Release Date: May 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aarti Industries Ltd (BOM:524208, Financial) reported a resilient performance with annual revenue of INR7,012 crore and EBITDA of INR984 crore for FY24.
- The company recommended a dividend of INR1 per share, reflecting a 20% payout for FY24.
- Consolidated revenue increased by 3.5% to INR955 crore in Q4 FY24 over the previous quarter, with EBITDA growing by 5.6% to INR283 crore.
- The company plans to invest INR1,500 crore to INR1,800 crore in FY25 for project expansion, indicating strong future growth prospects.
- Aarti Industries Ltd (BOM:524208) maintained its EBITDA guidance of INR1,450 crore to INR1,700 crore for FY25, supported by volume growth and new capacity launches.
Negative Points
- The global macroeconomic environment remains subdued, impacting demand in non-discretionary segments.
- Volume numbers were lower on a quarter-on-quarter basis, particularly in the agrochemical segment, which remains under pressure.
- Nitrochlorobenzene and Nitrotoluene production volumes declined compared to the previous quarter and the same quarter last year.
- The company faced challenges due to geopolitical crises impacting global supply chains and logistics.
- There were disruptions in nitric acid supply, which impacted production volumes and may continue to pose challenges until FY26.
Q & A Highlights
Q: Can you provide more color on why the volume numbers were lower on a Q-on-Q basis and the trends you're seeing?
A: The agrochemical segment is under pressure, impacting volumes. However, discretionary segments like dyes and pigments are seeing good demand. The EBITDA guidance for FY25 will depend on volume growth, demand recovery, and project commissioning.
Q: Which geographies are seeing positive traction and which are still under pressure?
A: Agrochemical intermediates are mainly exported to the US and Europe. The geographical composition for FY24 was 11% North America, 6% Europe, 4% China, 3% Japan, and 28% rest of the world.
Q: Can you elaborate on the CapEx plans for FY25 and the major projects involved?
A: We plan to spend INR1,500 crore to INR1,800 crore in FY25. Major projects include Acid Phase 2, Ethylation expansion at Dahej, Nitro Toluene expansion at Jhagadia, and new multipurpose plants at Jhagadia.
Q: What caused the significant increase in gross margins and other expenses in Q4 FY24?
A: The increase in other expenses is primarily due to higher freight costs, which are passed on to customers. The gross margin improvement is also due to a favorable product mix and margin improvement across existing businesses.
Q: How confident are you about achieving the higher end of your EBITDA guidance for FY25?
A: The confidence comes from expected volume growth, stabilization of new projects, and recovery in discretionary segments. However, the agrochemical segment remains challenging in the first half of FY25.
Q: What is the expected impact of the new Nitro Toluene and Ethylation plants on your volumes and margins?
A: The new plants are expected to be commissioned in Q2 FY25, with some volumes already tied up with customers. These expansions will mainly serve the agrochemical segment and are expected to contribute significantly to volume growth and margins.
Q: Can you provide an update on your R&D initiatives and their impact on future growth?
A: Our R&D center has developed several new chemistries, including photochemistry and nitrilation. We are also exploring opportunities in sunrise sectors like battery storage and biochemistry. These initiatives are expected to drive future growth.
Q: What is the outlook for the agrochemical segment and its impact on your overall performance?
A: The agrochemical segment is expected to remain challenging in the first half of FY25 but should see recovery in the second half. This will be supported by new project commissions and volume growth in other segments.
Q: How do you see your debt profile and EBITDA margins evolving in the coming years?
A: Debt levels are expected to remain stable, with efforts to optimize working capital. EBITDA margins are expected to improve from FY26 onwards, driven by higher-margin value-added products.
Q: What is the expected revenue contribution from your long-term contracts in FY25?
A: We expect significant revenue contributions from our long-term contracts, with the first contract contributing around INR900 crore in FY24 and increasing to INR1,500 crore in FY25. The second contract is expected to contribute around INR250 crore in FY25.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
