Aarti Industries Ltd (AARTIIND) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Aarti Industries Limited conference call. Please stay connected, the call will begin shortly. Participants who have been connected to Aarti Industries Limited conference call, please stay connected, the call will begin shortly.
Moderator: Ladies and gentlemen, good day and welcome to Aarti Industries Limited Q2 FY '2
Moderator: 7 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. 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, Mr. Solanki.
Nishit Solanki (CDR India): Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries' Q2 FY '27 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Suyog Kotecha, Managing Director and Chief Executive Officer, and Mr. Chetan Gandhi, Chief Financial Officer. We will commence the call with opening remarks from Mr. Kotecha, followed by a Q&A session where the management will address participants' queries. Just to share a standard disclaimer. Certain statements that may be made in today's 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 website. I would now invite Mr. Suyog Kotecha to share his perspectives. Thank you, and over to you, sir.
Suyog Kotecha (Aarti Industries Ltd): Thank you, Nishit. Good afternoon, everyone, and welcome to Aarti Industries Q2 FY '27 earnings conference call. We value your continued interest and support. Today, I will walk you through the performance highlights, industry environment, and update on strategic initiatives. To begin with, I'm happy to share that Aarti Industries has delivered its highest ever quarterly and half-yearly revenue and EBITDA, a testament to our strong operational performance and sustained business momentum. We achieved robust volume growth driven by resilient export demand and our ability to pass through raw material cost variations. Most notably, our quarterly EBITDA surpassed the ₹400 crore threshold, reaching a record of ₹418 crores. Escalating geopolitical tensions in the Middle East triggered significant crude oil volatility, driving raw material cost inflation across key chemical value chains. Almost all of our raw material saw significant price increase, while raw materials such as sulfur saw prices surge by over 5 to 6x. Combined with sharply elevated freight costs, strained global supply chain economics and brought out challenges of the sort of soaring working capital and debt levels, maintaining supply chain stability to cater to market demands. We believe the shifting dynamics in global trade present a compelling tailwind for Indian specialty chemical manufacturers, including Aarti Industries. China's ongoing capacity rationalization paired with India's expanding trade agreements with countries like the UK and Europe is set to solidify India's position in global supply chains. With our deeply integrated manufacturing footprint and long-standing client relationships, we are well positioned to capitalize on this shift, a trend that is beginning to translate into volume growth and margin expansion across our key value chains. Against this structural backdrop, our quarterly performance across key end use segments reflected varying sector dynamics. Let me take you through segment by segment. In Dyes and Pigments, despite inflationary price pressures from key raw materials like sulfur, we delivered steady growth anchored by resilient domestic demand for the NCB chain. In Agrochemicals, while demand across select categories within the AgChem chain remains stable, allowing us to achieve the volume growth, the pricing trend remained mixed. The second half might reflect the impact of weaker monsoon in the domestic market. On Pharma and Fluorochemicals, we achieved pricing and volume gains in PNCB. Key paracetamol building blocks saw robust demand bolstered by capacity rationalizations in China. The fluoro products margins continued to remain under pressure. In Polymers and Additives, the demand dynamics across high-end engineering, electric vehicles, and defense market remains robust, while the softness in the PDA chain created short-term drag on our Q2 FY '27 performance. We expect the traction to resume in Q3 FY '27 underpinned by accelerating dichlorobenzene demand. On Energy-linked portfolio, the blending dynamics remained favorable on the back of elevated crude oil prices and strong gasoline-naphtha cracks. The performance was also supported by price increase undertaken due to higher RM costs. To build a more steady and sustained business, we are transitioning towards a solution-based approach across the broader energy value chain, leveraging our supply chain capabilities and robust R&D pipeline. We anticipate launching of several new solutions over the next 12 to 24 months. Now turning to the financial highlights for the quarter and six months ended
Suyog Kotecha (Aarti Industries Ltd): Rs. 3887 crores, an increase of 73% over Q2 of last year. Q2 FY27 EBITDA increased by 44% year-on-year reaching Rs. 418 crores. Our H1 FY27 EBITDA increased by over 58% to close to at over Rs. 802 crores as against Rs. 507 crores in H1 FY26. Raw material prices continue to increase during the quarter, resulting in higher input cost. While raw material procurement in Q2 was efficiently managed with limited minimal availability issues, early indications for Q3 point indicates that for the domestic raw material, we will continue to have good availability and visibility, while for imported raw materials, there could be supply chain gaps that we'll have to mitigate. PAT for the quarter increased to Rs. 169 crores with growth of about 60% over the same quarter in the previous years. While on the half-yearly basis, our H1 FY27 PAT grew by 117% to Rs. 324 crores from Rs. 149 crores in the last year. Elevated RM prices have also stretched our working capital requirements over the past two quarters, pushing our net debt to over Rs. 4,650 crores and leading to higher finance costs. To strengthen our balance sheet and support long-term growth and optimize our capital structure, the board on October 1st, 2026, approved an enabling resolution to raise up to Rs. 1,000 crores by way of various avenues and/or any combination of fund raise. The primary objective of this capital raise is to deleverage our balance sheet, strengthen our financial position, and build long-term flexibility to support strategic growth initiatives beyond FY28, FY29. The said enabling resolution has been approved by the shareholders in the EGM held on 31st October 2026. Moving to our strategic initiatives and growth plans, our product portfolio continues to expand across energy, agrochemical intermediates, advanced polymer formulations, and pharma building blocks, supported by our planned FY27 capex of Rs. 700 to 800 crores. In fuel additives, the capacity utilization remains strong in Q2 following our expansion from 290 to 360 KTPA in the first quarter of 2026. For our DCB, the capacity debottlenecking to 140 KTA remains aligned with downstream PDCB demand. And with our current NCB asset utilization remaining elevated, the capacity expansion initiatives are under evaluation by the management teams. To drive operational excellence, we are actively leveraging advanced analytics and AI tools to optimize plant yields, reliability, and energy efficiency, while rapidly democratizing in-house tech capabilities demonstrated by a successful execution of over 50 Gen AI use cases across our workspace last quarter alone. During the quarter, we achieved several key operational and strategic milestones starting with Zone 4 expansion in Jhagadia, Gujarat. The Phase 1 of Zone 4 was officially commissioned on September 7, 2026. The calcium chloride unit, the PEDA plant, and the section of multipurpose plant are now operational and are undergoing stabilization. In many cases, we have achieved the design capacity and qualities. Current operational focus is on commercial batch qualification, customer approvals, and progressive volume ramp-up. PEDA extends our ethoxylation platform downstream for agrochemicals, while calcium chloride strengthens our energy and additives portfolio. In Zone 4, we plan to introduce 5 to 10 products in FY27, expanding to 20 to 25 products across five different chemistry blocks by FY28. The remaining four chemistry blocks are expected to come online within this financial year, positioning Zone 4 as a strategic growth driver for the next 18 to 24 months. On October 13th, 2026, we also entered into a dedicated 10-plus years manufacturing and supply agreement with a global specialty chemical major, representing a revenue potential of Rs. 1,500 crores. We will build and operate a dedicated facility using a proprietary technology with structured capex financing under US dollar 25 million, with a commercial operations targeted for FY29. On the Origin Chemicals JV partnership with Superform, the facility is ready and trial production is also underway, while the order book is gaining traction. Commercial production is expected to come in soon with a steady state revenue projected at Rs. 300 to 400 crores. Project execution for Aarti Circularity remains on track. Looking ahead, as our major capex capital expenditure cycle progresses towards completion, our strategic priority shifts towards maximizing asset utilization, expanding value-added chemistries, and strengthening portfolio resilience through strategic partnerships. By deleveraging our balance sheet and accelerating targeted R&D in the next-generation specialty platforms, we
Suyog Kotecha (Aarti Industries Ltd): establishing a disciplined capital efficient foundation to drive sustainable growth and long-term value creation. We remain committed to achieving our financial objectives and delivering long-term value for all stakeholders. Thank you. I will now ask moderator to open the line for questions.
Moderator: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. First question is from the line of Rohit Nagraj from 360 ONE Capital. Please go ahead.
Rohit Nagraj (360 ONE Capital): Good afternoon. Thanks for the opportunity and congrats on a strong set of numbers. First question is on the non-energy application. In the global market, how are these segments looking like incrementally, given that Q2 has been relatively stronger and the performance is reflective of that. But coming into Q2 and incrementally, how are we seeing the traction in terms of demand for our ex-energy applications? Thank you.
Suyog Kotecha (Aarti Industries Ltd): Thank you, Rohit. I think the demand tailwind, both in domestic as well as in the global market, in non-energy applications remains very steady and strong. And we can go, you know, value chain by value chain. I think in NCB, which is predominantly a domestic market, I think the demand trend is very strong. We are actually considering capacity expansion pushed by request from our customers. I think on DCB side, we would say that, in fact, first half is usually softer, second half is very strong as the US flows kick in. So, that is one value chain where also the demand sort of portfolio remains pretty strong. On the NC chain side, we have taken some strategic initiatives to develop downstream markets. And there we expect the volumes to increase subsequently. PDA is one chain where we are re-evaluating how should we utilize those assets in the most efficient manner. But there, at this point in time, we are not pursuing strategic growth from a from a volume standpoint. And for ethylation, with our multi-product strategy, including, you know, MEA, DEA, and some of the other specialty ethylation / propylation-based chemistries, we expect the volume growth to continue there as well. So, overall, I would say in the non-energy portfolio, we continue to remain bullish on the volume growth.
Rohit Nagraj (360 ONE Capital): Sure. Thanks. Second, first of all, congrats on the new, you know, long-term contract. We, I understand that we had three earlier ongoing long-term contracts: two for specialty chemicals and one for agrochemicals. Where are we in that journey in terms of how much of useful life is still left? And if you can just broadly tell us what is the current size of revenues from these three contracts, and whether these will get further extended once the life, you know, is over? Thank you.
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