Aarti Industries Ltd – Will it get benefit from its huge Capex

Aarti Industries is engaged in manufacturing and dealing in speciality chemicals and pharmaceuticals.

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(A) About

Aarti Industries Ltd - logo

Aarti Industries Ltd is a leading Indian manufacturer of speciality chemicals and pharmaceuticals with a global footprint. It is also the largest producer of benzene derivatives in India, and a major player among global manufacturers, with a 25-40% global market share across various products.

Additionally, chemicals manufactured by the company are used in the downstream manufacturing of pharmaceuticals, agrochemicals, polymers, additives, surfactant pigment, dyes, etc.

(B) Journey

(C) About the Executive Management

(i) Chandrakant V. Gogri - Chairman Emeritus

Mr. Chandrakant V. Gogri founded Aarti Industries. He has completed his chemical engineering from the Institute of Chemical Technology (ICT), previously known as the University Department of Chemical Technology (UDCT).

He stepped down as Chairman on 16th August 2012, and has, at the Board's request, accepted the position of Chairman Emeritus in recognition of his invaluable counsel and experience.

Moreover, for his contributions to the Indian chemical industry, Shri Chandrakant V. Gogri received the renowned Lala Shriram National Award for leadership in the chemical industry in 2015 and also the ICC's D.M. Trivedi Lifetime Achievement Award in 2019.

(ii) Rajendra V. Gogri - Chairman and Managing Director

Mr. Rajendra V. Gogri has served as the Company's Managing Director since 1993. He has been with the Company since its beginning. In 2012, he was appointed as Chairman and Managing Director of the company.

He has a Master of Science in Chemical Engineering from the United States and holds a rank from ICT, Mumbai. In addition to his professional credentials, he also has experience with finance and business affairs.

In FY22, Mr. Rajendra V. Gogri Received a remuneration of Rs 12.28 Crore which is 0.17% of sales and 0.93% of the profit.

(iii) Rashesh C. Gogri - Vice Chairman and Managing Director

Mr. Rashesh C. Gogri was appointed as the Company's Vice Chairman and Managing Director in 2012. Prior to that, he served as the Company's Director from June 1997.

Moreover, he had completed his graduation in Production Engineering from Mumbai University.

In FY22, Mr Rashesh C. Gogri Received a remuneration of Rs 12.28 Crore which is 0.17% of sales and 0.93% of profit.

(iv) Hetal Gogri Gala - Executive Director

Ms. Hetal Gogri Gala has served as an Executive Director of the Company since November, 2001.

She got a Bachelor's degree in Electronics Engineering from Mumbai University, and also completed a program in management education at IIM Ahmedabad. Further, she also handles the Pharmaceuticals section and is engaged in the Company's supply chain management.

In FY22, Ms. Hetal Gogri Gala Received a remuneration of Rs 11.82 Crore which is 0.16% of sales and 0.90% of profit.

(iv) Renil R. Gogri - Executive Director

Mr. Renil R. Gogri was appointed as Executive Director of the Company on August, 2012.

He has a Bachelor of Technology (Mechanical) from IIT Bombay. Meanwhile, he leads the Specialty Chemicals division's production processes, including people and excellence efforts, adoption of IT advancements, sustainability initiatives, and projects.

In FY22, Mr. Renil R. Gogri Received a remuneration of Rs 6.19 Crore which is 0.08% of sales and 0.47% of profit.

(v) Other Board of Members

NamePositionYears of ExperienceRemuneration (FY22)
Parimal H. DesaiExecutive Director35 years3 Cr
Manoj M. ChhedaExecutive Director28 years1 Cr
Kirit R. MehtaExecutive Director35 years1 Cr
Narendra SalviExecutive Director35 years1.66 Cr

(D) Shareholding Pattern of Aarti Industries Ltd

Aarti Industries Ltd - Shareholding
Aarti Industries Ltd - promoters shareholding
Aarti Industries Ltd - Shareholding

(E) Business Segmentation of Aarti Industries Ltd

Aarti Industries Ltd - Business Segment

(i) Specialty Chemical

Specialty chemical is the core business segment, contributing maximum to the revenue. The company uses feedstock materials such as benzene, toluene, nitric acid, chlorine, methanol, aniline, Sulphur etc., along with a wide range of reactions to service leading chemical companies around the globe.

It also offers Nitro Chloro Benzenes (NCB), Di-Chloro Benzenes (DCB), toluene, sulphur, and other organic and inorganic products.

End Usage-

  • Agrochemicals for pesticides, insecticides, herbicides, etc.
  • Pharmaceuticals products.
  • Dyes, pigment, paint and printing ink.
  • Polymers and addictive for aircraft, automobiles, bulletproof jackets, and also in electronics, etc.
  • Fuel additives, rubber chemicals, resins, etc.
  • In FMCG products.

The company enjoy a diversified customer base, with the largest customer contributing to less than 5% of the sales.

(ii) Pharmaceuticals

In the Pharmaceuticals business, the company manufactures Active Pharmaceutical Ingredients (43% of pharmaceuticals business), intermediates (17%) and also xanthene derivatives (40%) for pharmaceuticals, food & beverage industry.

The company’s cost, quality leadership and backward integration for most Active Pharmaceutical Ingredients (APIs) manufactured provides an edge over its peers and also enables it to hold on to a leading position in the developed markets of US, European Union and Japan. APIs are chemicals used in manufacturing pharmaceutical drugs. It also provide Contract research and manufacturing services (CRAMs) activity focused on Intermediates.

Moreover the company provides APIs, which have applications in anti-hypertensive, anti-asthmatic, anticancer, Central Nervous System (CNS) agents, skin care etc.

(F) Revenue from Operations

(i) Revenue Segmentation

Aarti Industries Ltd - Revenue Segmentation

Broadly it is classified into two major segments Specialty chemical which contribute Rs 407 Cr and while Pharmaceuticals contributes Rs 1766 Cr in Q1 FY23.

For FY22 : 16% Contributed by Pharmaceuticals and 84% by Speciality Chemicals Segments (FY22 Sales :7919 Cr)

(ii) Geographical-Wise Revenue

Aarti Industries Ltd - Geographical revenue

59% of the revenue comes from India while 41% comes from outside India.

(G) Manufacturing Facilities

Aarti Industries Ltd -  Manufacturing

Moreover the company has 21 manufacturing facilities in which it has 15 Specialty chemical plants and 6 Pharmaceutical plants.

(H) Cost Structure

Aarti Industries Ltd - Cost structure

(I) Financials

(i) Financial Trend

Aarti Industries Ltd -  Financial trend

Company's revenue has increased at a CAGR of 12.89% while its profit after tax increase at a CAGR of 25.68% in the past 10 years. Moreover its ROE & ROCE has also improved from FY21 to FY22.

Company has also reduced its debt to equity in the past 10 years.

(ii) Du Pont Analysis

Aarti Industries Ltd - Du pont analysis

Company is consistently improving its PAT margins in the last 10 years. Moreover its Assets to equity improved due to reduction of debt to equity.

(J) Management Discussion & Concalls


  • Asia Pacific region share 48-50% of the total Specialty Chemical Market.
  • China's Specialty Chemical market has seen a down turn in recent years due to various factors. Most prominent with recent environment norms introduced by the Chinese government, which leads to shut down of many chemical companies and also due to rising labor cost, slowing domestic demand and China +1 strategy.
  • Board of Directors also approved the demerger of pharmaceuticals segment allied into Aarti Pharma labs Ltd.
  • Independently operating the specialty business should gain from China +1 opportunities while the pharma business can address fast growing domestic supply opportunities.
  • Indian players are getting benefit due to high gas prices in Europe.
  • Meanwhile the company is seeing no impact on orders from export markets.

Concall Q1 FY23 Highlights

In Q1 25% of the growth comes from raw material price increase while 15-20% by volume growth.

Specialty Chemical

  • In Q1 FY23, the revenue from specialty chemicals business increased by ~44% YoY to ₹1,766 crore while EBIT grew by ~8% YoY to ₹250 crore.
  • During the quarter, the company witnessed demand slowdown from key end user industries like textile and fast-moving consumer goods (FMCG) due to cost pressure across the manufacturing chain.
  • The performance during the quarter was supported by improved product mix with high contribution of value-added products at 74%.
  • During the quarter, the company continued to witness short fall in supply of key raw material nitric acid.


  • In Q1 FY23, the revenue increased by 47.5% YoY to ₹407 crore while EBIT grew by 46.2% YoY to ₹76 crore.
  • Moreover the performance was driven by higher demand for key products from generic pharma companies and Xanthine businesses.
  • The company also commissioned new block at the US FDA (Food and Drug Administration) approved active pharmaceutical ingredients (API) facility at Tarapur in early Q2 FY23.

Future Growth & Capex plans

  • Company has also tied up with a technology partner for setting up unit for concentrated nitric acid from dilute nitric acid.
  • Moreover, investment in nitric plant will be around Rs 500+ Cr for a 500TPD capacity plant.
  • In FY23 and FY24, Company planned to invest ~₹3,000 crore towards capacity additions.
  • Under specialty chemicals business, the company is also targeting volume ramp-up from the facility linked to 1st long-term contract and expect to reach higher utilization level of 70%-80% by next year.
  • In the 2nd long-term contract, the company expects capacity utilization to reach more than 80% level by FY24.
  • The other capacity projects such as projects linked to the 3rd long-term contract at Jhagadia and the NCB capacity expansion at Vapi are underway and expected to be commissioned in the forthcoming quarters. It will start contributing to revenue from FY24.

(K) Strengths & Weaknesses


(i) Established market position with diversified revenue, strong revenue visibility and healthy profitability

Aarti Industries Ltd is the largest producer of benzene derivatives in India, and a major player among global manufacturers, with a 25-40% global market share across various products. In the pharmaceutical segment, contributing about 20% to the overall revenue, the company has diversified presence in active pharmaceutical ingredients (APIs), key intermediates as well as xanthine derivatives. It is the largest manufacturer of xanthine derivatives in India.

The group has a diversified revenue profile, reflected in no single customer or product contributing more than 5%-7% of revenue.

(ii) Sound operating efficiency because of continuous investment in process improvement initiatives and high integration

Aarti Industries Ltd enjoys high economies of scale as it is the largest producer of NCB, DCB and Nitrotoluene in the domestic market and has also built up a large and flexible manufacturing capacity. Operating efficiency is also supported by strong research and development (R&D) capability.

Further its integrated operations to manufacture higher-order derivatives of benzene, ability to change the product mix according to the demand-supply scenario, and continuous process improvement for maximizing the share of value-added benzene derivatives enable AIL to sustain strong operating efficiency.

(iii) Healthy financial risk profile

The company has a capex of Rs 4,000 crore planned over fiscals 2023 to 2025 in multiple value chains to increase market share as well as for long-term contracts with global MNCs. Moreover the capex requirements in this period will be funded out of internal accrual and debt. Despite high level of capex, debt protection metrics are expected to remain adequate, with interest cover at over 8 times and NCATD at around 0.3 times over the medium term.


(i) Large working capital requirement

Aarti Industries Ltd operations have remained working capital intensive marked by high gross current assets (GCA) days ranging between 150-190 days in past five years ended March 31, 2022. The higher working capital requirement is mainly owing to the requirement to maintain large inventories as the company maintains around two months of raw material inventory and has large number of products in the portfolio leading to high finished goods inventory requirement.

(ii) Exposure to project risk and risk related to volatility in commodity prices

The company has been carrying out a large capital expansion in the past and will continue to do so over medium term, thereby increasing capacities in multiple value chains to increase market share as well as for long-term contracts with global MNCs. The company has also carried out sizeable capex of Rs 3,500 crore in the past three fiscals and has capex of Rs 4,000 crore planned for fiscals 2023 to 2025.

Additionally, the main raw material, benzene is a crude derivative, prices of which remain susceptible to any sharp volatility in crude prices. While the group has consistently demonstrated its ability to pass on the volatility in raw material prices due to its cost-plus business model, which has reflected in consistent operating profitability of 16-23% over last 10 fiscals; nevertheless, it remains exposed to the volatility in commodity prices.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

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