Annual report highlight of Aarti Industries Ltd FY17
Excellent letter by Mr.Rajendra Ghoghri. Must read for some one interested to understand chemical industry. Key point
- Excellent client relationship and diversified product portfolio
“We generated more than 85 per cent of our 2016-17 revenues from customers with whom we had worked for five years or longer; virtually every single customer reported a larger quantum of purchase; and yet, our largest customer accounted for no more than 9 per cent of our 2016-17 revenues, indicating business broadbasing and corresponding de-risking.” - Global trends in chemical trade
a) Increased dominance of China in Global trade with price being lower than conversion cost from other players in past
b) Increased ageing in skilled manpower in Ageing country and also higher cost of manufacturing in developed countries leading to higher outsourcing
c) Black swan in global environment leading to higher focus of industrial companies top management on fre fighting then to manage the business
d) Increase in demand from developing market with changing lifestyle and increased per capita income in addition to more global market open leading to higher export demand
In view of above global chemical players have moderated their spending on production to stategic products and focus more on marketing and product development. They have also rationalise no of vendors from many to few with large volume.
“a larger number of global industrial players are graduating from vendor enlistments to strategic
partnerships;; the conventional cost arbitrage model is being replaced by knowledge arbitrage; short-term opportunism is being replaced by long-term stability and sustainability.”
Chaging in Aarti status from Vendor to Parter, "While vedor is outside customer personality, partner is extension of customer personality
Most vendors offered customers a value that was derived out of a cost arbitrage; at Aarti, we graduated to a knowledge arbitrage that resulted in our offering enhanced product value to the customer’s table"
The company invested Rs 250 Cr in SH&E (Safety, Health and Environment) during last 5-6 years. Aarti has been REACH compliant since 2011. The substantial impact of REACH will come in play following implementation of Phase 3 from June 2018 that would regulate any chemical supplied to EU at quantities of 1 tonne or moew per annum. Aarti is the largest producer of benezene derivatives in India and one of the leading global manufacturer enjoying 25-40% of global market share across various products. Aarti derive nearly 82% sales from benezene derived speciality chemicals.
The company has acquired 358,000 sq , mt. (~85 Acre) land for future expansion with cost of Rs 60 Cr.
Link for annual report
http://aarti-industries.com/media/investors/annual/1504589935_Annual_Report_2016-2017.pdf