Aarti Industries Limited — Q1 FY26 earnings call

Call held 8 Aug 2025

Management summary

Aarti Industries navigated a complex Q1 FY26, marked by significant external headwinds including input price corrections, global trade instability, and domestic operational disruptions. Despite these challenges, the company maintained its strategic focus on capacity expansion and cost optimization, with key projects like Zone IV and MPP on track for phased commissioning from H2 FY26. While profitability was impacted by inventory losses and export deferments, underlying demand remains stable, and management expects recovery in the second half of the fiscal year.

Highlights

  • Revenue stood at ₹1,867 crore, a decline of 16% QoQ.

  • EBITDA came in at ₹215 crore, reflecting a decline of 19% QoQ.

  • Profit After Tax (PAT) was ₹43 crore for the quarter.

  • Q1 Capex was ₹280 crore, with FY26 guidance below ₹1,000 crore.

  • EBITDA was impacted by ₹30 crore in inventory valuation losses and ₹15-20 crore from export deferment.

  • Zone IV projects and Multipurpose Plant (MPP) commissioning are expected in a phased manner from H2 FY26.

  • US business, accounting for 15-20% of revenues, faces potential impact from new 25% tariffs on Indian imports.

  • MMA capacity scaled up from 200 KTPA to 260 KTPA.

Concerns

  • External Headwinds (Geopolitical & Market-driven)

  • Logistical Disruptions and Export Deferments

  • Inventory Valuation Losses

  • US Tariffs on Indian Imports

Key financials

2 periods

Headline

  • Revenue
    ₹1,867 Cr
    QoQ -16%
  • EBITDA
    ₹215 Cr
    QoQ -19%
  • PAT
    ₹43 Cr
  • Inventory Valuation Losses
    ₹30 Cr
  • EBITDA Deferment (Logistics)
    ₹15 Cr
  • Foreign Exchange Gain
    ₹16 Cr

Q1

  • Capex
    ₹280 Cr
  • Exports
    ₹950 Cr

What they filed

Q1 FY27: revenue up 37.0%, net profit up 227.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,717 1,749 1,992 1,636 2,084 +21%2,276 +30%2,439 +22%2,241 +37%
EBITDA199 230 265 212 284 +43%318 +38%349 +32%366 +73%
Net profit55 47 99 44 102 +85%131 +179%147 +48%144 +227%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹280 Cr this quarter · ₹1,000 Cr (FY26) planned Cut — Changed capital allocation strategy, becoming more stringent
    • Zone IV projects
    • Multipurpose Plant (MPP)
    • Nitrotoluene capacity expansion (30 to 45 KTPA)
    • Ethylation capacity expansion (10 to 30 KTPA)
    • MMA capacity expansion (200 to 260 KTPA)

    Previously planned ₹1,300 Cr

    Capex for the quarter was at about Rs. 280 crore and is expected to be below Rs. 1,000 crore for the year FY26, as guided earlier. Our Zone IV projects are progressing well and expected to commercialise in a phased manner from H2 FY26. These projects will add a host of newer products with better margin profile and support the margin improvement over the long term. I think last year, somewhere around Rs.1,300-1,400 of capex, this year, Rs.1,000 crore and next year, the number will drop dramatically.
  • Debt Net ₹3,500 Cr
    I guess in the previous call you had stated that net debt had peaked at around Rs.3,500 crore and we will be reducing it by Rs.200 to 300 crore in FY26. So, you are sticking to that guidance? Yes, we will be sticking to that guidance. I think we will remain roughly at around that level, right? I think of course from a working capital optimization point of view you will see Rs.100-200 crore upside-downside. But we do not expect material increase to that number. But broadly we should remain around that level. The finance cost reduction is; structurally we have been witnessing a bit of a softer rate regime and we expect the softer rates to continue. So, it is a result of that.
  • M&A Augene Chemical Pvt Ltd (JV with UPL) Joint venture · Pending regulatory

    Project execution progressing well, market development activities initiated.

    Augene Chemical Pvt Ltd (JV with UPL): Project execution is progressing well, with commissioning expected in H1 CY26, and market development activities have been initiated to establish our presence
  • M&A Re Aarti Pvt Ltd (Investment through Aarti Circularity Ltd.) Investment · Pending regulatory

    Achieved key milestone with technology selection, pre-processing design and capex finalization in progress.

    Re Aarti Pvt Ltd (Investment through Aarti Circularity Ltd.): The project has achieved a key milestone with the completion of technology selection. Pre-processing design and capex finalization are currently in progress. We expect commercial operations to start in early FY27.
  • Liquidity Liquidity disclosed Working capital increased due to postponed shipments (inventory locked up at port/plant) and delayed customer receivables.
    So, the working capital has gone for two reasons. One is, as you know, there are a couple of shipments which had to go in June, those got postponed to July. So, the inventory got locked up at the port and at the plant. So, that was one component. Also, some customer receivable got delayed by a week or 10 days, which is where you have seen a temporary uptick in the working capital and so on the debt level.

Guidance & targets

Capex

  • FY26 Capex Capex · FY26 · High confidence below ₹1,000 crore

    Previously ₹1,300-1,400 crore (FY25) → below ₹1,000 crore

    Capex for the quarter was at about Rs. 280 crore and is expected to be below Rs. 1,000 crore for the year FY26, as guided earlier. I think last year, somewhere around Rs.1,300-1,400 of capex, this year, Rs.1,000 crore and next year, the number will drop dramatically.

    — Suyog Kotecha

Debt

  • Net Debt Reduction Debt · FY26 · High confidence ₹200-300 crore
    I guess in the previous call you had stated that net debt had peaked at around Rs.3,500 crore and we will be reducing it by Rs.200 to 300 crore in FY26. So, you are sticking to that guidance? Yes, we will be sticking to that guidance.

    — Chetan Gandhi

Capacity

  • Zone IV Phase 1 Commissioning Capacity · CY25 · High confidence by December 2025
    In the first phase, the multipurpose plant and a calcium chloride unit, we are expected to commission by the end of this year. So, around December of this calendar year is when the first phase-I will go live from a commissioning point of view.

    — Suyog Kotecha

  • Zone IV Remaining Blocks Commissioning Capacity · CY26 · High confidence Jan to May next year
    The remaining blocks, there are five additional blocks, they will go through phase-wise commissioning from Jan to May next year, kind of a timeframe.

    — Suyog Kotecha

Profitability

  • Zone IV/MPP Products EBITDA Margin Profitability · Long term · High confidence 20%+ EBITDA margin profile
    So, 20% plus EBITDA kind of margin profile for most of these products.

    — Suyog Kotecha

Project Timeline

  • Augene Chemical Pvt Ltd (JV) Commissioning Project Timeline · H1 CY26 · High confidence H1 CY26
    Augene Chemical Pvt Ltd (JV with UPL): Project execution is progressing well, with commissioning expected in H1 CY26, and market development activities have been initiated to establish our presence

    — Suyog Kotecha

  • Re Aarti Pvt Ltd Commercial Operations Project Timeline · FY27 · High confidence early FY27
    We expect commercial operations to start in early FY27.

    — Suyog Kotecha

Cost Optimization

  • Cost Saving Initiatives Implementation Cost Optimization · within this year · High confidence 60-70% implemented
    I think from implementation point of view, we should be done; up to 60%-70% of it should get implemented within this year.

    — Suyog Kotecha

EBITDA

  • 3-Year EBITDA Guidance EBITDA · 3 years · High confidence ₹1,800 crore
    I mean, if you could just share some outlook for FY26? So, as a management, we have taken a call to a three-year guidance, and we stick to that.

    — Suyog Kotecha

Tax Rate

  • FY26 Tax Rate Tax Rate · FY26 · Medium confidence a bit lower than mid-single digit
    On the tax rate, do you still maintain your expectation for mid-single digit this year or could it be lower? It could be a bit lower than mid-single digit.

    — Chetan Gandhi

What to watch in Q2 FY26

Zone IV Phase 1 Commissioning

by December 2025
Current Under advanced stages of mechanical completion and handover
Target Commercial operations for multipurpose plant and calcium chloride unit

Why it matters

Key milestone for new, higher-margin products, contributing to FY26/FY27 growth and margin improvement.

In the first phase, the multipurpose plant and a calcium chloride unit, we are expected to commission by the end of this year. So, around December of this calendar year is when the first phase-I will go live from a commissioning point of view.

Risks & concerns

  • External Headwinds (Geopolitical & Market-driven)

    high

    Q1 FY26 was impacted by input price corrections (benzene, aniline down 15-20%), global trade instability (US tariffs, Israel-Iran conflict), and domestic issues (India-Pakistan tensions, Kandla Port shutdowns).

    Management acknowledged

  • Logistical Disruptions and Export Deferments

    high

    Israel-Iran conflict and Kandla Port issues led to shipping delays and rerouting, spilling over into Q2, causing ₹15-20 crore EBITDA deferment.

    Management acknowledged

  • Inventory Valuation Losses

    high

    Steep correction in key input prices led to inventory valuation losses of ₹30 crore.

    Management acknowledged

  • US Tariffs on Indian Imports

    high

    New 25% tariff on Indian imports creates market uncertainty, potentially impacting 15-20% of revenues; mitigation measures are being assessed.

    Management acknowledged

  • Competition and Pricing Pressure

    medium

    Pricing pressure in MMA due to competition and decreasing raw material prices, and in agrochemical intermediates; DCB faces competition from European players.

    Management acknowledged

  • Demand Softness in Specific Segments

    medium

    DCB experienced significantly lower demand from US automotive customers due to inventory liquidation and uncertainty; agrochemical intermediates face continued pricing pressure.

    Management acknowledged

  • Increased Working Capital

    medium

    Working capital increased due to postponed shipments (inventory locked up) and delayed customer receivables.

    Management acknowledged

Q&A highlights

6 direct
MMA business performance and impact of disruptions Direct
I think the answer is yes. And I think to answer it simply, Vivek, maybe we should look at our July export numbers of MMA, which are now, I guess, available in public domain. Roughly, I think we have clocked somewhere in the range of 20,000-22,000 tons of MMA exports in the month of July, which was a combination of deferred shipments from June due to geopolitics issues and then further additional orders during the month of July.

Clarifies that MMA performance was indeed negatively impacted by external disruptions, with July exports showing a rebound from deferred shipments.

Asked by Vivek Rajamani

DCB volume decline and outlook Direct
Yes, DCB, I think it was potentially one of the weakest quarters and it was driven by significantly lower demand from our US customers, where they convert this into advanced polymer, which ultimately gets utilized in automotive applications. ... But given we have sort of annual contracts secured with some of the major customers, we are confident of recovering these volumes in the second half.

Explains the reasons for DCB's poor performance (US automotive demand, inventory liquidation) and provides a clear expectation for recovery in H2 FY26.

Asked by Nitesh Dhoot

Zone IV and MPP commissioning details and margin accretion Direct
In the first phase, the multipurpose plant and a calcium chloride unit, we are expected to commission by the end of this year. ... The remaining blocks, there are five additional blocks, they will go through phase-wise commissioning from Jan to May next year... So, 20% plus EBITDA kind of margin profile for most of these products.

Provides specific timelines for phased commissioning of new capacities and quantifies the expected high-margin profile of these new products.

Asked by Nitesh Dhoot

Quantification of EBITDA deferment due to logistical challenges Direct
So, Archit, I think a broad estimate would be roughly anywhere in the range of Rs.15 to 20 crore of EBITDA and I guess you will see that in the sort of export volumes for the month of July.

Quantifies the direct impact of logistical issues on EBITDA for the quarter, helping analysts adjust their models.

Asked by Archit Joshi

Impact of new US tariffs on Aarti Industries' product portfolio Partial
Second, there are a decent number of products where we have good exports to US, which are part of 'Annexure to Exemption List.' ... DCB is where we typically end up competing with European competition. ... And the last one is MMA of course, is sort of a very large market that we developed in the US... the 25% tariff on that will impact the affordability for the end customer.

Details the complex and varied impact of US tariffs across different product segments, highlighting both potential benefits and challenges.

Asked by Abhijit Akella

Working capital increase and finance cost reduction Direct
So, the working capital has gone for two reasons. One is, as you know, there are a couple of shipments which had to go in June, those got postponed to July. ... Also, some customer receivable got delayed by a week or 10 days... The finance cost reduction is; structurally we have been witnessing a bit of a softer rate regime and we expect the softer rates to continue.

Explains the drivers behind the increase in working capital (temporary issues) and the decrease in finance costs (macro interest rate environment).

Asked by Abhijit Akella

Profitability lagging volume growth and market share strategy Direct
No, I think there is a bit more nuanced understanding of that market. I think as I said, there are certain strategic calls that have also been taken to maintain the market leadership position in some of the segments which sometimes get reflected in the pricing and the profitability. ... But I think I would slightly characterize it that the profitability growth on an absolute basis should track the volume growth going forward. Not lag.

Addresses concerns about profitability not keeping pace with volume, attributing it to strategic pricing decisions to maintain market leadership and projecting alignment going forward.

Asked by Jignesh Kamani

Competitive intensity and China overcapacity Partial
I think I would not say it has established as a firm trend. We see, of course, stray incidences where, realizations have been taken up in the last few months. But I would still hesitate to characterize it as a generic trend. ... The fact is, there is a significant overcapacity.

Provides management's perspective on the competitive landscape with China, acknowledging overcapacity but cautioning against calling recent price firming a 'generic trend'.

Asked by Arun Prasath

2 min read 7 chapters

Detailed narrative

Challenging Q1 FY26 Performance Amidst Headwinds

Aarti Industries reported a challenging Q1 FY26 with revenue at ₹1,867 crore, marking a 16% QoQ decline, and EBITDA at ₹215 crore, a 19% QoQ decline. Profit After Tax stood at ₹43 crore. The quarter was significantly impacted by a steep 15-20% correction in key input prices like benzene and aniline, leading to ₹30 crore in inventory valuation losses, and global trade disruptions.

Impact of Geopolitical and Domestic Disruptions

The Israel-Iran conflict in May/June 2025 caused ripple effects on global logistics, leading to shipping delays and rerouting of some exports, with an estimated ₹15-20 crore EBITDA deferment. Domestically, India-Pakistan tensions in April-May 2025 briefly impacted operations at the Kutch facility and caused temporary shutdowns at Kandla Port, further straining outbound volumes and curtailing capacity utilization.

Strategic Capacity Expansions and Ramp-up

The company continued its capacity ramp-up for Nitrotoluene (from 30 to 45 KTPA) and Ethylation (from 10 to 30 KTPA). Additionally, MMA capacity was scaled up from 200 KTPA to 260 KTPA. These facilities are now in the ramp-up phase, positioned to meet rising demand in end applications, and are part of initiatives to optimize inventory and costs.

Zone IV and Multipurpose Plant (MPP) Commissioning Timelines

Zone IV projects are progressing well, with phased commercialization expected from H2 FY26. The first phase, including the multipurpose plant and a calcium chloride unit, is targeted for commissioning by December 2025. The remaining five blocks are scheduled for phase-wise commissioning from January to May 2026, with these new products expected to achieve a 20%+ EBITDA margin profile.

Potential Impact of New US Tariffs

New US announcements of a 25% tariff on Indian imports, along with an unspecified 'penalty,' pose a potential impact on Aarti Industries' US business, which accounts for 15-20% of its revenues. Management is actively monitoring the situation, assessing the impact across different product lines (e.g., positive for phenylenediamine, negative for DCB and MMA), and developing mitigation measures while exploring new markets.

Capital Allocation and Debt Management

Capex for Q1 FY26 was ₹280 crore, with the full-year guidance for FY26 set below ₹1,000 crore, a reduction from the previous year's ₹1,300-1,400 crore. The company aims to reduce its net debt by ₹200-300 crore in FY26 from its peak of ₹3,500 crore, benefiting from a softer interest rate regime. Working capital increased temporarily due to deferred shipments and delayed receivables.

Segmental Performance and Outlook

The energy segment saw flattish volumes due to plant disruptions, while non-energy applications showed mixed performance. DCB volumes declined significantly due to lower demand from US automotive customers and inventory liquidation, though recovery is expected in H2 FY26. Agrochemical intermediates continue to face pricing pressure, with a longer timeframe anticipated for realization improvements.

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