Deepak Fertilizers and Aarti Industries have signed a long-term, binding contract for nitric acid offtake
- ByStartupStory | November 21, 2022
Aarti Industries Ltd. (AIL) and Deepak & Petrochemicals Corporation Ltd. (DFPCL) announced today that they have signed a binding term sheet for the offtake and supply of nitric acid over a 1-year period. The parties intend to finalize the official agreement by the end of the calendar year. The supply agreement goes into effect on April 1, 2023.
In Southeast Asia, DFPCL is the biggest producer of nitric acid, while AIL is one of the biggest consumers of nitric acid in India. This agreement is a historic and unique long-term partnership between two large Indian chemical companies to support one another’s commercial needs and common interests. The agreement includes explicit volume commitments with supply-or-pay and take-or-pay requirements by either side in order to provide adequate assurance and financial security and to defend either party’s economic interests. This agreement deepens and elevates the current partnership to a long-term collaborative collaboration for years to come, building on the foundation of the relationship that has existed for the past three decades.
By providing long-term supply security for a crucial raw material, the transaction benefits AIL. Most of the requirements of AIL would be satisfied by this. Additionally, it gives AIL more confidence when purchasing the crucial RM from DPFCL, the country’s biggest integrated manufacturer of nitric acid with numerous production facilities. As a producer of specialty chemicals and downstream products, AIL can now concentrate on future growth potential, the launch of new value-added products, and value chains for specialized applications thanks to the current agreement’s excellent supply security.
The demand for nitric acid has been rising quickly over time due to the expansion of numerous Indian chemical businesses, creating a sizable imbalance between supply and demand. This called for the development of a long-term strategy by AIL to reduce the supply chain risk associated with nitric acid and by DFPCL to reduce the risk associated with the offtake of one of its main products. In fact, this is a win-win situation that will help both parties achieve their long-term goals and demands.
With a capacity of roughly 8.9 MT for WNA and 2.3 MT annually for CNA, DFPCL is one of the main producers of nitric acid in India, together with its subsidiaries. DFPCL is the industry leader in the fields of industrial chemicals, mining chemicals, and crop nutrition. The industrial chemical sector will benefit from the cooperation. With the help of the long-term offtake deal, DFPCL will be able to secure the market for a sizeable amount of its nitric acid output, which will generate more than 8,000 crores of rupees in revenue over a 20-year period.
Mr. Rajendra Gogri, Chairman and Managing Director of AIL, commented on this transaction and said, “The combination of these leading businesses with distinct strengths and capabilities will help in making the business more sustainable and help both of our leverage and focus on individual growth opportunities. DPFCL has been a long-term partner for us by supporting our key raw material needs. This deal enables us to focus on our forward-integrated opportunities and helps channel our resources effectively for driving more research-driven, long-term, high-growth avenues for global markets.”
Sailesh C. Mehta, Chairman and Managing Director of DFPCL, commented on this deal and said, “This landmark deal is a testament to the long-term association with one of our largest customer. This deal also enables DFPCL to leverage its competitive advantage for Nitric Acid, a critical building block intermediary chemical for the Specialty Chemicals sector. This alliance indicates the strong growth currents emerging from the ‘China plus One’ trend for the specialty chemical sector in India. The available brownfields in Dahej could give opportunities for cost-effective capacity enhancements. The teams from both ends had put in tremendous effort to make this deal a reality and also to ensure the mutual interests of both of our entities are adequately protected. We see this as the start of a new collaborative journey of our relationship with AIL.”
Aarti Industries Limited shares were last traded on the BSE for Rs. 653.80, down from the previous close of Rs. 655.70. A total of 56136 shares were moved throughout the day in approximately 4956 deals.
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