Ladies and gentlemen, good day, welcome to the Aarti Industries Limited Q1 FY 2024 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star and 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, over to you, sir. Thank you. Good afternoon, everyone, and thank you for joining us on Aarti Industries Q1 FY 24 earnings conference call. Today, we are joined by senior members of the management team, including Mr. Rajendra Gogri, Chairman and Managing Director; Mr. Rashesh Gogri, Vice Chairman and Managing Director; and Mr. Chetan Gandhi, Chief Financial Officer. We will commence the call opening thoughts from Mr. Rajendra Gogri, who will take us through the performance overview, insights, plans, and outlook on the business. Post this, we open the forum for question and answer, 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 a disclaimer to this effect has been included in the results presentation that has been shared earlier and uploaded on the Stock Exchange website. I would now invite Mr. Rajendra Gogri to share his thoughts. Thank you, over to you, sir. Thank you. Good afternoon, and a warm welcome to everyone on Aarti Industries Q1 FY 2024 earnings conference call. I wish to cover initial thoughts on the performance, evolving market trends and the outlook. While last year was marred with headwinds around inflation and input costs and supply chain disruption, this year commenced with a set of renewed challenges like oversupply situation in China due to weak domestic demand, global inventory destocking and slowdown in key developed markets. These have impacted the end user demand and affected the prevalent pricing environment, thereby moderating the revenue trajectory for the chemical industry, including us. Our team relentlessly worked towards augmenting the product portfolio and delivering sustained value to our customer in this difficult environment. At the same time, we channelized our deep expertise to maintain the market share, optimize the product mix, et cetera. Products linked to dyes, pigments, and other discretionary industries continued to suffer due to prolonged demand weakness as well as inventory correction. Several products within agrochemicals faced pressure due to excessive inventory in the market. Having said that, we believe that this is a transitory in nature, and the medium to long-term outlook remains broadly intact. Our discussions with the customers indicate the volume recovery to pick in, gradually from second half of the current fiscal year. Let me now cover the key performance highlights. Our revenue declined by 10% to INR 1,571 crore, while EBITDA was down by 29% to INR 201 crore, in line with weak industry trends. Profit after tax stood at INR 70 crore. Overall performance was impacted due to reasons mentioned above. Export shipments were significantly affected due to prevailing weak demand. Moving your attention to the production details for Q1 FY 2024, production of Nitrochlorobenzene stood at 17,293 metric ton, as compared to 20,515 metric ton in Q1 of last year. For hydrogenation, this came at 2,868 tons per month, over 3,295 tons per month in the same period last year. For Nitrotoluene, the production for Q1 to FY 2024 stood at 9,327 metric ton, as against 5,252 metric ton in Q1 of FY 2023. Now, let me share some update on projects. The project timelines broadly, remain broadly intact, barring minor alterations, as we continue to believe in long-term structural story of India, especially the China Plus One opportunity and growing consumption of chemicals. The scale-up from expansion of NCB capacity from 75,000- 08,000 tons per annum has been completed recently. Our other CapEx initiative in existing product portfolio, such as expansion of NT and downstream insulation products, et cetera, are progressing well as planned. During the quarter under review, we undertake a CapEx of about INR 260 crore and expect the CapEx about INR 2,500 crore-INR 3,000 crore in the next two years to elevate our manufacturing capabilities and expansion in our value-added product portfolio. Our new project initiative for Chlorotoluene and multipurpose plants are expected to start gradually coming on stream from end FY 2025 and will drive growth beyond FY 2026. While we expect the demand recovery to gradually occur in the second half of this year, our EBITDA performance will be moderated in FY 2024. This is in line with weak industry trends. We will be in a better position to assess the situation as we move along. To conclude, I would say that we firmly believe in India's rising potential within several chemical value chains. We will leverage our strengths across chosen chemistry with nuanced understanding of market complexities to deliver robust performance. The ensuing year will see introduction of many high-quality products, streamlined on core R&D competence, which will cement our leadership position in the market and help deliver sustained value for our long-term stakeholders. I will now request the moderator to open the forum for Q&A session. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vivek Rajamani from Morgan Stanley. Please go ahead. Hi, sir. Thank you so much for the presentation. Just two questions from my end. Firstly, on demand, you mentioned that, you know, it's still quite challenging. Just wanted to get a sense if in the month of July, you've seen any sort of improvement. Just in terms of normalized levels, how much below are we with respect to key segments? So that was the first question on demand. The second one that I had was on the unit margins. Given that your volumes were broadly impacted in a Q1, Q perspective, it appears that unit margins have compressed. Could you maybe share some thoughts in terms of your sales mix? You know, what's the share of the non-regular customers in your mix, and how the margins are trending in those new customers? Thank you very much. Yeah. Basically, you know, demand is more expected to be recovering more towards, you know, in third and fourth quarter as compared to the second quarter. Actually some of the agrochemicals, you know, first quarter was, you know, our Nitrotoluene, if you can see, the numbers were good. Those slowdown in those product lines are now being seen in Q2 of this year. This inventory, this stocking is taking place in our different products and in a different time frame in general. Because of overall slowdown even in Chinese domestic economy, and actually, Chinese currency also has actually depreciated against Indian currency now by about 4%. That is also putting some margin pressure in January. Sure, sir. Just to clarify, no big change in July. You're basically expecting a bigger improvement to come from Q3 and Q4. Is that fair? Yes. Just, sir, on the question on the, you know, sales mix, if you just share any comments on, you know, what's the share of your non-regular markets? Actually, non-regular market also became difficult because of the slowdown there. That's why now that share has not increased much. Sure, sir. I'll reach on the team. Thank you so much for the latest. Thank you. The next question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead. Sir, thank you for the opportunity. I had a couple of questions. Sir, first question, when you say that the demand is weak, considering a base of 100, now taking agrochemicals, pharmaceuticals, dyes and pigments, how much would the number be below 100? It will be, you know, down by now overall on, 10%-20% decline in demand, depending on the product lines. Okay. Sir, in this quarter, sir, we had made so 14% margin. If, sir, we can also separate it into specialty and commoditized product-wide margins, like sir, since I have a specialized portfolio is around 70%. Ideally, even the specialty product portfolio, that is also facing pressure from China, or you think that segment is still not impacted and the pain could be there in coming quarters? How you see how, like, those? Yeah, the volume impact is there, you know, across the board, basically, whether it's a specialty chemical or, you know, or a value-added chemical or the base chemical, because that base chemical only goes into the manufacture of, value-added, products. The margin pressure is more towards the base, chemicals compared to the more value-added, products. The 70% of the segment, that shouldn't have been that impacted, right? If you are saying commoditized is more impacted than that. Yeah. Relatively, the impact on value-added products on the margin side is less, but the demand side is across the board, actually. Okay. Okay. Sir, this quarterly run rate, we used to generally clock a profitability of around INR 130 crore-INR 150 crore in profit, but this quarter we had given a INR 70 crore profit. You think this number can again go back to that range in second half? Yeah, basically, there will be a substantial jump at PBT level, because once the EBITDA increases, then that EBITDA directly, virtually increase on profit level. Those kind of numbers are possible towards, you know, end of the second half of this Q4 levels. Okay. Okay. Thank you, sir. Thank you. Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead. Yeah. good evening, sir. Thanks so much for taking my questions. first of all, just on the, you know, EBITDA, outlook for the next couple of years now, you know, we had earlier spoken about, say, 15% growth for this year and then, you know, sharper growth in FY 2025. you know, would you like to sort of offer any updates on that at this point, or, is there, is there just not enough visibility to do that right now? Actually, it is, will be too early to, you know, give FY 2025 guidelines. The previous guideline was, INR 1,700 crore. Some, I think, decline may take place in that, but, you know, really, whether it will be in the range of 5%-10% or maybe even little more. That kind of, more clarity will emerge in next couple of quarters, based on the, how the, for the demand visibility and the margin visibility comes in. It will be difficult to give any press guidance as, as of now. Right. Right. No, fair enough, sir. On the performance of the long-term projects that we have, the three of them, have those also been impacted in terms of deliveries because of the demand weakness? Or have those held up and it's more of the, you know, base business that has been impacted? The first contract, actually, which got canceled, which is this Dicamba intermediate, that is actually severely impacted because of the demand slowdown in that product line. Whereas second contract is more of a structural, wherein our EBITDA is kind of assured, irrespective of the movement of the volumes. Third contract, it is on stabilization, and it has a overall good demand visibility in that third contract. Second half will show a good numbers coming in that third contract. Understood. The new projects that you were trying to ramp- set up in, you know, the new multipurpose plants or the specialty chemical units, are those, you know, sort of on track for the expected ramp-up, or could there be some delay in their ramp-up as well, given the demand scenario? No, I say they are going to happen more towards the end of FY 25. I think that by that time, all this. You see, the majority is the inventory correction. It is not that the product, or ultimately the consumers are not going to consume. It is in the system, so much inventory was built up over last couple of years. One is that, containers were not available and all, so in general, you know, people picked up more inventory. Secondly is, because of this higher interest cost globally, which was nearly maybe only 1% or 2%, the dollar rates are now maybe 7%, 8%. Increasing inventory carrying costs also has made people to reduce inventory. I think by end of FY 2025, the entire chemical industry has to come to a normal consumption level, after all the destockings. We don't see, you know, those to continue for a, like, you know, very long time at all. Yes, understood. Just one last thing from my end, maybe more for Chetan Bhai. Just, you know, the finance cost and depreciation expense, related to the newer project, et cetera, have they already hit the books in the June quarter, or will there be some more impact in, you know, the upcoming quarters? Also, the tax rate is very low this quarter. If you could please just update your guidance for this year and next year. Thank you. The finance cost and depreciation to the extent of the ones which are getting operationalized towards the end of last quarter and this quarter already hit the books. On the tax, because we have couple of tax exemption by way of and some cogen power facilities, and also we have the depreciation that as per income tax is higher than the what is there in the books. There is a lot of tax offsets and credits available. This is where the tax outflow, or sorry, the tax rate, would be lower. We will have MAT credit in this year substantially. Yeah. Should we expect, like, a sub 10% tax rate for this year, or? That will be sub 10% this year. Okay. Thank you so much. All the best. Thank you. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead. Hi, sir, good evening, and thanks for the opportunity. sir, first question is on our specialty chemical, which means roughly 85% kind of our total basket is on a specialty nature, where, we have always understood that, the pricing is contracted and, the margins are also probably same. In that, that business environment, you are seeing that customers have defaulted or deferred their volume offtake, and that has led to lower volume, or it is also some price impact is also there, and that has led to, margin erosion and profitability impact? No, that's a value-added product also, but that typically, we expect the per kg margin to be steady, and lot of product, it remains steady. Some product, you know, there will be some sort of a up and down also happening in increase or decrease of margin. That is the phenomenon which is playing out. It's not like customers are defaulting or something? No, sir, not defaulting. I'm saying still, this is the volume. If you are 85% volume in the specialty, and then we see that up to 40% erosion in EBITDA, where the EBITDA per kg margin is likely stable, that will only possible if there is a significant deferment in volume. The volume offtake could not have happened until, unless we had some huge inventory that losses or our 15% or 20% business, which is non-contractual, that has seen significant losses. If you can explain more on that front. Yeah, basically, this 85% is not like also 100% contractual. As I earlier mentioned, the demand slowdown is in both value-added products as well as on base products. Okay. Sir, what we see right now, and you have a strong growth visibility in H2, though not avoiding giving any guidance, but you expect that the growth to recover significantly. You have mentioned that probably for FY 2025, maybe just 5%-10% kind of deviation to your EBITDA numbers. Is it something coming from the customer that you see that a strong recovery in H2 that will compensate the volume decline, which we have seen at H1? You see that it is just an expectation that the inventory in the system will be corrected, and then we will see restocking. I mean, what is the basis from where we are making a strong opinion that H2 will be a significant improvement? Yeah, a lot of customers have given guidance that what kind of material they will need in October to March indication. We have received for a lot of customers. You know, that, you know, which were not buying, some of them were not buying for three months also. Those kind of, basically, a lot of inventory correction, what is happening seems to be getting over, maybe the Q3 and Q4 of this year. Sir, you also highlighted the currency, Chinese currency, appreciation is helping the global market and China to push the material in the system. Sir, in that business also, do we see that our 85% month again, the business which is contracted in nature, have these contracts had to be renegotiated because customers with a lower margin, we have to settle, or the currency depreciation shouldn't impact us at all? No, that will for our contractual business, you know, what happens between Chinese and Indian currency generally is not. Actually, they are currency neutral. Generally, they will be in U.S. dollar terms, so all exchange rate will be always with us. So, there is no change in the contract terms because of any change in whether the U.S. dollar to Indian rupees or U.S. dollar to Chinese currency. Actually, sir, in a sense that Chinese currency and the China dumping shouldn't be impacting our large part of the business, which is 80%-85%, but amid that, we have a huge uncertainty and very weak numbers. I mean, something which we are missing that what actually would have led such a sharp kind of decline, and you said that just because of the volume and the inventory destocking, that is impacting the profitability. That's what you are trying to say? Yeah. China, some of the products in India also, basically, the competition come from the China, because some of the products are imported into India from China. You know, that those kind of products, where it is, which we sell in domestic markets, where we are seeing those impacts. There, the currency impact also will kick in. Okay, just last one myself, and I'll come back. Thank you. Sir, on the project one, intermediate, any sense, because right now, anyhow, we are going through the chemical global weakness, and there is no contractual arrangement which we need for the intermediates. What kind of utilization maybe we see? Have we formulated any strategy, given that the global weakness in chemical market continue, have you decided anything on this project one for the combined intermediate? Yes, we mentioned it's a very specialized plant, you know. It's a continuous plant and difficult to use for other products. We will take some call on that maybe in the next one or two quarters, that, you know, we can really make a substantial modification in that facility, and introduce new, new products. We have two different lines there, so maybe one line we can repurpose or so. That decision maybe in next couple of quarters, we will take. Thank you, sir. Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Yeah, thanks for the opportunity. First question is on the domestic market. We've been talking about global inventory destocking and ingress of China material. How has been the performance in the domestic market? Which segments are showing growth? In domestic market also there is overhang of inventory destocking. Just your thoughts on this. Thank you. Now, as we have mentioned in earlier also, our direct export is now around 45%-50%, and there is indirect export around 20%-25%, where our customers make the product and the downstreams are exported. Effectively, now, our 70% of our business is linked to international market. Within the 30%, you know, products which are going in pharmaceutical and all, you know, we are seeing there is no change in demand. There we see there is a lot of. In pharma sector, the China has been very aggressive when they are exporting to India, so there, they are finding some pressure in their product line. But the demand is intact on those products. Right. For the 30% domestic market, we are still growing. I mean, there is no real issue of inventory destocking as far as the domestic demand is concerned. Not, not significantly, no. ... Second question is in terms of China. There is good amount of material which is coming from China, and you also alluded to that. Have there been any change in terms of your capacity additions, which have come up in recent times, and that is also posing some kind of a threat for, you know, with newer material coming into the system? Thank you. No, there, there's no change about what actually the Chinese material coming into India, because actually our new PNCB, ONCB capacities just, just come up in this month. Then we'll have a more availability of the material, which will, you know, help in reducing the import from China. Right. Generally, in the base, you know, base of benzene chemistry, are there any new capacities which have come in China, I mean, as per your understanding? No, there, one particular plant which was closed down, that has restarted last year. Okay. Okay. Just one last clarification, from Chetan Bhai. In terms of, given that, this year, our absolute EBITDA, will get impacted because of the external factors, how are we covered in terms of our debt repayment? Given that our CapEx program will continue at INR 2,500 crore-INR 3,000 crore for this year and next year, what is the peak debt that we are looking at? Our annual debt repayment is roughly around INR 350 crore. Relatively, that number can be easily managed from even the current situation where we are prevailing in. As regards the CapEx program, which we have, we secured a long-term 10-year money from IFC of around $130 million, which will be available for us to utilize for the new CapEx initiatives. Plus, the contraction in the demand and the revenue and business will also result into reducing working capital requirement. There will be some cash flow reduction on working capital, which will also benefit in terms of managing the cash flow requirements. Sure, this is helpful, and best of luck, sir. Thank you. The next question is from the line of Surya Narayan Patra from PhillipCapital India. Please go ahead. Yeah, thank you. Thanks for the opportunity, sir. First question is on the export decline QOQ, what we are witnessing, 27%. Can you split that decline in terms of volume as well as values, or in terms of price? As I mentioned, the price in a lot of our products, price are linked to raw material, and Y-O-Y, Y-o-Y, the demand was, benzene price was lower. Impact of that also is coming, you know, at the top line level. Both volume also. It will be difficult to bifurcate- Is it fair to believe, sir, this, the number what you have mentioned, the volume decline would be in the range of 10%-20%? That would be the range for export business? No, it is more than, around 10, 12%, not up to the 20%. Because here, if I see the domestic performance also, QOQ, it is a flat performance. That means, if we are believing that the volume scenario is there that way, maintaining no more kind of slowdown that we have witnessed in the domestic market, then is it fair to believe that the price pressure, what we have witnessed because of the Chinese dumping, that has not been reflected practically in the first quarter, and hence, second quarter could be the key period during which we will see the full impact of this Chinese dumping as well as even to the domestic business? Some impact is already seen in the Q1 also of that. Additional impact, maybe not that significant. Okay. Since we are saying that there is some impact in the volume and there is, there is, some impact that is already been seen in terms of pricing, domestic sales QOQ is flat, despite of all these challenges. That is why I'm here. Yeah, the sales value-wise is flat, but you know, some impact on the margin has come in there. Correct. My next point was that only. In fact, the gross margin, if you see, that is the weakest gross margin that we are witnessing this quarter. Weakest ever, possibly 35% kind of gross margin. Is it because of the kind of impact on the prices or, or product prices, or it is the cost still that is impacting you? No, because as, as a percentage, it become difficult. As we mentioned, you know, the benzene price has gone down Y-o-Y. Okay. Okay. going to have a always an impact of that. When as a percentage become difficult, the absolute gross profit and absolute EBITDA becomes more a better number. Okay. Just practically, this quarter's performance, industry-wide, if you see, it is a challenge of the volume only or demand situation. That is a key challenge for the quarter. On the top of that, this dumping in the meanwhile by China, that is the second problem, creating a pressure on the prices. Sir, could you give some sense after interacting with your customers and all that, what is the level of inventory they generally use to maintain pre-COVID? Currently, what is the level of inventory they are maintaining? That is one. Regards this Chinese dumping thing, how long that you think that there could be a kind of this dumping pressure could be seen in the external, non-US market or or let's say in the international global market? Yeah, basically, you know, this dumping also relates to original overall demand. If the overall demand increases global then no dumping is going to go down. Second thing is the, now the inventory carrying cost is high. Right. You can see the dollar interest rates are high Typically, if any company wants, is keeping inventory of, say, three months, they will say, "No, now we have to keep it two months," you know. Exactly because of cost of money and availability of money. Yeah, yeah, of course. That, that is really, you know, every, each and every, businesses have to relook at, you know.the what kind of inventory they should keep, you know. Previously, it was the availability was the issue, the shipping was a big problem. At that time, everybody has taken, maybe somebody who is keeping normally a three-month inventory will make it four months. High inventory carrying cost, now they will think they will make it two months. That is what is really, you know, moving from a high inventory to a lower inventory than a normal. That is why, that's why this inventory correction has become. Like they are saying, agrochemical, $75 billion market, that is $65 billion inventory in this, entire value chain. That's a huge inventory. That means eight, nine months of inventory that, that you mean to say, sir? Yeah, in entire value chain, you know, from the intermediate to active ingredient, to the farmers, dealers and everything. So very high level of inventory was, but now with the cost of money and, you know, availability of money, that is getting corrected. The new normal will come, you know, like, you know, at this kind of interest level. Now, interest also is picking up. I think, U.S. interest rate also virtually now, you know, get stabilized. New normal of an inventory, I think, will come in maybe by end of this year, calendar year. Okay. Just last one about the debt. What is the gross debt currently, sir? I think after the recent addition, what is the gross debt that we are currently having? I think the, the debt position, I think the net debt would be close to around INR 2,650 or so. Gross debt, because we've taken the term loan drawdown towards the last week of June, and we have not fully utilized it. I've got something like close to gross debt of almost INR 3,000 crore and cash surplus, liquid money of INR 400 crore. Okay. Okay, fine. Yeah, thank you, sir. Thanks so much for taking all my questions. Thank you. The next question is from the line of Akul Broachwala from Ocean Dial Asset Management. Please go ahead. Yeah, thanks for the opportunity, sir. Wanted to get your thoughts on, you know, Chlorotoluene's initial phasing that you're planning to do in FY 2025. Can you just share some details as to what would be the initial capacity? I believe this is an import substitution strategy to product. You know, what's the current imports, and basically, what's your thought behind, you know, fast-tracking this entire project? Yeah, that is, actually, project will get commissioned in FY 26. Chlorotoluene capacity, we have taken about 42,000 tons as a base capacity. It will be with the entire value chain, because the current import of Chlorotoluene is not that significant as it is. Lot of downstream products based on Chlorotoluene are currently imported into India. Understood. What's the CapEx entailed for this first phase of, you know, Chlorotoluene? Yeah, first phase will be, you know, more of around INR 1,500 crore or so in the first phase of those. Then, further, some multipurpose plan and additional addition will take place. Okay. Basically, eventually, we've also planned to introduce downstreams and would cater it through. Yeah ... multipurpose. Okay. Beginning itself, we'll have a downstream. We'll have few downstreams along with the Chlorotoluene itself. Simultaneously, downstream will also will be, otherwise you cannot consume that much because there's not that much demand in India of the base Chlorotoluene. Few downstream chemistry, along with the Chlorotoluene, will be commissioned in the first phase. Basically, more or less a continuous, various plants will get commissioned in FY 26. Some may go in FY 27, but most of the commissioning will happen in FY 26. Understood. You know, given the kind of situation that is there, do you sense that there would be some realignment that would be required eventually, if, you know, things not improve, or you will still go ahead with the kind of CapEx program that you've built in? This is, we see this as a more of a transition because of the inventory correction, as I mentioned earlier. Structurally, the chemicals are required by the end user, whether it's a pharma, agro, or for paint, or car, or all the end users, there is no change. There is not new chemicals which has come in. Structurally, the demand is there. Secondly is that demand appetite from India also is remaining. Anything of a long term which is going to come up in FY 2025 and 2026, because by that time, I think all the stabilization will be taking place, you know. There's no question of, you know, changing anything on that. Understood. Secondly, you know, whatever legacy issues that we face with, you know, availability of nitric acid, can we assume that most of those issues are behind us now? Considering your contract with Deepak Fertilisers as well, maybe, you know, considering this down cycle, even if the demand might remain volatile, otherwise, in terms of production, there aren't any such challenges for us. Yes, yes, yes. We set up, had this 20-year contract, so nitric acid availability has not been an issue at all. Understood. Lastly, on other expenses, the, the run rate of 1Q, like, do you expect to gradually, that to, you know, increase, to the earlier levels? Or will it be pertaining to the production levels that, will depend on the market situation? With other expenses, there is substantial ocean freight. You see, there's ocean freight correction, which has, you know, really changed in this. Because even though it is a direct variable expense, it comes in the other expenses, and we have really seen a huge volatility in last couple of year, couple of years. Understood. That's it from my end, sir. Thank you, and I'll wish you the best. Thank you. The next question is from the line of Anubhav Sahu from Moneycontrol Research. Please go ahead. Hello. Yeah, thanks for the opportunity. Couple of questions. Now, given the headwinds we have seen from China side, which was quite unexpected, as far as the aggressiveness on the dumping is concerned. Now, any estimate or any estimate for the volume growth for the rest of the year? I mean, particularly when we also have a strategy of being aggressive in non-regular markets. Yeah, it's difficult to give any volume because of China itself, you know, what we are supplying there also is becoming difficult as a non-regular market. To give any specific volume guidance at present will be difficult. Okay. Coming from, you know, expectation of 25%, so, like, would you have any broad range to talk about, even for the remaining nine months? Instead of, you know, 25, it may be overall maybe around 10% growth or something, those kind of numbers. Understood. On the domestic market, could you provide any qualitative guidance for near term? Given that it looks like, on the volume terms, it looks stable, if you just look at Q on Q basis. Relatively, probably can margin also better for us. You mentioned, there is a bit of an impact on the margins. Particularly on 30% of the business, if you can provide some guidance for, for the near term. Yeah, that 30% business which is going for domestic consumption, I think we are seeing a fairly stable demand. I think that will continue like that. Okay, okay. Sir, last on these, this, we wanted, this, currently our net debt to equity is about 0.56. Could you provide what could be the peak metric for this as well, this current CapEx cycle is concerned for next two years? Debt equity, debt equity is also going to be a function of how the working capital and the input prices prevail. If we assume the constant prices, I believe this should be between 0.6 or 0.7, max. Don't go beyond that number. Yeah, working capital is going to be a clear major play in looking at the debt number as we move forward. Okay, understood. I mean, given status quo, I mean, 0.7 is what you're looking at as the peak? 0.7 on the worst case upper limit. I guess 0.56 or 0.6 is the number which we are currently targeting. Understood. Understood. Understood. Quite simple. Thanks, sir. Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead. Thank you, sir, for the opportunity. Sir, if I heard you right in the opening remarks, our Nitrotoluene production volumes have gone up quite a bit, year-over-year. Sir, is it that there is decent enough demand in the base toluene or, you know, the end users of this eventually going to agree, MEA and DMA? Is that, is that what is driving growth or, is there something else that you would like to highlight? Yeah, basically, the agrochemicals in that product line was doing well in Q1. That's why we got a good number of Nitrotoluene. As I mentioned earlier also, now that inventory, in fact, they started coming in now in Q2. There will be some Q2 and Q3, we may have some subdued numbers there, you know, in our utilization range. We'll try to, you know, sell the product to other market and try to keep the volumes. Nitrotoluene volumes will be impacted in Q2, for sure. Okay, understood, sir. Sir, just another clarification that I wanted from the previous calls about the arrangement in the second long-term contract. Just wanted your thoughts. What exactly is the arrangement there? Are we working on a fixed EBITDA basis? Because given the size of the contract, you know, central division of the total size of the contract over the tenure that we have planned, INR 500 crore annual turnover and the EBITDA range that we had given earlier in terms of margins, would that be achievable from this year onwards, or is there any delay on that end also? No, no, that has kicked in. You know, we are getting that. That's what I mentioned earlier also. The second contract, you know, the EBITDA is not connected much to the volumes. Basically, sir, the EBITDA or the per ton or the absolute margin that we are envisaging to make here, we'll make it any which way in this year and going forward also, the same number from. It's not related to the volumes. It's absolute EBITDA virtually, is not going to change much. Exactly, sir. The absolute EBITDA run rate from this year will be constant from this financial year, from FY 24 and going ahead? Yes. That's what I'm trying to ask. Okay. Yes. Understood. Understood. Just one follow-up on the first question. The incremental Nitrotoluene capacity and the ethylation loop, when would you assume it to come online in terms of timeline? We are targeting in Q1 of FY 25, that both Nitrotoluene and ethylation block, should go in commissioning. Q1 of 25. Got it, sir. Thank you. Thanks a lot, and all the best. Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead. Yeah. Hi, sir. Thanks for the opportunity. first question on the decline in RM prices that we are seeing. Will it be fair to say that all the RM deflation has been passed through across our value-added as well as basic products? If not, then what is the proportion of the contractual pricing that we have? No, it's basically, generally, domestic market, it gets passed on a month-to-month basis. Export, it is generally quarterly lag, you know. That is a typical structure. Actually, now, again, the RM has started going up. If you see, the downward move was towards June, July, and now the price were corrected going up, in that. Sure, sir. In that sense, in that case, probably in the near term, there could be some flux in terms of margins because of, you know, pass-through delays or, you know, given the, the volatility of the, the RM prices. It has not been a very huge variation. It is not like, you know, INR 60 becoming INR 90 or INR 60 becoming INR 30. The changes are not very huge, you know, to have a really substantial impact. Sure, sure. Sir, secondly, on the, the value-added products, now we say our revenue share from them is around 75%-80% odd. How much of this will be contractual? You know, another question there is: how do you define value-added? Is it number of steps required, or is the margin that we earn? It's on a number of steps, basically. Like the first nitrochlorobenzene, Nitrotoluene, and all, you know, sulfuric acids, they are considered base products. Then as you add more chemistries, that become the more value-added products. Value-added products, typically, you know, we have a long-term structured contract also, and other places where we don't have structured contracts. Generally, typical delta, when we discuss with customers, that is, you know, the pricing are generally typically done based on the base raw material, plus delta. That's how the pricing is done, even if it is not contractual. Generally, the pricing structure remains of that. This delta will be, broadly speaking, in what percentage terms higher than the basic one? Let's say, let's say the basic margin is maybe INR 100 kg, then what is the delta here for value-added? I know it will be a range, but broadly. My, depending on the number of chemistry, you know. We have products which we sell at INR 2,000 also. We have products which we sell at INR 1,000 also, INR 500 also. The INR 2,000, you know, the raw material cost may be only INR 500, because so many chemistries are added. It all product to product, depending on the... Actually, every step, you know, the delta gets added, and, gross profit to sales, number goes on increasing. Okay. You know, in our annual report, we again talk about, you know, the value-added products and the high-potential products margin accretive being, you know, there will be ramp up there, given our CapEx plan as well. The margins that we'll be earning on these value-added products, you know, how should one look at them? Maybe in terms of number of steps you can suggest or in terms of absolute margin, how should one look at them? Like Chlorotoluene, you know, mostly, most of the products will have, at least, typically three steps, entire range. Then we virtually everything will be 90% will be also value-added kind of products there. There the EBITDA margin and everything will be higher. Sure. Sure. That's it from my side, sir. Thank you. Thank you. The next question is from the line of Bhavya Gandhi from Avendus Wealth. Please go ahead. Yeah, thank you so much for taking my question. Just one question. Have we seen historically this kind of situation of destocking? When, what is the time period for this kind of situation? What was the time period which was taken for destocking in the past? If you can throw some light on this. Maybe in last 10, 15 years, have we seen, or is it a one-off situation this time? This is similar to what had happened in 2008. You know, 2008, if you see, after Lehman Shock, across the world, you know, a lot of plants have closed down and very sharp, that was more of a financial crisis. The availability of finance was problem, but the interest rates were low. At that time, the interest rates were going down. This time, what has happened is that the interest rates are also has increased. In 2008, there was no impact on agrochemicals. Okay. Because agrochemical demand were, everything was because the inventory carrying cost was zero. Right. Now, what has happened in this time, you know, that it is that interest cost also has become a big factor. This time the impact has come both on discretionary as well as on agrochemicals. Okay. In 2008, what was the time period for which the cycle lasted? I mean, the destocking thing, was it like a... Two quarters. Two quarters. September was the Lehman Shock. October to March, those six months, there was a... That time, though, it was much sharper. This time it is more of a slower and more prolonged compared to the earlier. That time, it was very, very sharp, you know, like BASF announced this many plants closed across the world and all that, you know. The Lehman Shock was a much really shocking and very shocked, in fact. That's it. How do we assess that, you know, it's only the channel inventory issue and not the demand issue? Like, do we have any ground-level reading saying that the demand is not impacted? How do we assess that? Because everybody's talking about two quarter thing. What gives a certainty when it comes to demand on ground level? Products are required mainly for your auto or construction and textile and electronics and all consumer products. Overall, I think there is no replacement of these chemicals what are used there. We don't see any structural change in the consumption pattern. Actually, all the EV and all, they need more specialty polymers than regular vehicles. Right. Is it like China, you know, trying to squeeze again, our margins? On a longer term basis, are they going to come back and affect demand? Actually, the demand from India will remain because the China Plus One story and demand, you know, we don't have to worry much about the volumes. Specific product to product, though, some margin pressure will come. Once the demands become normal, the appetite to buy from India is there, and that is kind of going to continue. Personally, I don't see that, you know, the volumes will be impacted, once thing normalizes. The Indian companies will be able to get good volumes in the international market. Okay. Yeah. Thank you so much. That's from my end. Thank you so much. Thank you. The next question is from the line of Siddharth Gadekar from Equirus. Please go ahead. Hi, sir. First, in terms of the sectors that we cater to, agrochemicals, dyes and pigments, polymers, autos and others. In terms of the slowdown, where would you see the sharpest slowdown? In terms of recovery, are we seeing any green shoots in any of these segments, at least in July, August, or none of all are still at the similar levels as one, two? Actually, textile is something which is everybody is wondering. If you talk in textile sector, it has been a very, very prolonged one, because that was the first one which started impacting even in FY 2023. It's a much longer. Pigment side, some sort of a green shoots may happen in Q2 onwards. Agrochemicals are very, very product specific. As I mentioned, Q1, our Nitrotoluene and ethylation products were really booming, and suddenly Q2 and Q3, those things happened. Whereas the Dicamba is where correction started happening in the Q1. This has become much more volume specific. Okay. product specific. Sorry. Okay. In terms of our second quarter, give it, should we be at a similar level in terms of our EBITDA, or could we even go below the current INR 200 crore EBITDA that we reported in this quarter? It should be at a similar range. That's how it looks at it. At present, it should be of a similar. Do we have any volume contracts or volume visibility that third quarter will be better than the first half, or it will be entirely pushed to the fourth quarter or FY 2025? We have some volume visibility for third and fourth quarter, but sometime what might happen, happen, you know, by the time they become nearer, then they may say that sometimes they may say, "We need one month earlier," or sometime they may push out to the next month. With the current indication, what we are getting from the customer, definitely Q3 and Q4 are still further higher. Okay, sir. Got it. Thank you. Thank you. The next question is from the line of Pujan Shah from Congruence Advisors. Please go ahead. Hi, sir. My first question would be on the dye and pigment. If you look at the specific segment, so how would we, like, like, what you will be out-- like, how the outlook would be? What would be the parameters? Just wanted to know that view on FY for the FY 2024 basis. Yeah, textile is really a surprising situation, no? Textile is still not showing any significant increase. It's still, you know, struggling. Time to time, we feel that it is getting very back to normal, but still not happening. The pigments seems to have, you know, bottomed out. Okay. What are the views on the polymers and additives? Polymers and additives, actually, the corrections are started more happening now. That might get bottomed out more towards Q3, Q4. Okay, okay. Got it. I just wanted to ask you about the benzene. If you look at the, from the top, what the price would be. Can you just give a certain, certain percentage point, how the,% fall would be from the top to current price? Can you repeat the question? Yeah. If, if you look at the benzene prices, so benzene price is, let's suppose it's 100, and now it's currently, if, if this price is trading at 90 or 80, so it would be around 10-20% fall from the top, what the price has been made. What could be the price or percentage fall in the, from the top to at the current price? The benzene has not been INR 100. It may be around INR 90, it has been? 90 to 60. 90-60 kind of range, which has happened. Okay, okay. Got it. Got it. Can you just tell the volume again, I missed it. Pardon? Volume split, what you have provided in the initial marks. I was actually, I missed out that volume. Yeah, Nitrochlorobenzene. Nitrochlorobenzene, volume. The nitrochlorobenzene volumes were 17,290 metric tons for the quarter, as against last year YOY number of 20,515. The nitrotoluene volumes was 9,327 for this quarter, versus 5,250 for last year. The hydrogenated volumes were 2,868 versus 3,295 for previous year. Okay, okay. Got it. Thank you so much. Thank you. The next question is from the line of Aditya Khetan from SMIFS Institutional Equities. Please go ahead. Sir, thank you for the follow-up. Sir, Sir, you had not mentioned the PDA segment volumes. Okay. Yeah. PDA volume for, PDA volume for, for this quarter, this quarter is 135 tons per month, whereas last year it was 302 tons per month. This is a work affected segment. I believe so, so the Phenylenediamine segment, so majority of the volumes is for the export market, and because of the external headwinds, so this is one of the reason why this, this segment is impacted the most? Yeah. If the domestic, it goes in dyes and export, it goes in polymers. This has been. That's what I was mentioning, that correction in this has started more recently on the polymer side and all. That's why we see a sharp decline in this. What was the base reason of, of the Nitrotoluene strong volumes in this quarter? That is going into agrochemical, and those agrochemical will still be, are still strong in Q1. Why that has been impacted in second quarter? You mentioned that. That has got weakened now. The inventory correction, everybody has calculated the pipeline inventories. The multinationals, when, when they come back with their revised supply chain, that's where we are seeing there's, now they see that they want to reduce the year-end inventories. Okay, sir, into the agrochemical segment, you had stated that. I believe this figure could be three to four months back, when we actually have started. If you can provide the current figure, how much inventory is left in the pipeline? Aditya, we lost you midway. Could you just repeat your question? sir, I was asking on to the agrochemical inventory situation. Which sir has stated, so I believe, so two, three months back, here, how much inventory has been rationalized? Yeah, that I think we'll have to talk to ag guy again, you know, that from where we get those, this kind of number. Maybe, you know, that how much correction already is taken place. I think most of the correction in next two, three quarters, because everybody wants to keep lower inventory at the year-end, because of higher inventory carrying cost. I think all this should, should settle down by Q3 of this year, as a calendar year-end. Okay. So just one... Now, we had again started witnessing, so crude prices have started to inch up, and they have crossed 85, so dollar a barrel. If suppose, now the base chemicals prices also would start to go up, so with the lag? Yes, yes. Yes. Could there be a situation, so we would not be able to pass on the incremental prices, and we could see for from this level? If- Generally, we are able to pass on, so there's not as much issue there. Okay. Okay. Aditya, does that answer your question? Okay. You are not audible, sir. Yes, yes. Got it. Got it. Okay. Thank you. Ladies and gentlemen, we will take that as our last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you everyone for taking out the time to join us on our Q1 FY 2024 earning conference call. Hope we have addressed all your queries. If you have any further question, please feel free to contact our Investor Relations team, and we'll address them. We look forward to connecting with all of you again in the next quarter. Thank you once again. Thank you. On behalf of Aarti Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.