Event update: Aarti Industries (Outperformer) - Wins its 3rd big multi-year contract
Event
AIL has entered into a US$125m (Rs9bn) multi-year contract with a Global chemical conglomerate for supply of high value speciality chemical Intermediate
Key highlights
- The contract entails supply of high value specialty chemical intermediate for 10 years starting Q4FY21E; This end-use product is one of the major growth initiatives for the customer
- AIL will set up a dedicated capacity for $15m towards this supply; this product isn’t part of AIL’s current product portfolio
- AIL has worked with the innovator for 4 years to optimize / scale the process for this product within stringent quality stipulations
- This is a typical custom synthesis project wherein AIL has partnered with the innovator through research to commercialization
- This underlines AIL’s strong capabilities in complex chemistry research and is in-line with its vision to become partner of choice for its customers Notably, over last 18m, AIL has already won 2 multi-year contracts worth Rs140bn; Such partnering deals will be a key element of AIL’s growth going forward.
0ur view
AIL’s business model has metamorphosed from import substitution to exports. In a further evolution of its business model, the company has now begun to put in place strategies to partner with global players reflecting management’s strong execution capabilities. AIL is in a pole position to capitalise new opportunities in the Indian specialty chemical space. Two multi-year contracts (worth Rs140bn) signed over past 2 years and the newly signed Rs9bn with global players exhibit AIL’s potential. A global leader in benzene-based products, AIL has delivered stable 20%+ earnings growth (FY14-18) despite volatility in crude oil prices given 1) large-scale integrated product chains, 2)diversified customer base 3) cost-plus pricing model, 4) world-class facilities. At 14.9x FY21E earnings, we see room for upside, given AIL’s strong earnings visibility and healthy return ratios. Maintain Outperformer.​
Aarti Industries Limited is a manufacturer of specialty chemicals and pharmaceuticals. The Company is also engaged in the manufacture of home and personal care products. The Company operates through three segments: Speciality Chemicals, Pharmaceuticals, and Home & Personal Care Chemicals. Its Speciality Chemicals segment serves polymer and additives; agrochemicals and intermediates; dyes, pigments, paints and printing inks; pharma intermediates, and fuel additives, rubber chemicals and resins markets. Its Pharmaceuticals segment serves active pharmaceutical ingredients, and intermediates for innovators and generic companies. Its Home & Personal Care Chemicals segment serves non-ionic surfactants, and concentrates for shampoo, hand wash and dish wash markets. The Company is integrated across over 70 products. Its products include benzene-based intermediates, sulfuric acid and its allied products, active pharmaceutical ingredient, agrochemicals and dyes.
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