AARTI INDUSTRIES

Global vendor of speciality chem

With its corporate office in Mumbai and registered of fice in Vapi (Gujarat), Aarti Industries is a leading manufac turer of speciality chemicals, with a global footprint. The company combines process chemistry competence (recipe focus) with scale-up engineering competence (asset utilisation) for creating a sustainable future.

Set up way back in 1984 by first generation entrepreneur Chandrakant Gogri, the company was transformed over the last decade from an Indian company servicing global markets to a global entity with state of-the-art manufacturing facilities in 6 states of India, turning out over 100 products. Arti Industries serves over 700 Indian customers and over 400 global customers. It manufactures chemicals used in the downward manufacturing of agrochemicals, polymers, additives, surfactants, pigments and dyes.

The company has gone from strength to strength on the financial front. During the last 12 years, its sales turnover has expanded from Rs 2,086 crore in fiscal 2013 to Rs 6,372 crore in fiscal 2024, with operating profit surging around three times from Rs 361 crore to Rs 982 crore and the profit at net level shooting up over three times from Rs 135 crore to Rs 416 crore.

CHINA ‘EFFECT’

Currently, its profit is on a downward drift on account of heavy dumping of speciality chemicals in global markets by China, which has set up huge production capacities and whose companies are holding huge unsold stocks. After the Chinese government announced a huge stimulus package, companies there have been offering their speciality chemi cals at low prices, which are economically not viable for manufacturers elsewhere. In order to keep clients at home and abroad, Indian speciality chemicals companies like Aarti have had to offer their products at reduced margins.

MMA CUSHION

The company’s long-term prospects are indeed buoy ant. Consider:

• The worst seems to be over. There is clear evi dence of demand recovery in discretionary spends like tex tiles, dyes, pigments and polymers, etc., and there is strong contribu tion from the energy business led by a single product, MMA (mono methyl aniline). Observers feel that the Chinese menace of dumping speciality chemicals may come to an end with US President Donald Trump imposing heavy tariffs on Chinese products and the Indian government resorting to anti dumping duties on imports of spe ciality chemicals from China.
• MMA volumes witness volatility. The energy busi ness has now become relatively large for Aarti – around 35 to 40 per cent — led by strong volumes from MMA. The management highlights that this business is bringing addi tional volatility to the business performance as it is linked to external factors like crude oil, gasoline cracks and naptha cracks, which have their own elements of volatility. MMA has strong long-time potential to scale up volumes, as it is a preferred octane booster in terms of characteristics and is competing with MTBE (methyl tert-butyl ether) on price. The company is doing sampling for this octane booster and as the end-use horizon expands, volumes will be scaled up exponentially. Once product acceptance improves, this could contribute significantly to achieving the EBITDA targets en visaged by the company.

MARGIN WOES

• The company maintains its overall volume growth guidance of 20-30 per cent but highlights that pressure on margins persists. This is mostly on account of unhealthy Chinese competition, which continues to dump products in global markets. Volume growth will largely be led by improvement in utilisation of existing capacities and com missioning new nitrotoluene capacities. The management is confident of deliver ing 20-25% EBITDA CAGR over the next five years.

PERFORMANCE INDICATORS (Rs. in crore)

BHARAT GEARS

Global leader in automotive gears

Over five decades old, Bharat Gears is not only India’s largest gear manufacturer but is a world leader in gear tech nology. The company manufactures a wide range of ring gears and pinions, transmission gears and shafts, differential gears, and sub-assemblies covering automotive, agriculture, con struction, utilities and EVs, and supplies them to leading OEMs at home. It is also a major global supplier of automotive gears and heat treatment furnaces. Its footprint covers Europe, the US, Mexico and Asia.

The company has three modern manufacturing facilities located at Mumbra near Mumbai, Faridabad near New Delhi and Lonand near Pune. It boasts of leading OEM cli ents like John Deere Eaton, Carraro, Escorts, Kubota, Dana, CNH, JCB, Schaeffler, Toyota, Parker and M&M for their complex gears requirements. The company has a strong technol ogy and human resource base to meet the exacting standards of global customers.

Bharat Gears was doing quite well on the financial front till 2023, with sales turnover expanding from Rs 393 crore in fiscal 2013 to Rs 766 crore in fiscal 2023, operating profit rising from Rs 28 crore to Rs 46 crore and net profit from Rs 5 crore to Rs 13 crore. But during fiscal 2024, the environ ment underwent a change and its turnover fell to Rs 663 crore, with operating profit going down from Rs 46 crore to Rs 24 crore. Unperturbed, the company concentrated on di versifying the customer base, resorted to cost reduction mea sures and embarked upon a journey of improving efficien cies. Though the current year may not be that encouraging, its prospects going ahead are highly promising. Consider:

• In the last couple of years (fiscals 2024 and 2025), the global tractor segment - the company's largest customer segment -- and the agriculture sector were in bad shape; hence there was a negative impact on its sales and earnings. Accord ing to experts, the worst is over for the global tractor industry. Asia-Pacific and Latin America are emerging markets and are experiencing a surge in tractor demand on account of ongoing agricultural expansion and modernisation efforts.
• In view of the decline in financial growth during the last two years, the company has embarked upon a journey of rigorous efficiency improvement in all aspects, with an aim to further improve the bottomline, and the full impact of such actions will be realised in subsequent periods.
• Continuously reinforcing its technology leadership, Bharat Gears is investing in new tech nologies such as bevel gear grinding and gear housing, setting new bench marks, and leveraging its technical ex cellence and robust R&D competency to handle complex product develop ment.

FACING FUTURE

• Concerned over de clining revenues and earnings, the company has started making signifi cant strides in driving efficiency and sharpening its competitive edge by optimising costs and as set utilisation alongside revamping its order sourcing model.
• Despite potential challenges, the macro-economic outlook appears to be promising. According to the manage ment, Bharat Gears eagerly anticipates the future with vigour and optimism. Staying attuned to market dynamics and the industry 4.0 agenda, the management remains dedicated to powering progress and delivering cutting-edge, sustainable and clean mobility solutions.
• The management insists that the company's com mitment to customer- centricity has propelled it to diversify its customer base, which is evident in its robust next-generation product development, integration of new technologies, imple mentation of BIQ measures, and expanded capabilities to drive operational efficiency and maintain market leadership. Furthermore, the company is aggressively pursuing order ac quisition across various segments for both the domestic and global markets, aiming to expand its customer and market reach. In the current bearish phase in the market, the stock price of Bharat Gears has tumbled almost 50 per cent to Rs 65. There is a risk of a further small decline. But once the bearish phase is over, the stock price will shoot up again.

PERFORMANCE INDICATORS (Rs. in crore)