*Aarti industries: Opportunity in adversity
AIL has informed that it has received a notice from a customer to terminate the contract to manufacture intermediates for agrochemical AI as its customer is no longer interested in manufacturing of this AI on its own. The contract with capex of INR4bn by AIL for a ten year period was expected to yield annual revenue of INR4bn and 40% EBITDA margin.
Since AIL is likely to receive a compensation of USD120–130mn from the customer (cash flow of USD20mn each in FY21 and FY22, and USD80mn in FY23), it will not impact profitability for the next two years. AIL will continue to utilise this asset and may exploit this opportunity to forward-integrate into manufacturing AI.
AIL is likely to use final compensation of USD80mn due in Q1FY23 towards additional capex. Given strong growth opportunity in chemical manufacturing, this additional cash flow would help AIL drive future growth.