Aarti Industries Limited — Q3 FY25 earnings call

Call held 3 Feb 2025

Management summary

Aarti Industries reported a resilient Q3 FY25 with sequential EBITDA improvement, driven by strong volume growth in both non-energy and energy segments. While pricing pressures persisted, especially in agrochemicals, the company focused on cost efficiencies, product diversification, and geographic expansion. Key capacity expansions in Nitrotoluene and Ethylation were commissioned, and a new plastic recycling JV was formed, signaling strategic growth initiatives.

Highlights

  • Revenue of ₹2,035 crores, up 14% Q-o-Q and 8% Y-o-Y

  • EBITDA of ₹236 crores, up 17% Q-o-Q

  • PAT of ₹46 crores, impacted by ₹23 crore forex MTM loss

  • Non-energy business volume grew 14% Y-o-Y and 8% Q-o-Q

  • Energy business volume grew 10% Q-o-Q

  • FY25 Capex guidance unchanged at ₹1,300-1,500 crores (₹1,020 crores spent 9M YTD)

  • Nitrotoluene (30 to 45 KTPA) and Ethylation (8-10 to 25-30 KTPA) capacity expansions commissioned

  • Plastic recycling JV formed with target capacity of 500 TPD by 2030

Key financials

  1. Revenue ₹2,035 Cr +8%YoY
  2. EBITDA ₹236 Cr +17%QoQ
  3. PAT ₹46 Cr
  4. Forex MTM Loss ₹23 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

  • Capex ₹380 Cr this quarter · ₹1,300 Cr (FY25) planned
    • Nitrotoluene plant expansion (30 to 45 KTPA)
    • Ethylation facility expansion (8-10 KTPA to 25-30 KTPA)
    • MMA capacity expansion (to 200 KTPA)
    • Zone IV greenfield site development (phased commissioning)
    • Renewable energy PPAs (solar and hybrid)

    Previously planned ₹1,300 Cr

    Our projected capital expenditure for FY '25 remains unchanged as we have mentioned in the last quarter, INR1,300 to INR1,500 crore, with over INR380 crore spent in Q3 and about INR1,020 crore in the 9-month year-till-date time frame.
  • Debt Net ₹3,600 Cr Maturity: ~9 years for unhedged ECB exposure
    • Forex hedge Forex mark-to-market loss on long-term ECB loan due to rupee depreciation ₹23 Cr
    So I would have an exposure of around $140 million which will be majorly unhedged, but this is something which will have a repayment of almost, around 9 years.
  • M&A Re Sustainability and Recycling Private Limited (RESL) and Aarti Circularity Limited Joint venture · Announced · Consideration ₹[object Object] (mixed)

    To establish transformative first-of-its-kind India joint venture company for driving the development of plastic material recycling facilities which will use advanced chemical recycling technology.

    Aspiration to complete 100 TPD in first 18 months and 500 TPD by 2030.

    The second major development Re Sustainability and Recycling Private Limited; and Aarti Circularity Limited, a wholly owned subsidiary of AIL, have joined hands to establish transformative first-of-its-kind India joint venture company for driving the development of plastic material recycling facilities which will use advanced chemical recycling technology. This partnership is committed to achieving a resource recovery capacity of 500 tons per day by 2030... So for the first year, both partners put together have committed INR100 crore, INR50 crore each, into the joint venture.

Guidance & targets

Profitability

  • CAGR EBITDA Profitability · 3 to 5 years · High confidence 20% to 25%
    Our focus is on sustainable mid- to long-term growth targeting roughly 20% to 25% CAGR EBITDA over 3 to 5 year's time frame.

    — Suyog Kotecha

  • ROIC/ROCE Profitability · 3-year plan · High confidence 14% to 15%
    our objective is to hit 14%, 15% kind of ROCE and ROIC numbers. And I think we remain quite confident of hitting those numbers in our 3-year plan.

    — Suyog Kotecha

Capacity

  • Renewable share in total power purchase Capacity · Q1 FY27 · High confidence exceed 75%
    With this, AIL's renewable share in total power purchase is expected to exceed 75% by Q1 FY '27.

    — Suyog Kotecha

  • Plastic recycling JV capacity Capacity · first 18 months · Medium confidence 100 TPD
    From an aspiration point of view, both partners have stated their aspiration to complete 100 TPD in first 18 month's timeframe and 500 TPD by 2030.

    — Suyog Kotecha

  • Plastic recycling JV capacity Capacity · by 2030 · Medium confidence 500 TPD

    — Suyog Kotecha

Cost Efficiency

  • Cost optimization savings Cost Efficiency · 12 to 18 months · Medium confidence INR 150-200 crore
    I think there still remains a lot of what's to be done, but we are confident of completing that exercise, as I mentioned in the last call, in the next sort of 12 to 18 months kind of time frame.

    — Suyog Kotecha

Capex

  • Zone IV commissioning Capex · through FY26 · High confidence gradually
    Additionally, various projects in Zone IV, our new greenfield site, are being executed in phased manner. And the commissioning is expected gradually through FY '26.

    — Suyog Kotecha

  • FY26 Capex Capex · FY26 · Medium confidence lower than INR 1,000 crore
    As regards FY '26, the capex would be a number which will be a bit lower than INR1,000 crore.

    — Chetan Gandhi

Capacity Utilization

  • NCB capacity utilization Capacity Utilization · coming financial year · Medium confidence 80%-plus

    From 75%-odd percent today

    if you look at our capacity utilization levels, then we are roughly around 75-odd percent kind of capacity utilization numbers for NCB. And in the coming financial year, we expect to ramp that up to 80%-plus kind of level.

    — Suyog Kotecha

Tax Rate

  • Effective Tax Rate Tax Rate · FY25 · High confidence marginally negative and or about closer to 0
    The tax rate in this year, considering that a lot of projects are getting commercialized and there will be some IT depreciation benefits; will continue to remain the way it is currently. So it will be marginally negative and or about closer to 0.

    — Chetan Gandhi

  • Effective Tax Rate Tax Rate · FY26 · Medium confidence low single-digit range
    Next year, it should be in a more like a low single-digit kind of range, at least at this point of time.

    — Chetan Gandhi

What to watch in Q4 FY25

MMA Gasoline-Naphtha Spreads

Next quarter (Q4 FY25)
Current ~9.5 differential in Q3, improving in Jan.
Target Continued improvement in spreads.

Why it matters

Spreads directly impact MMA profitability and competitiveness, a key product for Aarti.

in Jan, we are already seeing improvement in the gasoline-naphtha spread. And that should enable the competitiveness of this product against some of the other octane-boosting products even more in the Q4 and the going-forward time frame.

Risks & concerns

  • Pricing Pressures

    medium

    Pricing pressure continues across various product chains, especially in agrochemical intermediates, impacting margins.

    Management acknowledged

  • China Overcapacity

    medium

    Overcapacity situation, especially from China, is a mid- to long-term problem affecting product chains like PDA, NCB, nitrotoluene, and polymer & additives.

    Management acknowledged

  • Weak Gasoline/Naphtha Cracks

    medium

    Weak gasoline and naphtha cracks in Q3 impacted octane boosting economics for MMA, though improvement is anticipated.

    Management acknowledged

  • Repercussions of US Tariffs

    medium

    While US tariffs may benefit some segments, there could be repercussions on other markets due to increased competition and product diversion, impacting pricing and margins.

    Management acknowledged

  • Forex Mark-to-Market Loss

    low

    A non-cash forex mark-to-market loss of INR 23 crore on ECB loan impacted Q3 PAT, but it's an accounting impact with actual outflow over 9 years, and rupee depreciation generally benefits the net exporter.

    Management downplayed

Q&A highlights

6 direct
MMA Spreads & Competitiveness Direct
I think, in the last quarter, actually see gasoline-naphtha spreads were and still continue to remain under pressure. They were at roughly at 9.5 levels. And we were able to still deliver certain volumes to the market, so I guess that is indication of our competitiveness of this product in the market when it comes to octane boosting.

Clarifies MMA's competitiveness even in challenging spread environments and indicates potential for Q4 improvement, which is crucial for a key product.

Asked by Rohit Nagraj

Plastic Recycling JV Financials Partial
I think, the exact revenue potential and profitability potential, we will come back at a later stage. As the JV does its own business planning exercise.

Analyst pressed for specific financial targets for the new JV, but management deferred, indicating the early stage of this strategic initiative.

Asked by Abhijit Akella

Gross Margin & Cost Optimization Progress Direct
On the gross margin, I just want to highlight that I think there are large-volume shipments now and some of them also get sort of slipped from one quarter to another quarter, so rather than looking at quarterly gross margin level, I would ideally encourage to look at sort of at least a 9-month or a longer-term time frame margin average numbers. They are better indicative of business performance. And one additional issue which was peculiar to Q3 was in Q2, because our MMA volumes had dropped quite significantly, there was certain build-up of aniline, which is a key raw material for MMA, which happened at a relatively higher cost which got liquidated in Q3. So that also had a partial impact on gross margins, but in overall sense I think, if you look at a 9-month gross margin levels, they are potentially a better indicator of company's business performance versus quarterly gross margin numbers.

Provides detailed reasons for Q3 gross margin pressure and clarifies the progress and timeline for the cost optimization plan, offering insights into future margin trajectory.

Asked by Abhijit Akella

Zone IV Product Strategy and Market Capture Direct
If you look at the potential product portfolio in that zone, it's broadly focusing on 3 value chains. One is the chlorotoluene value chain, dichlorotoluene value chain and toluene photochlorination value chain. I think in these 3 value chains roughly, we have a product portfolio of anywhere between 25 to 30 products because we will go significantly downstream compared to restricting ourselves at a base molecule level itself.

Clarifies the strategic product focus, target markets, and domestic-export mix for the new greenfield Zone IV, giving investors a clearer picture of its potential.

Asked by Abhijit Akella

China Competition Across Segments Direct
Agrochem, yes, especially both global as well as the domestic market, we do end up competing with China given their significant capacity over there... Polymer and additives is one segment where we do end up competing with China head on because 85% of our business in that segment comes from exports.

Management provided a granular view of China's competitive impact across different business segments, helping investors assess specific risks and opportunities.

Asked by Aditya Khetan

PNCB Volume Growth Post Import Ban Partial
Look. I think India, again as a country, is also net exporter for not only PNCB but also for downstream chain, right, so the likes of PAP and paracetamol. So I think maybe what you are characterizing there may not fully reflect into that story... if you look at our capacity utilization levels, then we are roughly around 75-odd percent kind of capacity utilization numbers for NCB. And in the coming financial year, we expect to ramp that up to 80%-plus kind of level.

Management clarified that while PNCB is a robust domestic market, India's net exporter status for downstream products means the import ban might not dramatically accelerate growth, but volume growth is expected from increased capacity utilization.

Asked by Aditya Khetan

MMA Bans in Geographies Direct
No, we do not anticipate that. I think that it's also a little bit misunderstood in the global market. Sometimes the ban is also linked to ability to handle the products, right? So as we educate more and more countries' port operators and customers on how to handle these products, we are able to scale up usage of these products.

Addresses a potential regulatory risk regarding MMA, clarifying that perceived bans are often related to handling capabilities rather than product safety, and that MMA is commercially deployable globally.

Asked by Kushal

Net Debt and Tax Rate Outlook Direct
On the debt number, we are fairly similar to around INR3,600 crore of debt broadly on that, on net debt basis... The tax rate in this year... will be marginally negative and or about closer to 0. Next year, it should be in a more like a low single-digit kind of range.

Provides key financial housekeeping details on net debt and the expected tax rates for FY25 and FY26, which are important for financial modeling.

Asked by Abhijit Akella

3 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview

Aarti Industries reported a resilient Q3 FY25 with sequential EBITDA improvement of 17% to INR 236 crore, on revenues of INR 2,035 crore, up 14% Q-o-Q and 8% Y-o-Y. Despite persistent pricing pressures, particularly in agrochemical intermediates, the company achieved strong volume growth of 14% Y-o-Y in non-energy and 10% Q-o-Q in energy businesses. PAT stood at INR 46 crore, impacted by a non-cash forex mark-to-market loss of INR 23 crore on ECB loans, which is an accounting impact with actual outflow over 9 years.

Strategic Capacity Expansions and Utilization

The company commissioned expansions for its Nitrotoluene plant (from 30 to 45 KTPA) and Ethylation facility (from 8-10 KTPA to 25-30 KTPA) this quarter, with ramp-up expected in Q4 and beyond. The MMA capacity expansion to 200 KTPA was already completed, positioning Aarti as a market leader. Management emphasized optimizing asset utilization and product mix to enhance profitability, especially in the flexible Zone IV greenfield site, which will see gradual commissioning through FY26, with a pilot plant already in commercial operations.

New Growth Avenues: Plastic Recycling Joint Venture

Aarti Industries formed a joint venture with Re Sustainability and Recycling Private Limited (RESL) through its wholly-owned subsidiary, Aarti Circularity Limited. This JV aims to establish plastic material recycling facilities using advanced chemical recycling technology, targeting a resource recovery capacity of 500 tons per day by 2030. The initial aspiration is to achieve 100 TPD within the first 18 months, focusing on converting difficult-to-recycle plastic waste into niche, high-value chemical compounds.

Cost Efficiencies and Renewable Energy Initiatives

To counter persistent pricing pressures, Aarti Industries is actively implementing a cost optimization plan targeting INR 150-200 crore in savings, with 30-40% already completed and full execution expected within 12-18 months. Additionally, the company signed two renewable energy Power Purchase Agreements (PPAs) for solar and hybrid power with Cleanmax and Prozeal. These initiatives are expected to increase Aarti's renewable energy share to over 75% by Q1 FY27 and deliver significant power cost savings.

Market Dynamics and Competitive Landscape

Management acknowledged ongoing pricing pressures due to global overcapacity, particularly from China in segments like agrochemicals and polymer & additives. However, Aarti is focusing on market share retention and geographic expansion, especially for MMA in the US, Europe, and Middle East. The domestic market for products like PNCB remains robust, with NCB capacity utilization expected to increase from ~75% to over 80% in the coming fiscal year, driven by increased reliability and downstream demand.

Capital Expenditure and Financial Outlook

The FY25 capex guidance remains unchanged at INR 1,300-1,500 crore, with INR 1,020 crore spent in the first nine months. Management reiterated its mid- to long-term target of 20-25% CAGR EBITDA over 3-5 years and aims for 14-15% ROIC/ROCE within the same timeframe. The tax rate for FY25 is expected to be marginally negative or near zero due to commercialized projects and IT depreciation benefits, moving to a low single-digit range in FY26, while FY26 capex is projected to be lower than INR 1,000 crore.

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