Aarti Industries Ltd. saw a big contract terminated but analysts and the management of the specialty chemicals maker don't expect that to impact its operations.
A contract worth Rs 4,000 crore that spanned over 10 years was terminated by a global agrochemical major, the company said in a statement on Monday. It expects a compensation of at least $120 million.
The contract, signed in June 2017, entailed supplying a chemical intermediary for herbicides. Aarti Industries attributed the termination to a change in the client's strategy.
The loss of contract does not disturb operations greatly, Rajendra Gogri, chairman and managing director at Aarti Industries, told BloombergQuint. It's valid for the next two years and there will be no material impact on revenue or operating margins for 2020-21 and 2021-22, he said, adding that nearly a third of the compensation will be paid in the first year and the rest in the second.
According to Ambit Capital, the company had received some advance from the client to build capacity which it can use to supply the intermediate to other active ingredient makers or repurpose the plant towards other chemicals. Or, according to Ambit Capital and Edelweiss Securities, the company can forward-integrate this capacity to make active ingredients itself.
An active ingredient is part of a substance or compound that produces its chemical or biological effects.
On Tuesday, Aarti Industries shares rose 7.10% to Rs 928.00 apiece on the BSE while the benchmark Sensex gained 1.13% to end the day at 33,605.22 points.
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