Aarti Industries Ltd (AIL) and Deepak Fertilisers & Petrochemicals Corporation Ltd (DFPCL) announced that they have signed a binding term sheet for a 20-year period for offtake and supply of Nitric Acid.
The parties plan to execute the formal agreement before the close of this calendar year. The supply arrangement comes into effect from 1st April 2023.
DFPCL is the largest manufacturer of Nitric Acid in South East Asia and AIL is one of the largest Nitric Acid consumers in India. This arrangement is a landmark and first of its kind long term association between two Indian chemical majors to augment each other’s business needs and mutual interests.
The deal provides specific volume commitments with supply or pay, take or pay obligations by either party thereby providing adequate assurance, financial security and protecting either party’s commercial interests.
The deal benefits AIL by way of a long-term supply security for a key raw material. This would meet a majority of AIL’s requirements. It also helps AIL have a greater assurance in sourcing the key RM from DPFCL, who is an existing and the largest integrated nitric acid producer in India with multiple production sites.
AIL, being a manufacturer for specialty chemical and downstream products, the present deal provides a strong supply security and enables AIL to focus on future growth opportunities, introduction of new value-added products and value chains for niche applications.
Over time, with the growth across various Indian chemical companies, the demand for Nitric acid has been increasing rapidly leading to significant demand-supply gap. This warranted a long-term strategy for AIL to mitigate the supply chain risk w.r.t. Nitric Acid and for DFPCL to mitigate offtake risk for one of its key manufactured products. This is indeed a mutually beneficial and win-win proposition to augment the long term needs and objectives from either side.
DFPCL, along with its subsidiaries, is a largest player in India for Nitric Acid and has a capacity of about 890,000 MT for WNA and 230,000 MT per annum for CNA. DFPCL is market leader in the Crop Nutrition, Mining Chemicals & Industrial Chemicals sectors.
The alliance will give a boost to the Industrial Chemical sector. The long-term offtake agreement will enable DFPCL to achieve market security for a significant portion of its Nitric Acid production and would result in revenue of more than Rs 80 billion over 20 years.
Commenting on this deal Mr. Rajendra Gogri, Chairman & Managing Director, AIL said, “The combination of these leading businesses with distinct strengths and capabilities will help in making the business more sustainable and help both of us to 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 channelize our resources effectively for driving more research driven long term and high growth avenues for global markets.”
Commenting on this deal Mr. Sailesh C. Mehta, Chairman & Managing Director, DFPCL said, “This landmark deal is a testament for the long term association with one of our largest customer. This deal also enables DFPCL to leverage on 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 brown-field site at 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 interest for both of our entities are adequately protected. We see this as a start of a new collaborative journey of our relationship with AIL.”