Aarti Industries Ltd., a manufacturer of specialty chemicals, recently inked a significant nine-year deal with a global agrochemicals giant. The contract, valued at ₹3,000 crore, focuses on supplying a specialized agrochemical intermediate, with deliveries set to commence this fiscal year.
Reports suggest that the agreement was likely with UPL, a prominent Indian agrochemical player, involving the supply of the herbicide S-Metolachlor. This deal was expected to contribute an estimated ₹333 crore annually, potentially adding around ₹73 crore to Aarti Industries’ Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) based on previous profit margins.
However, a hurdle emerged as the European Union decided against renewing approval for S-Metolachlor. This move is anticipated to divert volumes away from the EU towards other markets. Analysts at Equirus Securities foresee potential repercussions, predicting pressure on both pricing and volume uptake for the advanced intermediate that Aarti Industries was slated to produce. This development also casts doubts on the viability of the long-term supply contract.
The impact extends beyond Aarti Industries, with UPL, equipped with its production capabilities for the concerned product, also likely to feel the effects. This situation isn’t unfamiliar territory for Aarti Industries, despite its early venture into long-term agreements. The company previously entered three such contracts between 2017 and 2019, all carrying substantial revenue prospects that garnered positive anticipation among investors and industry observers.