Aarti Industries Limited (524208) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Aarti Industries Q4 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you sir.

Thank you. Good evening, everyone, and thank you for joining us on Aarti Industries Q4 and FY '25 Earnings Conference Call. Today, we are joined by senior members of the management team, including Mr. Suyog Kotecha, Executive Director and Chief Executive Officer; and Mr. Chetan Gandhi, Chief Financial Officer. We will commence the call with opening thoughts from Mr. Kotecha on the Q4 and FY '25 performance overview and outlook, post which we shall open the forum for Q&A where the management will be addressing queries of the participants. Just to share our standard disclaimer, certain statements that may be made in today's call may be forward-looking in nature, and the disclaimer to this effect has been included in the results presentation that has been shared earlier and uploaded on stock exchange websites. I would now like to invite Mr. Kotecha to share his perspectives. Thank you, and over to you, sir.

Thank you, Nishid. Good evening, everyone, and thank you for joining us today. Apologies for joining this call 15 minutes late. Let me begin by acknowledging FY '26 has started on a major note, coupled with new uncertainties such as U.S. tariffs. The overall external environment remains volatile, marked by increasing global uncertainties stemming from geopolitical events and evolving trade dynamics, requiring us to remain agile and adaptable in our strategic planning. Having said so, we're seeing encouraging signs of stabilization in demand across several end user industries and underlying volume growth across our businesses. The growth is being supported by our strategic initiatives to diversify our product portfolio, expand our geographical reach and strengthen our customer relationships. Overall, we are well poised to navigate the current volatility and capitalize on the future growth opportunities within the evolving chemical landscape. I'm pleased to share that we ended the challenging year with a positive note. We clocked in total revenue of INR 8,046 crores, posting a growth of about 15%, while EBITDA grew by about 3% to INR 1,016 crores on a consolidated basis. Commercialization of our various projects and higher interest costs in FY '25 did increase the depreciation and finance cost component, resulting in PAT of INR 331 crores. Speaking now about our Q4 performance, it has been steady on a sequential basis. We clocked in revenues of INR 2,214 crores, marking a 9% quarter-on-quarter growth, largely driven by volume recovery across all end applications. EBITDA for the quarter came in at INR 266 crores, reflecting a 13% sequential improvement. Likewise, PAT increased to INR 96 crores, mostly driven by better cost efficiencies achieved through higher volumes. Considering the annual performance, the Board has recommended a final dividend of INR 1 per share for FY '25. Speaking to specific applications, I think volumes for energy application grew 21% quarter-on-quarter linked to our strategy of diversifying and widening customer base and geographical spread as well. On the other hand, the base business has also shown good volume recovery across chains such as nitrotoluene, nitrochlorobenzene and ethylation-based products, also linked by our new capacity additions and improving demand landscape. These segments have also contributed sequential uptick in overall performance and will now remain a focus area moving forward. Volumes in this segment grew by 14% quarter-on-quarter basis. Even agrochemical inventory level seems to have stabilized now. The demand for other end-use applications like dyes, pigments, polymer additives also remains positive. We are anticipating the volumes to continue this growth path as we move forward into the FY '26 time frame. Earlier this year, we signed two renewable energy power purchase agreements for solar and hybrid power with Cleanmax and Prozeal. These agreements are also on track with one of them expected to start delivering within this calendar year and the second one expected to begin by end FY '26 or early FY '27. Upon commencement, this will lower our operational costs and provide sustainability benefits by facilitating also a transition to cleaner, more resilient energy landscape. Sustainability continues to be a key driver and focus area for future road map. I'm happy to inform that AIL has been elevated to the CDP leadership band for its outstanding performance in climate change and water security. Our ESG score also improved significantly to 62 in S&P Global DJSI Index, Dow Jones Sustainability Index, positioning us in top decile of global chemical companies. We have also maintained gold medal for -- in the EcoVadis CSR assessment for 2025, marking our fourth consecutive year of excellence. Our score has also improved to 78%, up from 72% last year. This places us in top 5% of the companies assessed by EcoVadis. AIL has also been granted approval by Indian Chemical Council to use the Responsible Care logo now for a 3-year period from April '25 to March '28. All of these accomplishments reflect our unwavering commitment to the responsible care principles and highlight our dedication to sustainable practices and ethical conduct across all aspects of our operations. In FY '25, several cost optimization initiatives, both variable and fixed, were also successfully completed, and we plan to achieve similar targets in FY '26. The key achievements include successful implementations of back pressure turbine projects to improve steam efficiency, scaling up our power generation through the first phase of hybrid power project, which also helped us reduce carbon footprint and generate cost savings, yield improvements across key products value chains such as ammonolysis, nitrochlorobenzene, Halex and hydrogenation products. Additionally, we continue to take steps to optimize our fixed costs, and we are progressing quite well on that dimension. On CapEx front for FY '25, we stood at about INR 1,372 crores, in line with our expectations. Our large project initiatives at Zone 4 are being executed in phased manner and with the commissioning scheduled to progress in a staggered manner throughout FY '26. Our newly operational pilot plant at Zone 4 has already commenced commercial operations. It will play a vital role in driving new product development, fostering innovation and supporting diversification of our offerings moving forward. Based on our current plan, we expect CapEx for FY '26 to be in the range of INR 950 crores to INR 1,000 crores. To sum up, while the external environment remains volatile, we are encouraged by our business resilience, agile cost control measures and clear path to capital discipline. We are entering FY '26 with a strong execution pipeline, healthier balance sheet and a sharp focus on delivering sustainable and volume-led growth. Thank you, and I now welcome any questions from the participants.

[Operator Instructions] First question is from the line of Kumar Saumya from AMBIT Capital.

Sir, my question is on the volume growth. So if you could give us an indication on the year-on-year volume growth in FY '25 as well as the fourth quarter?

So I think on a fourth quarter -- on a quarter-on-quarter basis, non-energy business grew roughly by 14-odd percentage and the energy business grew by almost 21%. I think that energy business volume growth was also linked to, as we explained in the last call, one of the shipments had got pushed out from Q3 to Q4. So that's the range of volume growth numbers. If you look at year-on-year numbers, FY '24 versus FY '25, we are roughly at around 17% growth at overall portfolio level.

And we expect to continue this growth momentum at least on the volume side?

Look, I think if you look at the capacity utilization numbers that we have given value chain by value chain, clearly shows that we have significant upside to drive volume growth based on existing asset footprint. And we remain very aggressive in the market to capture growth as well as increasing market share to ensure we drive up our capacity utilization level.

Next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

I have a couple of questions. Sir, on to the agrochemical business, we had witnessed that volumes had reported an uptick, but pricing still remain under pressure. Any specific reason, sir, for this? Because the destocking cycle has ended roughly around 9 to 10 months back. So why are the prices still weak?

I think we covered this in some of the earlier conversation. I think overall, our perspective is the inventory destocking story got done some time back. I think there's a genuine demand-supply imbalance issue for the agrochemical intermediates and downstream chemicals. We are seeing volume recovery for sure. But given the amount of overcapacity that exists in China, that incremental volume growth has also served the marginal pricing. And that's where we are not seeing uptick on pricing/margins at this stage. Going forward, especially with the U.S. tariffs announcement, there are some movements happening in the overall agrochemical value chain. And we expect at least from a downstream product flowing to U.S. point of view, there should be positive traction. And in that context, the requirement of intermediate from -- for our domestic customers is expected to go up.

And sir, so this should benefit after the tariff imposition or you think the demand-supply dynamics will automatically adjust and we can see improvement so from the very first day.

No, I think it will take its own time to adjust. What is very clear is that the volume and the demand growth is there. I think pricing and margin is a bit of a complex question to answer because there are second, third order impacts, right? If the downstream exports of Chinese technicals and formulations gets impacted, I think they will also have a tendency of dumping the intermediate product portfolio in the remaining part of the world. And in that context, how the country and as a market, we protect ourselves from that dumping will also determine to some extent, our margin profiles for those intermediates. So I think the impact coming out from U.S. tariffs, especially on the agrochemical sector, I think the second, third order level of impact is yet to become visible. And our sense is it will take a few months to play out.

Got it Sir, when we say that the agrochemicals and pharmaceuticals volumes are witnessing an uptick, even the dye segment also. So why the dichlorobenzene volumes in second half is relatively weak compared to first half?

So dichlorobenzene, the end application is actually polymer, right? It's -- I think PDCB specifically goes into polymer segment, mostly into PPS, which is used into automotive kind of applications. And that segment has been under pressure from a demand point of view. So I think in the first half, we were actually expecting much more inventory correction by some of our customers in U.S. and Japan, and that's what impacted DCB chain volumes. But again, even in that case, we have seen some level of inflow coming in, especially from the U.S. customers. to advance their shipments in the first quarter to have certainty around the tariff impact. So we'll see a slightly different behavior over the next 3 months. But in general, the DCB volume question that you asked was more linked to polymer and application. It was not linked to the other 2 applications.

Got it, sir. Sir, just one last question. Sir, this quarter, SABIC, which is the Saudi chemical giant, so they have also reported loss at the bottom line. And sir, one of our long-term contract is linked with SABIC. So does this change or alter any of the offtake agreements with them?

No, there is no impact on our arrangement at this point in time.

Next question is from the line of Vivek Rajamani from Morgan Stanley.

Congratulations on a good set of numbers. Two questions from me. Firstly, on the MMA side, I think you mentioned in your comments that you have made progress on expanding the customer base as well as the geographic base. Could you just talk a bit more about what kind of customers these are and what kind of impact they could have in terms of the pricing as they ramp up? That's the first question.

So I think the MMA effort, as we mentioned earlier, I think we're obviously trying to diversify consumption, which was more concentrated mostly towards Middle East. Now we are seeing increasing supplies going to U.S., some of the high supplies going into Europe as well as the Indian volume is also looking up. So in that context, the broader geography diversification is playing out. At this point in time, we remain focused on market development, right? And the objective is that we have a significant capacity to produce this particular product. And we remain focused on developing the market and ensuring there is a much wider customer base, which has used the product, understood the value proposition and is able to consume it in sort of larger quantities in their end applications. From a pricing and margin point of view, it's relatively linked to raw material in most cases. And I think most of the global markets do understand it to a great extent now. A alum is a key raw material, which drives ultimately the MMA price. At the same time, there's also impact of the downstream end markets, right? As we've explained before, there is, ultimately, the viability of the product to the end customer is linked to the gasoline naphtha economics and gasoline food economics. So a combination of the two is what determines the pricing. But right now, our focus remains on developing the market for the higher volumes.

Sure, sir. The second question I had was more from the broader customer base. Just wanted to get your thoughts with everything that's happened recently in the past few months, how are the customer conversations generally evolving into the remainder of '25 and '26? Is there more uncertainty? Is there a shift towards probably more short-term contracts? Could you just give us a sense of how the customer is thinking about everything that's been evolving?

So I think if you're asking specifically about MMA, then I think, as I said, we are in a development phase. So I think every conversation is sort of discovery of a new client, taking them through the entire sampling, qualification, trial, test sort of try and test kind of mode. And that journey continues.

Sorry. Yes. No, I was actually talking non-MMA. I think you covered MMA...

On non-MMA, frankly, the volume is still -- the volume growth still looks very strong. I think, yes, the recent events do pose a challenge where some of the customers start going into sort of holding decision kind of mode, right? Because there's so much uncertainty around what's going to happen to tariff, what's going to happen to end market growth? Will there be recessionary pressures? Will growth rates come down. I think in that context, we saw there was a phase in which there is kind of a holding pattern where people start pushing out key decisions. But over the last few weeks, we have also started seeing people coming back, right, and sort of moving on with respect to regular business. In general, we are anticipating the tariff issues to settle down over the course of next 2 to 4 months, and that will definitely bring much more clarity in terms of how the final trade flow.

Next question is from the line of Abhijit Akella from Kotak Securities.

So first on the outlook for fiscal '26, would it be possible to share any revenue or EBITDA kind of targets you have for the year? I know there's a 3-year target out there, but anything you would like to share for fiscal '26, please?

No, I think we are -- Abhijit, we are not talking about specific yearly guidance. We mentioned that last time, right? We've set out a strategy for the 3 year. And I think the only thing I can confirm is we remain on track to deliver that 3-year numbers. Of course, not all of it is back-ended. I think we've also given clarity on initiatives that will lead us to that range, right? And the initiatives are a combination of cost, operating leverage related ramp-ups and then new CapEx-led growth. And in this time's presentations, we have also talked about at least given some indication of which of these initiatives are completed, which of these initiatives are sort of ongoing and in advances of completion. So in that context, what we can say is that we continue to remain optimistic about volume-led growth for the coming financial year. From a 3-year standpoint, we are not changing the guidance that we had given earlier, and we feel confident and remain on track to achieve that.

Okay. Second, just on the tariff impact, are most of the products you export to the U.S. exempt from the tariffs? And if so, what sort of implications, if any, do you see for your business in the context of this whole tariff development?

I think the -- if you want one line summary, then I can say that the overall U.S. tariff impact on AIL is a bit mixed, right? And because it is complex, we have a wide variety of the product portfolio and different products have different implications because some products are part of Annexure 2, some products are not part of Annexure 2. In general, the products where we are directly competing against China. And if they are not exempted, if they are not part of Annexure 2, then in that context, of course, we have a positive tailwind. And likes of, for example, MPD is one of the products in PDA chain, where in the near term, we are seeing positive demand traction because it's not part of exemption and the competition was from China. So there's a clear advantage. While there are some products which are part of exemptions. But even though they are part of exemptions, I think there is a tendency generally coming out from the market to see if they can source better volumes from India provided we are able to meet the pricing expectations. This is the second category of product. And there are a lot of products in that category, especially in the sort of agrochemical and life sciences. And the third category of the product is like, for example, MMA, where we are not really, frankly, competing head on with any particular manufacturer, but it's more of a market development effort that we are doing. In that context, of course, tariffs have a negative impact because they straightaway add cost to the product for the final customer and the economic viability does get a little bit compromised because of increased costs. So I think three types of scenarios I described, all of them have different types of impact. And we are not even talking about second, third order impact, right? Right now, we are talking about a direct product level impact, but in the overall 3 to 4 months' time frame, the second and third order impact will also start to come through in terms of what happens to end-use sector growth, what happens to U.S. demand, what happens to the extra volume that gets freed up from China. So all of that is expected to play out over the course of next few months and quarters. At current level, based on our best judgment, we can say it's a mixed impact on AIL. Certain products are definitely seeing positive traction, whereas for certain products, we're trying to adjust the pricing to ensure that the tariff impact is absorbed by the both sides in a fair manner.

That's really helpful color, actually. And just one last thing for me before I rejoin the queue. Just on the CapEx outlook for fiscal '26, the INR 1,000 crore approx number, what projects specifically is that going into the bulk of it? And from a revenue growth standpoint for fiscal '26, is it coming primarily from better utilization of the existing product capacities? Or are there any significant contributions from the newer projects you are commissioning, say, for example, Zone 4 engine that's getting commissioned?

So I think bulk of the CapEx spend that we have committed right now is going to Zone 4. I think we will complete the Zone 4 CapEx by and large within this financial year. And a significant part of that number is sort of reserved for that. In terms of volume growth for this year, a large part of it will come from existing assets which are already commissioned. Zone 4 staggered commissioning will happen throughout, let's say, quarter 3, quarter 4 of this financial year, especially the multipurpose plant, the calcium chloride plant is expected to start up in Q3. But we don't think there will be a significant addition to volume growth based on this. This will take time to stabilize, ramp up during this financial year. And the volume growth from all of these assets will actually start to get reflected from the next financial year. So yes, this year, I think we are pushing for volume growth from the existing assets which are already stabilized and ramped up.

The next question is from the line of Arun Prasath from Avendus Spark.

Sir my first question is on the impact of the current crude prices on the MMA. So I understand that our -- I mean, probably our realization will also go down as the crude price come down, but what will happen to the spreads, especially the gasoline and naphtha spread? Will it -- historically, has it come down and that will also have an impact on the MMA margins that we will be realizing?

So, Arun, the crude prices have corrected very sharply. And at the absolute level, gasoline and naphtha has also corrected. The gasoline naphtha spread has actually widened a bit, if you look at the March numbers or April number for that matter. So -- and as I described, I think absolute prices are of importance, but at the same time, the delta is also of larger importance because that's what determines the liability of the product. So that's first. Second, as the absolute prices are coming on the crude gasoline side, even the raw material is also coming down quite significantly. So that -- though, of course, there will be a lag in terms of adjusting the raw material from inventory valuation standpoint because bulk of this raw material is imported from out of India. So usually, there's a lag of 1.5, 2 months to get the pricing adjusted from a raw material costing point of view. But there's also a significant correction on that front. In that context, I think overall, we feel if the current gasoline naphtha differentials are maintained, then we are hoping to continue on the volume trajectory.

But directionally, the spread increase on the lower crude price, is it a short-term event and it will revert to the mean over the medium term? Is it the right understanding?

Frankly, I would be totally honest, very difficult for us to forecast on gasoline naphtha spread, especially different crude price environment. I think I have seen now forecast from three different agencies in the last 6 months, and none of them have panned out the way it was supposed to be. So what we remain focused on is to ensure that what's important for us at this point in time is that the product is available to more and more customers in the global market. And that's what we remain focused on. The current level of differentials is good enough for people to try out this product and sort of scale up the usage of this product. And third aspect is we continue to optimize on our cost, right, both raw material as well as operating costs to ensure that we are able to offer better value proposition to our customers.

Right. Understood. Second question is on our EBITDA -- 3-year EBITDA growth outlook that we have given out of the 3 buckets. One is cost optimization and then volume ramp-up and then CapEx-led growth. Is it fair to assume that cost optimization that we will be realizing this year in FY '26?

From an implementation point of view, bulk of it will get done in FY '26. From an EBITDA accrual of that saving initiative point of view, it will go into -- I think the full accruals will happen into next -- sort of not in this financial year, but the next financial year, especially the hybrid projects, which are expected to contribute also significant value, they will start accruing to bottom line fully from start of FY '27. So implementation-wise, yes, accrual point of view, slightly delayed.

Even for the cost optimization bucket?

Yes, especially the hybrid power part of it.

Okay. Understood. So largely, this '26 fiscal earnings growth will be led by the macro parameters?

Yes. I think as we said, I think we remain focused on driving up utilization of surplus capacity that we have in the existing and then continue to optimize the cost.

Next question is from the line of [ Dikshant Gupta from Geojit PMS ].

So my question was what exactly would be the reason for higher expense growth than the sales growth, even though the sales volume has grown a lot, but number-wise, the expenses have grown a lot, but the sales number has not grown as much. So what would you attribute that to?

So there's an increase in global of shipments. So the export numbers have been significantly higher. If I have to put the number out, 55% of revenue for the quarter is from export as compared to the previous period where it was close to 48%, 50% kind of stuff. So that has resulted into increase in the freight cost.

Okay. And you will -- you are saying that after the cost optimization takes place, then the margins will improve and this profitability will go up.

Yes, that is how it will pan out.

And with decreasing price crude oil and petrochemical prices, do you see that the volume growth can offset the pricing pressure?

I think both, frankly, are a little bit delayed. I think the -- for us, from a -- if you look at the reducing price environment, right, if you really want to sort of go a bit deeper into the analysis, what are the major raw materials that we consume, we have benzene, we have nitric acid, we have aniline, right, and we have toluene to some extent, out of which benzene and nitric acid, we practically operate on very, very limited inventory. We are talking about 1 to 5 days kind of inventory. So in that context, the pricing impact in our inventory is immediate, right? So our ability to manage that to our customer is very, very high versus aniline is where we import the raw material. So of course, we have to maintain certain inventory and then there is a 1.5, 2-month lag in terms of reflecting the latest market pricing into our inventory valuation, which is where we have to manage the inventory valuations to some extent while ensuring that we give the best possible service to our customers. But -- so on a net-net basis, from a volume growth point of view, we manage our inventories and pricing in a way where we don't let that impact our volume growth. And that's been the philosophy for the operations.

The next question is from the line of Harsh Shah from HSBC Asset Management.

Just one question. In your balance sheet, your debt days have reduced on a Y-o-Y basis. Inventory days more or less is the same. But your payable days have more than doubled. What is the reason for that? Because if you look at from a cash flow perspective also apart from operations, increase in debtor days has led to a significant cash flow accretion for you in this year. So, yes, what is the reason for that?

It's more of some of the imports of raw materials and everything comes at a longer credit, which is why the numbers have gone up. And also the aniline consumption over the last 12 months have been significantly higher. If you look at the volume data of different products, MMA, the volume numbers across 2 years have increased by more than 38 to 38% or so. So that has resulted in higher consumption of aniline, higher import of longer credit.

Okay. Okay. And entering FY '26, will this remain like this? Or will this reduce because this is again also one of the reasons why as such your net debt has remained range bound.

It should remain lumpy like this with increase in the volumes, probably there could be a bit of an uptick opportunity available. But broadly, I will say between here and a bit of increase in those numbers, we will be midway.

So as a company basis in the whole of FY '26 or you can also guide for H1 if the outlook is still not there. what is the overall working capital days that you are looking at?

It should be somewhere between 70 to 80 days kind of stuff. We will work of some numbers, but...

Because ideally, that will lead to reduction in payable days, which will again shoot up your debt position. Your cash may not be able to handle that much of reduction in payables.

If you look at the absolute number of working capital, I think we feel pretty comfortable with where we are. And I think without increasing the absolute rupees crores in working capital, we should be able to handle the FY '26 volume-led growth is our current...

Okay. Sorry, just last question from my end is with respect to net debt, you closed the year somewhere around INR 3,500 crores. For FY '26, how will this number look like figuratively or directionally?

So directionally, I guess we would have peaked out. We expect the number to be lower. We are expecting some unlocking of cash flow from working capital as well. So plus the CapEx intensity is also going down. So directionally, I expect the number to be lower by maybe INR 200 crores, INR 300 crores kind of...

Next question is from the line of Vishesh Dhoka from Nuvama.

Archit here from Nuvama. Here from Nuvama. Sir, I wanted to get a better sense of growth prospects in FY '26, given that we have -- given our utilization levels, I think it's quite conceivable that PDA, nitrotoluene and ethylation, these are the kind of low-hanging fruits here. What would be the utilization of NCB and DCB given that we are above 70%, even in hydrogenation, what -- where could we peak out? And if you could just give a directional sense of how do we see these three value chains of PDA, nitrotoluene and ethylation in terms of any visibility that you can give with regards to volume growth in FY '26?

Look, I think we'll talk about value chain specifically. On -- so let me start with PDA, which has frankly been underperformer for the last few years. If you go by the current latest trends, I think we expect a significant uptick in utilization levels because of increasing demand in U.S. given by tariff issues. So that chain should see higher level of utilization compared to last year. NCB, nitrochlorobenzene as a chain, given a couple of large customers are increasing their capacity. Bulk of the application there is pharma and both large customers are increasing capacity. So through the year, we also expect the NCB capacity utilization to go up from the current levels. DCB, frankly, we expect maybe we should be able to maintain the current level of utilization level. This is where we are -- there's a mixed bag in terms of the downstream consumer demand of PPS, which is going into automotive, a little bit of pressure and depending on how U.S. and Japan plays out, there could be some impact on the demand of DCB chain. So broadly, maybe we are able to maintain the current utilization levels. And nitrotoluene and ethylation are linked to each other because NT provides raw material for the ethylation chain. That's where the life cycle -- sorry, the life sciences and the agrochemical story comes into play. We are expecting higher utilization compared to last year for this particular chain. But it is a ramp-up process because we expanded capacity very recently. The full capacity actually got proven only in Q4 FY '25. So it will take a bit of a time to ramp up the capacity utilization levels, but nonetheless, the number should be better than the last year.

Sure, sir. Got it. That's helpful. I just have another one on MMA. I was just reading some articles with regards to some new competition beefing up in China. I think there's a company named Jiangsu New Materials who has planned a 4 lakh tonne capacity, almost double of our size. While I'm aware that the opportunity for developing this market is immense, but do we see this trend of either switching from MTBE to MMA or developing this market even in other areas is becoming a trend? And would that be of any impact to us in the near to midterm?

No, I think competition will come, right? I think people do track us closely. And in that context, it is expected that competition will come up as and when we scale up certain products. But that's perfectly fine. If more people are trying to develop the market, it also works in industry's favor. We do have a certain unique advantage for this particular product. I think, of course, we have a head start in terms of supply chain capabilities that we have built over the course of last 2 years that allows us to do some unique things which are not available to a lot of other players including, I think, some of the freight components, especially if you're sending bulk shipments to Middle East or Europe or U.S., I think we are slightly better positioned at this stage compared to competition. And in addition to that, I think we remain sort of in the market aggressively to expand more and more customer base. So of course, we are expecting competition in the product and people will ramp up capacities over the course of -- we don't know maybe a year, maybe 2. But at the same time, we feel the market is large enough to absorb the volumes, and we do build certain competitive advantages, which allows us to better capture the market share.

Next question is from the line of Surya Narayan Patra from PhilipCapital.

My first question is on, let's say, on the MMA. Sir, since it is a new product area, and we have been seeing a kind of a rapid expansion in terms of volume over the last few years. So given the kind of new customer addition and all that, so how to see the progression and the growth in terms of volume for this product, let's say, for FY '26?

I think we've described what's our current capacity. And also said that over the course of next 2 years, we are targeting to utilize that capacity. And that's where I think we will remain focused. Whether we take 12 months, 18 months, 24 months to reach to a decent level of capacity utilization will be linked to the success of market development efforts. But that's the overall strategic direction that the current capacity numbers, we should be able to develop market good enough to absorb that volume in a 2-year kind of time frame.

Okay. Okay. Overall, let's say, the overall growth for FY '25, if you see, it is entirely led by the volume-led growth. So given the kind of new projects that we commissioned in the later part of the FY '25 and hopefully and potentially the chloro toluene, which is likely to also come in the second half of FY '26 and also the likely ramp-up in the MMA volumes given the new customer addition. So going ahead for FY '26, is it fair to believe that the volume-led growth, again, it would be a volume-led growth and the volume-led growth would be better in FY '26 compared to '25?

So right now, our base assumption, we are factoring in most of the growth led by volumes. So we are not factoring a significant recovery in the margins because we don't see the demand-supply imbalances from China getting corrected soon. However, though that's correct at a macro level, I think from a near-term point of view, there are events which are difficult to predict, right? How the U.S. tariff scenario will pan out, how the geopolitical uncertainty will pan out. It is difficult to correct at this stage. But from a management's focus point of view, I think we remain focused on delivering the volume growth. Margin is a function of a lot of external factors as well. If there is opportunity, we'll capture it, right? But that's not a base assumption with which we are going into the financial year.

Okay. Okay. Just even slightly more clarification. Is it fair to believe that the volume-led growth what we are talking about for FY '26, that would be higher than FY '25 growth what we have seen or not predictable at this moment?

I think difficult to comment. Look, I think we don't want to start talking about sort of quarter-on-quarter exact sort of volume growth. I think we have certain assets. We have been very transparent with respect to where we are on the capacity utilization for these assets. And in a 3-year plan, if you see bulk of the operating leverage-oriented initiatives, we are targeting to finish it in the first 2 years, right? And that's where we expect most of our assets, barring a few where we have, let's say, costing issues, where we are not competitive with respect to the world-scale assets from other players, we should be able to reach respectable level of utilization levels within the first 2 years kind of time frame.

Okay. Sir, since it is the full year result that we are discussing, is it possible to just update about what is the kind of level of performance that we are having for the long-term contracts? So whether we are in the expected lines or it is slightly below given the kind of demand situation that is prevailing currently or how should we be thinking about the long-term contracts that we've been doing so far for FY '25? And what is the likely outlook for those contracts for FY '26?

Yes. Look, I think contractually speaking, the -- I will take the simpler ones first. I think the 20-year purchase agreement that we have for nitric acid continues to perform exactly as per contract. No issues on that front. The other project that we have, which is where sort of our profitability is ensured, right, polymer application with a global major. I think that continues to run very well. No changes on that front. And there's another contract which we had with U.S. major for a very advanced specialty polymer intermediate which has started ramping up only last year. We are expecting that to do even better in the coming year, right, with the asset now stabilizing and sort of demand kind of picking up. I think those are the easier ones. I think rest of the contracts are sort of -- they're kind of sort of supply contracts for some of the key intermediates. There individually, depending on the end market applications, there will be a variation, right? I think the contracts ensure that there's a relationship between the two parties where we have sort of privileged access to each other, and there are certain contractual terms in terms of volumes and pricing. But they do vary linked to market conditions, and that's how it is playing out at this point in time.

Okay. Sir, just one question for the Chetan, sir. So what is the export number for the quarter, sir?

The export number for the quarter was roughly INR 1,240 crores.

Okay. INR 1,240 crores. Okay. So there is a kind of marked improvement sequentially that we...

Yes. So as I said earlier, and it was shared in the last call, a couple of bulk shipments of exports, which were expected to move out in Q3, end of Q3, which did move and which moved out in Q4. So that has also been one of the factors why some of the bit of this number is higher. But yes, there's a significant improvement in export volumes as we're witnessing.

And so if there would be a kind of a normalization in the export, then the other expenses are also likely to see a normalization going ahead? Or how...

Export has a higher component of freight, which is why you see the other expenses going up. If I have to specifically look at the fixed actually has been lower on a sequential basis or more like a lower to flattish kind of a situation. It's more of this.

Next question is from the line of Siddharth Gadekar from Equirus.

First on the tax rate, how should we think about the tax rate for FY '26?

We have -- we'll still have one more year of heavy CapEx cycle, which is where the IT depreciation is going to be high. So we'll continue to remain lower and subdued on the tax rate. I know this year, we've been negative on the tax rate level. I expect it to be in somewhere close to mid-single digit in next year.

Okay. Secondly, on the trade payables, I was not clear on your answer that trade payables have jumped by INR 600-plus crores this year. How should we think about this number going into FY '26 and '27?

I believe there will be a potential uptick of maybe around INR 100 crores to INR 150 crores in maybe INR 100 crores to INR 200 crores in next year, assuming the volumes continue to grow in the trajectory.

The trade payables will increase, you're saying by another INR 100 crores. Okay got it.

Next question is from the line of Jay Bharat Trivedi from InCred AMC.

First question I have is with regards to the CapEx that we are doing, the INR 1,000 crore CapEx that we have estimated, how much of it would be maintenance CapEx? And how much of it is in the nature of new chemistries or new products what we are getting into?

I guess the maintenance CapEx and some CapEx related to some of the initiatives which are there on existing product should be in the range of INR 150 crores to INR 200 crores or so. Beyond that, everything will be for the new initiatives. The Zone 4 is going to be a bulk of that.

Okay. So INR 150 crores to INR 200 crores is the maintenance CapEx and rest is for new products, correct?

Yes. Yes.

Okay, sir. And just quickly doing some numbers on the guidance which you have given for FY '28. For the INR 1,800 crores to INR 2,200 crores EBITDA, will our PAT fall around INR 900 crores to INR 1,000 crores in the INR 900 crores to INR 1,000 crores range? Or am I far off? I don't want an exact number, but am I in the same lines what your assumptions are or...

If I look at FY '28, my depreciation, which is currently at around INR 430-odd crores should be somewhere between INR 580 crores to INR 600 crores, within INR 580 crores to INR 620 crores. So let's assume INR 600 crores to INR 620 crores on the depreciation. Interest, I'm not sure what's going to be the interest rate scenario, but let us assume a current number of around INR 250 crores to INR 70-odd crores, then we will have around roughly INR 850 crores going out. So I would assume INR 1,800 crores, we will be somewhere between crores, INR 2,000 crores at a PBT level. And at INR 2,200 crores, we'll be somewhere between close to INR 1,200 crores, INR 1,300 crores.

Next question is from the line of Meet Vora from Emkay Global.

Just on this MMA side, so while we are seeing that in U.S. market, it would add extra cost on the consumer and there could be some impact because of absorbing this cost at the end. My understanding was that this is imported by blenders for re-exports and thus tariff will not be applicable. So is MMA a part of exempt list or is it not?

No, MMA is not part of exempted.

And is it used for export re-exports or tariff will be applicable on this?

No. Our current understanding is tariff will be applicable on this.

Okay. And secondly, as regards to MPDA, we have seen -- have we seen any benefit coming in Q4 because of maybe prebuying or we'll see that largely in Q1? And also, say, in terms of FY '26, will Q1, we'll see higher volumes and maybe say once tariffs taper off, will we see rollback in Q2 because we have significant capacities compared to the utilization right now. So I was just trying to gauge the benefit of this MPDA product.

No. So I think the tariff announcements only came in April 1 week. So in that context, we saw upside or we're seeing upside as we speak from this quarter standpoint. How does it stabilize in the mid- to long term will depend on sort of how the tariff situation finally settles down. But yes, from a Q1 point of view, on this specific molecule, we do see some upside.

Ladies and gentlemen, we will take this as the last question for the day. I would now like to hand the conference over to the management for the closing comments.

So, thank you, everyone, for taking out time late evening. As we mentioned earlier, I think despite a challenging year, we ended a year, I would say, on a positive note with a year-on-year growth, both on revenue as well as on EBITDA. As we get into FY '26, despite volatile macros, we remain quite focused on driving all the cost improvement initiatives, remain very agile in our business operations to ensure that we take opportunities wherever available given the geopolitical uncertainty. And in that context, remain committed to deliver on our 3-year guidance. Thank you, everyone, and have a good night.

Thank you, sir. On behalf of Aarti Industries, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.