices corrected dramatically. And then again, sort of restarting of conflict in Malaysia led to price increase towards June and in July, right? So I think this quarter specifically, it would be a bit unfair to sort of quantify the exact amount of inventory first. Same thing happened also with currency. I think the April currency versus June currency looked phenomenally different during the quarter. There was tremendous amount of volatility. But by and large, given the timing of the raw material purchase and the timing of the product placement, there was a support in the overall EBITDA performance for this quarter.

12:48 Perfect. Thanks a lot and all the best, sir. Thank you. Our next question comes from the line of Arun Prasad with Avedis Bank. Please go ahead. Morning. Thanks for the opportunity. Sir, my first question is on the energy segment. We successfully we there's a bit of a parcel some that is listed in new geographies as you mentioned. How are the new geographies that earlier fulfilling their fuel additives demand? Is it some other fuel additive? Or is it our product? And is this sustainable?

13:33 Can we continue to service both these new markets and as well as Middle East markets once the crisis is over. Will mean that our current additional capacity that we have added, will we go back to say 190% to 100% utilization in the near term? These are the first set of questions on the energy markets from my side. Thanks. I think our overall, as I have sort of repeatedly said in the previous quarters, this business is still in this market development phase. We haven't reached the true potential of this business, and it will remain in market development phase for some time to come.

14:19 And that's how the ability to divert the product from one region to another region as and when the new market opens up, it gives you a lot of flexibility. In general, our portfolio has become not well balanced in terms of percentage of volume going to U. S, Africa, Europe, Middle East and India. There's still a Southeast Asia region which we haven't cracked. But apart from that, in the rest of the global markets, are pretty well diversified. And in that context, it is giving us ability to move volumes around. To your question on capacity utilization, I think from a customer and a market development point of view, significant efforts have happened. It has... They're also supported fundamentally by the fact that the demand has been good. Right? The gasoline naphtha cracks were strong, and they continue to remain strong, which is where we are this sort of continued strong demand is also visible in the quarter two. And that's what is giving us confidence that irrespective of the Middle East situation, we should be able to ramp up our utilization levels.

15:23 And given our success in this segment, are you worried that at some point of time competition will also try to replicate? Right now, I believe competitive intensity is less in this product, not as a few other letters, but in this product. But how we're going to know when the time comes, what would be our strategy to regain market share? Can we become more cost competitive? Can can we increase our distribution? How are we going to retain this once competition decides to? So I would say there is already significant competition in this product. I think there are more than two or three players in India which have entered this market, and there are more than two or three players in China which are currently playing in this market.

16:16 I think we continue to maintain our market leadership position, and we will continue to do so. The strategy involves multiple aspects. I would not go into the details, but it does... Includes all aspects, including new products in the portfolio, differentiated products built for specific market, specific customers. It also includes global supply chain planning and footprint optimization, and it also includes unique distribution strategy linked to specific customers. Right? So I think... And cost remains sort of in our DNA. We we can we can very confidently say that we will be top... Decide in terms of cost structure for the entire product portfolio that we are trying to develop as part of this segment. So it's a combination of multiple aspects.

17:05 Competition already exists, and we try to do our best to retain the market leadership position. Understood. One, now that we are close to commissioner Aarti, any kind of numbers would you like to quantify? What is it at steady state expectations on this? How soon we can see it reflecting in our quarterly numbers and how long it will take to ramp up to the steady state? So I think from an operations point of view, it will definitely commission, I think this or next month. I think the commissioning activities are ongoing as we speak. The first sale of the raw material to the joint venture has already happened. We also see traction in terms of order book of the product that we plan to produce in this joint venture.

17:58 So within this quarter, we should start seeing operations and ramping up happening. Within the first sort of one to two years, we should be able to reach to a decent utilization level for the entire capacity that we have built. From a financial standpoint, being fifty fifty, it will consolidate at that level. So the numbers at that level will start becoming visible. The meaningful difference may come, we would say, around few quarters down the line, two to four quarters down the line. But it should start becoming visible from this quarter onwards. Any revision to this steady state revenue for a JV at current prices? I think we had projected INR 300 crores to INR 400 crores. I think we will maintain that range for the joint venture to start with. As and when we complete the ramp up in this quarter and we stabilize the plant operations, we will come back with a firmer estimates for the JV.

18:56 Finally, on Zone 4, you said that bunch of the chemistries is delayed. Is it any link to the agri markets and hence the recoveries also will track the agri market, you know, it's turning around? I don't think the delay is, I think, anything to do with market or linked to a particular agri segment. It's a pure product execution challenge, which we faced primarily started around March, April time frame, where there was a huge labor shortage driven by LPG issue and then consequent elections and the monsoon triggered few delays. But at the same time, I think multipurpose plant is undergoing commissioning again as we speak the product out as expected within the month of August.

19:47 And we will announce commissioning post first product is out from the plant. The other blocks of different chemistries will get gradually commissioned as we had indicated earlier. The product mix that we are currently starting with is very well diversified. It has mix of agro, it has mix of pharma, has mix of coatings, it has mix of polymers. And we remain to have a different sort of segregated differential end market exposure for the overall zone four capability. It will not be heavy towards one particular end market. That's the current strategy. So the ramp up is linked to priority execution is not necessarily linked to end market at this stage. Understood.

20:33 Thank you very much for answering all the questions. All the best. You. Our next question comes from the line of Aarti Tuketan with SMIFS Institutional Equities. Please go ahead. Thank you, sir, for the opportunity. Sir, just a couple of questions. So on to the price hikes, when we look in this quarter, across segments, we would have taken price hikes. But when I look at the dyes pigments and the pharma segment, then the price hikes number look much higher compared to energy segment of the polymer additives business. Are we expecting like this price hikes to roll back going ahead, suppose if the base commodities prices reverse? And what would be the sustainable number we can work with this going ahead?

21:20 And secondly, sir, when we look at the overall volume performance, exposed during the quarter have taken a sharp dip. How you see the domestic volumes picking up in the coming quarters? And how we see for FY 2027 and 2028? I think the first thing, the increase that you see in pharma and in dyes and pigments, it has combination of two factors. One is, of course, the raw material inflation and passing on that to customers. The second is the NCB chain forms a significant part of these two end segments. And in NCB chain, the China's VAT removal led to changing of the pricing regime for the products in the entire value chain.

22:10 So you will definitely see volatility linked to raw materials as the raw materials often in future pricing, of course, will get corrected to some extent. But there's some element which is also linked to some of the actions Chinese government took, which might sustain. So the answer on pharma and dyes and pigments, I hope you got it, there are two factors, one of which is linked to raw materials, the second is not linked to raw materials. I think on the exports, the exports for the quarter actually were very You know, 59 of revenue actually came from exports. And we are seeing good traction in exports. The volumes are expected to go up in q two in exports. It's just that now our footprint, our supply chain in terms of export is changing quite dramatically and towards longer wire destination, especially places like US and America.

23:05 In that context, the recognition of revenue is linked to the income terms, right? And many of the sales which are on DAP basis, especially in U. S, I think you will see quarter on quarter volatility in terms of production numbers and the exports from India versus when the revenues are recognized. But over the quarters, it should smoothen out. Got it. So my second question, so during the quarter, like a INR $3.80 crore EBITDA and stripping off the INR 47 crore ForEx benefit and some inventory gains, whatever the number could be. So we are still at around like INR 300 crores to around INR $3.10 crore EBITDA that could be a guess. How you see like to reach INR 1,800 crores EBITDA by FY twenty twenty eight? Ideally, this number should have been on base business and not taking the inventory benefits, it should have been at around INR $3.50 crores.

23:59 But we are still lower by some around 20% on that. How you see this trajectory moving and what would be that particular quarter which can change that trajectory going ahead? So I think the see, FX gain to some to some extent is a combination of accounting and the combination of volatility during the quarter. Right? And that's sort of part of a routine business. I think in the in the coming quarters, as the volume recovery happens and potentially there is a regime where the pricing is maintained throughout the quarter without significant change, everyone should be able to see the underlying business performance in terms of what's the true potential of the existing asset. And that itself should sort of direct in terms of what's the EBITDA trajectory that we are on.

24:49 Got it. Sir, just one last question. I missed your opening remarks on the volumes front, volume numbers during the quarter? So volumes on a energy business were down 17% on a quarter on quarter basis. And on non energy business, they were down by 7% on a quarter on quarter basis. On an overall organization level, they were roughly 12% down on quarter on quarter basis. Sir, we have stopped giving the actual numbers like we were actually mentioning it earlier in our presentation, sir. So we are giving numbers at a two broad application levels, which is energy and non energy. And we are also showing utilization numbers specific to value chain in a relatively narrow range, which we feel gives good enough indication of where the assets are.

25:40 The actual sales numbers is something that we have removed from the slides because I think they were getting utilized in a situation which was not favorable for the company. But we feel this gives good enough indication. I think at the overall company level, you have a volume trajectory. Within energy, non energy, you have exact volume growth numbers. And you will also have a utilization ranges for all the major value chains. Got it, sir. Thank you. Thank you. Our next question comes from the line of Viraj Vajrakar from Kotak AMC. Please go ahead.

26:31 Yeah. Hey. Thank you. So first on the chlorotoluene. So what... That is part of the biochemistry, I think, in Zone 4. So what is exactly the execution issues? Like, why why is the chlorotolines... I mean, we had started it... We had mentioned about it, I think, in 2024, 2025. I just wanted to get some sense on what is happening in the chlorotolines space. As said, I think we changed our strategy for Zone 4 around one point five years back, where we made the entire chain capable of producing different chemistry. So we have five different chemistry blocks. And yes, chlorotoluene was the original intention and the asset still retains the capability to manufacture the entire chlorotoluene chain if we want to. But now the assets are designed in a way that they can produce multiple other chemistries as long as the fundamentals of asset capability sort of deliver the performance that is expected for the finished product.

27:37 That's one. Second, I think the exact nature of the job is right now where we are is practically all of the equipments are erected, 97% of the equipments are erected for those blocks. In terms of piping, 85% of piping is I think this is one area where it requires huge amount of manpower, both piping and the final installation work. And that is where we faced a bit of the challenges, as I mentioned in the March, April, May kind of a time frame. But we are back to full manpower in Zoom four. And hence, hopefully, no further delay, then we should be able to commission it as we had indicated during the financial year itself. Okay. Sure. And in terms of the AARTIIND JV, so basically, I think that is more for the Ablind Chemistry.

28:24 So which end segments within the chemistry... The end product segment and and customer sectors, what are your what are your targeting? And roughly, would this... Am I interested in the higher margin versus the benzene chemistry, which right now probably would be in the Q1 overall at the group level? So I think there are two dominant end markets, coatings and ag. Coatings is expected to be much larger market and mostly India focused market for the chemistry, which is targeted as part of that unit. So it also gives us exposure to a very different end market, which is helpful. And yes, the profitability expectation is it will typically deliver higher margin profile compared to our existing product portfolio.

29:12 Right. And one last question in terms of M and A. So how you guys been the market especially... I mean, the the base market of Middle East as well as the replacement markets? How has been the how has been the market's ability to uptake your products, especially in terms of the 20 prices have to be taken? And slightly longer term plans in terms of going back, I mean, how fungible are the markets in terms of taking up a will you shift back to Middle East when things settle? So what are your thoughts there? Yes. I think we remain very active in the market. Overall, the market has been pretty strong. As I said, linked to the end market profile, given decent strength in gasoline naphtha crack, the pull for this fuel additives business remains very strong.

30:12 I'm purposefully saying not only M and A because we are trying to broaden the basket of the products that we supply as part of this application. And going forward, you will see more and more we're talking about fuel additives than specifically MMA. So the global market demand linked to the end market characteristics remains very strong. As and when the market opens up, we will definitely sort of... The idea is not to then necessarily shift volume, but increase capacity utilization, which is what should be visible in that one. Thank you. Thank you. Our next question comes from the line of Sanjeev Jain with ICIC Securities. Please go ahead.

31:00 Good afternoon. Thanks for taking my questions. First, on the energy side of it, how are we seeing the gasoline naphtha spread across the market? I know Middle East hasn't been great, but what's been spread in, say, Europe, US, and Africa, the other three key regions for us? No. Overall, at the gasoline naphtha level, the cracks have averaged in the range of $15 to $18 per barrel, which are pretty healthy. And this is a global market. And at these levels of cracks, the demand for the product is pretty robust. So we are back to that pre war kind of a spread in gasoline naphtha. We were at around $15 to $20 We are back to that range.

31:47 Yeah. It remains very volatile. Look, I think we are living in a world where the daily price moment is plus minus 5%. Right? So I think for me, generalizing, it would be unfair. But, yes, at a overall average level, the the cracks have remained at around $15 to $20 per barrel, which is healthy. When we talk about the fuel additive, what other apart from MMA are we looking at? Because we are now talking like a portfolio approach. So, what are the other products we have identified or working on R and D within the fuel additive space? Yes, I think we've talked about it in the past in previous investor calls. I think expansion of the product portfolio in this segment started sometime back.

32:33 We have just initiated some of the development efforts and the sales efforts for the new products that are getting added, which will sort of help us expand the fuel additives business going forward. Of course, they are not at a very significant volume levels right now, but the idea is to scale up these new products as well and then broaden from sort of one product dependency to a multi product fuel additives portfolio over the course of next twelve months. Can you name the products? At this stage, we won't name the products. Okay. Okay. And how many will be there in terms of count? I mean, at any point in time in our pipeline, are three to five products. A three to five product. Got it. But they will be all in the Octane booster itself or you're looking at the other end use application as well? It will broadly fall into category of fuel additives.

33:28 Okay. Not necessarily an octane booster. Yes. Got it. The overall with the crude coming down and we are facing a situation where raw material prices eventually will come down, Are we looking at behavior from the customer side where they are looking to destocking in a falling scenario and there could be a period where some of the gains may also go off or we may have an inventory loss like we had an inventory gain this time? Are we looking at such scenario in the immediate term? Because crude has sharply reversed, but I know it's super volatile. So look, think that risk always remains in a business when you're operating in crude linked raw material and the product environment, I think that risk will always remain. What we can do as a company is to be very agile.

34:18 So especially most of our domestic raw material procurement, the pricing pass through is relatively quick, right? We typically won't have more seven to fifteen days inventory wherever we are purchasing raw material in the domestic market. I think in the imported raw material, which is where we tend to have one to one point five months of inventory, ideally in stock or over water, that's where this price fluctuation sometimes could impact us. We have put in strategies in place, including combination of forward booking of customer orders, including some hedging strategies to minimize that loss. But that risk will always remain and we actively manage it. Got it. One interesting comment you made that if margin remain at this level, we will see an actual potential of the business.

35:07 Now are we seeing these margins improving across the isomers of the benzene and that's where the true profitability of Aarti will come out? Is that the way to read that statement? No, I think so different value chains will have a different story. I think NCP value chain, which has suppressed margins for a very long time, has recovered in the margin in the last quarter. DCP chain has always had sort of decent margin. So DCP and hydrogenation has always had decent margins. I think NT remains suppressed for a while, and it is linked to an isomer imbalance that we have faced over the course of last two, three years. We have put in some innovative strategies to rebalance that portfolio.

35:53 And in that context, we hope to achieve better margin profile in that chain going forward. The overall fuel additive segment, also the broadening of market customer and now product footprint, we hope to, you know, gain a little bit on the margin profile on that front. PDHN is one where we structurally remain weak because of our technological disadvantage. And there, we are trying to work on cost efficiency to figure out how to improve our margin profile. The nature of improvement or strategic initiatives across the value chain and their characteristics differ, But but the objective is to expand both the volume and the margin profile across all of these chains. One last on the Zone 4, particularly on the chlorotolvane and MPP side.

36:40 On the... Where are we in the product approval cycle from the customers now that the projects are slightly delayed? But from an approval perspective, product development perspective, we have a a line of sight what product we will produce first and whom are we selling? Yeah. So I think in in most cases, we do have sort of already a target customers identified, and the qualification of the product from our pilot facility is also done with most of the customers. However, these customers will also ask for a commercial batch qualification. So whenever the unit gets commissioned, there will be a commercial batch taken and there will be requalification done based on that commercial batch, and that will happen only when the assets are commissioned. But relatively speaking for most of these cases, the initial demonstration of technology in pilot and getting the product qualified through our pilot plans, that has already been achieved in most cases.

37:37 How many products are we looking to start with, say, by end of FY '28? I think by FY '28, we are talking about anywhere in the range of 25 to 30 products. I think within this year, we are looking at anywhere between five to 10 products. That's clear. Thanks for answering all those questions and best of luck for the coming quarters. Thank you. Thank you. Our next question comes from the line of Aarti Joshi with Numama Asset Management. Please go ahead. Thanks a lot for the opportunity, sir. So first question on the NCB chain. I think we have consistently seen a healthy utilization level in the last couple of years, and we are also speaking of a possible tailwind that we are witnessing today because of the tax rebate issue.

38:36 And the commonality commonality here that I find is the the the migration chain. And since we had already started witnessing a healthy margin profile, should that warrant for a capacity expansion in yours, given that that this portfolio is uplifting our margins at this point in time? Yes. I think the assets are actually capable of delivering slightly more volumes. We are evaluating minor debottlenecking projects to take up the capacity in that chain. At the same time, the dominant end market there is pharmaceuticals, right? Typically, paracetamol is one of the largest end user of this product. And in that context, we're also watching out for consumption potential within Indian market for this particular chain. We will be pretty aggressive as soon as we see a potential to sell more in India. We will go for the debottlenecking efforts, and that's very much possible within existing assets.

39:39 So that's... That that remains on our radar. But at this point in time, we feel it's some time away from demand going to a level where we need asset expansion. Got it, sir. Another one, just in the last twelve months, we have seen multiple closures or capacity... Capacity is being idle on the petchem side, be it Italy or NAFTA. I mean, the global majors like ExxonMobil and South Korean companies have sort of reject their entire capacities of steam cracker or not ethylene. And the the numbers that come out in terms of closures are are out of proportion. Right? I mean, we're talking about 10, 15 odd million tons of capacities either being idle or out of the system.

40:29 And knowing that this directly impacts in a way the spread of of of naphtha and gasoline because naphtha also is quite conducibly used in making ethylene. Do we see that there could be a shift on a on a sustainable basis, not in the not in the time of this volatility, that it could materially make an advantage to our MMA portfolio as spreads could possibly become more sustainable? Do you see that on a on a mid to long term basis? So difficult to predict at this stage from a long term point of view. I think I would answer the question more broadly for chemical industry. I think chemical industry has gone through a little bit of a turbulent times over the last three to four years, right, especially after the bumper COVID years, there was a pretty extended phase where margins profile was squeezed for most of the chemical industry.

41:28 I think the industry is, as a consequence of that, today, you're seeing what you described, right, a significant rationalization of capacity, especially in Europe, in Northeast Asia. And to some extent, the expansion... The pace of expansion in China has also slowed down across many of the value chains. And if this behavior continues, we potentially could see post 2829 kind of a time frame where demand kind of picks up a pace and it starts reaching closer to capacity and the inflation level starts becoming healthy at a global level, we could fundamentally see restructuring of the margin profile at the industry level.

42:15 But that's a personal hypothesis, and I guess we have to wait at least two or three more years to see if it pans out. Right. Thank you. Thanks a lot, and all the best. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participant, we request you to kindly limit your question to two to three question per participant. If you have a follow-up question, please rejoin the queue. Thank you. Our next question comes from the line of Abhijit Akela with KIE. Please go ahead. Yes. Hi. Good afternoon. Thank you so much.

43:00 So first, just on the quarterly EBITDA run rate, given that this quarter, we did have significant benefits from the inventory side as well as the ForEx side. What should a reasonable number to sort of expect for the upcoming quarter be? Just I'm just looking daily short term given the very volatile environment, should we expect that things will revert back to the 4Q run rate? Or do we think that this 1Q run rate could still be more or less sustainable? I think I would say that, you know, it's not far away. We should... Given the kind of volatility that we have seen where there's a plus minus 15 to 20% correction happening on a monthly basis, I would again hesitate and to hazard a case. But what I can say is that some of the gains which we may not get, which are linked to inventory could be potentially compensated because of the volume growth. I think that's how we are looking at the near term quarter.

43:58 Okay. Understood. And then just to clarify that the JVs, AARTIIND and AARTIIND will not be part of the EBITDA number, right? So your guidance of INR 1,800 crores is excluding these JV. Is that correct? No. So I think that INR 1,800 crores guidance included the EBITDA, especially for Origin JV because we expected it to start contributing by that The other JV, we did not anticipate will start contributing meaningfully before FY twenty seventwenty eight time frame. So that guidance did include Augene's EBITDA. How to report that going forward, we will come with a plan. But that profitability was included in our guidance. Got it. And just the last thing for me.

44:47 One is the non energy volumes, the quarter on quarter softness we've seen, is that again impacted by The Middle East or something else? And then just on this 360,000 ton expansion now of the fuel additives, how long do you expect to sort of fully use up that expanded capacity? So I think on a non energy business, the volume drop you saw was combination of supply chain and in some cases, purchasing behavior getting delayed, right, because of sort of high price environment in segments where there is some little bit of inventory, legal room available, people tend to delay the purchase decision. So it was combination of the two. We expect that the non energy volumes also to pick up during the quarter.

45:39 And sort of given the end consumption demand remains pretty stable, we are not seeing any changes on that front. That business is not impacted significantly due to Middle East in general because the Middle East exposure of that segment is pretty low. On the capacity utilization for fuel additives, I think we are ramping up the capacity as we speak, and we feel we might be able to reach high levels of utilization in this quarter itself. Okay, great. Thank you so much and all the best. Thank you. Our next question comes from the line of Sury Narayan Patra with Philip Capital India. Please go ahead. Congrats for the strongest ever kind of sales number that we have put out in the quarter, sir.

46:33 First question is about gross margin. So despite of the inventory markup benefit and INR depreciation benefit, we have seen a kind of sequential decline in the gross margins. So what is the factor that can be attributed to this sequential decline, sir? So as I said, I think this quarterly gross margin numbers, so we are good kind of at this point in time market at a overall EBITDA percentage level, we pretty much remain on track in terms of what we need to deliver. It's a combination of multiple things. Right? As I said, within a quarter and within every month when we have seen plus minus 15% price volatility, I think taking the gross margin level for that quarter sometimes can tend to give a wrong picture.

47:22 There were multiple factors in play. The timing of raw material purchase, the timing of product placements, the way the ForEx moves within the quarter, the freight expenses, also lower volume leading to other consequences in terms of, in some cases, the higher operating cost, but at the same time, at the overall level, lower freight costs. So I think if you start putting together a combination of all of these factors, you lead to where you are. But we would say that it's not a reflective of a steady state performance. Okay. But one should not believe this way that the kind of horizon of product prices would be lower than the rise in the kind of input prices. That may not be the reason. Right? No. I think typically what happens is the deltas are relatively in absolute numbers. Right? Not... I mean, chemical business runs on absolute deltas, not on percentage margin business. Correct. Correct. So... And and that's the behavior we anticipate will continue going forward.

48:25 Okay. Sure. Second point is on the MMS side. Since we are kind of entering into a seasonal week zone, period zone, so what is the kind of market outlook that you are currently having in terms of while you are quite optimist about the kind of expansion and achieving the kind of adequate utilization number? But in a weak season, which is coming up, any sense that you are having for that M and A outlook? So in general, for the fuel additive as a basket and as a segment, yes, the winter seasons are a bit weak. But typically, we start to see you know, cracks dippering down and demand starting to get impacted around sort of end of October, November, December kind of a time frame. At this point in time, the traction remains pretty strong.

49:21 We are prepared for that winter downturn. And in that context, you know, the entire mitigation strategy in terms of how should we think about volume placements during the lean season is something also that we are evaluating. But, yes, there would be some seasonality to this this particular business. Sure. Just last one point from my side. About the polymer supply where the volume looks really low, is it... Is there anything to do with supply to Middle East getting impacted and hence the kind of low volume? Or it is something else? No. I think that business has very limited exposure to Middle East. So I don't think there is any impact due to Middle East issues on that segment. In general, I think the Q4 of the last financial year, there were a lot of bulk shipments that were done to the customers, especially in U. S. And in that context, the extent of shipment that happened in particular that segment within first quarter were low.

50:24 We expect it to pick up in the second quarter. And at overall year basis, we think actually we should be able to see the growth as far as the polymer segment is concerned. Sure. Yeah. Thank you, sir. Wish you all the best. Thank you. Thank you. Our next question comes from the line of with Omega Portfolio Advisors. Please go ahead. Yes. Good afternoon. Thanks for the opportunity. So I just wanted to know the geographical distribution in the energy business, the average distribution. So, again, I I won't give exact numbers. I would say we are well balanced across geographies.

51:09 So The US, Europe, Middle East, Africa, and India. I think it's well balanced. It's not tilted towards one particular geography. Quarter on quarter, we do see volatility where one geography tends to pick up significant share. But if you take at sort of year average numbers, then we are pretty well balanced across all the geographies. So do you see the voyage time increase has impacted the margin profile in the energy business? So I think the voyage time doesn't impact the margin profile of the business as such, but it does impact the accounting of the overall business, right? As I said, in many cases, the business happens on DAP terms.

51:57 And in that context, given the two three month voyage time, especially for mature going to U. S, there is a delayed revenue recognition for some of the volumes. Fair enough, sir. And suppose you mentioned that the EBITDA run rate would be maintained. So considering that, I think the numbers are kind of achievable, the guided number. So I just wanted to know, like, this run rate of 16 odd EBITDA margin, Considering the energy business volatility, is this the new normal of with the business? So I we did not say the EBITDA run rate can be maintained. Of course, I think we feel at this point in time that there are two factors, right? There is sort of volume gain, which we are confident of and which is visible.

52:50 I think the pricing margin inventory is anybody's guess at this point in time. And frankly, at a management level, it would be difficult to hazard a guess. It is linked to ultimately how the West Asia situation settles and also how rapid is the change in the pricing moment. Right? If it's gradual, then, of course, the impact will come over time. If it's sharp, then depending on the time when it happens, we might have to look at some of the inventory cost. So that's one. So volumes growth, we are confident. I think on inventorymargins, we remain a little bit dependent on the macro situation. So I missed the second part of your question. Fair enough, sir. Yes.

53:39 Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participant, we request you to kindly limit your question to two question per participant. If you have a follow-up question, please rejoin the queue. Our next question comes from the line of with AARTIINDLE Capital. Please go ahead. Yeah. Thanks for taking my question, sir. Sir, I have a question regarding the MMA. So given The U. S. Is the largest gasoline user in the world, so in case of any favorable ties between India and U. S, so how much is the target addressable market that as per your estimate in The U.

54:24 S. For the MMA? That's my first question, sir. So we give that number, Gautam. I think we've described this multiple times. I think the overall fuel additive market is in millions of tons, right? So it is very unfair to say that for a particular product, what is the market potential. As I said, we are going through a market development journey, and there is a phase of adoption by customers of this specific unique product, which can potentially either augment or replace some of the existing fuel additives that they are using. The the upper side potential is in millions of tons, and we don't feel it's realistic to talk about it given we are in relatively early stage of market development journey for this product. Also, trade flows are pretty dynamic. Right? I think the overall oil and gas industry in the world is one of the most highly traded industry and how their flows physical flows move from either Middle East to Africa or Europe to Africa or North America to Latin America.

55:29 Where the product our product gets consumed versus where the end gasoline gets consumed, there also there is a significant amount of disconnect. And that's where sometimes this analysis tend to give a wrong picture. At this point in time, the only thing we can say is that, as I said, we have well balanced customer and market portfolio, and we have potential upside in terms of discovering newer customers in newer markets. And, sir, follow-up question is, what is your advantage in the MMA versus the, typically, the Chinese players, I mean, in terms of any chemistry, quality, logistics, anything? And also, sir, typically, I've seen that you are continuously increasing the M and A capacity, that's a brownfield expansion.

56:15 What is the potentially you can increase the capacity at maximum M and A that without going for any new greenfield something. Yes. I think... Look. We recently completed our capacity expansion of three sixty kt. Again, I would emphasize capacity for the overall fuel additives block doesn't mean necessarily linked to one particular product. And that's the capacity which we tend to stabilize over the course of next twelve months. We don't have any restriction or any limits to how much capacity we can increase. But the idea is to demonstrate a good capacity utilization for this recent expansion over the course of next twelve months and then take decision going forward. And sir, my second question is about the demand visibility across the end market. As you are now serving the fuel additives, agrochem, pharma, polymers, new platforms like battery, chemical, defense.

57:10 Which end markets are showing the strongest long term demand visibility for you? And how is Aarti choosing where to allocate the future CapEx? Just I want to understand regarding that, sir. So I think in most end markets, I think we are seeing pretty steady demand. I think agro, the demand growth is actually relatively stable. Polymer, we are seeing very strong demand, particularly in the end markets linked to EVs and automotive. On pharma, the demand growth remains sort of remains pretty robust. I think dyes and pigment was one area where there was sort of softening of the demand trend overall globally, and that's reflected in the growth that the segment has seen over the course of last three to four years. Energy as a segment has a huge growth potential, but the demand can be volatile given the nature of the business.

58:04 So different end markets sort of are exhibiting different trends. Our selection of opportunity is linked to ultimately sort of our capability to deliver value to the customers and the return profiles of that particular opportunity. And that's how we are selecting our growth areas. So some of the molecules... Forward looking molecules that we are trying, for example, in battery applications or in defense are driven by that in terms of, you know, are we able to add significant value? Are we able to build a differentiated value proposition where we can be globally cost competitive? And it can scale, right, in terms of size of the business and at a decently attractive return on capital. That's what drives sort of our decision making in terms of shortlisting future growth areas.

58:54 Yeah. Yeah. Thanks for giving the elaborate answers. That's from my answer. Thank you. Thank you. Next question comes from the line of Ojesh Sawan with High Tom Securities. Please go ahead. Yeah. Thank you for the opportunity, sir. So one question from my end is the ForEx gain that we have seen this quarter has been significantly higher than the previous quarters. So first, like what was the reason for this? And how do we see this going ahead into q two? Jason, you wanna take that? Yeah. So it's a combination of multiple stuff. So one is if you look at it, there has been volatility both in q four and q one on the currencies.

59:45 So there were instances wherein we sourced imported material at a higher price, but we saw rupee appreciating and correcting significantly in April month, and we got an opportunity to kind of square up the position at a lower rate, is returning to foreign grade plus the export which happened during the quarter, we're able to I mean, saw the ranging from a level of 92 to 97 in the quarter. So wherever the opportunities are there, we look to capitalize on those. I'm not saying that we can always keep on doing it, but we've been able to hit some of the right boxes in terms of covering it up. So that's broadly on the ForEx. There's an element of inventory benefit blended into the ForEx for related to the input transaction, but yes, that's what it is. Going forward, committing to a number of gain or loss will be driven by a lot of other factors.

1:00:33 So, sir, should we read this more from an operational perspective only? You consider this as a part of the operational element only, and also there's an accounting in terms of at what rate the transactions are recorded in the books, what is the closing rate. So there's also mark to market element coming. So I would assume that the better way to look at it is control this as a part of more of an operating profit only. Understood. Understood. That's it from my end. Thank you, sir. Thank you. Our next question comes from the line of Prateek Dugar with IntelSense. Please go ahead. Thank you for the opportunity, sir. My question was more on a macro development which is happening in Southeast Asia. So we have seen, you know, structural rationalization of the naphtha fed steam crackers, particularly in Japan and South Korea. And this, it is expected to persist through 2028, 2030, that sort of. And based on that, know, prices in the international market, that has also been excluded.

1:01:36 So my question was that given our own utilization unit at the hedge, do we see this as long term opportunity to leverage our contracts with the customer like $150,000,000,000 contract which you had with an innovator and another, you know, long term opportunity for intermediates like OEA and the 26 NEA that we do. Yes. I think these products are part of, you know, our strategic focus areas. In most cases, our contracts are passed through as far as the ethylene pricing is concerned. So in that context, sort of our margin profile is relatively secured on those product portfolio. I think so. So volatility in ethylene, you know, sometimes does affect on a quarterly basis because depending on the type of a contract we are seeing, sometimes there's a quarterly price pass through, sometimes there is a monthly price pass through.

1:02:35 So that near term volatility might be there, but from a long term basis, in general, for most of these products that you mentioned in significant number of cases, ethylene prices are typically passed. So it doesn't impact us directly as such. It in fact gives us a little bit more robust volume and margin visibility. Okay, sir. But apart from the pricing, because the crackers are coming down in Japan and South Korea, so their capacity is coming down. So do we see this as an opportunity for us? That was the question. But these products are not produced in that region. I think the products that you mentioned dominantly are produced either in India, China or Europe, right? They are the only three regions where these products are produced. I think Korea or Japan or Thailand for that matter do not have any capacity for these products.

1:03:27 Okay. Okay. Thank you. Thank you. Our next question comes from the line of Aarti Joshi with Nomad Asset Management. Please go ahead. So, Aarti, you may please proceed ahead with your question. Yeah.. So just one question, sir, on the the SABIC backward integration. Where are we in that journey, sir, if we can give us some color on that, and when do we expect those benefits to start accruing regards to the backward integration that we are planning?

1:04:14 Yeah. So we don't we don't talk about a specific customer name linked to a specific contract. I think there's one long term contract that we announced, which was linked to backward integration in the last quarter. If your question is with reference to that, I think we are in the direct execution phase. I think the civil and the building work is currently ongoing. The commissioning of that project is expected around September to October 2027 time frame. Got it. Got it. Thank you. That's no problem. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing remarks. Thank you and over to you team. Thank you. We appreciate your ongoing support and participation in today's call. I think despite the prevailing headwinds in the global macro environment, our disciplined approach allows us to manage through this phase effectively.

1:05:12 We remain committed to our overall growth trajectory and look forward to engaging with you again. Please feel free to connect with us for any follow-up questions. Thank you once again. Thank you so much, sir. Ladies and gentlemen, on behalf of Aarti Industries Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines.