I am bit surprised by the fact that promoters sell stocks either when overall market is down or stock price is down. Today promoter sold 99000 shares in the open market.It is bit bothering now that promoters continue to sell month after month though it is smaller quantities this action of promoters makes you think is there something going behind that we retail investor are not aware of.
This explains it perhaps.
PL check the date of this article .itās Dec 2015
I am aware. The 40 lakh shares ser aside for charity were meant to be sold in tranches overy multiple years.
That said, promoter selling is a valid concern.
Analyst call highlights:
ļ§ Demand outlook: Management has stated that demand of speciality chemicals is
impacted due to COVID-19 and lockdown. However, the company also caters to
essential businesses which remain insulated in this lockdown. As per management, the
companyās 60% contribution of end user is for pharma, agrochemcials, fertilizers, FMCG
etc which had no or minimal impact in the lockdown. Remaining 40% which accounts
for paints, pigments, auto and defense has the major impact as it is classified as non-
essentials in lockdown.
ļ§ Capex plans: The management stated that the capex for FY21 will be Rs10bn in addition
to the capitalized amount of Rs14.17bn in FY20. The major capex spends is in the chlorination and NCB business in the speciality chemical business. In the pharma segment the company is increasing its API capacities.
ļ§ Pharma segment to be the growth driver: The management is quite positive for the
next 1-2 years in the pharma business. The company is increasing its capacities and
focussing on improving product mix towards high margin segments which will increase
its presence in key regulated markets and improve the growth going ahead. The
management expects growth of 15-20% for next 1-2 years alongwith improving margins.
ļ§ Large deals signed to kick off from FY21: The company has signed 3 large deals which
will kick off from FY21E contributing incremental Rs90bn to the topline. Management has said there seems to be no delay in the commissioning in the projects and expected to commercialize on time in FY21.
ļ§ Flat profitability guidance for FY21: Inspite of COVID-19 breakout and lockdown issues
hampering the demand, the management of the company has given flattish earnings guidance in FY21. This is because of incremental revenues from the large deals which will kick off from this year which and cushion the revenue downfall from the speciality chemicals segment.
ļ§ Shortage of key raw material: In Q4FY20, there was shortage of key raw material nitric
acid which led to spike in prices and impacted the production of finished goods. The
company also imports aniline from foreign countries and in the wake of COVID-19 there
seems to be supply disruption in aniline as well.
ļ§ Declining crude oil impact: With the recent sell off witnessed in crude oil prices to record lows, we expect absolute turnover of the company might come down particularly in the speciality chemical business but the margins are expected to be stable owing to increased focus in value added segments liked PDA and Nitro-toluene.Also, the company has cost plus model wherein the decline/increase in crude prices is passed on to the end user industries with a lag of 3-6 months. Management stated that benzene prices crashed to Rs 30-35/kg from Rs 50-55/kg with decline in crude prices.
ļ§ High cost inventory write-offs in Q1FY21: The company always maintain finished goods
inventory of 90-120 days so that it is adequately covered with stock to cater the increasing demand. With sudden drop in crude prices, the company is stuck with high
cost inventory and management expects to take a write-off in Q1FY21.
ļ§ Volume numbers for Q4FY20: PDA ā 370 TPM, Nitrotoluene ā 2850 TPM, NCB ā 14,700 TPA and Hydrogenation ā 2315 TPM.
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For point no 4 please clarify: is it +9000 extra revenue apart from existing business??
Because according to my calculation max possible contribution from 3 new contracts is 990 crs/annum
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While they have not given details of this contract, I believe this long term contract was with Monsanto for supplying an intermediate for Dicamba, a herbicide. However, Dicamba was banned for use in US about 15 days back, which would have impacted this project. Details below:
Aarti Industries Limited (AIL), a leading global Speciality Chemicals Company, had earlier announced that it had entered into a 10-year contract with a Global Agrochemical Major, (hereinafter termed as āCustomerā) to supply a high-value agrochemical intermediary with application into Herbicides. The end-use is amongst the major growth initiative of the Customer with a significant amount being invested by the Customer for this purpose. The contract was expected to generate revenue of apprx. Rs. 4000 crores over the 10 year period.
On June 15, 2020, AIL has received a notice from the Customer, opting to terminate the said contract. The company understands that the reason for the same is the Customerās change in strategy. They now are looking to focus on the final formulation and would like to source the Active Ingredient rather than their original plan to manufacture it. The Customer continues to remain confident and committed to the growth initiatives as envisaged earlier and that the change in strategy would help them in enhancing the solutions for end-users. AIL is strategically placed in this value chain and the assets put in shall enable AIL to continue to participate in this key growth driver agrochemical molecule.
Upon the triggering of this termination event, the guarding provisions for compensation under the contract come into effect. As a result, the compensation to AIL is estimated to be in the range of USD 120 mn to USD 130 mn.
Commenting on this, Mr. Rajendra Gogri ā Chairman & Managing Director at Aarti Industries Limited said, āThe project has been one of the major growth initiatives for us. The present notice was not something envisaged by us. However, the change in the strategy of the Customer does not significantly undermine the inherent opportunity in this business. We are fully backward integrated and a strategic player in this value chain. We are confident to be able to cater to the market requirements in this high growing vertical of the agrochemical space. We shall be closely working with the Customer and various other players to provide solutions in this high growth herbicide business.ā
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āāāCustomerās change in strategy. They now are looking to focus on the final formulation and would like to source the Active Ingredient rather than their original plan to manufacture itā"" - looks to be a balance sheet influenced decision to stay asset light wherever they can.
Deal was 4000 CR for 10 yr revenue - I.e. profit in tune of PAT margins of 15%( approx) is 600 cr. Aarti is getting one time settlement at $120m+ I.e. 850 cr +. 400 cr was capex planned by Aarti on this project - worst case all of it would have been incurred.
Financially seems covered?
Seems missing something more - mkt is surely disappointed with revenue hole - this was a good testimonial to structural shift to Indian chemical story.
This should be treated in isolation but the confidentiality clause keeps the retail investor in dark/lag as to who was this buyer and what has suddenly changed for him. market will be little nervous and will keenly watch out for how rest of the contracts work out.
also the compensation will be given in time or in full can only be known when the money gets transferredā¦ couple of questions and uncertainity have arised due to his development ā¦to top it the promoter also sold decent amount few days backā¦??
disc: invested
It has closed ā¦
https://www.bseindia.com/xml-data/corpfiling/AttachLive/6212de21-a1c4-495d-9c21-7c4aed0ba3ab.pdf
I donāt see this as a major problem. Basically, Aarti gets to create a large capacity at someone elseās expense and then keeps it for own use. These capacities are usually fungible. They will use it for something else, some other client.
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Thanks @basumallick for clarifying that.
I have a few questions if you can answer it would be great.
- Is this the first time in this industry for such Big company and Big Customer to happen something like this?
- What is the guarantee that Customer will payback the termination guarantee amount without fail? Having seen so many āForce Majureā clauses been invoked recently, why canāt this be the same?
- Do you think Promoters knew this very well in advance and have been selling shares in the open market? Traditionally many of the promoters started selling long time back itself though in small quantities.
Thanks for your time and responses in advance.
Regards,
Ramesh
These are standard contracts were Aarti will get compensated if the offtake does not take place. Also, this was most likely triggered by the following court ruling in US, which neither Aarti nor the client has any control over.
The customer is contractually bound to pay. It is very clearly mentioned in the announcement.
The promoter selling has been occurring for the last one year or more and this event has taken place in this month, so I donāt find any correlation.
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Sir, would you like to provide disclosure: invested/not invested?
Please go through the thread from the beginning and you will know I have been invested in this for a number of years now.
There were lot of promoter selling in the recent past , will this come in the ambit of insider trading if they had a clue on the outcome of the case?
Company is holding a con call at 4pm today. Details - Link
Let us wait for Concall to get more details. Prima facie negative but part of business risk. Only way to avoid such business risk is not to do business. Hence, I see it as a negative development in long jouney of the company. The company management shall provide better insight and we shall get improved undetstandingly post conference call.
I have not done any transaction since was I mentioned on the thread. Among my top 2 investment holdings.
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Aarti industries concall updates
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Total capex for the plant was 400 crores and company would be receiving $120-130 million(800-900crores) as compensation as a part of the clause in the contract by the end of March 2022.
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When the contract was signed, there was less supply of this intermediate. The client has taken a longer strategic view and we expect the client to install the plant in his own country.
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Net asset value loss is close to 25-30% based on all the earnings that would have accrued to the company.
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Company might forward integrate from intermediates to technical grade ingredients (basically from intermediate to the active salt that works in the pesticide). Company already works with the major agchem players.
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No change in guidance for next 2 years, Contract money to start coming in from Fy23 onwards. 1/3 rd to be received by 2021 and 2/3rd as a bullet payment by March 2022.
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Company is free to use this plant to sell this intermediate to other customers. Company has started working on the same.
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Seeing more enquiries due to covid 19 disruptions as clients are looking to diversify from China and de-risk supply chain.
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On promoter selling: indicated some years ago that we will be donating money to charity
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Cancelling of such big contracts is a very rare occurrence. As compensation clause is also included in the contract.
My view: would give the management longer rope, if you just go and read their last 10 years of concall you will get to know the kind of business execution that they have done.
Iāve been wrong in the past and expect to be wrong in the future, take my opinions with a bucket full of salt as I am biased and invested in the company. Not a recommendation or any suggestions
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