Aarti Industries Share Price | Russia Ukraine War: Aarti Industries’ sales in Europe are not affected at all: MD

“To pass on rising prices of raw materials like benzene, we have a monthly pass-through model for domestic sales and for exports usually with a lag of about three months. This is the normal transmission mechanism in our business model as such,” says Rajendra GogriCEO, Aarti Industries.

Benzene is an essential raw material for your business and prices have strengthened. Where do you think prices are going and what does it really mean for your business? What percentage of input cost increases have been passed on so far?
Yes, benzene prices generally tend to reflect the increase in crude prices, but overall there has been an increase of about 10% in benzene prices from now on, as this is generally based on February prices. We have a monthly transmission pattern for domestic sales and for exports in general with a lag of about three months. This is the normal transmission mechanism in our business model as such.

Your top line has around 12% exposure to Europe. Has the current conflict between Russia and Ukraine had an impact on your operations in this geographical area?
No. Basically, our sales in Russia and Ukraine are only 0.3%, and sales in Europe are hardly affected at all.

When is Aarti Industries expected to be spun off and how much debt will be transferred to Aarti Pharmalabs?
We expect that by the end of the first quarter of fiscal year 23 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 discharge your debt?
The current debt will be over around Rs 2,500 crore.

We also saw that the T3 was impacted by the shortage of nitric acid. Has this shortage persisted in the fourth quarter and when do you expect its impact to subside?
Yes, there was an impact, especially in February, but now things have normalized when it comes to nitric acid.

You have recognized around Rs 631 crore as a termination fee in your third quarter earnings. We understand that Rs 180 crore has already been received in Q3 and the rest was expected to come in Q4. How much of this amount has already been committed?
We have received the full amount to date.

Your margins on the specialty business were supported by fees received due to a canceled contract from an agrochemical giant. With the exception of this quarter, your margins have declined since the first quarter of FY22. How sustainable are your margins going forward?
Generally, the margin tends to vary with the percentage increase in commodity prices. Absolute EBITDA is the most correct method and as volume increases we expect absolute EBITDA to increase.

What about fuel prices and logistics, as this has seen a substantial increase? Last quarter, you managed to pass it on to customers. Have you taken any other price increases and have volumes been impacted accordingly?
Since fuel prices have increased significantly this year, we have also been able to pass these increases on to ocean freight. Usually we are able to pass it on to customers.

What about your key plans for the second long-term supply agreement and the expansion of the pharmaceutical API intermediate? All of these were to be released in the fourth quarter. What is the update and what kind of additional revenue can we see?
Yes, we have already successfully commissioned our project for this second contract in this quarter and Pharma will also be commissioned by March, so it will be done and it will increase revenue in the future l ‘next year.

And what about new chemistries, new products, new R&D that you are considering? Can you give us a kind of segmental break?
We previously indicated that we expect to introduce around 40 new products in the chemical industry and around 50 new products in the pharmaceutical industry over the next two years. So these projects will be under construction in FY23. It will be on chlorotoluene and other newer chemicals.

Mary I. Bruner