Ladies and gentlemen, good day, and welcome to Aarti Industries Limited Q2 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star then zero on your touchtone phone. 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. Yeah. Thank you, Lizanne. Good evening, everyone. Thank you for joining us on the Aarti Industries Q2 FY 2022 earnings conference call. We have with us today on this call Mr. Rajendra Gogri, Chairman and Managing Director of the company, Mr. Rashesh Gogri, Vice Chairman and Managing Director, and Mr. Chetan Gandhi, CFO of the company. Before we begin this call, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been in the results presentation shared with you. I would now like to invite Mr. Rajendra Gogri to take you through the performance of the company and his outlook on the business. He will then open the forum for Q&A. Over to you, sir. Thank you. Good evening, and very warm welcome to all of you attending this call. I hope all of you and your families are in good health as we start seeing things coming back to normal. I trust that all of you would have received the Q2 FY 2022 results presentation that has been uploaded on the stock exchange website earlier today. First, a review of our financial performance. As you may have seen, the first half performance reflects the strong traction we have been witnessing and also puts us firmly on track to meet our growth guidance as shared earlier this year. Our revenues crossed INR 1,750 crore during the quarter, which was up by about 33% on a YoY basis and over 17% on a QoQ basis. During this quarter, we continued to witness a sharp increase in raw material prices, fuel prices, and logistics costs, which also contributed to the increase in top line of the quarter. Q2 EBITDA of INR 310 crore was fairly similar to EBITDA during Q1 and higher by about 22% as compared to last year, led by increased utilization of capacities and value addition of the product mix. The last quarter Q1 FY 2022, we had witnessed rupee depreciate about 1.2 rupees versus the U.S. dollar, resulting into a mark-to-market loss for the ECB, causing a rise in finance costs by over INR 13 crore. This was normalized in the current quarter, and with the QIP proceeds fully being utilized, there was a reduction of debt which helped in reducing the finance cost for the quarter. Our profit after tax came in at INR 176 crore, up 25% over Q2 FY 2021 and about 7% more than that for Q1 FY 2022. With this performance, we recorded the profits of INR 341 crore for H1 FY 2022, which is about 65% of the profit for FY 2021. Both the top line and bottom line in the reported quarter are our highest ever in history, as we have successfully extended the growth momentum achieved over last four quarters and have progressed well from the impact of the pandemic, which affected us significantly in the first half of last fiscal. Continued volume expansion, along with the passing on the higher input costs and logistics costs is in the specialty chemical business, as reflected in jump in top line of about 36% on YoY basis and about 20% on QoQ basis for the segment. We have seen the return of demand from established market to almost pre-COVID levels, and in some cases it has surpassed the pre-COVID demand volume. That are clearly driving improved EBIT. Segment EBIT of INR 242 crore for Q1 FY 2024 portrayed a growth of about 4% in QoQ and about 29% on YoY basis. As you are aware, we have a pricing model wherein the variations on the raw materials are passed on to the customer. Thus, the better way to look at our performance is the change in absolute EBIT while we are witnessing a significant and continuing rise in the prices of various key commodities. The fuel price rises emerging from the coal crisis situation was unprecedented. We have taken significant efforts to ensure that the business remains insulated from this crisis and also look to pass on the substantial part of these costs to the customers while having to bear a part of it. We hope the situation will normalize in the coming months. Those factors have also resulted in an increase in working capital for the company. However, our well-capitalized balance sheet has enabled us to manage the situation pretty well. Now for the Q2 production update. Production for nitrochlorobenzene was 20,347 metric tons compared to 17,830 metric tons a year back. Similarly, for hydrogenated products, we achieved production of 2,712 metric tons compared to 3,038 metric tons last year. On the nitrotoluene front, the production for Q2 was 3,772 metric tons compared to 4,119 metric tons in the same quarter last year. We operated over 80%-90% capacity utilization across our established locations and expect to deliver steady performance improvement going forward as new facilities scale up volumes. Our pharma business grew by 15% YoY to INR 278 crore during Q2, which was similar to the revenue of INR 276 crore for Q1 FY 2022. The business continues to maintain growth momentum based on the higher utilization of facilities that are driving volume. EBIT for the pharma segment for Q2 FY 2022 was lower to INR 41 crore on account of impact on margins due to high inventory of the final product, which could not be shipped out. Further, there has been a time lag on the pass on of the input cost increase, which, along with the certain start-up related costs for the new scale-up facility coming on stream impacted the EBIT for the quarter. Strong business visibility in pharma is based on higher volume from regulated markets, well-rated products, and new introduction of intermediate products. As you would know, we are currently implementing additional capacities for APIs that are expected to be operational in the second half of FY 2022. We expect volume expansion to be supported by robust margin in this segment based on a pipeline of approvals that strengthen our position in therapies such as antihypertensive, cardiovascular, oncology, and corticosteroids. Now an update on capital expenditure. We have incurred CapEx of INR 317 crore in the second quarter, CapEx about INR 620 crore in HY FY 2022, against the annual planned CapEx of about INR 1,200-1,500 crore. At present, we also have several other capital investment projects in the pipeline. These include expansion of USFDA facility at API located at Tarapur, and at the intermediate unit at Vapi. Set up of production units of the second long-term contract at Dahej, HCN for the third long-term contract at Jhagadia, and NCB capacity expansion at Vapi. Expansion from asset upgradation for our asset unit at Vapi amongst various other projects which are underway. As guided last time, we are also undertaking various new projects driven by R&D and innovation, which will add over 40+ products for chemicals and 50+ products for pharma segment, driving growth beyond FY 2025. This initiative will provide the blueprint of growth for the longer-term horizon till FY 2027. The company at its board meeting held on August 19, 2021, had considered and approved a scheme of arrangement whereby the pharma business and allied activities in Aarti Industries Limited would be demerged into Aarti Pharmalabs Limited, the only one subsidiary company of Aarti Industries Limited. As a going concern, this is with effect from the appointed date of July 1, 2021. As per the scheme, the demerged company would demerge its pharma business and allied activity along with part of specialty chemical, which is a backward integrated facility providing feeding material to pharma business. The same part of specialty chemical segment being demerged account for less than 3% of the revenues of the specialty chemical segment. The demerge undertaking relates to pharma manufacturing units, allied activities, investment with cash balance and cash equivalents for future capital expenditure of demerged entity. The demerger will enhance the focus and enable to adopt the relevant strategies necessary for promoting growth and expansion. As per the scheme, the shareholder of Aarti Industries Limited, as at the applicable date, will get the proportionate stake in the resulting company, Aarti Pharmalabs Limited. We expect the process for getting necessary approvals for the said scheme in about 9-12 months. As per the restructuring proposed in the scheme, the company has restated the segment financials by reclassifying the part of specialty chemical business which is being demerged under the pharmaceutical segment in this segment report. The corresponding figures related to the prior periods have also been rearranged in a similar manner. Over the last year, we witnessed various global events which added to the volatility in the business environment. We wish to add that the company is watchful of these events and is taking adequate measures to mitigate itself and also drive opportunities from the new emerging trends evolving out from these events. We believe we will be a long-term beneficiary from the various events unfolding in China and will add significantly to the China Plus One strategy and place India as a fast-growing and sustainable global supplier of choice to our customers. To conclude, I reiterate our vision to grow during this golden era of opportunities for the Indian chemical and pharmaceutical industry, and also to enhance its share in the global market. We remain committed to work on these opportunities and drive the growth journey which we have guided to you during the last con call. In FY 2022, we remain enthused about the short-term and long-term prospects of business. Based on this visibility, we continue with our growth guidance of 25%-35% for FY 2022. With that, I conclude my opening comments, and we will open the floor for the Q&A session. Thank you. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants, I request that you use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ritesh Gupta from Kotak Mahindra. Please go ahead. Hi, this is Ritesh from Kotak Institutional Equities. Good evening, sir, and congratulations on the good set of numbers. Just one question on the profitability that we've seen in the first half. This profitability is also on the softer base of last year, and you did quite well with 40% growth on EBITDA terms on first half basis. Let's say as we get into the second half, as we kind of see the base also get its little step, plus the raw material inflation and the fuel price inflation that we have seen, it has gone unprecedented after quarter two. What's your sense as you get into quarter three, quarter four, in terms of the kind of inflation? Would you be able to pass it on fully, the way you have been able to pass it on in the second quarter? Secondly, with the new capacities, et cetera, getting commissioned, should we expect a cost impact of that coming in the second half, or should we expect that on a net EBITDA basis also the new facilities will be able to contribute quite well? Yeah. You are very right. You know, there has been a lot of volatility, especially in on various raw materials as well as the fuel. We'll see how it pans out in the second half also. Generally, you know, we are able to pass on raw material variable to our customers. Broadly, you know, in the first half we have got about 65% of the profit of the last year. Overall, you know, we should be able to maintain around in the range of 25%-35% annual growth rate. For the year. Second half also some of the new projects will kick in, and also will contribute both. It will increase the expenses, but also to be able to contribute on EBITDA. Got it, sir. That's very helpful. Just on the pharma side as well, should we expect the pressure to continue in the third quarter as well? Do you think all the issues that you saw in Q2 were more temporary in nature? The reason I'm asking is because some of the other pharma API companies have not done well in second quarter. They've also have a pretty muted second half outlook. Do you share the same? Your commentary suggests that whatever you saw in 2Q seems to be one-off. Is it right understanding or should we expect some profitability challenges in the second half as well? Yeah. In pharma, you know, you know, Q2 profitability was having impact of two, three reasons. I think, of course, raw material pass on in pharma takes time and, you know, definitely that will have an overhang in next quarter. Overall, you know, the new capacities are coming in, you know, in this quarter and in next quarter, in second half of this financial year. With that, I think longer term, you know, we definitely will have better performance because as the new capacities kick in, you know, the new production will bring in more, you know, opportunity to get into value-added sales. That's it, sir. Thank you so much. Thanks. Thank you. The next question is on the line of Rohit Nagraj from Emkay Global. Please go ahead. Yeah. Thanks for the opportunity, and congrats on good set of numbers. So the first question is on the agrochemical intermediate for which the contract has been canceled. I understand that we have spent close to about INR 400+ crore. What is the current status of that particular facility? Have you started utilizing it? And what is the plan for that facility to put to use? Thank you. Yeah. We have commissioned that plant. As you know, mentioned in our earlier con call, we should be starting up the volumes mainly in the FY 2023. By FY 2024, we should be able to realize, you know, 80%-90% of the capacity utilization in this plant for the same intermediate. All right. This is for some other customer? Yes. It will be for other customer. All right. Thank you. Sir, the second question is on the other two long-term contracts. We've seen that these have gotten delayed. Is it a deliberate delay because of the you know, from the, I mean, suggested from the customer itself, or is it because of the COVID-related issues? When these will be commissioned now? Mainly it is for the COVID-related issue because we had two waves of COVID. That second contract we are targeting chemical charging in Q3. Third contract, maybe mainly maybe Q1 of FY 2023 will be the third contract commissioning. Sure. Thank you so much. Best of luck and Diwali wishes. Thank you. The next question is on the line of Surya Patra from PhillipCapital. Please go ahead. Yeah. Thank you for this opportunity. First question is on the cost rise, what we are seeing in the month of October after the Q2. How swift for us it would be for passing on the cost to the for the particularly for the specialty chemical business? Yeah. Generally, we have this raw material pass-through model. Domestic market, it is passed on the same month. Mm-hmm. Exports tend to have a. Hello? Yeah. Do you think that since there is a means although it is like a customized business, large part of our business is customized, but there would be a kind of some kind in passing on, you know, where the prices has gone up. See, even crude also, if you see now, it is from in the last month itself, it has gone up by another 15%. Will you still be able to pass it on swiftly and without time lag the way that used to be for your business? Yeah. As I mentioned, you know, domestic prices generally, you know, any variation in benzene price, or toluene price, it gets passed on because that's how the pricing are generally done. Okay. Export may be 2 to 3 months lag because this kind of variation in our kind of product. It is not possible for us to absorb. Correct. In general, we don't see much issues on. Fine. Raw material plus minus, passing on. Okay. Sir, just briefly on the price volume growth for the specialty chemical, if you can share that, what is the price-led growth and what is the volume-led growth for this quarter? What I am seeing that there is robust growth obviously in the domestic market, possibly because that since there are trade challenges in the export side. Possibly we have managed that trade in the domestic market. That's why the domestic growth look really strong. It is not only for you, but generally for many of your peers also that is the trend. If you can clarify on that scenario, sir. Yeah, Chetan, you'll have the number, right? The volume growth is in high single digits, around 8% or something, and the rest would be the price-driven growth. Okay. Sir, you can take up the second question. Yeah. I think logistics are still. We are able to manage like some impact on the export front on the volume because of the container availability and issues. Therein, we tend to pass on divert the material in domestic market. Mm-hmm. Yeah. Okay. Can this growth in the domestic market will be sustainable, sir, if there will be challenges or why? Because container availability seems like a bigger concern and likely to sustain in near future. That is one, on that if you can add on. Yeah, domestic demand is robust. Whatever some impact which might come in export, we should be in general, I think, able to divert the material and rearrange our capacities to, you know, for domestic market. Okay. Just last one question from my side. You have mentioned that the gross margin turned normalized. Do you see that? That means we have been seeing a kind of a strong gross margin scenario in some time, 47%-48% in that range, beyond 45% levels. Now, this 42% you are saying it is a normalized one. That means that is the kind of range one should think going ahead in terms of gross margin. Actually, if you see the last year, Q2 was we had to give in a non-regular market. Mm-hmm. Last year Q2 was we had to divert to the southern market because the demand was less in the Indian market. Q2 was given on a non-regular market. That is now corrected. Whatever supply we have made this year is to a regular market. That's why we know it is more of a normalized. Okay. Mm-hmm. Yes, sir. Please. Yeah. As a percentage generally, because now if the raw material prices increases, then your gross margin and EBIT margin goes down. That percentage absolute is not, you know, a correct measure. Okay. Sure, sir. Thank you. Wish you all the best, sir. Thank you. We'll move on to the next question. That is on the line of Rohan Gupta from Edelweiss. Please go ahead. Yeah. Hi, sir. Good evening. Sir, first question is on this raw material availability and challenges coming from China. I think that we are also buying some of the intermediates and raw material dependent from China. How is the availability issue right now and how we are able to cope it up? There has been significant price increase also in terms of these material coming. As you said, though, you will be able to pass it on, but just wanted to understand from the customer perspective, whether they will be able to take on all the price increase or not. Yeah. Actually, for our specialty chemical business, we are not buying any raw material from China. That Chinese impact is not there on our specialty chemical business. And also- Pharma also. Yeah. That is- For pharma, you know, of course, you know, raw material availability from China, we operate largely on a higher value-added products. There the availability is there. Of course, the prices have increased in China due to higher prices of base raw materials and commodities. We are able to source the products. Of course, the products which involve phosphorus and these kinds of base metal commodities, the prices have risen sharply. But the products are available, and we are able to get this product at a price, Rohan. Okay. And we will be able to pass it on because there is a significant pressure in pharma business margins, so in the current quarter. Mm-hmm. As also ours in the earlier participant. Do you see that there will be delays in passing it on to the end customers? Or it just only that may be a quarterly phenomenon and, in general, you have always guided for at least close to 18%-22% kind of margins in that business, or we will be able to achieve that quite swiftly in second half. Yeah. I think, you know, in pharma the pass on will take little longer time. It can't be a monthly pass on. Next month I can't pass it on like how we do in chemical business. You know, it will take at least one quarter for us to pass on the increase. The prices have been rising continuously. Last quarter also we saw prices have increased, and this quarter also the prices are increasing. We are taking steps to ensure that, you know, these increases are passed on. If we are not able to pass on the increase then we take higher quantity. Whichever way we improve our profitability. Okay. Sir, second question is if you can just give update on the- Yeah. -the sec- Yeah. Percentage EBIT, you know, it would be in the same range, 18%-20%, you know, because we will have more value-added products coming in in next second half of this year. It will- In pharma, sir. Yeah, yeah. In pharma you are saying that in second half margins will be 18%-20%. Yeah. It will come up there. Yeah, yeah. Despite price increases, I mean, despite higher top line growth, which will be at least 20% driven by prices minimum. Yeah. We will be able to get. Okay, that's great, sir. Second question is on our contract with SABIC. If you can just give some update on that, at which stage it is right now, and are there any delays in when the product is scheduled to be supplied, sir. Yeah, we are targeting to commission that plant in Q3 this year. Maybe end of the Q3 or Q4, the material supply should start for that project. Okay. Will we be able to achieve the full annual revenue run rate from FY 2023, or it will be slow ramp-up? No, we should be able to achieve the ramp-up. A full ramp-up in FY 2023 full year, sir? Yes. Yes. Okay, sir. I'll come back in queue for follow-up questions. Thank you. Thank you. The next question is on the line of Aditya Khetan from SMIFS Limited. Please go ahead. Yeah, thank you for the opportunity. My first question is, again, on the pharma business margins as asked by the earlier participants. They are contracted seriously in this quarter. In the last quarter also, you had said this reason that the higher inventory cost, which could not be shipped to the client was the similar reason you're citing this in this quarter also. If you can just highlight how much is the high-cost inventory currently on the books and can we see this to be rationalized in the coming quarter, as you have said, that the margins could improve from this level to around 18%. Has that impact been taken or there is more sort of pain in the coming quarters? Yeah, basically in the both the quarters, you know, we had challenges you know, in moving the products because of the shipping challenges. Also, I think some of the production delays resulted into the production of final chemical, you know, APIs in the very last between 10 days of the quarter, which resulted in delay in exports. Due to which those could not be monetized into profits and you know, they have remained in stocks. That will change. We are taking steps overall to control the overall stock of the product that we manufacture and change the product mix in a way that you know, we don't end up with this kind of a situation again. Okay, sir. If you can just highlight a bit more. This impact is majorly on the API or API intermediate or in the caffeine segment. If you could just give an idea in which segment. API segment and Caffeine segment. Okay. API Actually, API segment in this quarter and earlier it was in caffeine segment in previous quarter. Because of unavailability of the containers, we could not ship them out and, you know, that the containers which were available, which were on the port, etc. I think the shipping movement is gradually, you know, as we go along. I think in October we are seeing the situation ease out a bit for Europe and U.S. routes. Going forward, you know, I feel that there should not be any challenge getting this material shipped out. Sir, next question is on the specialty chemical segment. Sir, as it is very clear, like our business model works on a cost-plus basis. Any increase in RM costs also increases the top line, consequently. Considering now the commodity prices are at an exorbitant level, wherein the benzene is currently around INR 90 a kilo. If suppose there is a case wherein the global commodity prices starts to fall and they come to a normalized level, that could again pose a risk for us in terms of top line. Will you change the guidance in of the top line? Considering the, if the raw material prices starts to fall. Will that change the guidance of the top line or will it remain the same and that could be offset from the near business volumes? No, no. Generally our top line guidance is at the constant raw material prices. If there are raw material fluctuation, either up or down, you know, that gets impacted in the top line. If the raw material prices go down, definitely that impact on top line will come. But it should not impact the gross profit or EBITDA as such. Okay. What I meant to say, sir, is your top-line guidance will not change? You mean to say? Yes. No, no. Top line guidance will change in general. Okay, that will be changed then. Okay. Yes. Aditya, just to add on to this. Generally our guidance is more driven on the bottom and not on the top line. Top line, you, as you know that it's pretty volatile and you don't have a control in terms of how the raw material or the crude and other prices would be. My third question is on the chlorotoluene segment. This was a business which we were targeting. Sir, any idea, any roadmap which we had made? What is the capacity? Anything we had planned on the nitro business segment? Yeah. We are fine-tuning all the capacities and everything, and we'll be starting the construction in next year, FY 2023. Okay. Sir, my last question. If you can give the PDA segment volumes, I think that was not given in the initial commentary. Yeah. Just give me a second. The PDA volumes were close to around 458 tons. 458 tons. This is compared with the similar number, what was it in the last year? INR 470. 470. Okay, sir. Got it. Thank you, sir. That's it from us. Thank you. The next question is from the line of Arun Prasad from Spark Capital. Please go ahead. Yep, thank you. Thank you for the opportunity. Sir, my question is on the, Sorry to interrupt, Arun. We cannot even hear you. Can you speak up louder? Am I a little better? You're still sounding very soft. All right. My question is on the first quarter. If I take the performance of the first half of this year and compare against the first half of FY 2020, where there is no disruption coming from COVID, generally the difference is that at the top line level, we didn't book any contract one-time cancellation revenue on the first half of FY 2020. Whereas we have some chunk of revenue in the first half of FY 2022. Definitely on this perspective, the top line has grown by 19% on a CAGR basis. Whereas the gross margin hasn't kept pace with the top line growth. It has in fact grew at 17% lower than the top line growth. Similarly, the EBITDA has grew only by 10%. Given that the contract manufacturing cancellation should flow through the gross margin on EBITDA, why are we seeing that EBITDA and gross margin is not keeping up with the top line growth? Is there any qualitative reasons, and can it reverse in the coming months and coming quarters? Yeah, as we mentioned, you know, basically the top line is not connected directly. Because these volumes become more crucial in general, so we cannot directly take it on a percentage basis. Sir, I'm not comparing the gross margin or EBITDA margin. The growth in the absolute revenue and growth in the gross margin and growth in the EBITDA. Okay. What you are saying is the growth. That I think we are comparing with FY 2020, right? That we'll have to check up, you know. Yes. Yeah, I think that number will have to be checked up because that is two years earlier. But in general, because our new capacities are still on a ramp-up phase, the expenses are higher. That impact will come in FY 2022. Then as the capacity gets ramped up, I think that should improve the EBITDA. Specifically, when we are talking about the below gross margin expenses like shipping costs and all, if it reverses, the absolute pricing will also get reversed or we will be able to price it at current levels, even if we see reduction in the shipping costs and other costs, other expenses or not? No, no. If the shipping freight comes down, the price will come down. Basically, the additional prices what we are getting because of the higher shipping cost is directly related to that increase in shipping. If it corrects, then the sales price will also get corrected. Okay. All right, sir. Thank you. That's it from me, sir. Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead. Good evening, and thanks for your time, sir. Sir, if you could just mention the new projects that will start in the next 18 months. You mentioned that the SABIC contract will start in 3Q. It's possible to mention the timeline when the rest of the projects plans are likely to start over the 18 months and the indicative CapEx that you will book in the gross block. The new products mainly will start in FY 2024, towards the end of FY 2024 and mainly in FY 2024, 2025. That is all chlorotoluene and its downstreams, and also some new downstreams in existing nitrochlorobenzene and chlorobenzene. More value-added products will come in. Okay. I was asking more like we have a CWIP of INR 1,600 crore. Plus you mentioned at the start that for the current year, INR 1,200 crore we'll spend. Of which INR 600 crore we have already spent. So if I take 1,600 of CWIP and another INR 600 crore for the rest of the 6 months, so INR 2,200 crore. I want to understand any of this, how much will get commissioned, let's say, in the next 6 months or, let's say, next 18 months it will be useful. Yes. That most of them will get commissioned, basically. That will be, you know, our this set 2 contracts and nitrochlorobenzene expansion will come into play and acid division restoration, which we are doing. Pharma also Tarapur 4 API expansion also will kick in. Any rough CapEx number that we'll take to the gross block, that will be useful. Vishnu Kumar, I would just request you, if you look at the investor presentation deck, it has a slide in terms of the ongoing CapEx activities which are expected to be commercialized by FY 2023. Okay. Got it, sir. Yeah. Also the future ones. That should address a major part of your query. Got it, sir. When we split the pharma division, how much of the gross block or the CapEx will get bifurcated? Any rough idea on that? If you could just help us on that. From the new proposed initiatives, the CapEx which is targeted at pharma is in the range of around INR 350 crore-INR 400 crore. That would get bifurcated. Understood, sir. Sure, sir. Thanks a lot. Yeah. Thank you. The next question is from the line of Pratik Rangnekar from Credit Suisse. Please go ahead. Yeah, hi. Thanks for the opportunity. Two questions from my side. One, in your opening comments you mentioned that, part of the RM increase was probably getting absorbed. Is the understanding right that this absorption of the higher RM cost is mainly on the export side, where your contracts take a little longer to refresh? Is that understanding correct? Yeah. Generally export, you know, it takes about a quarterly lag. Right. There's no spread contraction or anything as such. It's just essentially the time lag. In 3 months or 2 months of time, that should balance itself out, I guess. Okay. On the discussions in China, would some of your competitors also be facing similar issues which would maybe be beneficial to you? If yes, how would that benefit come through? Is it in terms of volumes or spreads? Yeah, some places, you know, there are disruptions and it will improve. For some of our products, margins will improve. Somewhere, you know, higher margins, whether or not customers will be able to sustain. There can be some volume impact also. Overall things are very volatile in that sense, to how the situation will happen, you know. Price-wise, you know, there are definitely some of the products, the margins are improving, but there can be a corresponding volume contraction at some point. Got it. Overall it will remain in that 25%-35%, you know, range itself. There is no. That is what broadly currently we are estimating. Okay. Are you seeing any benefit in the ongoing quarter post the end of Q2? Yeah, that's what I think. Q3 and Q4, there are some where the margins are improving, but we see that somewhere, you know, some of the end use industries are not able to sustain those kind of price increase. Some sort of a balancing will take place. Got it. That's it from my side. Thank you, and all the best. Thank you. The next question is from the line of Ritesh Gupta from Kotak. Please go ahead. I think just one quick follow-up on the numbers side. When you talk about 25%-35% growth, you talk about the EPS growth or you talk about the PAT growth? Because there is a 5-6% differential in the PAT and the EPS for the year. No, PAT growth. Okay. Talking of PAT growth. Got it. Just on the spectrum side as well, I mean, you said that you already reached about 80%-90% utilization. I was actually perplexed because you did kind of double your gross block even in last three odd years. In that context, the gross profit haven't really reached the doubling level as yet. I mean, we kind of pretty much had a muted 2020 and 2021 years. Is it that you still are running at realizations which are lower than, let's say, what you probably saw in 2019, 2020? Or you think you already have reached optimum realizations from those products? No, this 80%-90% was something, you know, which was already commercialized earlier. This chlorobenzene plant what we have set up. Some of the newer commercialization, they are yet to be reaching at a higher capacity utilization. Okay. That's it, sir. Thank you so much. Yes. Thank you. The next question is from the line of Rohit Nagraj from Emkay Global. Please go ahead. Mr. Nagraj, your line is on the talk mode. Please go ahead. Yeah. Thanks for the follow-up. Am I audible? Yes. Yeah, Rohit, sir. Go ahead. Yeah. Sir, this quarter we have recognized $7 million on the long-term contract. The last quarter it was $4.5 million. Any particular reason for this? Basically it's a volume which is there across different quarters based on the volume commitment that rolls in. If I look at it last year, it was 10 million for first half, and it's around 11.5 million, broadly around similar 11.5 million for this year, first half. Right. When we are talking about 25%-35% PAT growth, that is organic excluding the final settlement amount, right? Yeah. It doesn't include the last termination amount. Right. Fair enough. That's all from my side. Thank you. Thank you. Reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is from the line of Tanuj Mehta, an individual investor. Please go ahead. Sir, I had a couple of questions. Sorry to interrupt, Mr. Mehta. Sir, there's a lot of background disturbance from your line. Yeah. Is this clear? No, sir. There's still disturbance. Hello. Yes, sir. Please proceed. Yeah. Sir, I had a couple of questions. The first one pertains to a long-term contract. Sir, can we see long-term contracts contributing 1/3 to our revenue, let's say in the next one or two years? Sir, in total, how many long-term contracts do we have? Mostly only this contract which were of a larger tenure, 10 years or so, which were put in public domain. We have a lot of other contracts, you know, which are 4-year, 5-year terms also, as such. Some of the contract gets rolled over, 3-year contract rolled over 4, 5 times. We also have other contracts also. In general, percentage-wise, this contract which we have put in public domain, you know, that will be only about 10%-15% on the top line. Okay. In other terms, I mean, so we can say another part of our revenue, of a sizable revenue would be from these kind of contracts which would be like auto-renewed or basically only there is a consistent business flow. Yes. Yeah. This includes that contract which are of a tenure of less than five years, which are regular in nature as well. Okay. If I may ask another question. I wanted to know that let's say by next year we would be done with most of our CapEx by FY 2023. Post that we would be seeing margins increasing in an upward trajectory by. How would we see the margins from that year, sir? Well, you know, the volume growth will happen in those products where the expansion will be over in this FY 2022 and FY 2023. Margins, as the capacity will get further ramped up in FY 2024, 2025, that benefit will come up. By that time there will be newer projects which will get commissioned for the new product lines. Okay. Thank you, sir, and good luck for the coming quarters. Thank you. The next question is on the line of Pranav Tendulkar from Rare Enterprises. Please go ahead. Hi. Thanks a lot for the opportunity, and congratulations on the good set of numbers. Sir, I have just two questions. One is that from, say, 2016-17, our gross block has almost tripled or 2.8x, but our revenue has just become probably 1.8x. Is this anomaly because of we entering into a larger space where asset turn is lower or is there anything? If we do same thing for EBITDA per fixed assets, that also is the similar observation that EBITDA has become, I think, 1.7x, 1.8x and gross block has almost 2.8x. For 5 years. Generally, value-added products, the asset turn ratio is lower. EBITDA also, because some of the recently commercialized capitalized projects yet to get full volumes. In general, the capital costs have increased. Also some of the CapEx was more on sustainability-related measures also. Right. Can we assume this trend going forward? Yeah. This should be current numbers should become more of a benchmark than the earlier numbers. Currently whatever is commissioned, what is the EBITDA capacity of that commissioned project? I'm not saying CWIP, which is around INR 1,600 crore, but whatever is commissioned, what is the EBITDA capacity of it? Because you keep on stressing that EBITDA margin is actually constant and pricing is not in our hands, which I understand completely, and I agree with it. Yeah. That, you know, absolute number will not often be available there, sir. Sir, if I have to just address this question, considering what is there and what are the ones which are coming on stream from now until FY 2024, we've given a growth guidance considering that the fact that many of these projects might start seeing a decent utilization by FY 2024. From that basis, considering FY 2021 as a base, we are expecting the EBITDA, the bottom line growth to be almost 1.7-2x for FY 2021. That should give you an indication in terms of where this will contribute to. Right. That includes the CWIP commissioning also, right? Whichever 1,600 crore is currently in September quarter, and then there will be some more CapEx. It includes that, future CapEx in the guidance. Am I right? Yes. Yes. Yeah. Okay. Perfect, sir. Perfect. Thanks a lot. Thank you. The next question is from the line of Amit Murarka from AlfAccurate Advisors. Please go ahead. Thanks a lot for the opportunity. Just continuing with the last question. Sir, if I see, almost in the last 3 years, 2021, we would have commissioned, I mean, almost around INR 3,000 crore kind of CapEx, right? Then, is it? Hello? Yeah. Yeah, I'm saying, in 2021 till now, how much of the CapEx which we had capitalized, around INR 2,000 crore? In 2021? Yeah. No, no. In 2021, the commercialization was roughly around INR 8 crore, roughly. I'm saying FY 2020 and FY 2021, altogether we would have capitalized around INR 2,000 crore, kind of a CapEx? Yeah. Is that the right number? Yeah, yeah. Plus now INR 1,600 crore of CWIP. Out of the INR 1,600 crore of CWIP, let's say by 2023, how much would be the capitalized number? INR 1,600 crore. Yeah, that will get capitalized, yes. The whole INR 1,600 crore will get capitalized, right? Yes. Okay. Around about INR 3,600 crore kind of a CapEx, right? If I see from 2020 to 2021, currently, around about, in terms of the revenue growth, 2020 to 2022, the revenue growth would be the additional revenue which would have added to around INR 1,600 crore. When you say that three thousand, I mean, 2x kind of a swap asset ratio, is it, like, we are talking about adding INR 6,000 or INR 6,500 crore kind of additional revenue from this combined CapEx next three years or four years? The asset turn ratio would not be in the range of 2x. It would be what? 1.5 times? It would have to be in the range of 1.5-1.7 kind of stuff. Because many of these initiatives are at a higher end of the business on a value add basis over there. There are a bit of a higher investment as compared to the turnover kind of stuff. That's where the delta margin component over there was a bit higher. Basically you're saying in terms of the revenue turnover, that may not percolate, but if I see, the fixed asset versus the EBITDA. Yeah, yeah. Plus the additional aspect is in part of these investments which are done or in terms of the sustainability initiatives and upgradation and other things, which will not add up directly to the turnover. How to look this number, like, you know, when you're saying that, you know, the historical numbers are not valid in this context and, you know, we have done lot of investment into the, you know, the building blocks for the future CapEx or, you know, for the sustainability purpose. When you are saying that, in terms of the revenue to fixed asset to revenue turnover, it is not, then how it will add to our bottom line then in the context? Overall, I think 1.7-2 times by FY 2024. I think that should reach to almost INR 9,000 crore, right? Top line. It should reach around 8.5-9.5. Yeah, around some of the numbers. Okay. INR 9,000 crore from the current INR 622 crore. Aggregate number. Okay. Fine, sir. Fine. Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead. Thank you, sir. Just one question. At this current juncture, sir, we are seeing kind of abnormal situation in terms of cost, in terms of trade challenges and all that. That is one. Secondly, we are seeing kind of a peak disruption situation from the China side. In a way, this situation, the disruption was supposed to benefit us in terms of incremental supply opportunity. Whereas in terms of this, the trade issues and all that is likely to have some impact to our supply capability this way. Considering these two abnormal situation, how should we see that whether there is a likely delay in our execution of the long-term contracts? I mean, let's say the second project, which is supposed to add annually INR 500 crore odd, so can we see that optimal annual run rate by FY 2024/2025 only, not merely in the near term, not in FY 2023? Similarly, the third project of 90 crore odd, so that is, that will not come in the 2023, rather it will come in FY 2024, something like that. That is one angle. Second question also is, sir, with these disruptions globally at its peak, now more supply opportunity that should be coming. Whether we have built any pipeline or we have kind of a visibility of new contract signings or anything that we have already achieved on that line, might not have specifically highlighted or announced or something like that, or any kind of business visibility that you're already added for your business. These two aspects, sir. One is whether the current challenges will delay in ramping up the long-term supply arrangements. Secondly, whether we have benefited in any way in terms of our supply ability or future supply capability. Both second and third contract there is enough demand visibility, so we don't see any issues. We should be able to ramp up substantially in FY 2023 itself for both second as well as third contract. All you know that China Plus One is panning out and we are continuously exploring one-on-one kind of a contractual business, also, as well as a multi, some like chlorotoluenes, range will be totally a multi-customer, multi-angle sector kind of a product. Both activities are currently pursued and we see the growth in both ways. You had also mentioned that when you talked about this FY 2022 to 2024 kind of outlook when you have provided for the first time. At that time you had mentioned that you also started working on the developmental project with the innovators or the large global customers. Anything on that front if you can update us. Means what is the progress or in which line that you are working? What is the nature of those arrangements? Yeah, in pharma also we have started working with innovators. In chemicals we already have multi-year relations with so many customers. We have been working with them on that. They are at various stage, you know. Some of them on R&D designs. All those constructions should be starting towards some of them towards the end of this year. Mm-hmm. Major project will start construction in FY 2023. Okay. Okay. Okay. Thanks. Thank you. The next question is from the line of Rohan Gupta from Edelweiss. Please go ahead. Yeah, hi sir. Thanks for the follow-up. Sir, generally we have seen in the rising price scenario in inflationary trend, we tend to benefit from the cost or inventory benefit. Like, you know, even earlier also disruption in China at the fire at the Chinese plant. We have seen at that time, we have benefited almost, you know, two to three quarters from the inventory gain which we have. We are almost in the similar conditions or in the current scenario, but I think this time it's coming as a in a opposite direction and we are seeing margin pressure. Anything which has changed because we see the similar parallels from the previous condition. No, generally, inventory gain takes place, but some of the export takes on a lag basis. They kind of, you know, offset with each other. No, sir. What you are seeing is the continuous margin pressure and the slow pass-on to the end customer so that you are alluding that even in the pharma and in specialty chemical, there may be some margin pressure because we are slowly passing it on to the end customer. Yeah. within cost. Chemical, you know, that's chemical. We have first quarter in local will be same quarter, but export generally has a lag. Yeah. We are seeing a very solid demand in the domestic market, right? We are seeing the domestic environment is much better than the export market and there is solid demand. Where we are able to quickly pass it on to the end customer. We always carry, given our nature of the business, some raw material inventory of at least one month to two months. When we are able to pass it on to the end customer within a month and carry some inventory, we at least for a time being should be able to see some margin improvement and some inventory gain which somehow are missing in the current quarter or is not looking in your commentary. While in the previous every time they're facing an inflationary world or inflationary environment, we have always seen the company benefiting from the inventory gain which somehow is missing. Just wanted to understand that anything changed or any particular things which are missing here. No, you are right. You know, there will be definitely an inventory, intra-inventory gain. When you know some of the costs are not passed on, so that kind of an offsets in the margin. Same way if the prices are on a declining trend also the same thing happens. The inventory trend, part of the inventory gain or loss gets offsets because of this, lag impact. Are we slow in passing it on to the end customer compared to earlier situations in this? No. It is the same. There is no change in lags. No. Sir, if I just look at our spreadsheet and in current quarter itself, if we even maintain the bottom line PAT at roughly similar level like INR 175 crore in the current quarter, and if we maintain that run rate itself, we are looking roughly 32% PAT growth on YoY basis. While your guidance is 25%-35%. Do you see that there is no PAT growth even in the second half? I mean, the run rate which we have is roughly INR 175 crore at the bottom line. We are going to continue with that because we have commissioned a lot of capacities in last first half or at least in last 3-4 quarters. While the CapEx commissioning or the capitalization of that CapEx should lead to volume growth, which somehow is missing. Even you mentioned that in the current quarter also there is roughly 8%-9% only volume growth, while we have added capacity much ahead of the timeline in last three to four quarters. Why all these volume growth here and you're not locking in your guidance because we are still continuing the current run rate. That's what I want to understand. There's a lot of factors. One is the actual coal price. Coal price is, energy price is something, you know, which becomes difficult to pass on. We are making effort to pass on that coal price. Part of that, you know, that impact will more come in Q3, Q4. That's why now we have said, you know, guidance is we have kept a broader range, in that sense. Also this ocean trade and availability of containers, and also those uncertainties are still there. That is another reason, you know, that, we are maintaining this kind of a guidance. Because of the uncertainty in margins, you see that there may be some margin pressure which may restrict our bottom line growth despite top line growth. Yes. Yes. Okay. Sir, just last question from my side, if I'm allowed. Sir, you mentioned that almost the CWIP which we are right now having is almost at the highest ever level of INR 1,600 crore and H1 balance sheet. Also we are going to add another INR 1,300 crore. It means that close to INR 3,200 crore kind of capitalization which you're talking. Because you said that over the next two years, I mean, by FY 2023, we are going to capitalize all this CapEx. Over next 1.5 years, we are going to see another roughly INR 3,000 crore getting capitalized. That's a huge increase in gross block. Do you see that there will be time period where we'll be struggling with the lower utilization, maybe, you know, end of FY 2023, or where we may see some margin pressure or bottom line pressure or the utilization level will continue to pick up and do you see that and we will not see any impact on profitability? No, some of these FY 2023 projects will be for the newer product lines, so that will not get commissioned in FY 2023. There'll be more commission in FY 2024 and FY 2025. This currently, whatever we have on INR 1,600 crore CWIP, that will be capitalized. By FY 2023. Yeah, yeah. Whatever is ongoing will get capitalized, but something which will be starting in the next financial year, those, none of them will get capitalized in next financial year. Correct. Sir, still in the current product pipeline itself, we are planning to invest another INR 1,000 crore. No, no. That part of that is already invested. Part of that is already part of this capital WIP. Okay. I thought that you had mentioned last time that you will be investing more in the product pipeline, in the current pipeline or the current product line, another INR 1,000 crore-INR 1,500 crore. That is already done in the six months. Okay. You are saying that in the current product pipeline, hardly INR 500 crore-INR 700 crore more have to be invested. Yes. Rest all is in creating the new product pipeline. Yes, yes. Okay. Thank you, sir. Thank you. Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for closing comments. Yeah. It has been a pleasure interacting with you over the call and wishing you all a very happy Diwali and prosperous New Year. Before we close the call, let me reiterate that with the execution of our planned growth objective, we look forward to driving strong value for all stakeholders associated with Aarti Industries. We thank you for taking time out and engaging with us today. We value your continued interest and support. If you have any further question, would like to know more about the company, kindly reach our investor relations desk. Thank you. Thank you. Ladies and gentlemen, on behalf of Aarti Industries, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.