Aarti Industries Limited to get compensation for early termination of long term contract by Agrochemical Major

Date:06-17-2020

Aarti Industries Limited (AIL), a leading global Speciality Chemicals Company, had earlier announced that it had entered into a 10-year contract with a Global Agrochemical Major, (hereinafter termed as "Customer") to supply a high-value agrochemical intermediary with application into Herbicides. The end-use is amongst the major growth initiative of the Customer with a significant amount being invested by the Customer for this purpose. The contract was expected to generate revenue of apprx. Rs. 4000 crores over the 10 year period.

On June 15, 2020, AIL has received a notice from the Customer, opting to terminate the said contract. The company understands that the reason for the same is the Customer's change in strategy. They now are looking to focus on the final formulation and would like to source the Active Ingredient rather than their original plan to manufacture it. The Customer continues to remain confident and committed to the growth initiatives as envisaged earlier and that the change in strategy would help them in enhancing the solutions for end-users. AIL is strategically placed in this value chain and the assets put in shall enable AIL to continue to participate in this key growth driver agrochemical molecule.

Upon the triggering of this termination event, the guarding provisions for compensation under the contract come into effect. As a result, the compensation to AIL is estimated to be in the range of USD 120 mn to USD 130 mn.

Commenting on this, Mr. Rajendra Gogri - Chairman & Managing Director at Aarti Industries Limited said, "The project has been one of the major growth initiatives for us. The present notice was not something envisaged by us. However, the change in the strategy of the Customer does not significantly undermine the inherent opportunity in this business. We are fully backward integrated and a strategic player in this value chain. We are confident to be able to cater to the market requirements in this high growing vertical of the agrochemical space. We shall be closely working with the Customer and various other players to provide solutions in this high growth herbicide business."

Shares of AARTI INDUSTRIES LTD. was last trading in BSE at Rs.919.25 as compared to the previous close of Rs. 926.1. The total number of shares traded during the day was 10802 in over 1037 trades.

The stock hit an intraday high of Rs. 921.6 and intraday low of 891.3. The net turnover during the day was Rs. 9819457.