Aarti Industries Limited
Q4 FY25
Call date · May 08, 2025
1 · Management Commentary
Key Positives
- FY25 revenue grew 15% YoY to Rs 8,046 crore; EBITDA up 3% to Rs 1,016 crore.
- Q4 revenue at Rs 2,214 crore (+9% QoQ); EBITDA at Rs 266 crore (+13% QoQ); PAT at Rs 96 crore.
- Volume growth: Energy applications up 21% QoQ; overall volumes up 14% QoQ; full-year portfolio volume growth at 17%.
- Strong export performance: 55% of Q4 revenue from exports (vs. 48–50% prior period).
- Sustainability milestones: Elevated to CDP Leadership Band, S&P Global DJSI score improved to 62, EcoVadis Gold Medal (score 78), ICC Responsible Care approval.
- Cost optimization initiatives completed in FY25, including Back-Pressure Turbine Project and Hybrid Power Phase-1.
Key Negatives
- Margin and pricing pressure persists in agrochemical intermediates due to global overcapacity, especially from China.
- DCB (dichlorobenzene) volumes weak in H2 due to sluggish polymer/automotive demand.
- Higher finance and depreciation costs from new projects led to lower PAT (Rs 331 crore).
- Expenses grew faster than sales, mainly due to higher freight/export costs.
Forward Guidance
- FY26 capex planned at Rs 950–1,000 crore, mainly for Zone-4 projects; maintenance capex Rs 150–200 crore.
- Zone-4 commissioning to progress through FY26; new pilot plant operational.
- Renewable energy PPAs (solar/hybrid) to commence within FY26–early FY27, expected to lower costs and improve sustainability.
- Focus on volume-led growth from existing assets; major new capacity ramp-up to reflect in FY27.
- No specific annual revenue/EBITDA guidance; three-year targets reaffirmed (FY28 EBITDA: Rs 1,800–2,200 crore).
- Continued cost optimization and working capital discipline; net debt expected to decline by Rs 200–300 crore in FY26.
- Dividend of Rs 1/share (20% of face value) recommended for FY25.
2 · Q&A Highlights
Q 1 (Composite): What is the outlook for volume growth across key segments and overall in FY26?
A (Management):
– Significant upside in volume growth possible from existing assets; aggressive market share capture targeted.
– PDA, nitrotoluene, and ethylation chains expected to see higher utilization; DCB to maintain current levels; MMA market development ongoing.
– FY26 growth to be volume-led; margin recovery not assumed due to persistent global imbalances.
Q 2 (Composite): How are US tariffs and global trade/geopolitical uncertainties impacting business and product segments?
A (Management):
– Mixed impact: Some products (e.g., MPD) benefit from tariffs; others face pricing pressure or are exempt.
– Second/third-order effects (e.g., Chinese dumping, downstream demand) to play out over coming months.
– Tariff impact on MMA is negative (not exempt); NPDA seeing near-term upside post-tariff announcement.
Q 3 (Composite): What is the status and impact of cost optimization and sustainability initiatives?
A (Management):
– FY25 saw successful completion of several cost initiatives; further targets set for FY26.
– Hybrid power and renewable energy projects to contribute more fully from FY27.
– Sustainability scores and certifications improved; ongoing focus on ESG leadership.
Q 4 (Composite): What is the capex split and timeline for new projects, especially Zone-4?
A (Management):
– FY26 capex of Rs 950–1,000 crore, with Rs 150–200 crore for maintenance; bulk for Zone-4.
– Zone-4 commissioning staggered through FY26; major volume contribution expected from FY27.
Q 5 (Composite): How are working capital, payables, and net debt expected to trend in FY26?
A (Management):
– Working capital days expected at 70–80; payables may rise by Rs 100–200 crore.
– Net debt peaked in FY25 (~Rs 3,500 crore); expected to decline by Rs 200–300 crore in FY26.
Q 6 (Composite): What is the outlook for long-term contracts and export performance?
A (Management):
– Long-term contracts (e.g., nitric acid, specialty polymers) performing as expected; some ramp-up in new contracts.
– Q4 exports at Rs 1,240 crore; normalization expected in coming quarters.
Q 7 (Composite): What is the expected tax rate and impact of depreciation/interest for FY26–28?
A (Management):
– FY26 tax rate to remain subdued (mid-single digit) due to high depreciation from ongoing capex.
– FY28: Depreciation projected at Rs 580–620 crore; interest at Rs 250–270 crore.
3 · Other Key Numbers
- FY25 total revenue: Rs 8,046 crore
- FY25 EBITDA: Rs 1,016 crore
- FY25 PAT: Rs 331 crore
- Q4 FY25 revenue: Rs 2,214 crore
- Q4 FY25 EBITDA: Rs 266 crore
- Q4 FY25 PAT: Rs 96 crore
- Q4 export revenue: Rs 1,240 crore (55% of Q4 revenue)
- FY25 capex: Rs 1,372 crore
- FY26 planned capex: Rs 950–1,000 crore
- Maintenance capex (FY26): Rs 150–200 crore
- Dividend for FY25: Rs 1/share (20% of face value)
- Working capital days (FY26 guidance): 70–80 days
- Net debt at FY25-end: ~Rs 3,500 crore; expected to decline by Rs 200–300 crore in FY26
- S&P Global DJSI ESG score: 62
- EcoVadis CSR score: 78 (top 5%)
- Three-year EBITDA target (FY28): Rs 1,800–2,200 crore
- Depreciation (FY28 estimate): Rs 580–620 crore
- Interest (FY28 estimate): Rs 250–270 crore