Aarti Industries Limited (524208) Earnings Call Transcript & Summary

Hi. Good afternoon, everyone, and welcome to Aarti Industries Analyst and Investor Meet 2024. My name is Nishid Solanki from CDR India. And I, along with the senior management team of Aarti Industries, extend a warm welcome to everyone. It's good to see everybody in person here. Thanks for your time and presence. From the management today, we have Mr. Rajendra Gogri, Chairman and Managing Director; Mr. Rashesh Gogri, Vice Chairman and Managing Director; Mr. Suyog Kotecha, CEO and Executive Director; and Mr. Chetan Gandhi, Chief Financial Officer. We will commence this forum with a detailed presentation from Mr. Kotecha, after which, we'll open the floor for question and answer. So please hold on to your questions till then. As always, we'll upload the presentation on the website for you to download. Please note that certain statements that may be made by the management may be forward-looking, and the actual results may vary from these forward-looking statements. Aarti Industries Limited will not be responsible for any actions taken based on those forward-looking statements. Before we begin, I would request all of you to put your phones on silent mode. So without further delay, let me invite Mr. Rajendra Gogri to take the discussion forward. Thank you, and over to you, sir.

Good evening all, and thank you for coming here for attending Aarti Industries Q2 Investor Meet. So this is, I think most of you will be aware, but some of them, you may be new. Overall at a glance the detail, we started in 1984 and basically integrated operations in chlorine-based and toluene-based products, where a strong R&D and 100-plus products, 16 plants, out of that 11 are zero liquid discharge, 1,100-plus domestic and global customers, 60 exporting countries, 5 co-gen. On the right side, here is benzene, toluene plus sulphuric acid and other specialty chemicals. And manufacturing outsourcing, joint product development, technology sharing and feedstock, those are the kind of strategic partnerships over the years we have done. We are a responsible care company, and EcoVadis, we have got GOLD rating. And also TFS and CDP, we are part of that. Overall, we are a value-based company. The care, integrity and excellence are the 3 major values what we have. And as a purpose, we define right chemistry for a brighter tomorrow. And vision is to emerge as a global partner of choice. As you know, we are basically in a B2B business, and we have a customer across the board who is in various end use industries, so that is our vision. And mission is encompassing all the stakeholders like delighted stakeholders. This year, actually, we are -- the 40th year. We started the company in 1984, 2024 through. And I think there's a very big milestone here in the company's journey. As you know, a listed company has different than individuals. Individual government go, but the companies go on and on. Actually, we are 4 founder directors, I am the only one. Chandrakant bhai retired in 2012, then I took over as a Chairman and then Shanti bhai, another founder director, he expired in 2019 and Parimal bhai retired in 2024, so I'm the only one who is remaining. So, at these 40 years, I think, as a milestone, now we have onboarded Suyog Kotecha as an Executive Director and CEO. That's a major milestone in the company's journey in professionalizing and taking forward the company from this 40th to 50th year in 2034. He has a strong background of McKinsey and then Reliance and all, we are sure that we'll be able to drive the company very well in the future, we are always there for that. And also the -- this year has been a churning for independent directors across the board, all the companies. There are a lot of retirement. So we got 3 new directors to govern -- who are mainly in governance, Ms. Rupa Devi Singh, Shri Ashok Barat, Shri Nikhil Bhatia. So we are also very well experienced almost 40 years plus in the industry. They are also part of a lot of listed companies. So their experience also will help in guiding the company. And also Mr. Belur Sethuram joined us in May as a Director. And he also worked in multinational companies. So overall, I think we have very good independent directors also. And in a way, I think we currently -- I would say we are at a very challenging times as well as very exciting time. Challenging is that volumes are recovering, but the margins of the products are under pressure because in the last few years, post COVID in China, a lot of capacities have come up for most of the products, which is tending to keep margins under pressure. On an exciting part is that India still is a country where the people want the material from. So inherent demand from India is there. And our idea will be to identify proper products for that. And we have done a lot of partnerships and alliances earlier. So we are also looking at a lot of new kind of further strategic alliances for that. And also for -- with our strong capability in manufacturing as well as R&D and customer relations, we also would be participating in a lot of Sunrise sectors on circularity and battery chemicals, et cetera. So I think it's going to be very interesting and exciting coming few years. And another point just I want to highlight, Mr. Rashesh Gogri has to take a flight. So I think you may leave in middle, so I think that I'd like to tell upfront that. And I would like to request Suyog Kotecha to take it forward with his Q2 highlights.

Thank you, Rajendraji. Good afternoon, everyone. So the objective is, of course, we will take you through the financial highlights, but we're also trying to give flavor of sort of what's happening in the different segments in which we operate and at the same time, how company is looking at next few months and few years. On Q2 and H1 FY '25 highlights, as you can see on the chart, the quarter was a difficult one. I think we've delivered INR 202 crores of EBITDA against roughly INR 311 crores of Q1. On an H1 basis, H1 to H1, Y-o-Y comparison, we are still 18% up, INR 512 crores EBITDA against INR 434 crores. Quarter-on-quarter basis, there was a compression in margins. If you sort of disaggregate this performance on volumes and margins front, I think on volumes, all of you are aware that energy business became a significant part of our portfolio. So we're trying to give details of nonenergy and energy business to get a better flavor of what's happening in the business. On nonenergy business, both on a Y-o-Y basis and Q-o-Q basis, there is healthy volume growth. We're talking about almost 22% volume growth on a Y-o-Y basis and that uptick is visible across end applications, dyes, pigments, polymer additives. AgChem continues to remain soft, but still there are some green shoots of recovery, as we mentioned in the last call. So volume story on the nonenergy remained relatively robust. Pricing pressure continues to persist and sort of we are navigating that to the best extent possible. On the energy business is where the second quarter became tough. So we had very good Q1 for the energy business. On Q2, I think there was -- on a Q-o-Q basis, there was a 36% drop on the volumes for the energy business, specifically MMA, and that was linked to a steep drop in refining margins. So both the absolute gasoline-crude delta as well as the gasoline-naphtha delta crashed in the second quarter, which is what led to reduction in demand of MMA. We will talk more about it as we go through segment by segment. On -- a little bit more on financial highlights going all the way to PAT. I think we are at roughly INR 189 crores in H1 FY '25 versus INR 160 crores in H1 FY '24. As I said, at an aggregate entity level on a Y-o-Y basis, there's still a volume growth of 15%. I think there's an exceptional income of INR 2.3 crore, which is on the account of divestment of stake in a step down subsidiary. Interest costs broadly have remained constant. I think original anticipation was that the softening of interest rates will start benefiting, but that cycle has obviously got delayed. So -- but we expect that the benefit from that will accrue from the next quarter onwards. Depreciation has increased slightly as we sort of capitalize based on commercialization of certain expanded capacities. And on the basis of H1 FY '25 numbers, the company's tax liability is declining and hence, in that context, corresponding deferred tax assets are also accrued. If you go to underlying business performance, we also wanted to give you clarity on what's happening on volumes across different chains. And on the left-hand side, you see most of the major product groups, right? So nitrochlorobenzene, dichlorobenzene, hydrogenation-based molecules, the PDA chain, nitro toluene, ethylation where we recently expanded capacity and MMA. And the capacities for some of them, wherever there is an expansion that has happened in the recent quarter or the expansion happening in the ongoing quarter, I think the numbers are based on expanded capacities. And you can see year-on-year trend on volumes for each of these chains. And you also have details of quarter 1 versus quarter 2 and H1 versus H1. The point that we made across the chains, except MMA on a quarter-on-quarter basis, the volume growth story still remains robust. On H1 FY '24 versus H1 FY '25 as well, except the NT chain, I think the volume growth remains robust. The capacity utilization numbers tells you a story of operating leverage available for Aarti Industries Limited from a future growth point of view, especially the chains where we have recently expanded capacity like NT, ethylation and MMA. The capacity utilization is in the range of 50 to 60-odd percentage, which means that as we ramp up those volumes linked to market demand growth, we have ability to increase the size of the business without incremental CapEx. MMA specifically, as you can see here, the volumes from Q1 to Q2 have dropped from 31-odd kt to 20.5 kt and that's predominantly driven by the market, we'll go through more in detail. The ethylation capacity and the hydrogenation capacity, they are multiple product groups based on that single chemistry. So the exact capacity sometimes vary depending on which products you are producing. So for example, in ethylation, I can manufacture 3, 4 different types of products. And depending on which product I'm producing, the effective capacity may look different. So as you start looking at this number from a quarter-on-quarter point of view, you will see some variation depending on what product we are focusing on. That was the story on the production trend. Now coming to revenue by end-use application. And this is where also a significant evolution has happened over the last 3 years. If you look at FY '22 split versus what you're seeing on FY '25 Q1 and Q2, you will see one obvious trend is, of course, energy has become a significant part of the portfolio. It used to be relatively small in the range of 15-odd percentage. Today, this quarter has come down to 32%, but was as high as 41% in the Q1. On the AgChem, after registering a significant growth in FY '23, post that, I think that sector has been facing challenges. And we've seen the story around inventory correction, pricing pressure, certain things to do with weather patterns, especially in the North and South America. But that sector remains sort of under challenged, though their demand growth, as we said, has potentially bottomed out and the recovery is visible. Product-by-product story changes, but there are certain green shoots. Dyes, pigment, printing inks, that remains relatively steady. The growth is linked to economic cycle, GDP-linked growth. Energy application still getting evolved, has extremely large potential, but remains volatile linked to the refinery market dynamics in the gasoline-naphtha margin specifically for us. Pharma obviously had a significant volume growth during pandemic linked to the environment at that point in time. Of course, has normalized post FY '24 beyond that. Polymer and Additives, which was going through a lot of pressure from a demand point of view has actually bottomed out and we have also seen a good recovery as far as Polymer and Additive segment is concerned. Going segment by segment, AgChem and Fertilizers, the key products that we supply in the segment are around sort of chloro anilines, di chloro phenols, some of the ethylated products, roughly 19% of our overall revenue share, decent mix of export and domestic 40-60 odd kind of export-domestic mix. The market-wise, remained challenging. All of us have talked about channel inventories, adverse weather conditions, not going to go into that. Market environment will improve as we go into 2025 calendar year, but the pricing pressure are expected to persist because the overcapacity levels in China are quite significant across many of these products. What are we trying to do about this? We continue to focus on higher market share. I think we would like to retain the market share. Wherever our capacity expansions have happened, we'll push for even more market share. In the areas where we have expanded capacity and where the demand will take time to pick up, we are trying to develop alternate product to effectively use that capacity, especially in the ethylation chain where we have expanded capacity. I think we are trying to build products, which are not only based on ethylation, but also based on propylation chemistry, so we can utilize that asset more effectively. We are also doing in a couple of places with sort of very minor investments, backward integrations into certain products where we are already a purchaser and where we are already in the downstream product portfolio. So that improves the margin profile for that particular chain. And last one, but most importantly, I think we have invested significantly in our R&D and technology capability. So our ability to churn out new chemistries, new product is phenomenally high. And we are trying to -- in the current market environment, we are trying to see how we can leverage that capability while in an asset-light manner, right? So without investing assets on our own, can we use outsourcing tolling kind of models to serve the customers based on our technical and R&D capabilities. If you go to dyes, pigments and printing inks, I think the big products here are PNCB, DCBH, PNT, 12% of overall revenue share. Here, it's more domestic, roughly 72% domestic, 28% export. On the market side, overall stable. There was a temporary impact of Bangladesh due to political unrest, but it was temporary. The good thing here is that industry is going through consolidation with Sudarshan Chemicals acquiring asset/business of Heubach. An Indian player becoming a major player, of course, helps because we are one of the major raw material suppliers. And there was a recent announcement of ADD on Sulphur Black from China. We supply one of the key intermediates going into that particular molecule, so we expect demand there to grow. On PNT as well, I think there's announcement of initiation of ADD investigation. We will see how it concludes, but that could potentially also have positive impact on this end market, particularly for us. In terms of our focus areas here, I think we actually expect both volume as well as margin improvement in the domestic market, driven by industry consolidation. The major portion of this business actually operates on a sort of spot/short-term contracts. Here, we are trying to see if we can get consistent volume of takes over a longer term by getting into some of the partnerships/offering some specific schemes. Energy Additives, bulk sort of major products here is MMA, of course, and calcium chloride as well, a relatively large part of our portfolio. On an H1 basis, 37% of our revenue came from this segment, dominated by exports. So 77% export only 23% domestic. From a market point of view, as the gasoline-naphtha crack declined, I think it did make the octane boosting economics difficult. And let me actually go to the next slide and come back to the previous slide. This is the data on the gasoline crude crack and the gasoline-naphtha spread. Both these numbers are important because that's what drives the economics of using an additive to boost octane. And as you can see in the Q2, started the -- sort of Q4 onwards going all the way to Q2, the absolute gasoline crude crack also compressed that was driven by higher refinery runs in globally and also a little bit of seasonal patterns. And the recovery in demand as the petrochemical market improves, that means the naphtha cracks improved, which meant that the gasoline-naphtha spread actually got compressed. And in Q2, the compression was quite severe. And that's what was leading to a lower demand for octane boosters in general in the global oil and gas sector. So that was one of the significant reasons for volume impact for MMA in Q2. I think in terms of capacity, yes, few Chinese and Indian players have "announced" or have started manufacturing MMA at small scale, but the capacities are significantly less compared to where we stand. For us, the highlight is we have completed our expansion. Our capacity is now roughly in the range of 200 KTPA and we can expand it even further with a very minor investment. In the last quarter, we have also established bulk shipment capability for our strategic customer. There are certain large customers, which can take volumes in the thousands of KTs kind of order of magnitude. And now we have established that capability of how to serve those customers. We continue to push our efforts to diversify customers and geography base across. We were Middle East heavy for exports. Now we are targeting customers in U.S., Europe, Singapore and as well as refineries globally. We have had initial success in U.S. We have done already a couple of bulk shipments. One actually went in October and we are hoping to scale up that business quite significantly over the course of next 12 to 18 months. We have also built our technical sales capability with the support from market experts. And we are looking for strategic tie-ups in select geographies with local distributors, which can give us access to new refineries. Given the high volumes involved, we are also aggressively working here on cost optimization both in process as well as logistics that will help improve the bottom line significantly going forward. On Pharmaceuticals, the major products we supply here to the likes of PNCB, MDCB, some of the fluorinated compounds, relatively a small part, 9% of total revenue share, but this is completely a domestic story, 99% of the products here gets sold in the domestic market. On the market side, the story remains quite robust. We continue to grow at 8% to 9% per annum. The U.S. Biosecure Act also gives us positive traction from sort of Indian pharma company's point of view. The one specific market here, the PAP market, which is intermediate for paracetamol, that witnesses slowdown due to significant pricing pressure. And the fluoro chain of the products, specifically, because of the overcapacity in that section in China, that does have impact on pricing in the Indian market. Here, we continue to focus on the domestic market. We are trying to increase the share of PNCB in the downstream PAP market. In select cases, wherever we see higher margin potential, we are trying to see export opportunities and, again, focusing on cost improvement efforts so that we increase our competitiveness against Chinese suppliers. And the last end application, Polymer and Additives, 13% of revenue share, PDCB, MPDA and ONA are supposed to be key products that go into the segment here. It's mostly export heavy, 85% exports, 15% domestic. The product goes into applications like automotive, medical devices, electrical electronics and also high temperature resistant polymers. Our steady growth in the end market, there's some dynamic here in terms of global trade flows because one of the key product here, PDCB, which goes into downstream polymer of PPS, there are trade barriers getting established globally, which means it is becoming more of a China and non-China kind of a market. And that's where our business highlights come into picture. We are targeting to increase the market share in the geographies of U.S., Europe and Japan, right, where the competitive intensity is different. We are also focusing on developing new markets for plasticizer additives. Typically operates -- this market operates in a sort of 1- to 3-year contract. There are regular renewals happening. We don't see any challenge over here. Given the nature of the contract here, we are also able to pass on the raw material pricing variation. The long-term contract #2, which was in the polymer additive space, is actually performing well. This year, we are seeing the highest volume from this particular contract. I think given there are lots of conversations around sort of 5 or 6 long-term contracts that we have, we're also giving update contract by contract. I think Contract #1, many of you are aware, was a 10-year supply contract, which was canceled in June 2020, long time back, for which we received a compensation of $120 million. That capacity currently remains underutilized. If you split that plant into 2 sections, precursor and the finished product, I think we are able to now well utilize the precursor capacities that has been very successful over the course of the last 3 to 6 months. However, the downstream capacity, we continue to work to develop new products so that we can utilize that capacity in a much better way. Contract #2, which was a 20-year supply contract for specialty chemical intermediate where the capital employed was also met from a long-term customer advances, that plant, as I said, continues to operate at full capacity. This has been potentially the best year for that contract. And as per this contract term, sort of EBITDA is protected and is not linked to volumes. Contract #3, which was a 10-year supply contract again for a specialty chemical intermediate, operating as per contract terms, this is expected to ramp up to peak levels in FY '27 time frame. Here, the product stabilization and qualification has taken a bit longer time, but the commercial sort of orders and deliveries have already started. And as it ramps up, we hope it will reach a sort of full potential by FY '27 time frame. I think the Contract #4, which was for AgChem intermediate, again, going as per terms and conditions. Here, the peak will happen most likely in the course of next 18 months because we've just expanded the capacity. The molecule produced here is based on the recent expansion. So as we ramp up the capacity, I think the corresponding contractual volumes will also increase. Contract #5, which was a 4-year contract for a new specialty chemical, given this is linked to the oil and gas market, here, we are seeing month-on-month volatility driven by end use. But as I said, from a 4-year time frame point of view, we still see very robust potential for this contract. And Contract #6 is slightly different. It's a 20-year sourcing contract for purchase of nitric acid, which mitigated a risk for Aarti Industries from a key raw material purchase point of view. Again, operating as per contract terms, and it will also give us supply security for one of the key raw materials. This will also -- some of the major savings from this contract will actually kick in, in the second half of FY '26. So that will also help us improve bottom line once those savings start kicking in from the second half of FY '26 point of view. Now, that was on the sort of recent quarter and H1. I think in terms of future outlook and road map, in the current market conditions, management team has taken a step back and charted out a path, more concrete paths in terms of our focus areas and our deliverables from a 3-year standpoint. And if you look at what are the key EBITDA drivers in the near term, right? If you start from here and go to FY '28, I think broadly, we are classifying our focus areas into 3. There is a big focus on cost optimization from where we are trying to see potential -- EBITDA potential of INR 150 crore to INR 200 crore, and I'll go through initiatives in detail. There is a second bucket of volume and margin ramp-up, especially in the areas where we have expanded capacity, where there is almost upside potential possible of INR 350 crore to INR 550 crore on EBITDA terms. And then there is a CapEx-led growth, part of which we had sort of announced in the previous calls, which will start delivering INR 300 crore to INR 450 crore in the kind of time frame that we are talking about FY '25 to 28. On cost optimization, we are doing broadly 3 buckets: steam, power, fixed cost and then a little bit of yield improvements. On steam, several initiatives are already in the play. We've installed back pressure turbines in one of our zone. We continue to expand that to other zones. It's expected to deliver significant savings in terms of steam unlock potential. On renewable power, we did one phase last year, which got commissioned and is actually delivering savings right now. In this Board Meeting, we just approved second phase, which means by the end of 2026, we will have further savings from renewable power and compared to our total external power purchase, by that time, more than 70% of our power will come from renewable source. That will also help us tremendously from a sustainability aspects and meeting our SBTI targets. I think we've taken a lot of initiatives around best energy streams utilization, ETP cost optimization, both from solid waste management disposal point of view, wherever we can use coprocessing versus incineration or reducing the effluent load generation itself. So many of those initiatives will also start accruing over the course of next 6 to 9 months. On fixed cost optimization, I think we went through a phase where we did a lot of CapEx, which is also linked to debottlenecking, asset upgradation, reliability, especially in our Zone 1, Zone 2, Zone 3. As all of that gets completed, we see actually significant opportunity to optimize on fixed cost. And that is a sort of deliberate effort we are launching, and we expect to see savings coming from that as well in the next 6 to 9 months. And then there are initiatives -- technical initiatives, a lot of initiatives around yield improvements, raw material cost optimization. I will not go into details on that. But all of that in near term should give us the benefit of INR 150 crore to INR 200 crore EBITDA. The detailed initiatives are in the play and already under execution. I think on volume and margin ramp-up, Acid, DCB, and NCB, the chains where the capacity expansion happened a bit earlier are already in a ramp-up phase. And we see that over the course of next 1, 1.5 years, those value chains will ramp up, where utilizations could start hitting upwards of 85%, 90% kind of level. I think ethylation and NT volume where the capacity is just now getting commissioned, ramp-up there will happen over a bit more elongated time, but they are also potentially in the course of next 2 years, we will see significant volume uptick without incremental investment. MMA volume ramp-up is a long-term story. We already have a significant capacity available with us. And as I mentioned, we can expand it further with very minor investment. Hence, we see this as a long-term growth story for us. We continue to invest, building our capabilities to serve the energy sector and that could become a significant growth driver for us in mid as well as in long term. And in fluorination and specialty chemicals, wherever we are doing minor debottlenecking, I think that capacity will also start coming into play and will help us improve. So this bucket is a significant bucket of INR 350 crore to INR 550 crore depending on sort of demand and margin uptick. But over the course of next 2 to 3 years, will add significantly to our bottom line. On CapEx-led growth, we recently commissioned our pilot plant in the new Zone 4. That will fuel our new product development because now we have ability to produce the new molecules developed by R&D technology and also get it qualified with end customers early before the actual commissioning of the new assets. So that will help us tremendously. Our client development effort will get accelerated significantly with this pilot plant. The MPP, the multipurpose plant, that we are setting up in Zone 4 likely to get commissioned by the mid of next year, will also give us ramp-up abilities to do molecules depending on margin profile happening at that particular point in time because it's multipurpose, our ability to switch the product portfolio is quite significant over there. And overall, Zone 4 commercialization will happen gradually over the course of next 18 months kind of time frame, but that ramp-up will also start. That ramp-up will not get completed in the 3-year time frame that we are talking about, but it will start accruing to the bottom line as we do phase-wise commissioning. And the UPL JV that we had announced 2 quarters back, that we are expecting that last part of maybe the FY '28 time frame is where we will see some ramp-up in volume and margin coming from that JV as well. So if you look at all the 3 areas, we see a significant EBITDA uptick potential in the near term. And near term, we are defining it as sort of by the FY '28 kind of time frame. Now, from a long term, even beyond FY '28 where -- which are the areas, but where we have to also act now to ensure that we capture upside from there, broadly speaking, as Rajendraji mentioned, our core strengths are around 3 aspects, right, sustainable manufacturing, our R&D-tech capabilities and our customer relationship. And on the basis of that, there are 3 areas we are focusing on. One is, how do we leverage the R&D and tech capability to drive asset-light growth. It's a very unique capability. We feel we are one of the best in the industry as far as domestic market is concerned. And how do we utilize this capability to launch new chemistries and use asset-light model, including tolling, outsourcing, but where we can do commercialization much faster is going to be one priority focus areas. We have already done 2 pilots, some initial success, and we will scale this up as we go through mid- to long-term kind of stuff. Strategic alliances have always remained a priority for AIL and will remain a priority. I think as we speak, there are 5-plus projects where there are active conversations happening for different chemistries. There are different phases. This include likes of backward integration for a polymer where we are already in a long-term tie-up or intermediate for end use in personal care or a polymerization project for oil additives. So there are different types of chemistries for different types of end markets, pretty diversified set of relationships and we hope to conclude some of the strategic partnerships over the course of next 6 to 12 months. And then early bets on new sectors, right? I think we mentioned this, but there are 3 themes we are focusing on where potentially we could grow with partnerships as well as joint ventures. The models could look very different. I think on circularity, chemical recycling, we see a huge upside, both linked on our strength as well as based on domestic market potential. That's the area we continue to remain focused on. Electronic chemicals, we are in active conversations, and we hope to make some early bets to capture the tailwind in that particular sector. And the specialty chemistries used in battery materials remains another focus areas where we are doing joint development with few players, which could potentially commercialize in sort of 3- to 5-year kind of time frame. So putting this together, where do we see from a growth outlook point of view? I think this year is expected to remain broadly similar to last year, roughly INR 1,000 crore to INR 1,050 crore kind of EBITDA, given the challenges that we are going through. But from an FY '28 time frame, I think we are targeting somewhere in the range of INR 1,800 crore to INR 2,200 crore kind of EBITDA, dominantly driven by consistent volume growth over 3 years because of our increased capacities. The operating leverages and the cost optimization initiatives that we talked about will add significantly to EBITDA, which is completely in our control. I think the CapEx plan has been optimized and moderated. So this year is expected to be in the range of INR 1,300 crore to INR 1,500 crore versus earlier estimate of INR 1,500 crore to INR 1,800 crore. So that has gone down. And the CapEx for FY '26 is also estimated to be around INR 1,000 crore. It's a part of Zone 4 and the maintenance CapEx, but significantly lower than the FY '25. I think as a management, the 3-year outlook that we are taking is both on sort of health of the balance sheet as well as the bottom line performance. We are saying that let's target less than 2.5x of debt to EBITDA, ROCE of greater than 15% and EBITDA in the range of INR 1,800 crore to INR 2,200 crore, which we feel is a realistic with a stretch kind of aspiration and feel very confident of delivering on it. So with that, let me conclude. I think the presentation will be available to all of you guys and we are happy to start Q&A. Thank you.

Thank you, sir, for a detailed and insightful presentation. We will now open the forum for question and answer. I think we have around 30 to 40 minutes. [Operator Instructions]

This is Surya from PhillipCapital. Thank you for the detailed presentation, sir. My first question is on the MMA. See, we have seen already the run rate is something like that, almost like INR 2,000 crore kind of run rate that we are currently at, with near about INR 900 crore kind of business in the first half. That is my assessment. And I believe you mentioned that the domestic share of the MMA business is around 23%. Is that right?

So the split of domestic and export was at a segment level, not at a particular product level. So for energy application, which has other products as well, so the ratio is for the energy application, not for a particular product.

Sure. So then my question is that, see, if we have achieved, whatever like, almost like near about INR 1,000-odd crore in the first half and that is at a 45% kind of capacity utilization level, so the annual run rate itself looks like kind of a 1/3 -- or more than 1/3 of the business. From MMA itself, it is more than 1/3 of the business. So now you are also indicating about ramp-up there. So could you give some visibility because this itself becoming -- or looking like a kind of major contributor going ahead. And I think you mentioned that you started this MMA business with a couple of refiners. I think there is a -- if -- and USA is claiming that it is a kind of a larger kind of opportunity and scope of adding new refiners that is also there. So can you give some visibility here in terms of the kind of scope and expansion? And also additional point here, is there a scope of backward integration here? I think you touched upon something here. Can you give some sense about that? How can we grow profitably led by both volume as well as the cost optimization?

So a lot of questions in there, but let me try to do just this. So MMA, as I said, has become a relatively large product for us. The capacity numbers that you saw are after recent expansion. The recent expansion of MMA got concluded literally in the last quarter, which is where it has now become 200 KT. But the way we have done expansion is that we have ability to further add with limited investments. The market pickup will take time, right? The capacity expansion comes in chunks, but the market development will happen a bit more linearly. And that is where, in that context, we took a bit longer time frame for MMA ramp-up. There are 2 levers we are deploying for ramp-up there. One is a geography diversification. As I said, we will mostly Middle East heavy. We have got some success in U.S. right now. And we are planning to see if we can replicate that success for Europe and Singapore as well, right, where there are other sort of gasoline blending hubs globally, that cover sort of major 4 global blending hub. And the other channel, which is where we directly sell to the refineries, where currently, let's say, on an average, we are supplying to 2 to 3 refineries, can we scale that up to 15 to 20 refineries? I don't think we can say with very high degree of confidence that we will be able to scale this up into next 3 to 6 months kind of a time frame, but you take 2- to 3-year kind of time frame, then definitely, both the strategies will play out. I think cracking oil and gas client takes time. But I think once cracked, then potentially there is a long-term business potential and that is the path on which we are on, which is a combination of market outreach and capability building, and we are working on both fronts.

Just an extension. You mentioned that there is an uptick in the month of October for MMA, supply-wise. So is it fair to believe that the bottom has already been achieved? So far, it means -- I mean, the seasonal bottom in the -- for MMA supply during the quarter or 2.

So look, we want to be clear that the market here is linked to what is happening in the refinery market. So it is fair to say that October or Q3 numbers for MMA will look better than the Q2. But using the term bottoming out, I think, is sort of stretching it because ultimately, it depends on how the refinery cracks both gasoline-naphtha delta as well as the gasoline-crude crack evolve over the course of next 2, 3 sort of 6, 9, 12 months kind of time frame, where there are multiple other aspects, right, right from geopolitics to refinery runs to the demand for gasoline and the impact on that from several other factors. So from a near-term outlook point of view, we see recovery in Q3 from a volume point of view. And our objective remains that how do we widen the customer base so much, where even if there is a fluctuation, in the end markets because of the wide customer base, we are still able to utilize our capacity effective.

Just one more question, sir. You have guided about INR 1,050 crore -- INR 1,000 crore to INR 1,050 crore kind of EBITDA for full year. In the first half, I believe already it is 2x of the first half number that you have given as the guidance. That means are you really skeptical even for the second half, although directionally, things are looking positive?

So I think the way I would put it is that as a management, we are giving guidance where we have a relatively higher degree of confidence and probability levels in terms of achieving these numbers, right? In Q4, as the seasonal demand in the U.S. picks up and at the same time, how the AgChem sector typically picks up from a demand and volume point of view, I think we can have that conversion. But right now, the only point I can make is that our current guidance, both for near term as well as for midterm are realistic.

[Operator Instructions]

This is Aditya Khetan from SMIFS Institutional. Sir, my first question is on to the exports market. Sir, on a sequential basis, we have witnessed that the freight costs have gone down. And the U.S. and the European market also demand has been quite steady. Despite that, so we are witnessing a decline in volumes vis-a-vis the other companies who are witnessing a growth trend. So is there any sort of a differential why our volumes are declining over there? And continuing on to this, sir, considering the demand of MMA, so what it is today, and taking a view so 10 years down the line, how you see the demand? Will it be at the same level? Or it will be at a declining trend only for the next 10 years?

So on the first front, actually, we saw the trend other way around. Our freight costs, frankly, were higher, especially in the earlier part of Q2 due to tensions driven in Middle East. I think those started easing out relatively recently in the last few weeks. But for the major portion of the quarter, actually, the freight costs were higher. I think in terms of our products going into the Western markets, frankly, the answer will differ from product to product. So I would not like to generalize it. Coming to the second part of your question, MMA 10-year demand and where it will remain? So again, I want to fundamentally correct here that this is a market development story. This is not a product where market already exists and where we are trying to capture a share, right? MMA at this scale was not used as octane booster until 2, 3 years back. So there is no comparison here in terms of -- this is the market of MMA today and what will be the market of MMA 10 years down the line. The market for this product, if you go by actual numbers or actual trade flow did not exist 2.5, 3 years back. This is the market development that we are creating, we are developing. So to some extent, of course, it is linked to the downstream market economics, but it's also linked to how much market we are able to develop for this particular product.

And sir, you have mentioned that -- so there are some new capacities which are coming into the MMA, into the China market. Any sort of a quantification number you can give, how much capacities has been added over there?

The information is sketchy and limited. The only thing I can say is that we remain the largest player as far as this product is concerned, and I think we will remain by far the largest player for at least in the near future for which we have a visibility. The kind of capabilities that we have built, both from a technology and a cost point of view as well as our ability to service customers, right? We talked about bulk shipment capabilities, we talked about some of the technical know-how. We feel that we have a significant competitive advantage, even if some of the other smaller players come up with sort of small capacity.

Just one more question, if you allow. Sir, on to the exports and on to the MMA, you see so on to the numbers side, we have reached a near bottom and there wouldn't be further decline in volumes from here on, at least?

The way I can answer that question is we have seen uptick in the recent months compared to quarter 2.

[Operator Instructions]

I think we might need someone in front as well for people who are raising their hands.

Rohan here from Nuvama. Sir, first question is on the long-term guidance, which you have just given like almost INR 1,800 crore to INR 2,000 crore kind of EBITDA by '28. Just failed to understand that just almost 6 months back, we were looking at these kind of numbers, I mean, INR 1,700 crore to INR 1,800 crore to be achieved by next year itself. The story has been pushed by almost 2 years. Just wanted to understand the difference, what has been in the last 6 months, whether it was the overoptimism of the earlier management or after you taking the new seat, you have become more conservative?

For you guys to judge, isn't it? But no, I think so 2, 3 things, right, to be fair, and sort of give due credit to the question. The company definitely felt that MMA ramp-up could happen much faster because at that time, the market scenario was like that. If you had a look at those numbers of naphtha-gasoline delta as well as absolute gasoline to crude cracks, if those numbers would have continued, I think we could have had a very different picture today as we are sitting in this room. So I think let's understand that it is difficult to forecast, it is difficult to predict how that market will operate. And depending on how that market is operating, the numbers would have looked very different. And the other aspect was the assumption around how soon the margin pressure on the rest of the portfolio will go away, potentially that has also got a bit more elongated compared to the expectation that earlier we had. So we understand what you're trying to say. But the only thing we will say is that the numbers that we are currently forecasting as a potential guidance, INR 1,800 crore to INR 2,200 crore, are very realistic in current market conditions.

Second is on MMA itself. Like now almost 1/3 of the revenue is coming from MMA. And going forward, we are still confident about the growth in this segment itself. And you also agreed that there is increasing competition from China and even in India also. Definitely, you may have created the category. But when we see that whenever the category is created, the competition is bound to increase. So you just accepted that MMA sounds to be a little bit more commodity kind of in nature in terms of the margins volatility. So do you see that if going forward, we continue to remain in MMA and maybe the revenue share going to maybe 40% kind of thing, the company -- I mean our earnings can be more volatile and it will be difficult for us to predict in the future?

No, the product itself, many people potentially can come in to manufacture. But what we are trying to build here is a bit of a solution-oriented business. It's not a product where you take it and you sell it to anyone for mixing it into either naphtha or gasoline. I think there's a decent amount of know-how that goes into it in terms of what to blend, how to blend, how to achieve the best optimum performance. And that's where I talked about building our technical capability with market experts to do value-added sales to our clients. And that remains unique and that remains special, where the value addition to individual clients would look very, very different. And that's why we feel that we will remain distinctive and we will have competitive advantage as far as this valuation is concerned.

Sir, just last bit from my side, if I'm allowed. In EBITDA breakup, you mentioned that roughly almost from the current CapEx utilization ramp-up and ongoing CapEx, we are looking at roughly INR 350 crore to INR 350 crore, I mean, almost INR 700 crore to INR 800 crore incremental apart from INR 150 crore from the cost optimization. So this INR 300 crore -- I mean, INR 700 crore total from the incurred CapEx, along with the ongoing CapEx, EBITDA of INR 700 crore to INR 800 crore looks quite minimal in terms of the kind of CapEx we have already invested and we plan to invest in future. Some more clarity on that, that what CapEx number you're talking about while you are giving this INR 700 crore to INR 800 crore incremental EBITDA? That's it for my side.

So I think the historical CapEx numbers, you guys are already aware of it. So we're not going to repeat it. But from a current year and next year point of view, we gave the numbers. I think the current year CapEx will be in the range of INR 1,500 crores -- INR 1,300 crores to INR 1,500 crores. And the next year CapEx in the range of INR 1,000 crores, which is a combination of maintenance as well as partly for Zone 4. The numbers forecasted here are only on the basis of this incremental CapEx. We have not accounted for any incremental CapEx, which will happen for either expansion of Zone 4 or newer projects that we talked about from a long-term point of view. So from an incremental CapEx point of view, this year plus next year put together, we are talking about INR 2,300 crores to INR 2,500 crores. If I take out the maintenance CapEx out of it, then it's going to be in the range of INR 2,000 crores to INR 2,300 crores. That's the CapEx we are talking about for this incremental performance.

INR 2,000 crores is whatever we invested so far, right?

Of course.

We have a question here.

Rohit Nagraj from Centrum. So first question, again delving on MMA. I'm referring to Reliance's Q2 presentation. The gasoline market has actually improved Q-o-Q as well as Y-o-Y basis and our volumes have been down. So is it the pricing of the product, which is prohibiting for the refineries to take up the volumes or is there any other factor? Because if the volumes of gasoline are going up, ideally, our volume should have also gone up. So if you can enlighten us on this.

So we're not sure what information you're referring to. I can only sort of refer to the information that we have available in public domain. The product is linked to the margins available for gasoline and the delta between naphtha and gasoline. And those 2 numbers, we showed there is a significant compression on both these 2 numbers on a Q-o-Q basis.

So it's not related to the absolute volumes of gasoline consumption?

I mean indirectly, yes, but look, what is the purpose of the product? The product actually improves the octane performance of a blend, right? So it is improving a functional property for a particular product. So what it is more linked to is the premium available for that improvement. And that is what drives the demand for this product.

Sure. And the second question. As just Rohan asked about the benefit and including the cost benefit that we are targeting maybe INR 800 crores or INR 1,000 crores, will it be a linear incremental EBITDA contribution? Or will it be more like back-ended towards the end of the period that we have talked about?

It will not be back ended.

We've a question here.

Sorry, just a small note here, Mr. Rashesh Gogri has a flight to catch. So I think he is going to leave -- unless and until, you guys have any specific questions for him otherwise.

I think Suyog can answer all the questions. Thank you.

[ Jignesh from Nippon Mutual Funds ]. Just helping more on MMA. So if you take about -- as you mentioned, right now from 2 or 3 clients, you want to ramp it up close to around 15 clients. So how long it will take for you to develop a specific solution for the individual client? And once you develop the solution for a client to understand the efficacy improvement, how much time it will take to test and everything and hence, how long the ramp up can happen on the MMA side -- from the client side actually?

I will answer that question in 2 parts. One is the client development process, right? Any new clients is anywhere between 6-odd months kind of a process, right? You will approach, you will reach out. If there is a basic value proposition, there's a conviction around it, you'll send samples. There are trials. Based on that, certain economic gets established and then you get into a negotiation, right? So the process can take anywhere between 4 to 8 months for individual clients in a normal scenario. Depending on the market scenario, when the margins are good, that can get compressed very fast because people will come to you and ask for a product. When the margins are under pressure, that time gets elongated further because they also want to justify the economics internally. So average time frame I mentioned, but as I said, that will change significantly depending on the market conditions in which we are operating.

Sure. And second question, if you take it right now close to -- you have, say, 2 lakh capacity kind of on the MMA. Hypothetically, gasoline spread remain under pressure. Is there any alternate to utilize this capacity? So I'm saying if you take our next 3 years, clients continue with all additives, doesn't migrate to MMA, for any reason, you can say. Still, you can say you utilize this capacity for other purpose and maintain, you can say, generally INR 2,200 crores kind of EBITDA range, which you get it?

So the current capacity is dedicated for MMA block, right? And MMA as application, there are some other minor application, but this remains the largest application, right? It does go into dyes and pigments as well. But I think oil and gas remains larger applications. So that ramp-up will be linked to how much we are able to penetrate in the oil and gas applications.

We have a question here.

This is [ Manoj from KSA Securities ]. My question is pertaining to give -- Sunrise sectors that is pertaining to chemical recycling, electronics, electronics chemicals and specialty chemicals. Now you just had made the statement while giving the presentation that the company is going to be more about the R&D and it's going to be more about the technological company. Now the world across, there is a lot of many research is going on as far as the chemical recycling is concerned. So could you please take us the vision of Aarti Industries Limited about the cost benefit analysis? How big is the market in India pertaining to all 3 Sunrise sectors and how much revenue we would have envisioned for years to come as far as the Aarti Industries is concerned from its transition to R&D and technological relevant companies, sir?

So I think, to be honest with you, at this point in time, it is difficult to give the revenue potential number. The only thing we can say is that each of these areas are multibillion dollar market areas, right? Chemical -- I mean, recycling circularity as a team itself has multiple aspects under it. There's polyolefin recycling, there is rubber recycling, there is an extraction of precious materials from some of the recycled stuff. Even within chemical recycling, there is a simple pyrolysis oil plant, but at the same time, there are multiple opportunities to upgrade from that pyrolysis oil to different products, which can be used at a much better value. So I think what we -- the areas that we have selected, we have selected from the point of view that they have a decadal tailwinds, right? That demand growth for these sectors will not go away for 10 to 20 years kind of time frame. In fact, there will be a significant demand growth, and that's the intention to focus on these areas. In each of these, we have our own unique niches, right? We are not someone, for example, if I talk about their battery chemicals. We're not going to be the large CapEx player investing into all sorts of battery chemicals. No, that's not the intention at this point in time. I think our intention is to focus on specialty niches where we have certain inherent advantages from our current portfolio, and there is a linkage to what is required in that space versus what we can deliver. And based on that, we are picking up niche pockets. And we are working with partners to make the business happen in those cases. So the opportunity size will get determined based on each of these opportunities. The only thing I can tell you is that we are working with some marquee companies globally at this point in time. And some of those early bets will happen much earlier than later. The true revenue potential from each of these areas, which is scaled up to a level where it becomes part of this presentation, potentially is 2, 3 years down the line.

Sir, any thoughts on about the debt to equity which you have said is almost around 2.5x right now and how fast we can manage our working capital cycle in terms of your inventories, in terms of your debtors, creditors and all that. I'd appreciate you share some colors on that, sir.

Just a small correction, it's not debt to equity, it's debt to EBITDA. Debt to EBITDA currently, I think we are in the range of around 3x, 3.3x kind of a level. I think management's comfort is to operate at less than 2.5x. That's where we feel it's relatively straightforward to manage from a debt-to-EBITDA kind of situation and that's what we are aspiring to reach in the next 2 to 3 years' time frame. Based on our current CapEx program as well as current cash flow that are expected from the existing business, we feel confident we'll be able to hit that target.

We have a question there.

This is Abhijit from Kotak. So you have -- there is -- you mentioned that there's significant room for capacity utilization to increase in nitro toluene, ethylation, MMA as well as PDA, the older capacities. What exactly has held it back thus far? And what needs to change in the environment for you to ramp up and meet those targets?

So all these 3 chains, the answer is different. I think the NT, ethylation and MMA capacity expansion has happened right now as we speak. NT, ethylation is getting commissioned right now where we expanded from 10 to 25 to 30 KT and MMA expansion got completed in the Q2. So it's a gradual course where the ramp-up will happen going forward. I don't think anything has held back. Of course, it has happened at a time frame where margins are under pressure, right? But from a demand point of view, we feel pretty confident that we should be able to ramp up this capacity. The answer for PDA chain is different. I think PDA chain, we had the capacity before and the utilization is now down compared to earlier levels because that's where we see true competition from China, where the capacity is now 5x, 6x of global demand in some of the PDA chain molecules, right? And they're operating at a price point where we may not even participate in some specific clients. That utilization levels will happen. The uptick will happen where we are trying to develop higher end of some of the value-added PDA molecules in a strategic partnership with Western customers. But, early conversations, we will see if they go through some variability in terms of how soon we can see ramp-up in utilization levels over there. But the other 2 chains, I think they're natural course of action where the expansion has happened just now. The ramp-up will happen over the course of next 6, 12, 18 months kind of time frame.

Yes. But I presume they do go into agrochemicals to a significant extent. So...

No, it's different for different. MMA, you guys already know. I think the PDA chain, most of the -- actually, the polymer is a major end use, is not agrochemicals. On NT-ethylation, yes. I think the agrochemical and dyes are the major end markets. So PNT mostly goes into dyes and the ONT and the downstream is an agrochemical product. So different end markets for the 3 different. Do you want to add?

Yes. So I mean just to -- sorry, just one last thing on that point. So NT-ethylation, if the agro market remains broadly the way it is, what line of sight do we have regarding the ramp-up out?

So the 2 things we are doing there, just to get clarity. I think -- and maybe now we're getting into a bit of a technical domain, but the ethylation capacity that we have developed, the way we have built that capacity now is we have also ability to produce other specialty products based on same technology, right? So we do one particular product ag intermediate right now, but we can do now ethylation and propylation based product in the same asset, which are so far not being done by anyone else in India as on date. So our idea is the part of the capacity might be linked to conventional ethylation based products that we were supplying so far, where also volume ramp-up will happen, where we already have 1 contract in place and we are potentially targeting more. But part of the remaining capacity, we can also deploy to do the specialty products for both ethylation as well as propylation based, which are so far being not manufactured in India. That capability has already been established through this expansion.

Got it. Just one last thing from my side. With regard to MMA, implicit in the EBITDA guidance we've given for the full year, this year, INR 1,000 crores, INR 1,050 crores, does the long-term contract that we have there, the INR 6,000 crore contract, are we sort of assuming that, that performs as per full year commitment from the customer? Or there could be some risk in that regard?

Look, I think there is -- first of all, it's a 4-year contract, right? It's not a 1-year contract. And there is a month-on-month, quarter-on-quarter volatility. I think we remain in sort of active discussion with our partner over there on how we can ensure that we deliver as per the contract terms. But there is a volatility. If you go by quarter-on-quarter numbers, there is a volatility, right? And we have to see how the next 6 months play out from a quarter 3 and quarter 4 point of view. But at the same time, if you look at the first half of this year, it was doing beautiful. So I think we will not make judgments based on 1 quarter performance.

We have a question here.

[ Archit from Barclays ]. Suyog, 2 questions for you. One, you have been a consultant for almost 10 years, right? And you understand the importance of predictability in our business. I mean there's a reason why oil and gas gets lower multiples because the predictability is not there. I mean given what happened 6 months back, there was a guidance of INR 1,500 crore for this year's EBITDA that has been cut by 40%. MMA, 30% decline in a quarter, I mean, in terms of volumes. So obviously, I mean, it appears that predictability has gone for a toss. So what can happen to the business which can improve the predictability which can help all the investors? So that is question number one. Question number two is on cash flow. So if you look at the last few years, we have been doing broadly INR 1,000 crore EBITDA. CapEx has been higher than EBITDA, which means FCF negative has been the stage for the last few years. Going forward also, I think, I mean, as the numbers you are mentioning, CapEx will be more than INR 1,000 crore. EBITDA is in that same range. So again, it will be FCF negative. What can happen, what can be changed in the business, which can make it significantly FCF positive? So 2 things predictability and on the FCF.

So we accept the fact that as the MMA got launched, I think the volatility increased in terms of performance. At the same time, I want all of us to also look at the fact that because of that "development," we were actually able to derisk our overall EBITDA performance quite significantly when rest of the chemical market was down, right? So let's also look at the positive side, but we were able to develop that molecule in relatively shorter spend, we were able to expand capacity and capture the market when gasoline-naphtha delta was relatively high. That's one. Second, how do we improve predictability. Is that only by diversifying the risk associated with that particular product, right? And there are 2 ways it will happen. One, I think the remaining part of the business portfolio also grows over the course of time as many of those expansions come into the play. And the second, in MMA, as we were in the initial market development phase, I think the exposure was very concentrated. As we go forward, as we diversify geographies, as we diversify customer basis, I think the volatility there can get mitigated quite significantly is our current thought process. Whether it will happen in immediate 3-month time frame, the answer is most likely no. But whether we can mitigate that volatility over a mid- to long term, I think potentially yes. Some volatility will always remain, irrespective of, however, customer and geography base we develop. In the end market, it's so volatile and some part of that will get impacted to us for sure. But I think we will minimize that to a quite significant extent. On the second part of your question on FCF and cash flow, look, we understand. I think potentially, we have been explicit this time around that we want to go to more than 15% ROCE levels. We want to achieve less than 2.5x debt to EBITDA and that's the path on which we are on. And we feel very confident that now the actions that are being put in place, we should reach to those kind of financial metrics in the time frame that we talked about.

And just one follow-up. So I mean I understand that FY '28 part of the story. And -- but anything on FY '26, '27, I mean, are we looking at a linear? I don't know, I mean, whether linear is possible in this business or not. But any color you can give on FY '26, '27 in terms of improvement for MMA or for the other part of the business?

At this point in time, I think we showed the levers that we are deploying. Some part of these levers will start accruing earlier, right? Some of the cost optimization levers will potentially start accruing much earlier in the second half itself or in the first 2 quarters of the next year. The volume and margin ramp-up story where the capacities have already got expanded, there potentially that potential will accrue over a 3-year time frame and most likely, I guess, in a linear fashion versus the CapEx-led growth will be a little bit back ended. There also MPP will start potentially hitting the bottom line in the next financial year, Zone 4 is likely to impact in the sort of towards the end of the time period that we are talking about. So I think, based on that, I guess you can make the best judgment possible in terms of how the growth trajectory will be there for EBITDA performance.

Priyank here from Vallum Capital. Just you spoke about market development within our MMA product. One is, we would get a more share from the other players is where we can derisk our model as well as you said about market development. What actually you meant about that given that there are a lot of other macro dynamics that are playing out with respect to biofuels, with respect to electrification, with respect to many other LNG usage, hydrogenation? So on the -- how much is there in our control, in our hands, to actually develop this market of MMA for a high octane usage?

I think all those global factors are in play, Priyank, they will remain in play from a next 10- to 20-year time frame point of view. What we are talking about here is the global market for a conventional octane booster like MTBE is 35 million tonnes. We are not even scratching the surface when it comes to the kind of volume that we are talking about here as octane booster, right? So it is more about reaching out, educating the customer about what this product is, it's a relatively new product, how does it function. They have to try it out, see the performance improvement themselves and based on that structural commercial relationship. So all the long-term macro trends that you talked about, valid. But for us, frankly, it's a development phase where the alternate octane boosters are at a scale where right now, we are not even scratching the surface when it comes to that market.

What is the volume of that market today?

The volume of that market will change depending on the performance that your particular product delivers in terms of octane boosting. But -- so without getting into technical details, just to order of magnitude, understand MTBE, which is one of the largest applications of octane boosters is about 35 million tonne market globally.

Sir, in March '23, when we were giving a presentation, we had said that on March '24 gross block, we could lose roughly around INR 2,000 crores to INR 2,100 crores of EBITDA. Now, we are saying that in FY '28, on FY '26 gross block, our EBITDA will be in the range of INR 1,800 crores to INR 2,200 crores. What has fundamentally changed in the business?

I think -- I guess we answered partly that question through the presentation, but there has been genuinely pricing pressure and the margin pressure across the breadth of the portfolio driven by 2 aspects. One, of course, China overcapacity. And second, demand being sort of not as per expectation in many of the product portfolio. Combination of these 2 is what led to the pricing erosion in some of our large molecules. And that's one of the reasons where you see the numbers are today.

Suyog, I have a question. Myself Meet Vora from Emkay Global. I wanted to understand that what will be the dollar per barrel rate at which MMA business will be sustainable?

I don't know which dollar per barrel you're talking about.

Crude.

No, it's nothing to do with crude dollar per barrel. As I explained many times, it is linked to what is the differential available either between naphtha or gasoline or the premium you get for octane boosting. There are 2 markers that we have shown in the chart. And you have seen quarterly evolution of these 2 markers over a time period. You've also seen the MMA volume linked to that. I think from that, you can derive the best judgment.

So is it a fair estimate that if the crude prices are higher, the gasoline prices will catch up to that or not?

As I said, again, it is linked to the delta available for that premium fuel, right? Is delta available for octane enhancement, which drives the demand, not necessarily the absolute price.

Understood. And what is your take on, there's an antidumping investigation happening on aniline. So major portion of our aniline is imported. So what would happen? And what is your take, whether it will come or whether it will not?

To a large extent, it doesn't impact us because the bulk part of our business is export. So we can always do business based on advanced license. Even if there is an ADD, I think it has relatively limited implication on us.

Yog from MoneyWorks4Me. I have a question regarding our cost competitiveness across our product portfolio with regards to Chinese players. Could you give us some more color on that? For our various products, how are we positioned from a cost perspective?

I think across most of our products, we can confidently say that we are very cost competitive. The fact that in today's margin environment, we are able to run our asset almost at full capacity wherever the expansions happened earlier shows you our competitiveness. And we know at these levels, many of the Chinese players are actually bleeding, right, with net negative P&L. And I think that just shows that when it comes to conversion, yield, energy norms, I think we remain one of the best as far as the value chains in which we are concerned.

Just a follow-up on that. Since you stated that they are bleeding, could you give us some more clarity on why they are continuing to sell at the current prices, even though it's not profitable for them?

Difficult for me to answer. I think it's a broader question that chemical industry is facing, and I'm sure you will get some color from your different conversations with sort of a different player. Fundamentally, the only one thing I can comment if I take a step back, I think this industry went through a phase where Chinese started building capacity more from a self-sufficiency point of view in a 2015 to '18, '19 kind of time frame. And that is the direction in which they were on. What happened in -- during the COVID years is that everyone saw sort of abnormal levels of profitability, right? Everyone made a tremendous amount of money in that '21, '22 kind of time frame. That abnormal profitability and with the base assumption that we will continue to grow at our historical rate is what led to Chinese to expand so massively. And 2 things happened simultaneously. One, all of that capacity got commissioned recently based on the money earned during that COVID bonanza years. And that got coupled with a lack of Chinese domestic demand. So that domestic demand of China, which was supposed to expect it to grow at historical growth rate actually never materialized. In fact, in some sector, it went down like real estate, for example. And that is where you see that the basic calculation going wrong where they are now forced to dump that product globally wherever there is a market available, and that's what leads to margin pressure from a near-term time frame.

Just a final follow-up on this point. Do you see any terminal value risk from China over the next 10 years? Or would you say that is not a threat that you all believe you all face?

As you know, Rajendraji mentioned, these are challenging but exciting times, because from a demand pool from our partners, especially in Western market remains very, very strong and very, very robust. Yes, the margin profiles are challenging. But from a 5-, 10-, 15-year story point of view, and I think this is in general true for chemical industry. I think India will remain a preferred destination from both sides. One, our domestic story will continue to get more robust. On any of these aspects, if you look at our current consumption levels, we are way below compared to global standards. So there's a domestic demand story. And at the same time, there is a global market which wants us to supply more, right? So if I -- the question that you asked from a 10-year story point of view, I actually see tailwind remains pretty robust.

[ Archit Joshi from B&K Securities ]. So in your initial remarks, you're talking about PDCB. I think as far as I recall the slide, you've seen volumes decline quite a bit. And you're mentioning something about China, non-China, how the market is divided right now. And the application area that you're talking about, if I understand correctly, it has increasing usage in EV, which is polyphenylene sulphide, if I recall correct. So one of the key exported products that we had maybe 4 or 5 years ago now has seen a reasonable bit of a decline. So what would be your thoughts on that?

Just to correct that, I don't know if you are referring to which number. This is a product which is growing in volume. There's absolutely no pressure in terms of demand growth. The demand remains pretty robust. It's grown in volumes. It has definitely not gone down, and it will continue to grow. As you rightly mentioned, it has in general automotive applications, not necessarily only in EVs, but also in some of the ICE engines, because ultimately, the application, the downstream molecule goes as a sort of heat-resistant polymer. So it's a steady demand growth. We continue to target our customers. The fact that I was mentioning is that because it has become sort of China, non-China market, our ability to target U.S. Europe, Japan is much better, where we get preferred market share from many of our end clients.

Sure. Sir, secondly, I think you're addressing the MTB issue earlier with the previous participant. Just not MTB, I think there are multiple other octane boosters, I think, in North America, because of the availability of corn. Ethanol is a very big octane booster. And I know that you said earlier that you were quite instrumental in making this market itself of MMA. What is the current thought process that notwithstanding the volatility in gasoline cracks? This actually can be a large octane booster in use. So is there an evident market share gain that you might get from ethanol or MTB or maybe some other octane booster and what's the predictability of that to happen in the future?

So the multiple octane boosters used in the market, as you mentioned, from all the way from MTB to ethanol, there are many other chemical components which are also used as a specialty octane boosters. Each end user will determine the blend mix depending on what works best for them from both -- from a performance boost as well as the cost of that performance boost. What gives us confidence is that the fact is we have been able to scale this up to this level in a relatively short-term time frame. So I also want to take a little bit of step back and understand that, look, from nowhere, right, this molecule has scaled up. So definitely, when we are talking to the customers, there is some utility that this product brings, which is where we have seen the scale up happening, which means that it's not like other octane boosters are not available. Other octane -- the demand growth is not led because some other octane boosters has gone down. Despite of availability of octane booster, this particular product has been able to take market share in a relatively short span of time. And that's what gives us confidence that we should be able to ramp up the volumes based on our market development efforts.

Just last one, if I can squeeze in. The SABIC contract, if you could quantify at all, how much would be the EBITDA that we would be deriving yearly?

We don't talk about client-specific contract. It's under confidentiality and definitely, we're not talking any numbers over here. The only point I will make is that all of these long-term contracts and actually, particularly the contracts that are going into polymer application are running at the best throughput historically in this particular year.

One, two last questions we have.

This is Pranitha from Morgan Stanley. I just had a very quick question on the nonenergy side. What is -- do you have any clarity or any visibility on the pricing trends, which the market is seeing on nonenergy, especially on the agrochem side? That's my question.

I think the -- as I said, the margin pressure persists, but potentially from a pricing point of view, we can say that we would have reached the bottom. That's what I think we have been observing since last couple of quarters. So the ability to go down from here, I think, is relatively limited from most players' point of view. So we can make a point that potentially bottomed out. But as I said, the story will change product by product. Agchem is a very diverse sector, right? Different end products have different chemical intermediates. And hence, for a particular product, there always can be a different story, but in general as a sector, at least in our judgment, we would say that the pricing might have bottomed out.

Ankur Periwal from Axis Capital. First question, you had alluded towards China's aggressive capacity expansion and hence, the pricing overall being lower, which had impacted our margins as well. Given the current state of affairs, and we don't know how much excess capacity is there in China, do you think that there could be this extended lower pricing scenario continued for another 1 or maybe 1, 2 years?

Answer will vary from chain-to-chain. For some molecules where the capacity is significantly large in China, that time frame is very much possible. But as I said, we have to look at chain-by-chain, and also, we have to look at our exposure. So for example, NCB chain, where predominantly our exposure is domestic, right, or a pharmaceutical application, where our predominantly exposure is domestic. There potentially the margin pressure should start getting elevated much earlier than later. For something like PDA chain, for example, where the capacities in China are also very large. And our market is also predominantly export, there we could have a bit more longer time from a margin recovery time frame point of view.

Sure. And just a related question. The margin EBITDA guidance that we gave over FY '25 to '28, in these assumptions, are we building in some bit of pricing improvement coming in, maybe some normalization in pricing coming in? Or these are at status quo pricing?

I would say very marginal improvement we have baked in, not a significant one.

Sure. And just last one. On -- historically, we have been pretty aggressive in terms of our CapEx. Even the next 2 years' numbers, '25 and '26, roughly INR 2,500 crores, which is more than the EBITDA, arguably that we'll generate versus earlier when the asset turns were higher or even if you look at EBITDA and gross block, whichever number you want to look at, the numbers have depleted over a year considerably. And given the excess capacity, the global macro, do you think those numbers will improve? And the second part to this is the INR 2,000 crore EBITDA number that you guided for, is that peak utilization for all the capacities, which is INR 2,500 crores incremental and the existing block?

Lots of questions packed in there, but let me try to sort of answer that in a step-by-step manner. First one, just correcting on the CapEx, right? I think our capital deployment and the efficiency of that capital will be very prudent as long -- as far as these next 3.5 years are concerned. The CapEx guidance that we gave was for this year for which INR 670 crores is already spent in the first half, roughly. And in the remaining part of the year, we will do INR 1,300 crores to INR 1,500 crores, right? An incremental INR 1,000 crore over next year, and that's it, right? We're talking about by end of FY '26 and then there is FY '27 and there's FY '28 in which we are sort of generating EBITDA out of it. So I think the calculation that you're making in terms of EBITDA generated over the next 3-year time frame versus capital deployed, I think we might need to sort of relook at those numbers. And the second question is, do we assume the ultimate end potential of all this change that we talked about when it comes to FY '28? Two answers to that question. In some cases, still no. For example, MMA, as I mentioned, going beyond 200 KT is very much possible for me with practically very, very negligible CapEx. So that ramp-up story is a bit more long-term ramp-up story at this point in time. So we will definitely not reach full potential of that chain. I think the -- another story is going to be around margin recovery. As we discussed, we are potentially not baking in the fully normalized margins in many of these chains. So that remains potentially a further upside in a long-term kind of time frame. And even for Zone 4, given we will only have sort of 1 year potential 1, 1.5 year of ramp-up time frame. I think there also, we are assuming a certain part of that portfolio getting commercialized, right? So that also going forward on the deployed CapEx should have better upside. So all the levers mentioned there, it's not that they're reaching their full potential by FY '28 kind of a time frame.

We will have 1 last question.

It's okay. I think we can take 2 or 3 more. I think if there are so many hands up.

[Operator Instructions]

This is Surya again. Just on the new product development side that you have mentioned and you were just alluding also about the new product opportunities. So if you can give some clarity about that because that is part of the Zone 4 that you are -- I think that is what that you are including in the Zone 4 area, I believe.

So I think maybe it's a work in progress. I think we are trying to design that CapEx in a way where we can produce lot more molecules than originally planned, which will ensure better utilization and better profitability from that particular asset. And that's still work in progress, but we potentially could do multiple new value chains in the same asset as we design that plan more like a multipurpose process blocks rather than a dedicated chemistry blocks. I think that is the effort which is ongoing right now. I think the teams are working on it, and we'll have more clarity on it in the next 3 months kind of time frame.

And about the CapEx visibility while we are talking about the CapEx is peaked out now in the current financial year and next year, it is indicated to be kind of a lower number, but -- while you are talking about kind of a collaboration and supply opportunities in the various new areas as well as in the existing line of business, so then that obviously will give an option for a capacity addition given new contracts and all that. So how do you think those kind of supply opportunities, multiyear contracts further going ahead?

Of course, I think if there is any attractive growth opportunities, I think we will pursue it and we will invest behind it. Right now, the visibility that we have given is based on the current approved CapEx and the performance based on that current approved CapEx, right? We continue to remain in the market to explore new growth opportunities. And as and when those attractive opportunity comes up, I think we will be definitely going ahead in terms of the due course from approval and an execution standpoint. I think the only point I will make, and maybe it's related to some of the previous questions, I think our hurdle rate on the CapEx is potentially more stringent now. And given that we have seen this kind of market conditions are sort of meeting the hurdle rate to ensure that the CapEx proposal goes through, it will go through a little bit of testing times in the current margin environment. But we continue to have conversations on many of these new molecules and new partnership projects. Any more questions?

Thanks for the follow-up. Sir, you have transitioned from a consulting to a manufacturing firm, and that's a good transition, obviously. In terms of your imperatives, you have talked about multiple things and focus areas, right, from cost optimization, utilizing the unused capacities, the ongoing CapEx, future CapEx, business development. So what would be your key focus areas as of now? And what would be the supporting environment from the promoter-led family to you? So are you going to be spearheading all the projects? Or will there be any bifurcation in terms of you as a CEO and the promoter-led family?

Rajendraji, do you want to answer that question?

Yes. So basically, the word is Chief Executive Officer. So entire, the execution of the assets, so when the assets are there. The entire asset management and running the assets and getting maximum amount out of it, that becomes his first responsibility on that. And there we will be more of a facilitator in managing with various stakeholders with a lot of customers, suppliers we've over the years, so many relationships and all, so that we believed. Our role will be more in the future, where we should go, how do we evaluate opportunities and then after identifying the opportunities and then further how it grows. So on the growth side and all, our involvement will be much higher in both identification, evaluation and then critically examining and passing the investment side. So there we'll be quite involved.

I think just to give a little bit more color to it. Look, I think the organization was getting professionalized since long time back. I think if you look at our CXO structure, right from our Chief Manufacturing Officer, our Chief Scientific Officer, our Chief Technology Officer, our Chief CHRO, I think all of these guys have come from impeccable pedigree. I think they were hired into AIL system right from 2017 -- 2020, the CXO structure was already established. So in that context, it's not like 1 or 2 people trying to do things. I think the organization is relatively very well established. And that team is committed to deliver what we talked about here today. And as he mentioned, I think they're being available for any guidance sheerly driven by their experience of last 40 years. And from a strategic base point of view, right, when it comes to investments, when it comes to long-term growth potential, of course, their experience and guidance is tremendously valuable.

So effectively, the EBITDA guidance meeting is your prerogative, is it?

Well, as a management team, we take responsibility for performance delivery.

With that, yes. So thanks, everyone. Thank you, members of the management. We hope you found the discussion insightful. Please don't hesitate to come back to us if you have any further questions. Thank you, and have a great day.