“For passing on the rise in prices of raw materials like benzene, we have a monthly pass through model for domestic sales and for exports generally with an about three-month lag. That is the normal pass through mechanism in our business model as such,” says Rajendra Gogri, Chairman & MD, Aarti Industries.
Benzene is a key raw material for your company and the prices have been strengthening. In your opinion where are the prices headed and what does this really mean for your company? What percentage of input cost hikes have been passed on so far?
Yes benzene prices generally tend to mirror the increase in crude prices but overall, there has been about a 10% increase in benzene prices as of now because that is generally based on the February prices. We have a monthly pass through model for domestic sales and for exports generally with an about three-month lag. That is the normal pass through mechanism in our business model as such.
Benzene is a key raw material for your company and the prices have been strengthening. In your opinion where are the prices headed and what does this really mean for your company? What percentage of input cost hikes have been passed on so far?
Yes benzene prices generally tend to mirror the increase in crude prices but overall, there has been about a 10% increase in benzene prices as of now because that is generally based on the February prices. We have a monthly pass through model for domestic sales and for exports generally with an about three-month lag. That is the normal pass through mechanism in our business model as such.
Your top line has about 12% exposure to Europe. Has the current Russia-Ukraine conflict had any impact on your operations in that geography?
No. Basically, our sales to Russia and Ukraine account for only 0.3% and the sales to Europe basically are not affected at all.
When is the demerger of Aarti Industries expected and what is the amount of debt that will be transferred to Aarti Pharmalabs?
We are expecting that by the end of Q1 of FY23 and the debt number I do not have immediately.
But what is the current debt on your books and what is the overall plan to offload your debt?
Current debt will be upward of around Rs 2,500 crore.
We also saw that Q3 was impacted by the shortage of nitric acid. Has this shortage persisted in Q4 and when do you believe the impact of this is likely to ease?
Yes some impact was there especially in February but now things have normalised as far as nitric acid is concerned.
You recognised about Rs 631 crore as termination fee in your revenue in the third quarter. We understand Rs 180 crore has already been received in the third quarter and the remaining was to be expected to come in the fourth quarter. How much of that amount has already been incurred?
We have received the entire amount as of date.
Your margins on the speciality business were supported by the fee received due to a cancelled contract from an agrochemicals giant. With the exception of this quarter, your margins have declined since the first quarter of FY22. What is the sustainable level for your margins going forward?
Generally margin tends to vary with percentage of raw material price increases. Absolute EBITDA is the more correct method and as the volume goes up, we expect the absolute EBITDA to increase.
What about the prices of fuel and in turn logistics because that has seen a substantial rise? Last quarter you managed to pass it on to customers. Have you taken any further price hikes and have volumes been impacted as a consequence?
Since the fuel prices have increased substantially this year, we have been able to pass on those hikes in ocean freight as well. Generally we are able to pass it on to the customers.
What about your key projects for the second long term supply contract and pharma API intermediary expansion? All of those were expected to commercialise in Q4. What is the update and what kind of incremental revenue can we see?
Yes we have already successfully commissioned our project for this second contract in this quarter and pharma also will be commissioned by March so those will be done and that will increase revenue going forward in the next year.
And what about new chemistries, new products, new R&D that you are looking at? Can you give us some sort of segmental breakup?
We had earlier guided that we are planning to introduce about 40 new products in chemical and about 50 new products in pharma in next two years. So those projects will go under construction in FY23. It will be on chlorotoluene and other various newer chemistry also will come in.
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