AARTIIND - Aarti Industries Ltd Share Price

Management Outlook and Key Points:
Aarti Industries' management projects a resilient outlook, emphasizing volume-led growth, cost efficiencies, and diversification to navigate pricing pressures. Key highlights include:

1. Volume Growth & Diversification:

   • Non-energy business volumes rose 14% YoY and 8% QoQ, driven by dyes, pigments, and polymer additives. Energy (MMA) volumes grew 10% QoQ, with spillover shipments expected to boost Q4.
   • Focus on geographic expansion (U.S., Europe, Middle East) and new products (ethylation chain, downstream integration) to enhance margins.

2. Energy (MMA) Business:

   • MMA capacity expanded to 200 KTPA; targeting bulk shipments and solution-based strategies to optimize octane-boosting economics.
   • Anticipates improved gasoline-naphtha spreads in Q4 and long-term growth through customer diversification.

3. Sustainability Initiatives:

   • Renewable energy PPAs (solar/hybrid) to raise renewable power share to 75% by Q1 FY27, reducing costs.
   • Plastic recycling JV (Re Sustainability & Aarti Circularity) aims for 500 TPD capacity by 2030, converting waste into high-value chemicals.

4. Financial Performance:

   • Q3 revenue: Rs.2,035 crore (+14% QoQ); EBITDA: Rs.236 crore (+17% QoQ). PAT impacted by forex MTM loss (Rs.23 crore), but rupee depreciation benefits future exports.
   • FY25 capex guidance: Rs.1,300"“1,500 crore, with key projects (nitrotoluene, ethylation expansions) commissioned.

5. Long-Term Guidance:

   • Targets 20"“25% EBITDA CAGR over 3"“5 years via R&D, partnerships, and cost optimization.
   • Focus on high-growth sectors: circularity, battery chemicals, and electronics.

Challenges:

• Pricing pressures persist in agrochemicals and select chains due to Chinese overcapacity.
• Gradual MMA ramp-up and forex volatility remain near-term headwinds.

Management remains confident in achieving mid-term targets, leveraging operational flexibility, and market leadership in key value chains.

1. What is the threshold spread of gasoline-naphtha for MMA competitiveness, and the price differential between MMA and MTBE?
Answer: MMA remains competitive with gasoline-naphtha spreads as low as ~9.5, with pricing at 1.8x"“2x MTBE. Improved spreads in Q4 FY25 are expected to enhance competitiveness.

2. How is ethylene oxide sourced for ethylation capacity expansion?
Answer: Ethylation requires ethylene (not ethylene oxide), sourced via long-term pipeline contracts with suppliers like Reliance, ensuring stable supply.

3. How have pricing pressures evolved in key segments?
Answer: Overcapacity in China persists, especially in agrochemical intermediates and nitrotoluene chains, keeping pricing pressure steady. Margins are managed via cost optimization and market share gains.

4. What progress has been made in MMA customer acquisition and bulk shipping's margin impact?
Answer: Success in U.S. and Middle East markets, with bulk shipping operational in Q3. Margin stability is expected as pricing models mature, benefiting from operational cost optimizations.

5. What are the revenue and EBITDA potential of the plastic recycling JV?
Answer: The JV targets 500 TPD capacity by 2030. Revenue/margin specifics are pending business planning, but the opportunity is significant given India's plastic waste volumes.

6. Why did gross margins decline despite cost optimization?
Answer: Q3 margins were impacted by high-cost aniline inventory liquidation. Long-term cost initiatives (30%-40% completed) aim to save INR150"“200 crore over 12"“18 months.

7. What is the outlook for Zone IV's product mix and market focus?
Answer: Zone IV focuses on 25"“30 downstream chlorotoluene products (agro, pharma, dyes), prioritizing domestic sales (60%) with flexibility to adapt to market demands.

8. Why did nitrotoluene volumes decline in Q3?
Answer: Temporary shutdowns during brownfield expansion caused lower utilization. Volumes will rebound in Q4 as commissioning completes.

9. How does the U.S. tariff impact Aarti's portfolio?
Answer: Polymer/additives (U.S.-focused) may benefit, while agrochemical intermediates could see mixed effects due to global competition shifts.

10. How does rupee depreciation affect financials?
Answer: Net exporter status benefits from depreciation, but accounting rules cause MTM losses on ECB ($140M unhedged). Long-term forex gains will offset quarterly volatility.

11. What drove Q3's sequential base business improvement?
Answer: Stabilized pricing, volume recovery, and product mix optimization (e.g., ethylation derivatives) supported margins. Further gains depend on demand recovery.

12. What is MMA's pollution profile and regulatory risk?
Answer: MMA blends at <2% in fuels with no significant pollution impact. Bans are unlikely as usage grows in key markets (U.S., Middle East) with proper handling protocols.

13. What are Q3's net debt and tax rate guidance?
Answer: Net debt stood at INR3,600 crore. Tax rates remain near 0% in FY25 (due to depreciation benefits) and low single-digits in FY26.

14. How does the renewable energy PPA with Prozeal align with promoter interests?
Answer: PPAs were competitively bid; Prozeal's solar project (selected for cost efficiency) delivers savings. Promoter stakes in Prozeal are unrelated to the PPA process.

15. What is the growth outlook for NCB volumes?
Answer: NCB growth stems from nitric acid supply reliability and domestic paracetamol demand. Utilization targets ~80% in FY26 vs. 75% currently.

16. How complex are Zone IV's fluorochemicals, and their margin profile?
Answer: Products involve 4"“6 reaction steps, targeting higher margins than bulk chemicals. Exact margins vary, but downstream complexity enhances profitability.