AARTIIND - Aarti Industries Ltd Share Price

In the Q1 FY26 Earnings Conference Call, Aarti Industries' management provided a cautious outlook for the upcoming quarters, emphasizing their resilience despite facing significant external headwinds. Highlights include:

• Revenue for Q1 was reported at Rs. 1,867 crore, marking a decline of 16% QoQ, largely due to pricing pressures from raw material corrections and inventory adjustments.
• EBITDA decreased to Rs. 215 crore, a 19% QoQ decline, impacted by inventory valuation losses of around Rs. 30 crore and other temporary production issues.
• Profit after tax was recorded at Rs. 43 crore.
• For FY26, capital expenditure is anticipated to be below Rs. 1,000 crore, with ongoing projects expected to contribute positively in the latter half of the year.
• The company's Zone IV projects are progressing and expected to start commercial activities in a phased manner from H2 FY26, with focus on high-margin products.

Management highlighted that underlying demand conditions remain stable, and they foresee a strong recovery driven by various growth initiatives. The projected ramp-up in production capacities across multiple segments is aimed at mitigating current volume declines and optimizing operational efficiencies.

The company is closely monitoring the impact of the recently announced 25% U.S. tariff on Indian imports, which poses additional uncertainties. The direct exposure to the U.S. market accounts for about 15-20% of their revenues.

Strategic pillars for the future were reiterated, focusing on advanced chemistries, fostering long-term partnerships, and driving growth in emerging sectors. Overall, while Q1 was challenging due to geopolitical events and pricing volatility, management remains optimistic about a recovery as the market stabilizes and new projects come online.

1. Question: "Would it be fair to say that if it was not for these various disruptions that you faced, the performance from the MMA business would have been a lot more better?"
   Answer: Yes, I believe that's accurate. Specifically, our July MMA export numbers were around 20,000-22,000 tons, which reflected both deferred shipments and additional orders. These disruptions certainly impacted our performance for the quarter.

2. Question: "DCB volumes have declined both year-on-year and sequentially. Is this purely cyclical or is there a structural shift in the downstream demand?"
   Answer: The decline in DCB volumes was largely due to lower demand from US customers who process it into advanced polymers. With inventory liquidation and uncertainty in automotive demand, we anticipate a recovery in the second half as demand normalizes.

3. Question: "Can you share granular details regarding MPP and Zone-IV customer tie-ups and expected EBITDA contributions?"
   Answer: We expect to commission our multipurpose plant and calcium chloride unit by December this year. While their profitability won't fully materialize until 1.5 years later, initial contributions should begin in the next calendar year following ramp-up phases.

4. Question: "Can we have an annual EBITDA guidance along with our three-year guidance of Rs.1,800 crore?"
   Answer: We're not providing annual guidance due to current market uncertainty. We're focused on our three-year outlook, prioritizing strategic execution over short-term forecasts.

5. Question: "Could you quantify the extent of sales for an EBITDA deferment during the quarter?"
   Answer: Roughly, we estimate an EBITDA deferment impact of Rs.15-20 crore from delayed shipments, in addition to Rs.30 crore from inventory effects.

6. Question: "What were the expectations for pricing trends of raw materials and impacts on profitability?"
   Answer: Raw material prices have been falling, but we believe they have bottomed out. Our focus is on optimizing inventory and passing pricing fluctuations to the market quickly, even as we adjust our product mix based on demand.

7. Question: "On the lower volumes in DCB and NCB, do you expect these numbers will materially improve from current levels?"
   Answer: DCB relies heavily on the US market and is impacted by tariffs. However, we expect our volumes to improve as our strategic customers rebound. NCB, serving a domestic market, should see recovery as operational challenges are resolved.

8. Question: "What is the competitive intensity for our products, especially given the ongoing geopolitical events?"
   Answer: Competitive intensity remains similar to prior levels. While prices have stabilized, we are focused on optimizing our portfolio to ensure we maintain market leadership. The environment can fluctuate based on geopolitical events.

9. Question: "How do you see the impact of the new US tariffs on your business?"
   Answer: While 15-20% of our business derives from the US, the impact varies by product line. Certain products may see reduced tariffs while others may face increased competition, particularly in the DCB segment. However, we are actively assessing mitigation strategies.

10. Question: "How has the domestic performance been during this quarter despite difficulties?"
    Answer: The domestic market faced similar pressures as the export market, primarily from falling raw material prices. We anticipate recovery as operational challenges are resolved, but both markets experienced setbacks during this quarter.

Each answer is tailored to remain concise, with critical figures and forward guidance noted where applicable.