Aarti Industries dips 7% on early termination of long-term contract

On June 15, 2017, the company had entered into a 10-year contract with a Global Agrochemical Major, to supply a high-value agrochemical intermediary with application into Herbicides

Shares of Aarti Industries tumbled 7 per cent to Rs 852 on the BSE on Monday after the company said it has received an early termination notice from a customer invoking the "termination of convenience" clause of a long term contract entered on June 15, 2017. The contract was expected to generate revenue of approximately Rs 4,000 crore over 10-year period.

The stock of the specialty chemicals company was trading lower for the third straight day, down 9 per cent during the period. With past three day’s decline, it has slipped nearly 29 per cent from its all-time high level of Rs 1,192, touched on May 5, 2020.

“The company has received a notice from the Global Agrochemical Major, opting to terminate the 10-year contract it had entered on June 15, 2017 to supply a high-value agrochemical intermediary with application into Herbicides,” Aarti Industries said in a press release today.

The company further said that it understands that the reason for the same is the Customer’s 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," it said in an exchange filing .

Upon the triggering of this termination event, the guarding provisions for compensation under the contract come into effect. As a result, the compensation to Aarti Industries is estimated to be in the range of $120 million to $130 million, the company said.

The management said 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," it said.

At 10:32 am, Aarti Industries' stock was trading 6 per cent lower at Rs 865 on the BSE, on the back of heavy volumes. The trading volumes on the counter jumped over 5-fold with a combined 1.7 million shares changing hands on the NSE and BSE so far.