The outperformers 2020

Why Aarti Industries’ low-cost manufacturing and relationship with MNCs will power its growth

Customers have begun to prefer long-term contracts because they want supply security, reveals managing director Rajendra Gogri 

The wise do not venture all their eggs in one basket, to paraphrase Sancho Panza, the realist sidekick to Don Quixote. It is this wisdom that has seen specialty-chemicals and pharmaceuticals manufacturer Aarti Industries through the highs and lows of the economy. The company supplies to a range of industries, from agrochemicals and oil refining to textiles and fast-moving consumer goods. It has invested more heavily in this strategy after the China story came under the cloud of environmental issues and there was heavy clampdown on the country’s manufacturing. Aarti Industries stepped up by investing aggressively in capacity expansion and diversified its product portfolio even further. “Doing that, over the past five to six years, has been a smart thing. During this phase, prices also went up and players such as Aarti benefited substantially,” says Archit Joshi, VP-research at Dolat Capital.

The numbers are proof of how Aarti Industries has progressed. At a consolidated level, its revenue rose from Rs.30 billion in FY16 to Rs.42 billion in FY20. Net profit, over the same period, went up from Rs.2.57 billion to Rs.5.36 billion.

While a large customer base will keep its topline growing, the company’s varied product portfolio will protect its bottomline, according to Vinod Nair, head of research at Geojit Financial Services. “Usually, the challenge is to sustain margins. This is where having value-added products helps even if there is a drop in volume,” he says. 

Of course, COVID-19 has hit all companies hard, but Joshi says Aarti Industries will deliver high growth once the economy recovers. “In fact, there is clear visibility on growth for the next five years,” he adds. He believes that Indian chemical companies such as Aarti Industries will benefit from manufacturing shifting away from China. “The opportunity lies in high-quality processes and that augurs well for India,” says Joshi.

The chairman and managing director of the company, Rajendra Gogri, tells us why the next decade in India will be that of chemicals.

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