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00:00Hello and welcome, you are watching the small and mid-cap show here on NDTV Prophet.
00:13I am Harsh Saita and with me is Varsha Chandnani and we are going to talk to the management
00:18of Aarti Industries with regard to Q4 numbers and beyond.
00:21We have with us Mr. Rajendra Gogri who is the Chairman and Managing Director at Aarti
00:26Industries.
00:27Welcome to NDTV Prophet sir.
00:28Yeah, good morning.
00:30Right, so let me first start off with what's happening on top line and margins.
00:37Could you talk to us about how the demand environment as well as the supply environment
00:41more than the demand environment is shaping up?
00:44Yeah, you know discretionary demand is getting more stabilized whereas non-discretionary
00:54especially agrochemical I think still the demand pressures are there, inventory corrections
01:00are still going on and especially they are more product specific.
01:09So that's where the demand situation is there.
01:13Okay, and how is supply shaping up sir?
01:18How is the China supply shaping up for you?
01:22Yeah, basically supply side because when the demand is slow, there will be always a demand
01:29supply gap in that sense.
01:32So overall I think there will be little bit excess supply in the system.
01:39Okay, understood.
01:40Sir, with regard to how margins are shaping up, could you talk to us about your currently
01:47around the mid-teens kind of number?
01:51Of course, we've seen a jump when it comes to your top line versus the first half of
01:56this year.
01:57Do you expect that margins will go towards or closer to the 20% mark probably in FY25?
02:04Actually, the way our business model is mostly the raw material pass-through model.
02:10So margin as a percentage to sales is not an actually appropriate measure.
02:16So absolute EBITDA is a more important measure.
02:21But even at the constant raw material prices, we expect EBITDA margin to improve because
02:29of the operating leverage as FY25, the volumes are going to increase compared to that the
02:39manufacturing fixed cost or corporate fixed costs are not going to increase.
02:45So at a constant raw material prices, there will be a margin improvement as a percentage
02:52also and also on the absolute EBITDA.
02:55Hello, Mr. Gogri, Varsha this side.
02:58Last time you did mention that you've seen an improvement in pricing trends.
03:02Would it be possible to give a sense on how much pricing improvement you've seen relative
03:06to the first half of the year and which segment are actually driving this pricing improvement?
03:13So pricing improvement generally will move with the demand side.
03:18So discretionary side as the global demand is stabilizing.
03:22So we see some sort of improvement in that segment, whereas non-discretionary like agro
03:29and all, the pricing continues to be under pressure.
03:34You guided for demand improvement, at least in Q3, that demand would improve over the
03:41next one to two quarters.
03:44Are you seeing green shoots of that or are you seeing demand completely come back?
03:50Yeah, discretionary, I think we are near normal.
03:56I think when Q1, Q2 of this FY25, we should reach almost normal only.
04:02Whereas agrochemical still continue to be on demand side, there is still some pain.
04:09I think in calendar year 2024, I think it will continue this year also.
04:20Also, regarding the recent two contracts that you have won, that is nine-year and four-year
04:27contract, now how do we see revenue for these contracts, will it be linear?
04:32And even from the EBITDA margin perspective, if I see this 3000 crore contract is having
04:37almost 20% EBITDA margin.
04:39So are we going to see this from the first year of operation itself?
04:44No, that first contract which is of nine years, there will be a ramp-up, actually the next
04:54year FY26 onwards it will be more stable, this FY25 we are also expanding our capacities.
05:01As far as the second contract which is a four-year contract, ramp-up will be from current year
05:09itself.
05:10So there it will be much more stable from the current year itself.
05:17Sure, and in terms of the linearity, how will it contribute to top-line, just want to try
05:22and get some perspective.
05:24So the 6000 crore contract, roughly 1500 crore to contribute to top-line in FY25 itself.
05:32And for this one, on the 6000 crore contract, what's the margin number like, will it be
05:36closer to 20%?
05:39No, that margin will be more around 14-15, around 15% range for that product.
05:45And it will be basically 1500 crore, I think that will be a linear as far as that contract
05:52is concerned.
05:53Also, Mr. Gogi, you had given a guidance that in FY24, we will be having EBITDA of around
05:591000 crore, which we did achieve that guidance.
06:03Now, coming back to FY25, you had guided EBITDA to be in the range of 1400 to 1700 crores.
06:11Now, where are we in terms of that?
06:14Yeah, we are maintaining the same guidance of 1450 to 1700 crores.
06:21As the volumes get stabilized for discretionary and also improving non-discretionary and also
06:28with our new projects on ethylation, nitro-tolerance and some of the special idea chemical will
06:36get commissioned this year.
06:38So, this year is a transition both on the volume stabilization as well as stabilization
06:47of our new facilities.
06:51So we continue to maintain this guidance of 1450 to 1700 crores.
06:57Also, coming to your CAPEX plan, so how are you seeing this CAPEX and I mean, what is
07:05the CAPEX expectation or target that you are in FY25 and how are you going to fund this?
07:11Yeah, this FY24, we had about 1280 crores and FY25, it will be in the range of 1500
07:19to 1800 crores.
07:23Funding-wise, it will be partly through internal accruals and partly through debt.
07:28Today, our focus is on Great Eastern Shipping.
07:31The company has come out with its Q4 results, revenue about 2.8% of an uptick, while margins
07:36have gone up by 334 basis points at 62.14%, net profit about 25% of an uptick compared
07:44to last year's quarter.
07:47But to discuss more, we are in conversation with G. Shiv Kumar, the CFO and the Executive
07:53Director of the company.
07:55Hello and welcome, Mr. Shiv Kumar.
07:57Thank you.
07:58Hello, and thank you for having me.
08:00My first question for you is the March quarter's performance.
08:04Now, if you look at the sequential, in a sequential manner, it is one of your seasonally weaker
08:11quarters, but again, we saw some uptick compared to the December one.
08:14So I just wanted to understand what has led to this and again, what should we look forward
08:21as of going ahead?
08:22Yeah.
08:23Okay.
08:24Yeah.
08:25Thank you.
08:26That's a good question.
08:27It is typically a seasonally weak quarter for the dry bulk business.
08:31It's the weakest quarter usually for the dry bulk business, but a strong quarter traditionally
08:37for the tanker business.
08:39And the tanker business has been strong.
08:42The dry bulk market has been unusually strong considering that it's supposed to be the seasonally
08:49the weakest quarter.
08:50And the reason why the dry bulk market was strong was because Chinese imports were strong,
08:55Brazilian iron ore exports were strong.
08:58And as you know, Brazil to China is a very long route.
09:02Every additional ton of cargo from Brazil to China requires more ships than on any other
09:07route in dry bulk.
09:10And that's why dry bulk was strong.
09:12On the tanker front, tankers were strong because of the disruption caused in the Red Sea.
09:17Ships have been rerouting around Africa when they're going from, say, the Middle East to
09:23Europe.
09:25And that resulted in demand for more ships.
09:28And that's why tankers were also strong.
09:31Absolutely.
09:32Now, you have described about the dry bulk business remaining strong.
09:36When you come to the Baltic index for the month, if you're looking, we have seen some
09:39kind of an uptick over here.
09:41What does this mean going forward?
09:43Typically, this is the time when the index recovers, the Baltic freight rates recover
09:50for dry bulk, because seasonally they come off the weak period, which is Jan-March and
09:55start improving from April and May and go into a fairly strong summer.
10:01So this, the strengthening is not unusual.
10:04However, the good thing is that we are seeing strengthening across all sectors in the sense
10:10that we are seeing the capesizers, which are the big bulk carriers, also strong.
10:15And we are seeing the smaller vessels also, which is the Panamax, Kamsar Max and the Supramax
10:20is doing quite well.
10:23So the dry bulk market is showing quite a lot of strength, possibly on the back of stronger
10:28dry bulk trade flows.
10:31We've seen Chinese imports of iron ore and coal being quite strong.
10:35Indian imports of coal also have been quite strong.
10:38Absolutely.
10:40Now, the major highlight, if you look at the second half of the year, has been obviously
10:45the Red Sea impact that we are seeing, major disruption in the Suez Channel, but Suez Canal
10:52again, if you look at the Panama Canal, also some disruption over here.
10:55I want to understand now what is going on there currently and how should we look forward
11:01to this situation in terms of next year onwards and this quarter, in fact, like how are we
11:06seeing the trends going on over there?
11:09Yeah, on these disruptions, the one update on the Panama Canal is that we were at 32
11:15to 34 ship transits at peak.
11:19That came down to below 20 at the bottom when the Panama Canal was at its driest, which
11:26was early 2024, that is around December, January.
11:30That's now back up.
11:32They've had some unseasonal rains and it's back up to the low 20s and they're expecting
11:36to go back to the high 20s by the end of this monsoon season, which is in the next three
11:41to six months.
11:42So you should have a little bit of reversal there.
11:46On the Suez Canal, it's anybody's guess.
11:49This is a geopolitical thing.
11:50It's not a weather related thing.
11:52So it's anybody's guess what happens to it.
11:54It could stop tomorrow or it could continue for the next year.
11:57So we just don't know that.
11:59Absolutely.
12:00Again, I wanted to understand, there had been some US sanctions in the crude tanker segment.
12:06So I wanted to understand what does this mean for our segment also in the crude tanker as
12:12well going forward.
12:13Do we see any sort of impact over here?
12:16So the sanctions that we've seen recently have been very focused and have affected a
12:22small number of ships.
12:24As a result, they haven't had much impact on the wider market.
12:28What is also happening is because of the fear of sanctions, less people are doing the
12:32Russian trade, less legitimate owners are willing to do the Russian trade.
12:37So it's not had a significant impact on the market balances recently, these round of sanctions.
12:44Maybe if there are more widespread sanctions, it could have an impact, but otherwise, no.
12:48Absolutely.
12:49So small impact over here.
12:51Now coming to the order book.
12:52So our order book has remained on the lower side.
12:54But if you had to look at your presentation, you have mentioned that there has been some
12:59buildup in both the crude tanker and the product tanker.
13:02So what kind of outlook does this paint for the markets going forward over here?
13:08Okay.
13:09So the order book has indeed built up, as you said, that there has been a significant
13:13pickup in the pace of ordering of tankers.
13:17The good thing is that these ships are likely to come only in 2026 or 2027.
13:22There's nothing much coming in 2024 and 2025 in terms of new tonnage joining the fleet.
13:29And therefore, that trend of the new supply is limited, at least for the tankers.
13:37It's still not a large number.
13:40If you see it in relation to the old fleet, there are a lot of old ships which are still
13:48in the active fleet, mainly because the market is so strong.
13:53If the market becomes weak, then you will find the old ships going, which gives a little
13:59bit of a safety net to the demand supply balance.
14:02So if there is an oversupply of ships because of new ships coming in, then you could have
14:07old ships being scrapped and removed from the fleet, which will bring the market back
14:11into balance.
14:12Absolutely.
14:13Absolutely.
14:14Mr. Shivkumar, now moving on to the vessel sides of the repricing, about 12 of our vessels
14:21are getting repriced and that too, if I'm not wrong, in the first half of FY25.
14:26So can you quantify what is the extent of repricing that we are looking at and how does
14:31that lead to our margins are a bit down in terms of an incremental sense?
14:36Yeah.
14:37So this is the offshore vessels that you're referring to.
14:40We have 12 of them coming up for repricing within the next few months.
14:45Most repricings are happening at higher levels.
14:47In fact, all repricings are happening at higher than previous levels.
14:52And if I had to quantify this, I would put this at an average of $3,000 to $4,000 a day
14:56better than previous contracts.
15:00And since the cost basis is fixed, this is an addition to this goes straight from top
15:08line to bottom line.
15:10So all of these vessels are getting repriced and the pricing is better because the market
15:14is just better.
15:15These are typically three-year contracts.
15:17Market in 2024 is much better than it was in 2021 for the offshore vessels.
15:23And therefore, the repricings are happening at much better rates, which of course will
15:27feed through into our profitability.
15:29Okay.
15:30So better outlook for the offshore vessels over here that you've mentioned about.
15:34But now if I look at the Saudi Aramco side, some cancellation has happened over here,
15:38about 90 rigs to be precise.
15:41Now what is the kind of impact that we look at for our offshore vessels over here?
15:46Yeah.
15:47So we have two rigs coming up for pricing in this year.
15:52They're coming off their earlier three-year contracts.
15:55There are tenders in place, which are under process.
15:59One tender got cancelled, which is relating to where we had bid our rig Raid Rail Chetna.
16:05The other tender is under process still.
16:09Typically what happens in the Middle East should not affect this market.
16:13These are disparate markets and you're unlikely to find rigs which have been cancelled in
16:19Saudi Arabia coming to India.
16:22It's not very likely for that to happen.
16:25So it shouldn't have a practical impact.
16:28It might have a small impact on sentiment internationally.
16:32It should not have an impact on the Indian market, really.
16:35All right, Mr. Shivkumar, before I let you go, my final question is, what is the key
16:42strategies that we are looking to place for FY25 going forward?
16:47So can you just highlight on the picture forward?
16:51So a couple of things that we're doing, we have collected a lot of cash, our balance
16:55sheet is very light.
16:56We need to do, we would like to do more capex and expand.
16:59However, the prices are expensive and therefore we are not likely to do a large amount of
17:04capex currently.
17:05What we're doing is replacing our old tonnage with more modern tonnage.
17:10We will wait for the market downturn to invest a significant portion of our resources.
17:18So we are going to be patient and wait for the markets to come to the right prices for
17:22us to invest.
17:23All right.
17:24Thank you so much for joining in and having this conversation.
17:27We look forward to next quarter to discuss more.
17:30Thank you.