Aarti Industries Ltd (AIL) and Deepak Fertilisers and Petrochemicals Corporation Ltd (DFPCL) on Monday 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 April 1.
DFPCL is the largest manufacturer of nitric acid in South-East Asia and AIL is one of the largest 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. Using the foundation of the current relationship of over the past three decades, this deal further strengthens and elevates the current relationship to a long-term collaborative association for years to come,” the joint statement issued by AIL and DFPCL added.
The statement added that 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 speciality 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,” the statement added.
Rajendra Gogri, Chairman and Managing Director, AIL, said in a statement, “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 channelise our resources effectively for driving more research driven long term and high growth avenues for global markets.”
Sailesh C Mehta, Chairman and Managing Director, DFPCL, said in a statement, “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 speciality chemicals sector”.
He added, “This alliance indicates the strong growth currents emerging from the ‘China plus One’ trend for the speciality 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.”