Our capex target for FY 21-24 is Rs. 4,500-5,000 Cr : Rajendra V. Gogri, CMD, Aarti Industries Limited

  • May 24, 2022

Key milestones achieved by Aarti Industries in the chemicals and pharmaceuticals businesses during FY 2021-22? 

AIL's (Aarti Industries Limited) journey was profound and exemplary in FY 2021-22. With our integrated value chain, diversified product mix, strong technical capabilities, and robust track record, the company emerged as a global partner of choice.  

Some major milestones achieved by Aarti Industries during FY 2021-22 are:

- The company was conferred with the FICCI Company of the Era Award for its immense contribution to the chemical Industry in the past 25 years

- The company was conferred with a Gold Award in the 2021 EcoVadis CSR assessment, placing us among the top 5% of the companies assessed by EcoVadis. Our score improved from 60% in 2020 to 68% in 2021

- On the research and development front, we applied for 44 patents and were granted 11, out of which 8 were international patents

- The company was placed at 3rd position in the chemical sector (amongst 15 chemical companies) with an overall ESG score of 56. CRISIL evaluated independently Top 225 companies across 18 sectors based on their ESG assessment framework (as per information available in public domain) in FY21

- The company was awarded with the Responsible Care Logo post successful completion of RC Gap Assessment for self-imposed ethical commitment for better EHS&S performance and responsible management of chemicals throughout their lifecycle

- On the business front, the company successfully raised Rs. 1,200 crore additional share capital via QIP

- To meet growth aspirations, the company onboarded around 1,500 bright talents and created various growth avenues for internal talent, thereby accomplishing 18% internal growth transitions in FY22 from 12% in FY21

- The company also commissioned a speciality intermediate plant at Dahej for which a 20 year contract agreement was signed. The company also launched API intermediates block at pharmaceutical manufacturing unit in Vapi

- The company's CHRO was conferred as the HR Leader of the Year at the Economic Times Human Capital Awards 2021 

The objective behind the company's move to demerge its pharma business to Aarti Pharmalabs. What's a long term strategy to strengthen the company's position in pharma? 

The pharmaceutical division has been growing consistently over the past few years. The revenues for the pharmaceutical business have grown at a CAGR of 20% over a period of 5 years from Rs. 426 crore in FY17 to Rs. 872 crore in FY21. To create an overall value for our shareholders, and also to enable management of the company to focus and adopt the relevant strategies necessary for promoting growth and expansion, the demerger is being carried out. The demerger of pharma undertaking will facilitate a focused approach to the growth opportunities into respective segments, also enabling the segment to take strategic calls to capture these opportunities to grow. 

Our long-term strategy is for enhancing the company's position in the pharmaceutical segment by focusing on adding new chemistries and value added products. We plan to add 50+ new products in the pharma division with a Capex of Rs. 350 - 500 crore. Strengthening our manufacturing capability, we plan to increase our manufacturing capacity by 1,200 KL with installation of 240 reactors under 10 manufacturing blocks in the next 5 years.  

How will the newly operationalised Phase 2 Unit at Dahej SEZ help the company to diversify its agrochemical intermediates business? 

The new chlorination unit at Jhagadia and specialty chemicals manufacturing unit at Dahej SEZ will cater to end use applications of polymer additives, agrochemicals, dyes pigments, and other speciality chemicals. The additional chlorination manufacturing capabilities will lead to growth in the company’s market share in the international market, further strengthening its position as Top 3 manufacturers globally in terms of product range. This will also provide an opportunity for forward integration. The facility will be ramped up over a period of next 3-4 years with a potential to generate an EBITDA of US $15 million. 

For the Phase 2 unit at Dahej SEZ, we have already received proceeds of Rs. 630 crore as per the terms of the original contract. This unit has now been commissioned and we are planning to increase the capacity utilization to 80-90% in the next two years. With this facility, the Phase 2 unit at Dahej SEZ operational, our existing capacity for the intermediate has been expanded by almost 30 times. This chemical intermediate goes into multiple agro-technical applications as a herbicide and biocide. We plan to supply the intermediate to multiple customers involved in the manufacturing of the technical applications. With the incremental sales of this intermediate, we expect an addition of approximately US $40 million to the top line.  

How is Aarti Research and Technology Centre (ARTC) at Navi Mumbai developing new innovations thereby helping create a robust product pipeline? 

Aarti Research and Technology Centre (ARTC) is a state-of-the-art research facility, which has been set up to accelerate the development of new products driving future growth. Our R&D team has 200+ scientists for the chemical segment and has a strong analytical and process safety capabilities to support safe and efficient new product development. We are also working on setting up an engineering lab and an industrial biology lab at ARTC in the coming year. In the past couple of years, a total of 5,304 experiments have been conducted at ARTC. ARTC has been recommended for continued certification for ISO 27001:2013 Standard.  

The objective of this research centre is to develop the most optimal and cost-effective process for a given product, with a primary emphasis on process safety and environmental impact. This has led us to develop some process innovations in the last 2 years and we have filed for provisional patents for some of these innovations. Our strategy is to create chemistry and technology platforms and our value-chain approach has enabled us to create a robust product pipeline to drive growth in future. In addition to ARTC, we have three more Research & Development centres located at Vapi and Dombivali. Our advanced analytical and process safety services offerings are now available for broader industries to specifically facilitate MSMEs. 

What are the focus areas of Aarti's ESG initiatives and its reflection on the company product portfolio? 

The company has conducted its materiality assessment in FY 2020-21 by interacting with its internal and external stakeholders to identify the focus areas. The focus areas are: Energy and carbon emission; water and effluent; occupational health and safety; compliance; human rights; and business ethics. 

ESG has provided us with significant opportunities to optimize and expand our product portfolio. Our product portfolio will gradually increase with the products manufactured from less hazardous processes or green chemistry having minimal impact on the environment.  

On the R&D front, the company is planning 40+ products for chemicals and 50+ products for pharmaceuticals. What’s your R&D plan for FY 2022-23? 

In the chemical segment, our primary focus in FY23 is to develop and scale up products that form a part of our chlorotoluene value chain. We are developing capabilities in new chemistries such as photochlorination, ammoxidation and speciality fluorination. We are also working on some customer-specific projects that may reach the commercial stage in FY 2024-25. We are planning to invest more than Rs. 100 crore for Research & Development in the current financial year. 

New verticals where you are focusing during FY 2022-23 and its impact? 

For FY 2022-23, we are focussed on the development and execution of the chlorotoluene value chain. At the same time, we are working on creating long-term partnerships with global companies to manufacture in India. We plan to do this by leveraging our sustainability track record, value chain & chemistry platforms, and global trends such as the growing relevance of the China + 1 model. We are exploring opportunities in sunrise sectors such as battery and electronic chemicals and planning our foray into industrial biotechnology. 

What is the Capex forecast for FY 2022-23 with respect to Chemicals and Pharmaceuticals? Projects where you are investing? 

Our Capex target for FY 21-24 has been Rs. 4,500 - 5,000 crore of which Rs. 1,200 crore has been utilized in FY 2021-22 and the rest is planned to be spent in the coming couple of years. Some key Capex initiatives for these two years: USFDA capacities expansion at Tarapur for API units; Commencement of manufacturing unit for unit for 3rd long term contract at Jhagadia; Capacity expansion for NCB manufacturing facility at Vapi; and Expansion cum asset upgradation for Acid Unit at Vapi. 

The company is also undertaking several expansions, asset restoration, and sustainability initiatives across existing facilities. The company is also in the process of adding Chlorotoluene range and other value added products (40+ products for chemicals and 50+ products for pharma).  

The company is taking quantum lead on sustainability as the focus is on ‘Right chemistry for better tomorrow’. What are your FY 2022-23 plans for sustainability? 

Our FY 2022-23 plans are focused on climate change issues. Aarti Industries is going for a quantum jump in reduction of its emissions through the use of renewables in its energy mix and other strategic initiatives. We are planning for more dual fired boilers (coal and biofuel). We have signed a contract for 13.5 Megawatts of hybrid renewable (solar and wind) sources of electricity. Through these initiatives, we will substantially reduce our carbon footprint. 

We have planned several initiatives for enhancing the process safety across all our processes to make our operation intrinsically safe. We are also collaborating with business partners to imbibe ESG practices in their operations to ensure a sustainable supply chain.

Note: This interview has also been published on Chemical Industry Outlook 2022 and here's the link to view full version of the annual compendium.

Exploring opportunities in sunrise sectors such as battery and electronic chemicals and planning our foray into industrial biotechnology