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Edited Transcript of AARTIIND.NSE earnings conference call or presentation 13-Feb-20 10:00am GMT

Q3 2020 Aarti Industries Ltd Earnings Call

Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Aarti Industries Ltd earnings conference call or presentation Thursday, February 13, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chetan B. Gandhi

Aarti Industries Limited - CFO

* Rajendra Vallabhaji Gogri

Aarti Industries Limited - Chairman & MD

* Rashesh Chandrakanth Gogri

Aarti Industries Limited - Vice Chairman & MD

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Conference Call Participants

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* Ankit Mukesh Gor

Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps

* Arun Prasath

Spark Capital Advisors (India) Private Limited, Research Division - Research Analyst

* Kishan Gupta

CD Equisearch Private Limited, Research Division - Senior Analyst

* Naushad Chaudhary

Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps

* Rahul Jain

* Ritesh Gupta

AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals

* Rohan Gupta

Edelweiss Securities Ltd., Research Division - Research Analyst

* Rohit R. Nagraj

Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst

* Sneha Talreja

Edelweiss Securities Ltd., Research Division - Research Analyst

* Surya Narayan Patra

PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst

* Vishnu Kumar A.S.

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Shiv Muttoo

Citigate Dewe Rogerson Ltd. - Investors Relation

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Aarti Industries Limited Q3 FY '20 Earnings Conference Call. (Operator Instructions) I now hand the conference over to Mr. Shiv Muttoo from CDR India.

Thank you, and over to you,sir.

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Shiv Muttoo, Citigate Dewe Rogerson Ltd. - Investors Relation [2]

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Thank you, Stanford. Good afternoon, everyone, and thank you for joining us on Aarti Industries Q3 FY '20 Earnings Conference Call. We have with us on, Mr. Rajendra Gogri, Chairman and Managing Director; Mr. Rashesh Gogri, Vice Chairman and Managing Director; and Mr. Chetan Gandhi, CFO of the company.

Before we begin the 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 included in the results presentation shared with all of you earlier. I would now like to invite Mr. Rajendra Gogri to take you through the performance of the company and its outlook on the business. We will then open the forum for an interactive Q&A session. Over to you, Mr. Gogri.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [3]

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A very welcome to all of you. Our financial performance during Q3 is in line with the guidance given earlier during the last call. From a revenue standpoint, there are a couple of key points that need to be considered when we look at the performance of the quarter. We have covered out revenues from the Home and Personal Care segment, which will be listed as Aarti Surfactant. In Q3 FY '20, we had witnessed a sharp increase in the raw material pricing, trailing the full price increase on account of the increased tension between the U.S. and Iran. This price increase was passed on to the customer resulting into increase in the top line. As a consequence, this sector reported revenue at a higher compared to the Q2 FY '20 and [credit] as compared to the same quarter last year. Export remained relatively stable, contributing to over 40% of the total revenues. Overall, NCB had a positive performance from the perspective of our long-term business objective and its macro challenges. While gross profit and operating profit are the more appropriate parameter to view our business, both of these were largely stable on Y-o-Y basis. On the lower base of revenue, reported margins have expanded significantly. The PAT for the quarter grew by 3% Y-o-Y to close at INR 137 crores. These numbers need to be looked at the backdrop of continuing macro challenges in the U.S., agrochemical and global automobile sectors. Aarti Industry will differentiated capability relationship and wide range of chemical products continue to be well recognized by most of the largest customers globally. We maintain a low concentration on geography plant and product parameters, thereby significantly de-risking the business. Our standalone specialty chemical business revenue was marginally lower by 1.2% Y-o-Y in Q3, however, was higher by 19% on Q-o-Q basis. This was an account of increased volume of nitrogen product and also the raw material price increase, which was witnessed in Q3 versus Q2 FY '20.

As explained earlier, the impact of certain end user segment were felt on the demand of various products. Despite that the company was able to report the segment EBITDA INR 205 crores for Q3 FY '20 and it has INR 210 crore for Q3 FY '18 and INR 200 crore for Q2 FY '20. We have been continuously leveraging our tangible capacity to optimize our product mix to maximize EBIT. Contribution from downstream product quarter increased from 70% to 75%, which is a trend driving our business to the next level of customer engagement and into a segment that see relatively less competitive intensity.

We've produced about 14,900 metric tons of nitrochlorobenzene during Q3 FY '20 as against 17,765 metric ton of Q3 FY '19. We have discussed during the last call that there was a temporary shortage in the material nitric acid during Q2 FY '20 and until last October 20. It impacted the volume of some of our products.

Our major ongoing projects such as specialty chemical complex and chlorination plant in Jhagadia projection, accessories in Gujarat are progressing planned and expected to be commissioned in this quarter. Likewise our four R&D and scale up center, which is coming up in new Mumbai is going to come as activity during this quarter.

This (inaudible) further enhancement of product portfolio and also help improve our manufacturing processes. The pharma business showed a marginal increase in revenue on Y-o-Y basis, the EBIT for segment grew by over 20%, INR 36 crore for Q3 FY '20 as compared to INR 30 crore for Q3 FY '19. This was partly attributed to continuing change in product mix towards higher value addition, which is evident from the strong growth and profitability both on absolute basis and as a proportion of revenue.

Segment margin expanded by more than 300 basis points to 20.4%, with overall capacity utilization has been running at a higher level due to some lines being occupied by new products, where we are undergoing an evaluation trial. On CapEx front, we have invested in over INR 830 crores during the 9-month period and are on track for the planned full year CapEx of around INR 1,200 crores. The [company and] company continues to operate at a healthy gearing level, we will utilize the remaining surplus cash flow from the QIP fund raise for the ongoing CapEx program during this year.

Summarizing on our performance. Despite macro challenges, we have been able to achieve a consolidated PAT of INR 426 crore for 9 months FY '20 and as full year consolidated PAT of INR 491 crore for FY '19. Looking at this in the current situation, we are confident to be able to meet our guidance of bottom line growth of about 10% to 15% for the year.

To conclude, we believe that India is emerging as a more significant player in the global chemical supply chain with its scalable low cost manufacturing ecosystem, improving infrastructure and established SSC compliance framework. The company is well positioned to expand its market share globally and there are also opportunities to replace import with domestic production. Investment into operational excellence and new product development, and clear differentiation and strong long-term business visibility. We are making several initiatives and investment to participate in this growing potential. On that note, I conclude my opening remarks. We would be very happy to give you our perspective on any questions that you may have. I request the operator on this call to open question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Surya Patra from Philip Capital.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [2]

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Yes. Congrats for the good set of numbers. Sir, just a couple of clarification about the global opportunity, what you had talked about in the opening remarks. So seeing the kind of situation that is prevailing in China, and the kind of capability of India, what you have pointed out and your initiative to play important role in the global business. So can you just highlight about what incremental initiative that you have been taking to play important role there? And do you really see any benefit to be -- that you will be seeing because of this China situation, either because of the price advantage or volume advantage that you may see in the near future?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [3]

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We have been always maintaining that there's more and more appetite for sourcing from India. So volume demand for Indian consumption as well as for global consumption is continuing to remain high from India. And another thing now, people are looking at supply chain, which is totally independent of China. So there is no intermediate also comes from China. Under that circumstances, company like us who are totally backward integrated in our chemical business with no input from China, we are in a more advantageous position. And so that demand appetite is definitely there. As far as the margin appetite, obviously as the Chinese costs have increased, Indian margin have expanded. And if there are short-term shortages, it can give a sort term spike. But in general, the long-term secular margins have expanded.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [4]

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Yes. Okay. And sir, just on the price behavior of the chemicals because of the China situation. So there is a general perception that okay, there would be a shortage situation and then there would be a meaningful spike, what possibly we have witnessed in the last year. But against that, the [contrarian team has also flagged] China being one of the largest chemical market. And the demand there is also significantly low. And simultaneously, the crude price situation is also significantly low compared to the earlier situation. So given that there is a meaningful lower demand situation, which is keeping the prices lower against the thought process about spike likely because of the supply disruption. Do you agree that? Or have you seen any kind of a price behavior, which is favoring us or something like that in the global market, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [5]

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Yes. In general, because of this Coronavirus situation, the demand for chemicals, margin expansion, product to product is there. And as far as the demand from China itself is concerned in our -- unless those plants are impacted, consumption plant. Overall, goods demands are not going to be impacted much. Currently, more the services are impacted within China. So we don't see any Chinese demand getting so much less of an impact on global production. But short term, we know crude and oil are very volatile. And all those bulk commodities, which are highly volatile, they give the response of this volume reduction. For more value-added chemicals, I don't think this is going to have much impact on the global demand.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [6]

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Okay. Sir, just in the 9 months, what is the volume growth that we have seen in the export side, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [7]

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Export this quarter was 40%.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [8]

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No, in terms of volume growth.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [9]

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In general, no, now we have not been giving volume growth. We have been giving more on a value-added percentage.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [10]

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Yes. Just from the standpoint of the export opportunity, what are the kind of trend that we are witnessing? From that standpoint, I was trying to -- is, okay, what could be the volume growth for the export market that you have been seeing?

Generally, I don't really...

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [11]

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Yes -- basically, we have new projects starting with a huge jump in export because they are 100% export. As far as for our regular business, as we mentioned in the past also that the downstream consumption has started increasing in India. So we see that demand growing, both in India as well as export. Our regular business, but this new contract will give a big jump on the exports.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [12]

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Okay. One question on the supply deal, sir, say the gross supply deal, which is supposed to initially commence from the fourth quarter. And the polymer supply deal, which was kind of likely to commence in the second quarter of next year. So is there any update or the time line? And in what manner the ramp-up will happen, whether it would be kind of instantly from the starting year, first year itself, there would be a kind of evenly distributed revenue that once you'd see or a gradual standard ramp up for the deals that we should see on those time lines? As well as the kind of the way it should really ramp up, can you just give some update on that?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [13]

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We will be commencing the plant in Q4 this year and ramp up in the first year will be a gradual ramp-up for both the projects.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [14]

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Okay. The customer delaying their own project would not really mean anything for us, right, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [15]

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So the first year, the ramp-up will be slower, basically. It will be a gradual ramp-up.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [16]

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Okay. And just one last question about the margin performance for next year. Given -- or in the light of the lower crude prices. For the -- which is likely to prevail in the near future. And we have already seen a kind of a meaningful improvement so far as the value-added product contribution is concerned. And the underutilized operation of the new projects that we would be seeing in next year. So what are the kind of trajectory one should really look if we see that in the first 9 months, we are slightly more than 22% kind of margin we have reported so far?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [17]

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Yes, margins will improve because of the value-added production is expected to increase in FY '21 and '22. So margin as a percentage, even at the constant raw material prices, are expected to increase.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [18]

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Okay. This under utilization of the assets -- newly added asset, would not really impact the margin that you want to guide. Is that correct, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [19]

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Yes.

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Operator [20]

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The next question is from the line of Naushad Choudhary from Systematix.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [21]

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Two or 3 questions, I have. First, if you can sir, share the volume number? You shared the NCV production number. So other, if you can share the remaining hydrogenation, PDA and nitrotoluene production number of this quarter?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [22]

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Yes, hydrogenation number 2,330 tonnes per month and PDA was about 417 tonnes per month. And nitrotoluene was 1,666 per quarter for the quarter.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [23]

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If I'm correct, nitrotoluene last quarter was around 4,000. If this number is correct and seen 600 as a sharp decline in the production number?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [24]

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No. Last quarter was 1,363 for the entire quarter.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [25]

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Okay. Okay. Do you have your balance sheet numbers with you, if I ask you about the inventory and [data] days?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [26]

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Yes, you can go ahead.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [27]

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So what is the current inventory days, we are running at and data days?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [28]

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The current inventory days are almost like 61 days and the receivable days would be around 73, 75 days.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [29]

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Okay. As I remember, last quarter, we had some issue in the raw material in our pharma business, and that had impacted the inventory overall in '19. So has that thing resolved? Or what is the status there, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [30]

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What we had was considering the challenges what we've been witnessing on some of the materials, which are coming in from China. We were creating additional inventory for some of those products. So even -- I mean, more from the perspective of pollution and other regulatory issues in China. So in current situation, to an extent that inventory position would help us how out to mitigate our requirement, we would have roughly more than 1/4 of inventory at this point of time. So we will probably look at continuing the [team] strategy.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [31]

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Okay. Do we have any alternate source apart from China for those raw materials if Corona is going to effect that supply chain system then do you have any alternate source for that?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [32]

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We are trying to develop more and more aggressively Indian sources for all our raw material as risk mitigation. And -- but there are certain products where like steroid intermediates, there is no production which is happening in India. And the technology itself is not available. We will have to be dependent on China. So that's where we stand. But I hope the situation should resolve early next quarter. And we have been in contact with the suppliers overall. So they are also hopeful that the situation will improve in another month or 1.5 months. So we are getting inventory. So we should not have any major issue. It could be 10% to 20% production may get hampered in salt and steroid or such products, but otherwise no issues.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [33]

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10% to 20% of pharma business?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [34]

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Yes. There -- so in that steroid segment, particularly if this continues beyond 1.5, 2 months further than we may face some challenge. But everybody is hopeful that this would resolve, let us see.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [35]

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And typically, once you put the order of these raw materials, how much time it takes to reach our factory from start to end?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [36]

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Basically for key raw materials, we have annual quarterly contracts. So the orders are already there for key raw materials with the suppliers. So as soon as they start the shipment of production, we will get the product.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [37]

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From supplier gate to our gate, how much time it takes to reach the product?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [38]

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25 days, 20 to 25 days.

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Operator [39]

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The next question is from the line of Ritesh Gupta Ambit Capital.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [40]

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Sir, could you just update us on some of the other CapEx initiatives that you are taking apart from the 2 contract manufacturer projects that are supposed to be commissioned in quarter 4. Are there some other projects also which are in pipeline? So if you could just guide a bit on that?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [41]

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So as regards to the third long-term contract, where we were targeting to commission by March 21, we are on track, looking at targeting the same commissioning time line. On the other major one on NCB project, we'd earlier announced that we would be looking at commissioning towards the end of FY '21, we should be able to fairly be around that time. But what happened is some of these projects, there are certain delivery items and ordering and all those stuff. So we'll just have to take our stock and give a more detailed update by next quarter. But as of now, fairly, we should be able to be investing with a time line.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [42]

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Sure. So if I understand correctly, let's say, for the next 6 to 9 months apart from the contract manufacturing projects, any reason the major CapEx projects that we had commissioned in the next 1 or 2 -- next 2 to 3 quarters, is that the right understanding?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [43]

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Yes, basically, major project will get commissioned now. So subsequent to that, the next 2 quarters, the commissioning will not be a major.

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [44]

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Yes. So plus, we will be also commissioning those expansion initiative at the pharma, U.S. again, that also would be commissioned towards in next financial year. So beyond that, as of now, we don't see any major, larger projects, which will be getting into a commissioning for next year.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [45]

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Got it. Got it. Got it. And on these 2 contract manufacturing projects, you hopeful -- I mean, fully hopeful of ramping up in the second half of FY '21? Probably the first that would be more of a ramp up phase, and then second half, we could see the full revenues? Is it the right understanding?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [46]

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Yes. Overall, utilization will improve in second half.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [47]

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Okay. Okay. Okay. And just on the pharma side, you have talked about some of the expansions into a couple of other therapies. So if you could just elaborate a bit on that? And if you could just guide for, like what kind of Capex, let's say in pharma, you're looking at? Or what kind of growth trajectory you're looking at in pharma, let's over next 2 to 3 -- 2 to 3 years?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [48]

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Basically, in pharma segments, now we are targeting some of the antidiabetic newer age drugs. And also anticoagulant, we have taken up 3 drugs for R&D. So these are the new products as a part of our 12 product portfolio, which will get validated over a period of next year or so. And we are implementing a project to make additional stock of API manufacturing in our (inaudible) site, which is going to share CapEx of around INR 75 crores. So these are the products that will get commercialized over the next 3, 4 years. And also in terms of our intermediates manufacturing, we are also going to commercialize 1 additional block of production at our custom synthesis plant. And that will also add around 15% to 20% capacity for intermediate manufacturing. So these 2 will add for next year, general capacity in the world.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [49]

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Sure. And I just joined the call late, there is no raw material-related impact, as you probably saw in the second quarter into this quarter, right? There's no -- on the specialty chemicals, of that?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [50]

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So I guess, nitric acid was something which we had discussed during the last con call, continued until October. So that's the -- actually on the supply chain, that was the only product which is impacted on the specialty chemicals front.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [51]

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Got it. And so both your projects get commissioned in quarter 4, let's say, at the beginning, because I am just trying to understand, let's say, from a next quarter point of view, when do -- I mean, do you have exact commission dates for these projects in your mind? So is it like...

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [52]

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Not as of now.

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Ritesh Gupta, AMBIT Capital Private Limited, Research Division - Analyst of Agro Chemicals [53]

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So most likely, they'll get spilled over to probably quarter 1 of next year?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [54]

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No, Q4. They will get commissioned this year.

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Operator [55]

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The next question is from the line of Ketan Taker from ASK Investments.

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Unidentified Analyst, [56]

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So I just missed the NCB production volume for the quarter.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [57]

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That is 14,900 tonnes.

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Operator [58]

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The next question is from the line of Rahul Jain from Lionrock Capital.

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Rahul Jain, [59]

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Yes. Two, 3 questions. One is with respect to both your long-term projects, have there been any discussion from the customers given the macro situation and everything to change the ramp-up time line at all? Or when you say the first year of ramp up would be gradual, it is essentially the nature of this contract, where first year, you do all the troops and everything and then it settles down and ramp up?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [60]

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Yes. Basically the first year ramp-up is expected to be gradual.

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Rahul Jain, [61]

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Is it driven by the customer request or it is because of the nature that typically when you're commissioning a big plant, you go slow?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [62]

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Yes, they will be also commissioning their plant also. So because of that, also the ramp-up in the first year is expected to be slower.

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Rahul Jain, [63]

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And the second is, both your plants will be commissioned in Q4 before March 20 or 1 of them will be March '20 and second would be 3, 6 months later?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [64]

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Both will be commissioned in Q4 '20, but the second project, we are split into 2 different product lines. So it will be in kind of 2 phases.

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Rahul Jain, [65]

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Sir, sorry, I didn't understand that. The second...

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [66]

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The second product divided into 2 parts. So that part will be commissioned in Q4; and second, maybe in second quarter.

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Rahul Jain, [67]

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Okay. Okay. And the third of the question is, with respect to all the supply disruption potentially happening in China, if there are any -- so, are there any specific products where you have seen significant spike in prices? Or right now, it's not much of an impact in terms of profit margins or prices for some of the products?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [68]

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No, because the impact, in general, we are seeing that some of the products, demand and the prices might go up. But it will be more impact more or maybe towards the end of this month. Things will start getting more crystalized.

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Rahul Jain, [69]

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Okay. Okay. And then the last question is, when I look at the overall EBITDA, operating profit, because that's the right parameter to look at. I think for the last 5 or 6 quarters, we have been doing about INR 240 crores to 250 crores of EBITDA. I'm just trying to understand, I mean, unless and until we start getting some benefit of these new contracts, possibly in the second half of next year, is it fair to say that we continue to see this trajectory of INR 240 crores to INR 250 crores of EBITDA and then ramping up from there as new contract -- new long-term contracts ramp up?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [70]

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Some ramp-up will be also in the first 2 quarters also because of some other product line of nitrotoluene and PDA volume ramp-up will continue. So -- but the second half is substantially more ramp than the first half. And the volume growth.

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Rahul Jain, [71]

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If I could just take a look back and think about like what has really caused obviously, we will probably be growing the profits at 10% to 15% this year, but that is largely going to be driven by lower finance costs than anything. Operating profits are largely going to be flattish, more or less, which generally, when I look back at the history, so the company generally has been growing the operating profits at the mid- to high teens, probably closer to 20% on a consistent basis. So what has gone -- what have you missed this year? Do you think that's one-off or something structural changes happened or something?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [72]

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But we'll have to factor, consider while we look at the numbers is the fact that, a, in this year, for like 3 months, there was a shortage in nitric acid, which is one of the key raw material, which has impacted volumes to an extent. Then there was issues related to the flooding in U.S. impacting the agrochemical demand for various products. And the third part was that volume or global volume or application for the automotives and linked to the and automotive and that also had impacted the demand. So these are factors, which has actually impacted the demand on a lower side plus, the shortage of raw materials impacting the production capability. So it's -- despite those challenges, those EBITDA numbers are still able to be maintained at a higher level.

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Rahul Jain, [73]

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Okay. And one last bit is, there was a lot of news flow related to some tax issues at the company. Any comment or is it just nothing?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [74]

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Yes, that is under process basically. So we don't expect much impact for that.

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Rahul Jain, [75]

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Okay. So there has been some -- what exactly has happened because, obviously -- so there was no relief from the company? I just want to make sure that I get the real picture rather than hearing all those rumors around?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [76]

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Yes. Basically, you know, this is (inaudible) and on that basis. They will then analyze and then they will come back to us. So -- but we -- overall, we don't see much impact. Because they don't have the clarity, as of now there will not be any clarity.

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Operator [77]

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The next question is from the line of Sneha Talreja from Edelweiss.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [78]

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Could you quantify what would be the impact of price benefits in the current quarter, specifically related to the PDA [G]?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [79]

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Yes, this quarter will be around INR 10 crore.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [80]

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And do you expect this sustaining because you were mentioning that we were at almost a peak in Q2, which was around INR 15 odd crores. So it has, of course, come down. But you see this figure remaining here or going away?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [81]

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Yes. Q4, it should continue.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [82]

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Q4, it should continue? Are you seeing this kind of a trend coming in even other products, given the current situation in China?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [83]

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Yes, current -- this new event of Coronavirus impact will start to crystallize maybe toward the end of this month, regarding the prices. But overall, we see that it would be a positive for our chemical business.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [84]

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Sure, sir. And sir, I just wanted to know about the pharma segment's margin, we have seen continued improvement there. And I think in the couple of quarters back, maybe you mentioned that this margin should peak out around 21-odd percent in the coming year. So where are we right now? Do we see more scope of expansion here?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [85]

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Yes. I think now the margins this quarter have been at 20.5%. And this quarter, largely driven by low-cost in raw materials and overall product mix driven by high-margin products. So we -- once we have new plants coming in, it will also have an impact on overall, we will go after low-margin products also to fill up our capacities. So after all the balancing, eventually it will stabilize at 20%, 21%, 22%, this kind of a percentage. But the new capacities will come in, in next year.

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Sneha Talreja, Edelweiss Securities Ltd., Research Division - Research Analyst [86]

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Any quarter wise guidance around next year, when are those plants expected to commission?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [87]

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So we have API block expansion, which is going to be more towards second half of next year. And intermediate log expansion also happening in first half of next year. So both -- we are still in the process of budgeting. So once we have growth in next quarter, we can give more guidance for next year.

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Operator [88]

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The next question is from the line of Vishnu Kumar from Spark Capital.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [89]

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In terms of your next year supplies to your -- across the caustic customers, what is the feedback you're getting be it auto, agri or other segments which you are selling to?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [90]

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Yes. For the U.S. Agro impact, we see that gradually, it will go up, maybe in second half should become much normalized, whatever the impact was ahead of U.S. Agro. And automobile, we would still see that how things pan out.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [91]

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Okay. In general, on an organic basis, are we looking at something like a mid-single digits? Or it will be much higher?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [92]

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For the next year?

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [93]

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Yes, sir.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [94]

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No, with this contracting hitting in, overall, we see that it will be more towards in the higher double digits.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [95]

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Got it, sir. And in terms of the Agro contract, we understand the innovator is delaying the technical plant start-up probably till early next year. Would it mean that we will be ramping up only in the second half? Or we can still supply to them, and they'll use it at some other location?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [96]

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As we mentioned, basically, this ramp-up is going to be slower. And a gradual ramp-up in the next year.

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Vishnu Kumar A.S., Spark Capital Advisors (India) Private Limited, Research Division - VP [97]

--------------------------------------------------------------------------------

Okay. And if I understood right, if the China current situation continues, the chemical business will be a net beneficiary. Is that the right understanding, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [98]

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Yes.

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Operator [99]

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The next question is from the line of Rohit Nagraj from Sunidhi Securities.

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Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [100]

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Yes. Congrats on good set of numbers. Sir, your -- about these 2 contracts. So you said FY '21 would be gradual ramp-up. So do you expect the full potential in FY '22, INR 400 crores of revenues and INR 500 crores of revenues from those 2 contracts?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [101]

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Yes. FY '22 will be substantially higher. And I think FY '23 will be virtually full. FY '22, maybe more towards 80% plus.

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Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [102]

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Okay. And FY '21 would be lesser than half? Or I mean somewhere closer to say, 50% plus/minus?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [103]

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Yes, I would say so.

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Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [104]

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Okay. Sir, and in terms of, again, a broader strategy. Now these contracts will start kicking in, and they will start adding growth for the next couple of years. Beyond this, how are we placed in terms of any other new such contracts or any other areas of expansion from a chemistry perspective?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [105]

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Yes, we are saying the third contract, which will be Q4 FY '21, it will get commissioned. In addition to that, we are looking at expanding in a chlorotuluene range of products, chlorotuluene as well as downstream, where we'll be adding a new chemistry also, a photochlorination and oxidation, et cetera, there will be a new range of chemistry. With our expansion of R&D facility as well as R&D talent ramp up, we'll be adding quite a few chemistry going forward. As I mentioned earlier also, there is a huge appetite for value-added products for supply chain, which is totally independent of China. So people want us to supply product, about $70, $80 also, which are going to be 7, 8 step synthesis. So we'll be going on adding newer chemistry and our overall chemical business.

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Rohit R. Nagraj, Sunidhi Securities & Finance Ltd., Research Division - Senior Research Analyst [106]

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Okay. And right now, what would be the contribution from our top customer and top product in our revenues. The top 10 products in specialty is around 57% or so this year.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [107]

--------------------------------------------------------------------------------

And the top customer?

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [108]

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Top customer would be around 5% -- 4%, 5%.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [109]

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Okay. And any indication on FY '21 CapEx number. This year, it is 1,000, 1,200 next year?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [110]

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Yes, we're still working on the budget. So we'll come back on -- in our Q4 results at that time, more clarity on the Capex.

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Operator [111]

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The next question is from the line of Bharadwaj.

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Unidentified Analyst, [112]

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Sir, currently, could you shed some light as to what is our raw material procurement as well as our sales or as exports to China currently?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [113]

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In chemical, actually, we don't have much procurement from China. Pharma, I think out of the raw material, I think we would have at least 40% to

50% coming out of China.

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Unidentified Analyst, [114]

--------------------------------------------------------------------------------

Okay, any disruptions in that currently?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [115]

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Yes, we -- as mentioned earlier in the call, we have been cautiously carrying a little higher inventory. So that is going to help us mitigate these situations and if this disruptions continues beyond another month or so, then we will have issues. But we are waiting for 2 months.

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Unidentified Analyst, [116]

--------------------------------------------------------------------------------

And on the basis of all these disruptions that are going on currently, have we received -- seen any marked increase in the number of queries? Or has there been any for the orders that we've got right now? Or is too early too early right now to speak about it?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [117]

--------------------------------------------------------------------------------

No, we are seeing, for chemical business, definitely, we are seeing more inquiry from global players also and for -- within India also. So that impact is being seen.

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Unidentified Analyst, [118]

--------------------------------------------------------------------------------

All right. And Chetan, if I may ask, could you share the current debt number?

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Chetan B. Gandhi, Aarti Industries Limited - CFO [119]

--------------------------------------------------------------------------------

So the current debt would be around INR 2,130 crores or INR 2,140 crores.

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Operator [120]

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The question is from the line of Rahul Jain from Lionrock Capital.

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Rahul Jain, [121]

--------------------------------------------------------------------------------

Just one quick question. You mentioned 3 factors, which has impacted the profits this year, shortage of raw material, flooding in U.S. and weak order demand. Part of it, the first 2 factors, I mean, had there been no issue, what do you think that it cost you in terms of profits? Any qualitative comment or any sense on that would be very helpful.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [122]

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So EBITDA could have been higher, maybe 4%, 5% further.

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Rahul Jain, [123]

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So the total EBITDA would have been higher by about 4% to 5%, if there was no shortage of (inaudible) as well as normal weather patterns in the U.S.?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [124]

--------------------------------------------------------------------------------

Yes.

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Operator [125]

--------------------------------------------------------------------------------

Next question is from the line of Rohan Gupta from Edelweiss.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [126]

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Sir, first question is on the China impact. So you mentioned though pharma can be negatively impacted, and the specialty chemical will be positively. Your raw materials almost [60%] in pharma coming from China. So do you see that if the situation continues to -- as it is, then our pharma business probably that almost [each] margins may go down to almost just 0 level, if the situation continues for a shorter period?

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [127]

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Therefore what we've said is that in pharma, we've been strategically placing or keeping inventories with us. So for a quarter or so, we don't see any significant impact. If it continues beyond a month over there, then we have to see the situation how it pans out and what is an alternate available and other stuff, but I would pray that more from the business, even from the humanitarian purposes, we should pray that it doesn't continue to be on a level.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [128]

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Yes. So basically, in pharma business is splitting to again, 2 businesses. The (inaudible) business, we don't see any disruption. The supply chain is largely independent of China. And the other part is, the speciality APIs or high-value APIs, where we have proactively been keeping higher stocks. So that's how the more [caffeine] business will stay protected. And it will have very less impact on the disruption because the suppliers are largely independent of China.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [129]

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Okay. Sir, second question, you mentioned that next year, FY '21, the new product contribution. I mean, utilization level may remain at close to 50% and then ramp up to 18% and 22%. So I believe at 50% utilization, do you see that it will be EBITDA positive and if you at what kind of EBITDA blended margins can contribute in '20?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [130]

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No it will be EBITDA positive. And in general, the margin as a percentage also will expand.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [131]

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So even at a 50% utilization, you are seeing that margin on the new product will be in line with our current margin of 30%?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [132]

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Yes.

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Operator [133]

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The next question is from the line of Surya Patra from Philip Capital.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [134]

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So just on the NCB and the nitrotoluene volume, what we have said. So that number is much lower compared to the initial run rate what we used to see prior to the nitric acid issue? So that means whether that issue is still continuing, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [135]

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No, it has improved in month of January, it was actually normal. But again, February is showing some supplier had some plant issue. This quarter also, we see that some impact of nitric acid will be there, there is enough capacity with the supplier on supply side. But unfortunately, there have been more disruption than what you would assume in a normal circumstance.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [136]

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Okay. So are we derisking our procurement of nitric acid, why because we have seen earlier, also a similar situation?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [137]

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Well, generally, it is something which I don't talk much so -- and now [India,] because they have a capacity and they are in 2 different locations. We don't expect this kind of a situation. Now we'll see whether on a long-term we should have some investment or something to take care of that. We are just evaluating that possibility.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [138]

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Okay. And just another question on the growth of the pharma, though we have been talking about maintaining our guidance and all that. But the recent performance has been slightly lower than the guidance growth rate. So are we -- any revision of the guidance on that pharma front?

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [139]

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Yes, basically, last quarter, Q3 is normally a slow quarter as compared to the earlier quarter, and we expect Q4 to be better than Q3. But in general, whatever earlier we had been anticipating, there has been a little less top line growth, and seeing it in the numbers definitely. But next year, i.e. the newer capacities and everything, we are hopeful that we'll have good growth.

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Surya Narayan Patra, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Pharma Analyst [140]

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So the new capacity will add to what kind of volume growth? Is it possible to talk on that line, sir, because it is difficult, but still?

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [141]

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Our API capacities will go up by 30% to 40% by adding additional blocks. So currently, we have 4 blocks that we are operating in our U.S. FDA plant.

[But it is not which we've] add 40% additional capacity. And in intermediates, we are adding additional block, which will add another 15% to 20% capacity.

But API and pharma is lower than compared to the intermediate ramp.

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Operator [142]

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The next question is from the line of (inaudible) from Samvad Financial.

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Unidentified Analyst, [143]

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My question is answered.

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Operator [144]

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The next question is from the line of Naushad choudhary from Systematix.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [145]

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Can you share sir, what was the mix of contractual and export revenue last quarter and what run rate we are running in this quarter?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [146]

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Could you just repeat the question?

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [147]

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Your revenue share between contractual sales and export sales.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [148]

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No, we have not been bifurcating those numbers. Generally, very stable business. Some of them may be multiyear, some of them are single year contract, but other businesses are also a quarterly kind of a rollover businesses. So we don't have those kind of separate numbers, which are 1-year plus contracts, and which are on more of the regular business.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [149]

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Okay. Can you share the production number, same quarter last year, sir?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [150]

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Pardon?

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [151]

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Can you share the production number of the same quarter last year, the NCB hydrogenation, PDA, nitrotoluene?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [152]

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Yes. This last quarter of last year, it was NCB was 15,800 tonnes.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [153]

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This was the production number, not the sales number, right?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [154]

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Sorry, production number. 17,760 for Q3. Q3 of FY '19 was 17,760, hydrogenation was 1,762, PDA was 354, and NT was 4,000.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [155]

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4,000 for the whole quarter?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [156]

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Yes.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [157]

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Against which we have said 1,666 for this quarter, right?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [158]

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Yes. Yes.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [159]

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So there's a sharp decline in NT in terms of production? Or if you can highlight the reasons for this year?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [160]

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Yes, as you mentioned, the nitric acid shortages in the various products. So we expect it will get ramped up in this quarter and then subsequent quarter. It's a nitric acid business normal.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [161]

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If I remember last quarter, we had shared that in the Deepak's Navi Mumbai plant there was a water supply issue. And then we had an alternate source and a plant of the same company, and those things will get resolved in last quarter. So what exactly is happening there and why? That is not able to resolve these issues?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [162]

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Yes. So Deepak had outages at the hedge plant where they are producing dilute nitric acid as well as CNA, so they had a boiler outage there. And towards their dilute nitric acid plant in Taloja also had an outage. So basically, the -- out of the 5 plants in the (inaudible) 3 of value are not operating, so which has resulted in operation of only 1 line or 1.5 line now as of today. So there has been some issues there.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [163]

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We were expecting there the hedge plant would help us to resolve this issue.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [164]

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So basically, the hedge plant did start. And -- but the overall stabilization of the hedge plant is taking some longer period. They had a boiler outage specifically, which was not anticipated earlier. So in between, the supplies are okay, but they had some boiler outage, which was extended almost 1 month, 15, 20 days more.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [165]

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Okay. Last question, on the asset part of our chemical business. So if I subtract the total asset of our chemical business, consolidated number versus standalone number, so the difference number would be the capital, which is for subsidiaries, right, subsidiary companies?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [166]

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Yes.

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Naushad Chaudhary, Systematix Shares & Stocks (India) Ltd., Research Division - Analyst of Midcaps [167]

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So if I do the math, I see there is around INR 70 crore to INR 80 crore of case of reduction in the total assets of subsidiaries, which used to be around INR 290 crore rupees same quarter last year, which is now INR 210 crore.

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Chetan B. Gandhi, Aarti Industries Limited - CFO [168]

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So you will have to just look at it from a perspective that in last financial year, one of the manufacturing division of a subsidiary or normal committed. So that would be there. Plus, when you look at reducing the asset, you will have to consider that between stand-alone and constant currency of transitions within the company. So even that gets eliminated, which should not be there as a part of stand-alone. So it will not be entirely right to just do the simple substraction because the elimination adjustment within the group. And the part of consolidation doesn't come at the time of stand alone.

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Operator [169]

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The next question is from the line of Kishan Gupta from CD Research.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [170]

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My first question is, how much is automotive and agrochemicals a percentage of your total volumes?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [171]

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Agrochemical is around 25% to 30%; and automobile is an overall volume [and additive] business. So automotive will be more towards an 8% to 10%.

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Kishan Gupta, CD Equisearch Private Limited, Research Division - Senior Analyst [172]

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Okay. And sir, since we do not have the volume growth, then how would you assess your business growth?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [173]

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It is more of a value-added of the total percentage.

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [174]

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So Ma'am, we've got products which are right from a few rupees a kilo to a few thousand rupees a kilo in chemical segments. So volume growth cannot be just a simple arithmetic calculation, we look at detailed for more than 200 odd product on a regular basis to drive the businesses.

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Operator [175]

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The next question is from the line of Arun Prasath Spark Capital.

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Arun Prasath, Spark Capital Advisors (India) Private Limited, Research Division - Research Analyst [176]

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I have 2 questions, sir. First is, if I see the purchase of (inaudible) in this quarter, it is substantially high. Is there any specific reason for this or is it a normal fluctuations in some prices or something?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [177]

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So there were certain transactions. So this is related to the segment got demerged, which is Home and Personal care. So the orders were placed earlier in the name of Aarti Industries, which was sold to that entity. So roughly around INR 50 crores is only on account of that.

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Arun Prasath, Spark Capital Advisors (India) Private Limited, Research Division - Research Analyst [178]

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This will not get -- this will not get recurred in the next year?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [179]

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No. No. Really, next year, we don't see it recurring in next year.

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Arun Prasath, Spark Capital Advisors (India) Private Limited, Research Division - Research Analyst [180]

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Okay. My second question is, can you throw some light on the [inhalation] project, how it stands versus what was the initial projection versus where it is right now?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [181]

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So in [inhalation] project, we have been trying to ramp up the overall utilization by offering this product to various customers. And we are also looking at changing the product mix there. So currently, we have added a new product in the last quarter and the current quarter also. So overall, we see utilization getting in line for next year.

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Arun Prasath, Spark Capital Advisors (India) Private Limited, Research Division - Research Analyst [182]

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So currently, utilization should be upwards of 60 percentage?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [183]

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This quarter was less because this is also an agro intermediate. So this quarter, the total utilization was only about 300 tonnes per month. But going forward by adding other products, we expect in FY '21 the volumes to increase.

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Operator [184]

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The next question is from the line of Rohan Gupta from Edelweiss.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [185]

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Can you just provide the breakup of the money spent from that (inaudible) as of now?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [186]

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So we've raised INR 750 crores. We have utilized close to INR 600 crores. We would have INR 100 crores with us -- INR 150 crores with us.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [187]

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This INR 600 crores, if you can provide any money has gone regarding working capital and Capex, if you can just give the breakup for that?

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Chetan B. Gandhi, Aarti Industries Limited - CFO [188]

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I don't have the breakup, but I believe it could be somewhere around 25%, 30% would have gone for -- close to 35% would have gone from working capital and balance would be for CapEx.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [189]

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And this will be a total roughly INR 900 crore of CapEx planned for FY '20.

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Chetan B. Gandhi, Aarti Industries Limited - CFO [190]

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Sorry, the 12 CapEx plan for this year was INR 1,200 crores.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [191]

--------------------------------------------------------------------------------

Sorry. So as of now, how much total we have spent, sir?

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Chetan B. Gandhi, Aarti Industries Limited - CFO [192]

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We've spent -- we invested roughly INR 830 crores.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [193]

--------------------------------------------------------------------------------

Okay. So another INR 400 crores is going to capitalize -- I mean, is going to come in next quarter, Q4.

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Chetan B. Gandhi, Aarti Industries Limited - CFO [194]

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Yes, approximately around that.

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Rohan Gupta, Edelweiss Securities Ltd., Research Division - Research Analyst [195]

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The INR 1,200 crore numbers remain intact, right?

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Chetan B. Gandhi, Aarti Industries Limited - CFO [196]

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Broadly, yes.

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Operator [197]

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The next question is from the line of Ankit Gor from Systematix.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [198]

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Just want to understand the Chinese clearly due to ongoing situation in China? And do we really see any supply chain changes adopted by those innovator global formulators. Apart from selecting the chain, which is independent of China, any stark differences in -- just going on as of now, in your experience?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [199]

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This is going to be now in a long-term phenomenon. And as you know, in chemical business, the product will -- chemistry will have to be on developing the plant will have to be put. So -- but in general, basically evaluated intermediates and finished products will increase from India.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [200]

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Right. So irrespective of what is happening in China, probably we would have seen the same trend? Is that the right to understand? Or this will aggravate the trend?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [201]

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No. This is aggravated because last year's disruption has aggregated without happening, a lot of time, customers are thinking that they are buying from India, China and Europe, and they are well said. But then they realize that they intermediate is coming from China. So now there's a new buzzword that try to get supply chain, which is totally independent of China. Previously, they have been trying to source more and more from outside China. But now they are trying to ensure that the entire supply chain also. If it is better as it can be independent of China. Even Indian pharmaceutical players are also on the same soup right now. So they also want more and more things coming from made in India.

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Rashesh Chandrakanth Gogri, Aarti Industries Limited - Vice Chairman & MD [202]

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Also, pharma side also, there is -- customers are not wanting to import APIs from China, they want to divert because of this virus situation buying pharmaceutical from China, they want to avoid. So overall, I think API demand will switch to India temporarily.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [203]

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Right. But in your view, is the world ready to adopt that China independency chain? Because are these enough capabilities with all countries including India to replace even part of it?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [204]

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No. That is where the Indian companies, that's a challenge to them, but it's a good challenge to have, the demand. A lot of places in the Indian economy issues of demand. In addition, chemical industry, sees or not demand. It is more of your own capability to put up the -- develop the product and put up the plant. So that way, chemical industry is in a big sweet spot. As far as the demand is concerned, it is up to the industry players to take up the challenge.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [205]

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Right, I agree. So this will probably propel the prices. But have you really seen the -- any price growth as we are moving to a month like January, February? Have you seen any spark of any particular price movements or probably because more or less price remained just in the range of 5% to 10% increase only, but has the situation really moved up the prices to a different level?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [206]

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The prices change only if there are short-term disruption. So this coronavirus thing is happening now. So that might cause for some particular products, some price disruption. So those kind of thing, sometimes there's a spec. If you see some companies like nitrogen, you can see last few years profit. In one year, they might have made profit of 15 years. So those kind of spikes also happen. But these are that more related to the sharp shortages, but in general, the margins are improved, stable margin.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [207]

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Okay. But have you -- can you -- have you seen any -- this sharp increase in any product prices, which is -- which we manufacture? Or do you expect that to happen?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [208]

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Things will crystallize, as I mentioned earlier also by end of February. So for which product, what kind of prices impact, but we -- the current feel is that there will be price increases.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [209]

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Okay. And just lastly, on the domestic business guidance in 60% is domestic business for us. What sort of guidance you would like to give us?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [210]

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The price will increase in the domestic market also.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [211]

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Okay. And what sort of growth we can assume for FY '21 on domestic side?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [212]

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In general, export as a percentage will increase.

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Ankit Mukesh Gor, Systematix Shares & Stocks (India) Ltd., Research Division - VP of Midcaps [213]

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Okay. So domestic may remain muted or probably a Single-digit sort of stuff for us?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [214]

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Yes, domestic growth will be relating to that.

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Operator [215]

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Our next question is from the line of Raj Kumar from Green Portfolio.

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Unidentified Analyst, [216]

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Question is related to, when will we expect the listing of Aarti (inaudible).

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [217]

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So happen now end of this month or maybe in March, we should get that done.

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Unidentified Analyst, [218]

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(inaudible)

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [219]

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What?

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Unidentified Analyst, [220]

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Sir, can you explain the revenue and profit target for FY '20?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [221]

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FY This current year?

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Unidentified Analyst, [222]

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Yes, sir.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [223]

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Yes, that we have mentioned that we are maintaining the guidance of 10% to 15% increase in bottom line.

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Unidentified Analyst, [224]

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Just one question related to, as you know, it is related to coronavirus. Sir, do we have the proper vendor substitute or input substitute available? So that anything happen, we can have the opportunity?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [225]

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Basically, for our chemical business, we have a plant, which is in -- which a certain type of products can be made. It is not kind of made-to-order kind of facility we don't have. Within our own product mix if the opportunity comes, we'll be able to get the benefit, not something which is new products. The new product here to develop the product and then get the environment permission and all.

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Unidentified Analyst, [226]

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So may I say that the coronavirus is an opportunity for the Aarti Industries?

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [227]

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Yes.

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Operator [228]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Rajendra Vallabhaji Gogri, Aarti Industries Limited - Chairman & MD [229]

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Yes. Overall, we remain confident that our diversified exposure to chemistry products, plants and geographies as well as local, sustainable and regulatory compliance operations. Provide the platform for long-term partner and market share gains in global supply chains and subsidiary import and domestic manufacturing ecosystem. It has been a pleasure interacting with you over the call. We thank you for taking time out and engaging with us today. We value your continued interest and support. And we value it. If you have any further question or would like to know more about the company, kindly reach out Investor Relations list. Thank you.

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Operator [230]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Aarti Industries Limited that concludes this conference. Thank you for joining us, and you may now disconnect your lines.