Aarti Industries Q2 FY27 Earnings Call: Record EBITDA Crosses Rs. 400 Cr, Reiterates Rs. 1,800-2,200 Cr FY28 Guidance (AARTIIND)

Aarti Industries Ltd held its Q2 FY27 earnings call on October 30, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Record Quarter, But Margin Quality Under Scrutiny

• Record revenue and EBITDA — Q2 FY27 revenue of Rs.3,887 Cr (+73% YoY) and EBITDA of Rs.418 Cr (+44% YoY) were the highest-ever quarterly figures, crossing Rs.400 Cr EBITDA for the first time; H1 FY27 EBITDA rose 58% to over Rs.802 Cr (vs Rs.507 Cr in H1 FY26).
• PAT of Rs.169 Cr (+60% YoY) — H1 FY27 PAT up 117% to Rs.324 Cr (vs Rs.149 Cr in H1 FY26).
• Energy segment revenue roughly doubled QoQ — from Rs.1,000 Cr to ~Rs.1,900 Cr, driven by extremely strong refining margins and gasoline-naphtha cracks plus some volume contribution; energy reached 50% of the overall portfolio in Q2 FY27, which an analyst flagged as a portfolio volatility risk.
• Trading volumes of ~Rs.500 Cr in H1 FY27 — undertaken to build the market for expanded capacities; management confirmed trading volumes were partially responsible for the lower Q2 margin, and top line grew ~75% YoY per an analyst query.
• Rs.50-60 Cr of inventory/FX gains in Q1 FY27 — nothing significant in Q2 FY27; absolute inventory has doubled on raw-material price inflation, though working capital was optimized to 55-60 days as of Q2 FY27.
• Pass-through is absolute, not percentage-based — more than two-thirds of the portfolio operates on absolute rupee pass-through, protecting absolute EBITDA while percentage margins vary; per-kg spreads were maintained in almost two-thirds of the portfolio in Q2 FY27.

Sulfur Shock, Freight Costs and Feedstock Security

• Sulfur prices surged over 5-6x — Middle East geopolitical tensions triggered crude volatility and broad RM inflation, with sharply elevated freight costs straining supply chains and pushing up working capital and debt.
• Acid value chain margins compressed significantly — inflationary sulfur could not be fully passed through; in agro intermediates, pass-through occurs with a lag and spreads can stay compressed for 3-4 months before market absorption restores them.
• Feedstock security flagged in the Q2 investor deck (page 13) — MD & CEO Suyog Kotecha said the company is in an "exploratory phase" on options from strategic partnerships to in-house feedstock manufacturing, and will implement some initiatives over the next 3-4 months (Q3–Q4 FY 2026-2027).
• Aniline dependence is heavy on China — management has seen challenges securing desired volumes to run assets at full capacity; Aarti is one of the largest merchant buyers of aniline for non-MDI usage in India and has initiated conversations with multiple global majors. Backward integration into aniline is "too early to comment" on.
• Methanol availability has not been a challenge — but pricing remains quite volatile, linked to the Middle East situation as one of the largest supplying regions.
• Q3 FY27 supply outlook mixed — domestic raw materials expected to have good availability; imported raw materials could face supply-chain gaps that will need mitigation.

Jagadia Ramp-Up On Track, FY28 Accretion Targeted

• Zone 4 Phase 1 commissioned September 7, 2026 — calcium chloride unit, PEDA plant and a section of the multipurpose plant operational; the calcium chloride plant exceeded design capacity within its first 3 months and PEDA achieved design norms within 2 months, cited as "first time right" execution.
• 5-10 products planned in FY27, expanding to 20-25 products across 5 chemistry blocks by FY28 — remaining 4 chemistry blocks expected online within FY27; commissioning within FY 2026-2027 with ramp-up throughout FY28.
• Rs.800-900 Cr of the Rs.2,200 Cr CWIP hoped to be capitalized by 31 March 2027 — mostly pertaining to Zone 4, by end of FY 2026-2027.
• Rs.250-350 Cr bottom line targeted from Zone 4 in its first 18 months (period unspecified) — management framed this as an aspiration it continues to push for; peak revenue potential was declined as revenue can "go completely haywire" with crude prices.
• Zone 4 expected to be EBITDA- and value-accretive in FY28 itself — management pushed back on the analyst's "EBITDA-neutral for FY28" framing, with new-product ramps contingent on good demand traction.
• FY27 capex of Rs.700-800 Cr planned — across energy, agrochemical intermediates, advanced polymer formulations and pharma building blocks; management stressed this is a "different capex wave" with debottlenecking-led additions (including planned MCB capex), so capital intensity is not expected to rise significantly.
• 50-60 cost-optimization initiatives live at any point in time (Q2 FY27) — focused on yield, energy, throughput, quality and fixed-cost optimization; initiative-level details declined.

New Rs.1,500 Cr Deal Anchors the Partnership Strategy

• 10+ year agreement signed October 13, 2026 with a global specialty chemical major — revenue potential of Rs.1,500 Cr (period unspecified); dedicated facility using proprietary technology with structured capex financing under US$25 million; commercial operations targeted for FY29.
• Conversion margin is only the minimum element — CEO Suyog Kotecha clarified the partnership includes supporting the client on process-technology improvement; the technology is a first for Aarti, and management hopes the know-how will benefit the company significantly in the long term.
• Three existing long-term contracts performing as per expectations — two specialty chemical contracts (15-year-plus, running into the late 2030s up to 2040, with commercials structured around bottom line rather than top line) and one agrochemical contract with a global major lasting till 2029-2030.
• Long-term partnerships contribute ~25-30% of business as of Q2 FY27 — management hopes this share will rise but has no specific target; fixed costs are well covered in these contracts and conversion-margin protection is relatively well assured.
• Inbound inquiries for India-based specialty manufacturing partnerships serving Europe, Japan and US have risen — one partnership concluded (announced a few weeks back); management hopes to conclude many more (timeline unspecified).
• Origin Chemicals JV (with Superform) facility ready — trial production underway, order book gaining traction; steady-state revenue projected at Rs.300-400 Cr (period unspecified). Aarti Circularity project execution remains on track.

Energy Dominance, NCB Strength, PDA Pain

• Energy capacity at 360 KT — near-term priority is stabilizing this capacity and strengthening the integrated value chain; further expansion only to be "potentially evaluated" after stabilization (period unspecified). Fuel additives utilization remained strong after expansion from 290 to 360 KTPA in Q1 of calendar 2026; MMA ran almost at full capacity in Q2 FY27.
• NCB chain demand very strong, predominantly domestic — improvement attributed primarily to China's anti-involution strategy, under which China removed VAT subsidy rebates that had been as high as 13% of product price; capacity expansion is being considered on customer requests (not committed).
• PDA remains a pain point — huge overcapacity and dumping by Chinese players in the global export market; management is protecting minimum margins and evaluating repurposing part of the capacity. CEO Suyog Kotecha said conditionally that if a comparable subsidy removal happens in the PDH/PDA chain, "the turnaround will be pretty dramatic" — a hypothetical policy trigger, not company guidance.
• Dyes & pigments rebounded domestically in Q2 vs Q1 FY27 — buyers accepted elevated prices after delaying purchases around Q1, unleashing catch-up demand, plus impacted Chinese exports reducing availability of certain products from China.
• Pharma saw PNCB price/volume gains and robust paracetamol demand — bolstered by China's capacity rationalization, while fluoro margins remain under pressure; MCB-chain expansion possibilities are under consideration (timeline unspecified).
• Agrochem grew volumes on stable select-category demand with mixed pricing — H2 FY27 may reflect weaker monsoon impact in the domestic market; quarterly contracts create a one-quarter lag in pricing pass-through. Polymers & additives demand is robust in high-end engineering, EVs and defense, but PDA-chain softness dragged Q2, with traction expected to resume in Q3 FY27 on accelerating dichlorobenzene demand.

FY28 EBITDA Guidance Reiterated; Deleveraging Enabled

• Rs.1,800-2,200 Cr EBITDA guidance for FY28 reiterated — framed by the analyst as roughly 150% above H1 FY27 EBITDA; management said cost/efficiency levers, operating leverage and capex-led ramp-up remain on track and give "line of sight" to the range.
• FY 2026-2027 EBITDA guidance of Rs.1,800 Cr broadly intact — spreads running in line with original assumptions except NCB, where expanded spreads are being offset by the Zone 4 commissioning delay; no explicit guidance revision was committed. Guidance for FY 2027-2028 will be issued closer to the end of FY 2026-2027.
• H2 FY27 watch items — Zone 4 commissioning fixed costs flowing into the P&L around Q4 FY 2026-2027, and a potential major correction in global crude oil prices impacting inventory; winter-season cracks may soften.
• Net debt crossed Rs.4,650 Cr as of Q2 FY27 — Board approved (October 1, 2026) an enabling resolution to raise up to Rs.1,000 Cr to deleverage and build flexibility for strategic growth beyond FY28-FY29; shareholders approved it at the AGM on October 31, 2026.
• Tax rate of 15-20% indicated for FY 2026-2027/FY 2027-2028 — with deferred tax liability kicking in as new assets get commercialized.
• Energy mix expected to settle at 30-40% of portfolio in the medium term — analyst-framed horizon of FY 2027-2028 to FY 2029-2030, helped by Zone 4 ramp-up and pricing corrections in global markets.
• Industry tailwinds cited — China's anti-involution strategy, US trade barriers focused on China, European sensitivity to Chinese imports, and India's FTAs with Western markets (UK, Europe) are set to solidify India's position in global supply chains, per management.