Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries' Q4 FY26 earnings conference call.

Today, we are joined by senior members of the management team, including Mr. Suyog Kotecha, Executive 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 management will address participants' queries. Just to share our standard disclaimer: certain statements that will be made in today's conference call could be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared earlier, and also uploaded on stock exchange websites.

I would now like to invite Mr. Kotecha to share his perspectives.

Thank you, and over to you, sir.

Thank you, Nishid. Good afternoon, everyone.

Welcome to Aarti Industries Limited Q4 and full year FY26 earnings call. It's a pleasure to connect with you all again.

The quarter under review was defined by a complex and dynamic global landscape. The escalation of geopolitical tensions in the Middle East has led to disruptions across global supply chains, impacting trade flows, logistics timelines, and input cost structures.

In particular, the prices of key raw materials such as benzene, sulfur, aniline, toluene, methanol went up by over 60%. Elevated freight rates are also resulting in an increase in cost of global trade.

Further, the curtailment of volumes from Middle East has created significant supply chain issues and have presented near-term headwinds for the chemicals industry. This has reinforced our need for operational efficiency, product diversification, and deeper customer engagement.

Against this backdrop, our FY26 performance and Q4 performance demonstrated the inherent resilience of our diversified and cost-competitive product portfolio and our ability to manage global volatility leveraging our expansive geographic footprint and deep-rooted customer relationships. The overall demand environment for our basket of products remained largely stable.

While we experienced disruptions in the shipments to the Middle East, we were able to proactively redirect volumes to the other geographies, ensuring continuity in operations and minimizing the impact on overall volumes. Before we go into the financials, let us also highlight the two long-term contracts which we concluded in the last quarter.

First one being a backward integration initiative with a leading global chemical company, transitioning the relationship into a more integrated end-to-end manufacturing model with a capex of about 200 to 250 crores to cater to the requirement over the residual 15-year contract period. The second one is a $150 million multiyear supply agreement with a global agrochemical innovator for a critical agrochemical intermediate used in crop protection formulations extending through March 31st, 2030, without—this contract will be supplied without any incremental capex.

These developments mark a strategic shift towards deeper integration, enhanced earnings visibility, and improved capital efficiency. Notably, during the year, Aarti Industries was also honored with the 2026 Gallup Exceptional Workplace Award by Gallup, becoming one of the first manufacturing companies in India to receive this recognition.

This distinction further reinforced AIL's position as a global manufacturing organization combining operational scale with high performance and a people-centric culture. Let me now take you through the financial performance for the quarter and the full year.

For the Q4 FY26, the company reported revenue of Rs 2,422 crore, representing a growth of 9% YoY driven by stable domestic demand and increase in export volumes. EBITDA stood at Rs 342 crore, growing 29% YoY, and profit after tax was Rs 137 crore, registering a growth of 43% YoY.

The freight cost has significantly increased in the current quarter driven by increase in export shipments and also due to increase in the fuel rates, accounting for the bulk of the increase in the other expenses. Interest costs also include an amount of Rs 39 crore being the revaluation loss in respect of our long-term foreign currency loan.

For the year, for the full year FY26, revenue stood at Rs 9,018 crore, up 12% on a YoY basis. EBITDA grew by over 15% to close at Rs 1,172 crore, while PAT recorded a growth of about 27% to close the year at Rs 419 crore.

In line with the guidance given, the capex for the year was at about 1,125 crores. Overall, the performance reflects steady execution supported by volume growth, improving capacity utilization, and benefits coming from operational efficiency despite continued margin pressures over a significant part of the portfolio.

Let us talk about specific business updates, starting with energy application, which contributes roughly 40% of the revenue. We continue to maintain a very strong global presence, holding a market-leading position.

The volumes for the quarter were down 4% quarter-on-quarter, primarily driven by lower exports to the Middle East, which were impacted due to geopolitical disruptions. The impact was lower as we were able to successfully reroute part of these volumes to other geographies, and despite disruptions, the capacity utilization continued to remain high, preserving our wallet share with the global customers.

The full impact of disruptions will be felt in the ongoing quarter. Our expansion to 360 KTPA is on track and is expected to be commissioned soon in line with the market requirements.

Ongoing volatility in the refining product margin does create uncertainty in terms of gasoline-naphtha cracks, and the supply chain risk related to the key RMs is adding some near-term risks to this business. Against this backdrop, we maintain a very dynamic approach balancing volume growth with spread management to optimize overall profitability to the best extent possible.

In non-energy applications, agrochemical applications as a basket demonstrated a steady volume growth, albeit the margin pressure continued to prevail. The contract win supports the growth of select product and intermediates and is in line with our plans to ramp up capacities which are already created for this application.

Dyes, pigments, paints were relatively stable for the quarter. In the near term, as the impact of West Asia war is felt in the global markets, there could be some impact on export, but that we expect to be compensated by increase in volumes in the domestic markets.

Polymer as application continued to perform well and is currently in a strong growth phase, especially demand and volume driven due to applications in the EV markets. Within the polymer application, MPDA specifically continues to underperform due to heavy competition from China.

Rest of the portfolio continues to do extremely well. Pharma application also continued to remain stable during the quarter.

The last quarter announcement of China's anti-involution stance and, impact to products related to PNCB in the NCB chain should start seeing benefits from the Q1 FY27 onwards. Thus, on an overall basis, even the non-energy and sort of the base business has performed better driven by volume growth and supporting cost efficiencies as we continue to make rapid progress on our operation and strategic initiatives.

On Zone 4 projects, this is still expected to be commissioned in the phased manner during the current financial year. Multipurpose plant and PEDA plants are actually under commissioning trials and should come on stream soon, while others will commission gradually in the next couple of quarters.

These projects were delayed by 3 to 4 months on account of labor constraints, primarily driven by, LPG commercial LPG-related issues and migration of labor due to election as well. The company has taken multiple steps to support contract labor and to sustain them and to minimize the delay in the capex execution.

From a capital allocation perspective, as guided earlier, the capex for FY26 is at about 1,125 crores. You would have witnessed the decline in the capex spent in FY26 versus the spends in the past 2 to 3 years, which is in line with our plans to optimize the capital allocation.

Our capex for FY27 is expected to be in the range of 700 to 800 crores as we continue our journey to optimize capex and maximize the returns. Going forward, we expect to invest in high-growth initiatives with investment largely focused on niche-cum-high-return projects.

Our previously announced partnerships are also advancing well. Origin, the SuperForm joint venture, is on track for commissioning in H1 FY27 with an initial focus on agrochemicals, paints and coatings, and markets.

Our circularity initiatives also continues to gain momentum with commissioning on track for the CY27. All these initiatives not only underscore our R&D prowess, but also helps us secure a first-mover advantage as we tap into emerging opportunities in sustainable chemistries.

Working capital requirements expanded during the quarter, driven primarily by significant elevation in raw material prices, causing an uptick in net debt as well as interest expenses. While we are working with our customers and suppliers to optimize the working capital cycle, the normalization of this might take some time.

However, given the capex intensity is lower, we still anticipate the net debt to decline in the current year. FY26-27 begins with sort of cautious optimism supported by improved capacity utilization, strong order visibility through long-term contracts, and continued progress on the key growth and integration initiatives.

The specific situation in West Asia continues to pose near-term risks to the availability of certain critical feedstock and placement of key products in the Middle East. While near-term risks persist, the company is actively working with suppliers and customers to explore alternate sourcing and placement avenues to ensure continuity of operations.

The company has delivered strong growth in quarterly EBITDA run rate and is on track to implement profitability improvement initiatives, including the higher operating leverage-related initiatives, cost optimization initiatives, and incremental contributions from recently commissioned and upcoming assets. With a strong foundation of strategic investments, improving capacity utilization, and long-term partnerships, Aarti Industries is well positioned to navigate near-term volatility while building a robust foundation for sustainable growth.

With that, I would now request the moderator to open the floor for the Q&A session. Thank you.

Hey, good afternoon, and thanks for the opportunity, and congrats on a great set of numbers this quarter. First question sir on the quarterly results, I just wanted to understand we've had a healthy gross margin expansion.

Would there be an element of an inventory gain that we might have booked especially during the month of March? That would be my first one.

I think, on a overall quarter basis, there is a FX gain of roughly around 10 crores. On inventory, I think it's a bit of a mixed bag because though the pricing went up in the March, many of our raw material pricing also went up simultaneously, and we did have some amount of contracts concluded from a pricing point of inset which we continue to serve in March.

Not a significant impact of inventory gain in the last quarter, but from a FX standpoint, there was a gain of roughly 10 crores in the last quarter.

Understood. Suyog sir, second question on the exposure that we have in our energy portfolio, specifically in the Middle East, and also at the company level if you can throw some number on that.

On a yearly average basis, roughly 9% to 10% of our revenue came from Middle East, which is dominantly in energy application. That's the extent of exposure that we have currently to the region.

We're working actively to figure out a way to divert that product portfolio to the rest of the world. We also hope the situation in the Middle East should get settled at some point in time, and at that point in time, we actually might see a increase in demand in that particular region given practically the material flow to the region has stopped now for almost 6 to 8 weeks kind of time frame.

Nonetheless, that's the extent of exposure.

Sure. One last final one before I join back the queue again.

You did mention about the MPP and the PEDA plants to come online at the earliest. What would be the balance capex that we plan to commission in this year?

If you can just elaborate on the kind of timelines in terms of commissioning of these capexes and when can we expect revenue accruals or sales to happen from these plants? If you can split this in a elaborate, timely manner if possible, that would be helpful.

That would be all from my side. Thank you.

Yeah. I think the entire Zone 4, which is a combination of multipurpose plant, calcium chloride plant, and there are five chemistry blocks.

I think the entire capex will get commissioned during FY27. I think the first two which will get off the block is the calcium chloride and the multipurpose plant, the PEDA capacity we consider it as extension of the multipurpose plant.

I think calcium chloride is actually already sort of the commercial runs have happened, the plant is under operation. It will ramp up to full capacity over the course of next 3 to 4 weeks.

I think the multipurpose plant and associated extension of PEDA is also under commissioning trials as we speak. Within this quarter, we should be able to declare it sort of commissioned and commercialized.

I think the remaining five different blocks will get commissioned throughout the current financial year. I think compared to our original expectation, there is a 3 to 4 months of delay in that commissioning caused mostly due to contract labor issues, but nonetheless, even with that, we anticipate all of this get to commission within the current financial year.

That accordingly, the revenue aggregation will start over a staggered manner, right? We don't anticipate all of it will go to a full capacity utilization in a very short time frame.

As had mentioned earlier, it does take a little bit of a time bandwidth to go through a qualification cycle and improve capacity utilization over a period. The initial revenue from these assets should start as early as from Q2 of this financial year.

All right. That's helpful.

Good morning. Thanks for the opportunity.

Suyog, my first question: if you look at our utilization, most—

Hopefully this is better.

Yeah. Suyog, my first question is on the utilization in the year.

Mostly at upwards of 80%, 85%, and if I look at the Q4 volumes and annualize it, it's close to 100%. Is this a industry-wide phenomenon or is it just because we are at this kind of a utilization because we didn't add any supply during the last cycle?

No,

I think it would be a bit unfair for me to comment whether this is a industry-wide phenomenon. I think at AIL, what I can comment on it is I think improving utilization levels of all of our existing asset has been a deliberate strategy, and I think we have pushed volumes sometimes even at the expense of a slight compromise on the margins.

That is reflected in the utilization levels that you see. I think there are some value chains like PDA where we are structurally figuring out a long-term solution.

Apart from that in rest of the value chain, we have been able to push up the utilization levels. As we speak, we see further upside possible in select chains like DCB where we're also working on capacity debottlenecking as we mentioned in the last quarter, and even in sort of ethylation chain where the new contract that we signed in the last quarter plus the downstream integration of PEDA will help us improve utilization levels in that particular chain.

I think from our global customer diversification and relationship standpoint, I think in a significant part of our portfolio, we're reaching to utilization levels which are healthy.

Because this kind of utilization usually leads to a pricing recovery and margin expansion because of the tight supply demand balance. Should we expect some kind of a pricing-related upsides from our existing portfolio and existing volumes?

I think the utilization levels that you see are at a sort of the bulk product level, right? It's a NCBA level, DCB level, or at a ethylation level.

I think if you look at our portfolio, our portfolio significantly also goes downstream of this bulk isomer-level chemistries. That's where I think the story product by product will be very different.

Of course, there are some value chains where there is a pricing recovery at a bulk level, as we talked about NCB last quarter as well, and we have seen that kind of happening now as the Chinese anti-involution plays out, where the margin profile has definitely improved, including pricing. I think DCB continues to remain quite robust and is driven by both.

I think tighter capacity utilization as well as demand growth coming from EV market. Versus some other chains, even though we might be operating at a relatively higher level, if the global industry hasn't moved to that utilization levels, then the margin uptick or the pricing correction will not happen.

Okay. In your assessment, that is a likely scenario?

Maybe we are at higher levels; industry is not this kind of a level?

I think there are some products in which that situation does exist, and that's why I would hesitate to say that across the portfolio, we are seeing margin recovery or pricing corrections. I think there are definitely pockets of the portfolio where it is happening.

In general, I think given the global dynamic, I think if China continues to act what they are talking about, then this recovery should become much more broad-based going forward compared to current situation where it is sort of in select pockets.

Understood, understood. My second question is on the MMA.

Typically on a elevated crude prices, our understanding is that the MMA scores over the, say, probably the traditional MTBE. Are you seeing this playing out at least?

Secondly, if you're not seeing the supply into the Middle East, where we are placing MMA volumes currently and is it sustainable? Yeah.

I think on the MMA economics, frankly, a lot of complicated answer without getting into technical details. I think as we've described this a few times in the past.

There are multiple factors which play out when it comes to affordability of MMA for final customers. I think one of that is also naphtha-gasoline spread.

I think in the current situation, naphtha being significantly stronger, that sometimes does have impact on naphtha-gasoline spread available to our customers. At the same time, the absolute pricing level sort of remaining at a higher level also creates a counterbalancing sort of factor for the spread affordability.

It also has an impact in terms of our raw material cost goes up, right? Both aniline and methanol are at a significantly elevated levels, in that context, our ability to offer certain pricing to customer, that also gets impacted by ultimately raw material cost prices have to be passed on.

There are multiple factors playing over there. What I can say is that we are able to optimize volumes and spreads to ensure that liquidation happens wherever there is a physical possibility of supplying the cargo.

Our shipments to US are relatively consistent and happening. Our shipments to Europe are starting, and we hope to expand that going forward.

I think the domestic market also remains relatively consistent from volume standpoint. I think Middle East is the place where physically it is impossible to ship the material as of now as we speak.

That's where there's an impact. I think we partially offset that in the last quarter, but the full impact of that, I think, will be visible in the coming quarter.

It depends on how soon the West Asia situation settles, and we are able to restart our flows to Dubai and Oman market.

We should expect the contribution from energy in our revenue should slightly moderate?

Frankly, difficult to answer the question, right? Because we are in the sort of four weeks into the quarter.

If the situation stabilizes, there is also possibility that the volume requirement in Middle East can dramatically go up given the region has been running dry of the product for last 6, 8 weeks. If the situation in West Asia doesn't settle down over the course of next 2 months, then of course, we would expect certain impact on the volumes for this molecule going into Middle East market.

Understood. If I can squeeze in one more question on capex.

You said that '26 capex reduced from 1,125 crores to the somewhere around 800-odd crores. Is it because of scope reduction or postponing of the cash flows to '27,

and finally

the breakup on the FY26 capex,

'27 capex? FY26 capex was in line with what we had said.

It was 1,125 crores. It was not reduced.

FY27 capex is what we're saying will be in the range of 750 to 800 crores.

Oh, okay. Any breakup?

Approximate ballpark breakup of the open project wise?

750 to 800 crores, significant part of it will still go in completion of Zone 4, and part of it will also go to the new long-term contract which we signed, right, where we announced total capex of 200 to 250 crores. I think part of that will be spent in the current year.

This two will kind of broadly account for significant amount of capex, and then we have a sort of yearly run rate of 150 or crore that goes into asset maintenance.

Oh, okay. Understood.

Finally on the MPP and the calcium chloride, at current prices, what is the steady-state revenue from these two projects?

I would not like to comment. Again, we don't talk about revenue.

I think we talk about margin profiles. Given there are a lot of products which are interlinked even within MPP and within the different Zone 4 blocks, I think the total potential coming from that location in a integrated manner is what we have talked about.

I think we continue to maintain that range. We will hit that over the course of 2 years is the current plan.

I think it would not be correct to talk about revenue/margin potential based on today's pricing because I would not call it a sort of regular pricing/margin levels.

Understood. All the best, sir.

Thank you very much.

Thank you, sir, for the opportunity, ma'am. Sir, my question is onto the dye segment.

Sir, as you mentioned in the opening remarks, the dye segment is recovering, and we are expecting a steady-state going ahead. Sir, when we look at the numbers, on YoY basis and on quarter-on-quarter basis both there's a dip.

It seems like that the dye segment is now slowing down after peaking out so last two quarters. Is there any change, sir, into the structure of the business or volumes in the global markets or Indian markets are slowing down?

Any thoughts on that? Yes.

Overall, if you look at our share of business in dyes, pigments, and printing inks, we classify this three end markets together, it remains in the range of 10% to 11%. It will remain broadly around that.

I think there are multiple trends within the segment at a product level which differ. For example, 3,3-DCB is one of the core product in that segment where we are facing pressure on the demand from the global markets, but then that is partially getting compensated by increase in demand in the local market as the global consolidation in the pigment industry happened, right?

There are different trends at individual product level. Overall, I think our share of this application remains at around 10%, 11-odd percentage.

There is a part of the portfolio where because of extremely high raw material pricing and corresponding price rise being passed on through our products, some of the low-margin segments may not be able to afford, and we might see a slight amount of demand destruction. That could be a potential impact in a 3 to 6 months kind of time frame.

Far, I think the pressure in the global market have been compensated by the growth in the domestic market.

Got it. Sir, into the agrochemical segment, it has been 2 years and persistent we are mentioning on the margin pressures.

It seems like there is no end, sir. Any sort of a positive thing which you see going ahead for FY27, '28, whether higher uptick in the domestic could partially mitigate the RM price hike, any sort of things that can change structurally into the business, which is—

I think the biggest driver to get back the margins in the agrochemical segment would be how sort of Chinese industry evolves on this particular application. I think they have been one of the most important driver of the margin compression in this segment over the last few years, and I think their conduct and behavior over the coming years coming quarters and years is what ultimately determine the the ultimate sort of margin potential in this segment.

As I said, the narrative that we are hearing or we are seeing, I think if that persists and that becomes much more broad-based, we might see recovery in the margin, but I think we wait to see a firmer trend to make a conclusive commentary on the same.

Got it. Sir, onto the debt side, we have seen debt to reach around 49 billion in this fiscal, highest ever when we look at Aarti's history.

Any particular reason sir? Because we also see on the asset side there is some 600 crore of cash also sitting today.

What I see sir, because we don't have also material capex also, 700, 800 crore or maybe 1,000 crore in FY28 that we can easily do it from our cash flow only. What is the need for so much debt taking up?

Let me answer that. The cash which you see is more like a one-off kind of a situation.

It just happened that one of the term loan got disbursed towards the last days of March and then couple of holidays. The money were not effectively utilized to reduce the debt.

On a net debt basis, we are still at around 4,300 crores. Good part of this maybe around 250 to 300 crores is purely because of the working capital increase which has happened in the last part of the Q4.

Plus as you would have seen, the export profile has gone up, export revenues have gone up. In exports, the receivable days are optically a bit higher than the domestic receivable days, which is where the working capital profile continues to remain a bit elevated.

A, 4,900 crore debt obviously will not be there. We'll have to look at a net debt number of around 4,300 crore.

As we speak, bulk of that cash has already been used to liquidate the debt portfolio immediately in the first week of April. That's how it is.

Yes, going forward, as the capex intensity is going down, the capex is coming down, the EBITDA and cash flows improving, the debt for this year will start tapering off.

Sir, just one last question. Can you provide the breakup of the CWIP of 2,000 crore which we have done in FY2—FY26?

A bulk of that would be for Zone 4. As you understand, Zone 4 had a capex of around 1,800-odd crores.

Bulk of that would be with Zone 4. I don't have that exact breakup right now.

We'll send it separately later on. A bulk of that would be for Zone 4.

Zone 4 from an overall perspective, a bulk of capex which has to happen has already happened by FY26.

Got it, sir. Yeah.

Thank you, sir.

Hi, sir. Thanks a lot for the opportunity.

Sir, just want to understand in terms of your pricing environment, primarily let's say if we see your agri portfolio, are you seeing some improvement in the pricing and primarily a lot of supply which was China based, there were couple of plants which have fire incidents. Do you see any improvement in your pricing of the product?

I think on absolute pricing, of course, there is a huge positive trajectory compared to where we were in Jan. I think what we have to look at is the spreads and margin because even raw materials have also gone up significantly, right?

In some cases, 60%, in some cases, they have also more than doubled. I think what we have to look at it spread and I guess not necessarily absolute pricing, which definitely it's significantly better compared to where it was at the start of the Q4.

I think some of the incidents that you mentioned which happened in China, yes, I think there is a sort of increasing scrutiny, especially on sort of nitration chemistry-related assets, and we see more and more regulatory constraints rightfully being put so on these chemistries to avoid sort of hazardous operations which are kind of non-safe, right? Go more towards continuous operation, put additional safeguards in place, and that will mean that some of the smaller-volume, inefficient players will ultimately vacate the market at some point in time, and that should lead to sort of industry consolidation and sort of better conduct going forward.

Will happen over a period of time. In select products, we see impact of that in the near term, but I think, as I said, a broad-based recovery, we will I guess get to see a firmer trend over the course of next few quarters.

Okay. Typically, when we talk about spread, let's say ideally how much percentage of your portfolio in agro as well as in the energy space would have seen the improvement in the spread?

I think on agro side, frankly, currently we are able to hold on to spread, and that itself is from a company's point of view is a good outcome because passing on such a rapid increase in raw material cost to agrochemical specialty chemical companies who have a much longer gestation period in terms of absorbing price rises, I think is a good outcome. I think over the course of next 3 to 6 months, we will be able to fully pass on the price rise provided there is certain stability that comes on the raw material side, which itself is a bit of a question mark right now.

Typically, there is a huge amount of inventory in the agrochemical chain, right? We are at intermediate level, but there will be inventory at intermediate level, inventory at technical level, inventory at formulation level, and inventory at ultimately end-consumer level.

All of that needs to get adjusted before the full pricing is passed on, and that's what typically takes time. Versus, if you look at some of the energy applications or some of the polymer applications where you're directly closer to end customer, there the price pass-through happens relatively quickly.

Okay. Typically, sir, one last from my side.

Typically, how much percentage of the supply would have gone out of the system, let's say because of this fire incident in China and this small facilities which are now likely to be closed or on the verge of closure because of this scrutiny increasing and all those things?

Difficult to comment. We don't have answer for that.

Also, the specific incidents that you're mentioning are not linked to our product portfolio, right? It doesn't impact AIL directly as such.

Okay. Fine, sir.

Thanks a lot. Thank you, sir.

Hi. Good afternoon, team.

Thank you for the opportunity. My first question is basically it looks like there is a higher inventory created.

That's also visible from the disconnect between the increase in the production figures across the products and the sequential revenue decline as we see. That's despite the increased prices.

What explains this disconnect? I see a stock adjustment line of 109 crores, that's increase in inventory.

Could you give some color on this?

Yeah. If you're looking at that, there's certain materials being moved out from India were exported out and are on seas reaching to our customers, and that is why they have been in transit inventory which you are looking at.

That material, given it's not delivered to a customer, I think the revenue for that part of the portfolio is not recognized.

Okay. Is that what explains the increase in the working capital on the inventory side between Q2 and Q4?

Yeah. Yeah.

Okay.

That and some element of the raw material price impact which came in the later part of the last month.

All right. Sequentially there's a 22% increase in the other expenses side on a 5% revenue decline, so that's also partially related to the production levels versus the sales volumes?

That is primarily driven actually by freight. I think we saw especially mid-Feb onwards, we saw sort of huge escalations in the freight rates.

I think the jump that you see in other expenses, significant part of it is actually coming from freight. It's a combination of freight rates as well as the additional export volumes, right?

I think on a overall basis, almost 57% of total revenue came from exports, and that's what is also reflected in the incremental freight in the other expenses.

All right. Sir, of the targeted EBITDA, we expect about 350 to 400 crores coming in from the capexes, right?

With this, the delay in the Zone 4 capex by a few months, any slippages on the guided EBITDA numbers, or probably we could stay closer to the lower end of the EBITDA range ex of pricing gains obviously? What's your thoughts?

No,

I think look, our target as a management team still remains on how to do catch-up even with that 3 to 4 months of delay. At the same time, we are transparent in communicating in terms of how are we progressing against our initiatives, right?

I think we laid down a very clear path in terms of what actions we're taking to achieve the targeted growth. Cost and operating efficiencies, operating leverage, which is sort of relatively in our control, is going as per track.

Most of the initiatives on the cost side are implemented, they will start accruing fully in the current year. Operating leverage, all initiatives are on track.

There is no delay in any of this. Of course, near-term volatility will create quarter-on-quarter different picture, but from a strategy implementation point of view, there is no lag effect there.

I think on the capex side, yes, we are behind compared to our original plan, and that 3 to 4 months of delay will have a impact in terms of how much we were budgeting over the course of next 2 years, but we are figuring out strategies to mitigate that impact.

This is purely on account of labor shortages or any other reasons also partially responsible? Because 3 to 4 months delays on account of labor shortages suddenly, at least till last quarter this wasn't spoken about, not sure.

Maybe if you can explain.

This is the phenomenon of this quarter. There's a 35% reduction in the contract labor availability in the region where we are executing capex.

Right now the project is in the kind of last-mile connectivity where a lot of pipeline work needs to happen, which is usually significantly labor-intensive. That's where I think the impact is hitting us right now.

It's a combination of impact of LPG and I guess to some extent also the election-related migration. We are working quite proactively to address that issue, but today, yes, we do have a significant shortage of contract labor in our project execution.

Understood. Just one last, sir.

This 39 crores of revaluation loss on FX, it looks slightly on the higher side for a particular quarter. If you can probably give some color on the total exposure and the hedging policies there.

We have roughly around $87 million of an FX loan which is unhedged and is open. Rupee depreciated by close to Rs 5 from a level, I guess 31st March, 31st December was at 89.8 or something, and 31st March was at 94.88.

There was a Rs 5 depreciation on Indian rupee on an $87 million of exposure. Unfortunately, the accounting treatment requires us to take the impact of this on the day of the balance sheet, whereas if you look at our overall dollar perspective say this is relatively an exposure which will be repaid over a period of next 8 years.

From a dollar balance sheet point of view, I've got a larger export portfolio which will absorb this as a natural hedge, but from an accounting point of view, that gain that's accounted only once it is materialized, whereas this loss is accounted now.

Understood. Great, sir.

Thank you so much. That was really helpful.

Hi. Thank you for taking my question.

Firstly, the 1,800 to 2,000 crore of capex that we are doing on Zone 4, can you give a split for the calcium chloride and the MPP plant? How much would it be?

Would it be somewhere between 450, 500-odd crores, or how should we think about it?

Typically, we will not share asset block by asset block capex. I think at an overall Zone level, the number is what Chetan described earlier.

Okay. Secondly, on the 1,800 crore of EBITDA runway, 150, 200 crore was from the cost initiatives.

Any changes you think from the MPP plus Zone 4 plus UPL JV that we may see, any change in the incremental EBITDA from these three segments?

No, I think at this point in time, we are not changing the EBITDA potential from all of these initiatives. I think the only thing we are highlighting is on the capex-led growth, I think we've seen slight delay in the project execution, and that might have a impact on realization of that EBITDA potential in the given time frame.

Apart from that, there is no change on any of the EBITDA potential that we have already highlighted.

Right. So 300 to 450 crore is something that can flow through, but maybe not in FY28, but could get delayed by 6, 7-odd months or something like that.

Yeah.

Okay. On the working capital days, I understand the freight-related issues and the war-related issues, but I believe that our exports will continue to grow as it is.

How should we think about the receivable and the inventory days from here on?

I think it will remain pretty dynamic. I think one is export, but I think the export to which region also matters quite a bit because different regions have different voyage times, and that ultimately decides your working capital exposure.

For example, in last quarter, significant part of export was done to US, which typically on an average has 2 to 3 months of voyage time, your working capital requirements are much larger. Versus Middle East, where voyage times are as low as 7 to 10 days, your working capital exposure is significantly lower.

Frankly, difficult to comment at this stage. I think it does remain quite dynamic depending on which region you are sort of pushing your product to, and transit times, customer terms, the situation in the market, all of that determines ultimately what kind of overall position we end up landing into.

What's more important at this point in time is, of course, to ensure very dynamic allocation of the product to the regions because global geopolitical situation remains quite volatile. I think that remains a priority, and a subsequent impact of that in working capital is managed through incremental debt.

We don't like it. It does cost us in terms of our balance sheet as well as the interest cost, but that's the necessity given the global situation at this stage.

No, I meant keeping the current situation aside, should we think about it as your net working capital days of anywhere between 60 to 70-odd days? We've also seen a 50-odd day kind of a cycle.

That is where I was coming from. More so from a perspective of when Zone 4 is commercialized, then how would that incrementally affect our working capital days?

Ideally, we would like to remain within 55 to 60 days kind of average levels. As I mentioned, it does vary depending on the market situation.

From an objective standpoint, I think we like to target 55 to 60 days kind of levels.

Just Zone 4 will not materially change the numbers. It'll continue to be in the same trajectory.

Got it. Just lastly on the tax rate.

It's been a little volatile this year. I think you had mentioned 15% kind of tax rate for '27, '28, '27.

Should we assume it to be 15, or is there any change there?

We should be in the range of maybe around 10% to 15%. This year, there are a lot of earlier tax litigations which have came in our favor, and that is why you've seen a lot of prior adjustments and the MAT, the deferred tax adjustments, and everything.

Hopefully with that getting over, we will not see much of volatility. Given the fact that we have Zone 4 which is getting commercialized, and there's an IT depreciation which is a significant part of deduction available, the tax rate will be in the range of around maybe 9% to 14%, 15% kind of stuff.

Got it, okay. Great.

That's all. Thank you.

Yeah. Good afternoon.

Thanks for the opportunity. First on the follow-up on MMA, you did explain, Suyog, some of the dynamics, but just to get a picture clear.

My understanding is there is two big application for MMA: one is in the gasoline-naphtha blended application where they boost octane, the other one is the refinery which are not able to meet the guidelines on the octane boosting ARO, they add MMA to meet the regulation. Now given gasoline and naphtha spread in between in fact went to negative, and even today it remains in a weaker zone, and considering the volatility, it doesn't seems that this dynamic is going to change pretty much in next one or two quarter.

How should we think, and if you can help us with the two breakup: one is more sustainable, the other one could remain volatile? That's number one.

Probably an associated question is that considering that crude has gone up, one can anticipate ethanol blending to rise very sharply, which in itself acts as an octane booster, and then there is a gas shortage which can lead to some of these dynamics playing against us. I know we have a balance in terms of higher crude price, but I think there are a lot more headwinds.

Can you help us explain this entire MMA situation, how is it going to think about it for next two to three quarter?

As you yourself explained, it is complex, right, because there are multiple trends which play out simultaneously, and trying to aggregate all of these trends which have different directional impacts to come up with a concrete point of view on where we will land up at the end of 3, 6 months, frankly is not an easy exercise because I think you only talked about factors, but also these factors vary region by region, right? What gasoline-naphtha spread we see today in the Middle East versus what we're seeing in Europe versus what we're seeing in US is also very different number.

It's not necessary that all three regions will see exactly the same number on a given day. With all of these factors playing out, I think the only objective effort that we can do is to ensure that we are working very closely with our customers to understand their affordability, and in that context, optimize the volumes and spreads to ensure our manufacturing asset sort of runs at a healthy utilization levels, and also it gives us guidance in terms of what is our affordability to buy our raw materials, and that's what we are focused on right now.

I think the gasoline-naphtha cracks have been very volatile, and yes, there are days in which it has gone negative, there are days in which it has also gone up $20 a barrel, right, given the sort of extremely volatile Middle East situation that we've seen over the last 6 weeks. I don't think there is any conclusive trend at this point in time which we can draw, and I don't think we will reach a stability until the situation in the Middle East is kind of directionally at least settled.

Till that point in time, the only thing that we do is to ensure that we remain very, very closely connected with our customers to understand their affordability, and try and do sort of our raw material sourcing and the production planning link to their affordability and their requirement, and that's what we're focusing on right now.

Can you just split between or probably give the breakup on how much it is where the pricing is not linked to the crack, and it is just the production or the refining inability to produce the gasoline, and irrespective of pricing, they will need to add MMA to the gasoline?

I think I would frankly say it's a relatively small market. I think irrespective of pricing, the need to add MMA, I think that market will always remain a bit limited because MMA is not the only octane booster available in the market, right?

I think there are multiple other products, albeit they operate at a significantly lower performance range, but there are of course alternate options available in the market. At some point in time, the pricing economics has to come into the picture when it comes to customer decision making.

We can have a detailed chat later. At this point in time, as I said, I think the objective remains at least the region where the trade flow is operating right now, there how do we maximize sort of our share, and we hope that the region where currently the flows are closed, which is the Middle East, will hopefully open up as the things stabilizes.

That's pretty clear. My second question is on the contracts, not the two we have announced now.

I'm talking about the historical five contracts. One was MMA.

Can you help us in the business cycle, where are we in those four contracts, utilization level? Have we reached the peak contract level?

Where are we in those four contracts? I know one one got terminated, we were trying to do something out of it, but yeah, an utilization level will help.

No, I think without getting into the specifics, I think but broadly out of three contracts, one was for sort of advanced polymer intermediate that continues to operate as per the contractual terms. There is no volatility there, a relatively secured and predictable earnings coming from that particular contract.

The one linked to MMA, I think there were certain aspirations in terms of target volumes and that we wanted to achieve. I think at least if you look at the last calendar year, I think that contract operated in that range, right?

We were able to achieve the target volumes. It doesn't mean that the monthly and the quarterly volumes necessarily are met, but at a yearly level if you see, I think that contract did meet kind of the targeted volumes.

Our nitric acid contract, which was another long-term contract which we did for the purchase of the raw material, also continues to operate as per the contractual terms. There is no deviation from that.

There was another contract for agrochemical intermediate where the volume conditions are being met, but yes, from a margin point of view, there has been a pressure compared to what was originally anticipated during the contract closures. That's the current status of the four large contracts.

That's great. One last on the balance sheet side.

We ended this year with 4-odd times net debt to EBITDA, and next year there is an headwind of higher raw material translating into higher working capital requirement, and we have a target of reaching a 2.5x net debt to EBITDA. Can you help us the path to the net debt to EBITDA of 2.5x in next 2 years?

I think Chetan can add, but I think we closed the year at roughly 1,172, and our net debt was 4,300.

We're roughly 3.6x.

We're roughly at a 3.6 level just to get that perspective right. Going forward, of course, the anticipation is that the EBITDA will increase, and the net debt will go down.

I think this is the year potentially where hopefully the cash flow should be more than the capex that we are planning to do, and from a working capital point of view, yes, there is a pressure, but currently we're operating at a crude level of $110 a barrel, right? If it goes to a scenario where it goes to $140, $150 a barrel, then of course you're looking at a scenario where the raw material working capital requirement will go even further up, and that will put a strain on the balance sheet.

The likelihood of that scenario we don't know. In general, the anticipation is that the pricing scenario should stabilize at the current level or should get corrected once the situation normalizes, and that should ideally lead to reduction in the working capital requirement going forward.

As I talked about, with the capex intensity going down and the operating cash flow going up, overall at least the internal target is to reduce the net debt levels from the current levels in the current financial year despite the current pricing scenario and the capex intensity that is planned for the current year.

Super. Thanks for all those elaborate answers, and best of luck for the coming quarters.

Okay.

Hi. Thank you so much.

Sir, the nitration-related incidents in China probably are linked to some specific product, one key product. Just trying to understand based on some of the commentaries, it seems the implication could be for broader nitration-related chemistry, similar nitration-related chemistries.

I'm just trying to understand how are you reading this developments? Also, are our nitration product-related chains very different than probably what these Chinese were doing?

The impacted products would be for them?

Yes. Our product portfolio is significantly different compared to some of the products in which these accidents have happened in China, there is no direct linkage, first of all.

Second, in general, I think it is good that the regulatory standards, the standards on safety will go up, and that will help in general overall chemical industry, and that's good for the society. The corollary of that is with increased governance, with increased standards, it is possible that some of the smaller-scale, inefficient operator will be forced out of the market.

That is expected to happen over a period of time and not sort of in a knee-jerk manner. That's what will help the overall sort of margin profile of this nitration chemistries.

As I said, there are multiple products which get manufactured using this chemistry, and one-to-one linkage is always difficult. Broadly speaking, as an industry, I think we are on a right track when we say that we want to improve the standards of safety and the standards of governance on some of these hazardous chemistries.

Sure, got it. No, based on the reading, what I understand, probably if you can help me, was that the issue was primarily related to the nitration-related whatever they were doing in that particular molecule.

The nitrations that we do, is it very different? I'm just trying to understand.

Say for example, a chemical plant in China is doing nitration on a different molecule than the incident-related molecule, will they also see a tightness or this will not have any implication on them? No,

I think in general the standards go up, they get applied as a rule across the product portfolio, right? It doesn't remain restricted to a particular product.

It is applied as a chemistry and a reaction level and not necessarily for a particular product. Yes, everyone will go through increased scrutiny.

I think specially from a AIL standpoint, bulk of our operations now we have moved to continuous nitration, which is inherently much safer than the batch nitration. I think we have significantly enhanced our safety practices and safety measures when we are operating such chemistries over the course of last couple of decades, right, which is sort of visible also in our performance on the safety dimensions and our recognition by the global bodies when it comes to safety and sustainability parameters.

We feel very confident and comfortable, and we also feel that the actions currently getting taken in China are in the interest of the industry from a long-term point of view.

Sure, helpful. Sir, secondly is on the Bayer contract, the long-term contract, although we have seen some positive developments related to that final technical molecule in US.

Any changes for us in terms of how we see and also the duties in US probably are now lower, any changes that we see on utilization of this asset now?

I think, as I mentioned in the last call, I think sort of 50% of that asset is used to manufacture one particular intermediate that goes into dicamba, and there we are seeing steady volumes right now. It should definitely lead to a better utilization of that asset in the coming financial year.

Sure, got it. Lastly, if you can speak about RM availability, primarily methanol and I think sulfur related, how is the availability for you?

I understand prices will be high, but in terms of physical availability, are you seeing challenges?

No, in terms of physical availability, we are well covered so far as far as both of these commodities that you mentioned. It does come at a increasingly higher cost to ensure that sort of all of our plants are fed 100% of their requirement, but from a physical availability point of view, we are well covered on both of this commodities.

Got it. When you say covered, it is for what duration?

Depends on the commodity. Something like methanol, we will typically have a coverage of a couple of months.

Something like sulfur, given it's a domestic supply, we will have a contracted place, and we'll have a coverage of few weeks. Commodity by commodity, the coverage range will change.

Got it. Sure, great.

Thank you so much and all the very best. Thanks.

Thanks for the opportunity. Just one question on the demand side.

You mentioned in one of the remarks that the demand contraction in exports market, probably for the discretionary portfolio, can be taken care by the domestic market. What gives us confidence that there may not be a material distortion even in the domestic market, given that the pricing for the same discretionary portfolio will go up in domestic market, too?

Thank you.

That comment, Rohit, was specifically for dyes and pigments in the context of a particular product where there is a pressure in the global demand, but that is getting offset by the increase in the domestic demand. I think in general, your point is right.

If globally because of West Asia war, if the global interest rate cycle reverses, and there is a global inflationary scenario which links to potential downward trend on the global GDP, then of course it will have impact on the discretionary spend, not only in the global markets, but also in the Indian markets. That's a scenario which we continue to monitor and sort of mitigate.

At this point in time, difficult to comment, but it is a potential risk in case we start seeing impact to the global GDP level, including India.

Right. Just one number-related question.

What would be the gross block by the end of FY27 when the entire Zone 4 will be commissioned?

End of FY27, we should be in the range of around 9,500-odd crores kind of stuff. 9,500 to 10,000 crores.

We don't have the exact numbers, but around that range.

Sure. That's helpful.

Thanks a lot and all the best.

Yeah. Thanks for this opportunity.

Sir, just a couple of clarifications of what you have commented already. When you say that raw material security, is it fair to believe that for the June quarter at least, there is a 100% kind of raw material supply security that is being ensured?

Is that right understanding,

or— Look, given the way the situation changes here on a every-week basis, I think affirming anything for next 2 months, anyways, let me not go there. Broadly, I think we are well covered based on our current planning today.

Of course, we can't predict hypothetical scenarios 2 weeks down the line, 3 weeks down the line. As of now, based on our current contracts in place, we feel we are well covered.

Okay. Second clarification about the freight, sir.

Generally the spike in the other expenses quarter-on-quarter basis what we see, as you mentioned that is large portion of that is due to freight. Looking at freight share kind of 7%, 8% of the total, even if that getting double, the number looks slightly higher.

Second related aspect what I want to understand, whether this elevated freight is still June quarter-end or it can be very short-term phenomenon also?

There are three elements to freight, Surya. There is rate, which is the unit rate.

The second is the volume, and third the destination, right? All three were adverse in the last quarter: rate because of West Asia war-related issues, I think the freight rates went up; volume because we did substantially higher exports, right, 57% of it is exports; and the third is the destination mix because we pushed out a lot of material to US, which is the longest voyage time and at significantly higher freight compared to let's say markets like Middle East where the absolute quantity of freight also goes down significantly compared to US.

It's a combination of this three things, and that's where you see significantly higher number.

Okay. Just last one point, sir.

While you are kind of a bit cautious given the short-term situation that is visible, but you are also very confident about the potential for FY27 in terms of growth and all that, looking at strong order book visibility or positioning. Also the new project contributions.

If you can elaborate a bit, wherefrom that you are seeing the strong order book visibility, and if you also can give some sense about the upcoming project, whether it could be the JV with the SuperForm JV or the plastic recyclability? How meaningful those two projects, which is coming next year, will in terms of number contribution for AIL?

Yeah. I think the mid-term to long-term confidence comes from the fact that what we have been able to deliver on volume growth in the last 18-month time frame, right, which has shown that if we operate with agility in the market, we are able to get the market share, and we are able to push up utilization of our assets.

It is also kind of reaffirms our cost competitiveness when it comes to getting the required share of wallet from our customers. If we sort of disassociate ourselves from the near-term headwinds of West Asia war, I think mid to long term, the ability to run the asset to their full potential and getting the required share of volumes from the global market, that confidence level is there, and that's what is reflected in sort of our mid to long-term guidance.

As the cycle turns, as we have seen in some of the chains, if you're operating at a higher volume base, then the recovery in margin supports you in a incremental way because the margin gain that you get is on a significantly higher volume compared to your old baseline, right? That's the broad thesis for the mid to long term.

From a JV point of view, we expect Origin to commission within hopefully June, July kind of time frame, which is the JV with SuperForm, and that should actually ramp up to full utilization level within the current financial year. That will start contributing meaningfully.

I think the recycling JV is expected to commission within this calendar year. I think it may not contribute meaningfully in terms of numbers as of now given it's a first-of-its-kind plant, and there will be a time frame to establish that technology as such, but nonetheless, I think the proof of that technology will be established within the current financial year.

Sure, sir. Thank you for all the answers, and congrats.

Hi, sir. Good afternoon.

Sir, just a couple of questions from my side on the backward integration capex that you have announced for one contract. If I remember right, that was fixed margin contract.

How is this backward integration helping that contract?

It's a additional fixed margin that we will get for the remaining period of 15 years.

Okay. The second contract, sir, that you said, this is the revenue potential over the next 3 years, that is '27, '28, '29, and '30, right?

Yeah, 4 years, yeah.

4 years, yeah. Okay.

Secondly, sir, on this Origin JV that you said, in terms of product profile that you are planning, what is the margin profile we should expect in this business?

Hello. Yes, sir.

In the Origin JV, what should the margin that we should work with in considering how the ramp-up will be and what is the contribution that we should expect?

Honestly, maybe it's the right question to be asked to the JV management team as such, but in general, our philosophy is that JV should operate at a slightly better margin profile compared to where AIL is operating at this stage. Just to be sort of doubly clear, though we will start presenting EBITDA from that JV as and when the numbers starts becoming relevant, but from a consolidation point of view, given it's a 50-50 JV, it will not consolidate into AIL.

We will most likely report the numbers on a separate basis, but from an accounting standard point of view, that number might not consolidate into AIL at a EBITDA level.

Got it, sir. It will come as a separate line item, yeah.

Got it. Thank you, sir.

That would be all from my side.

Hi, sir. Thanks for taking my question.

Sir, on the slew of contracts that you announced this year and in the last call also you alluded to the point that you're looking to probably, I think we probably stepping up activities around partnerships and JVs, those conversations are going up. I just want to check with all of that that's really going on in West Asia, has there been a loss of momentum in some of those conversations or they are going on as they were even prior to the conflict?

No, I think there is no loss on momentum. I think it does continue.

Of course, from a management bandwidth point of view, sometimes the crisis management takes precedence over some of these activities, but I think we've created good enough structures within the organizations to ensure that the momentum is not lost. I would say that on an overall level, we don't see momentum falling.

In fact, we see momentum increasing because people are increasingly looking at more robust supply chains, more secure supply chain for their global requirements going forward. We expect many such conversations to proceed and conclude in the coming financial year as well.

What is the nature of qualitatively these kind of arrangements that we are exploring with people? What is the motivation for them to tie up with somebody like Aarti?

I think again, it's a long conversation, but I think in one line, I think it's our ability to deliver extremely reliable and safe operations in complicated chemistries in the most competitive manner, right? That's the value proposition that we offer.

I think the heartening thing to see in the last quarter was the repeat long-term contract from the global major, right? I think it is one thing to get a long-term contract, but if the same major comes back to you with a repeat long-term contract, that also gives you a significant validation of the value proposition that you're putting up in this partnership.

That was very heartening to see. The nature of the contract will keep varying, right?

Some of these are fixed-margin contracts, some of these are pure buy-and-sell linked to index prices kind of contracts. I think every partnership looks different from a commercial arrangement standpoint, but nonetheless, it improves the quality of the portfolio going forward and brings certain amount of earnings visibility.

Right.

Just to push that point, is it fair to assume that when you look through the next couple of years or more, such kind of incremental partnerships or JVs that we will do will begin to contribute much more meaningfully to our business as we go forward and overall helping our earnings quality?

That's the intention as well.

Lastly, when you look at the disruption with whatever's happening for now with the West Asian war, at what point does it become a challenge for us? If there is a particular scenario or scenarios by which it derails probably our trajectory and till what time it's only a temporary hiccup for us?

Is there a way to dimension it?

For us, it's a challenge today, right? I think it's not easy to handle more than 60% increase in raw material pricing in a 2 weeks' time frame.

It's not easy when 10% of your revenue which is going to a market suddenly shuts, right? I think it's a challenge even today.

I think, as I said, the only way you can manage it is sort of be proactive, be agile in terms of all the actions that you can take to minimize the impact of such disturbances. I would say the situation is serious enough where it is a challenge today.

At the same time, I think we're putting in a lot of efforts and actions to mitigate the impact to the best extent possible.

Thank you so much. Best of luck.

Thank you. Thank you all.

We appreciate your ongoing support and participation in today's call. I think despite the prevailing near-term headwinds linked to West Asia war, our disciplined approach allows us to manage through this phase effectively.

We remain committed to our growth trajectory and look forward to engaging with you again. Please feel free to connect with us for any follow-up queries.

Thank you once again. Have a good day.