Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities and long-term borrowing programme of Aarti Industries Limited (AIL) to ‘Negative’ from ‘Stable’ while reaffirming the rating at 'Crisil AA'. Rating on the short-term bank facilities and commercial paper has been reaffirmed at 'Crisil A1+'.

 

The negative outlook reflects Crisil Ratings view that the recent imposition of 50% US tariffs is likely to moderate AIL’s revenues (US contributes 15-20% of revenues) and profitability in the near to medium term. However, some of the products manufactured by AIL which have applications in essential/non-discretionary sectors such as agrochemicals are exempted from tariffs (<5% of revenues). That said, the company’s cost competitiveness may allow it to absorb a portion of the tariff impact and remain competitive in the US market. On a steady state basis, the ability and extent of pass through of incremental costs to US customers and ability of company to scale up their business in other geographies leveraging its strong distribution network will be crucial.

 

Besides, the company’s performance during the first quarter of fiscal 2026 was also impacted by softer realisations, following steep correction in key input prices (benzene and aniline). Revenues witnessed a 9.5% on year decline to Rs.1,676 crore on this account. Further, exports got deferred due to geo-political and logistics disruptions (including Kandla port congestion), which also impacted revenues for the quarter. Despite these headwinds, volumes in other chains such as energy applications, dyes/pigments, and pharma remained largely stable. Revenues for the reminder of the year are expected to recover supported by new capacities coming on stream; yet fiscal 2026 revenues will remain moderately lower than fiscal 2025 given the correction in key input prices and also anticipating some near term impact due to US tariffs. A gradual recovery in revenue growth is expected in fiscal 2027, with full benefit of newer capacities and stabilization of product realisations.

 

Gross margins compressed by ~440 bps YoY to 33.1% during first quarter of fiscal 2026 due to lower realizations, inventory losses (~Rs.30 crore) on key inputs, and a varied product mix.. Consequently, earnings before interest, tax, depreciation and amoritsation (EBITDA) margins declined to 12.6% in first quarter of fiscal 2026 (14.0% in first quarter of fiscal 2025) and are expected to settle at 12-14% for fiscal 2026 compared to earlier estimates of over 14-15%.

 

The financial risk profile remains adequate owing to large tangible net worth of Rs.5,376 crore, and comfortable adjusted gearing of 0.70 times as on March 31, 2025. The financial risk profile will see some moderation due to additional debt being undertaken to fund capex of around Rs 2,800 crore over fiscals 2025-27. This along with lower profitability will lead to the ratio of gross debt/EBITDA, which was expected to correct to ~3 times in fiscal 2026, remain elevated at ~3.5 times (3.79 times in fiscal 2025 and 3.24 times in fiscal 2024). Adjusted interest cover moderated to 3.69 times in fiscal 2025 (fiscal 2024: 4.66 times) on account of increase in interest cost with increase in debt levels even as EBITDA levels remained flat. Going forward, the ratio may sustain below earlier estimate of ~4.5-5.5 times. Benefits of the capex will accrue from the second half of fiscal 2027, post commercialization of the new multi purposes and chlorotoluene capacities, which will support improvement in profitability and enable correction in the gross debt/EBITDA ratio. However, any cost or time overrun, necessitating additional debt funding or slower than expected recovery in operating profitability delaying recovery in key debt protection ratios will be a monitorable.

 

AIL’s net cash accruals have sufficiently covered debt re-payment obligations in the past, and annual net cash accruals of Rs. 700-965 crore shall be sufficient to cover annual debt re-payment obligations of Rs. 200-300 crore over the next 2-3 years. Additionally, the company typically maintains average monthly unencumbered liquid surpluses of around Rs.100-150 crores thereby providing liquidity cushion.

Analytical Approach

For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of AIL and its subsidiaries, Aarti Corporate Services Ltd, , Shanti Intermediates Pvt Limited (subsidiary of Aarti Corporate Services Ltd), Innovative Envirocare Jhagadia Ltd, Alchemie (Europe) Ltd, Aarti Polychem Pvt Ltd, Aarti Bharuch Ltd, Aarti Circularity Ltd (formerly known as Aarti Spechem Ltd), Aarti Chemical Trading – FZCO, and Aarti Chem Trading USA Inc. (subsidiary of Aarti Chemical Trading – FZCO). This is because all the companies have significant managerial, operational, and financial linkages and collectively are referred to as the Aarti group. Furthermore, the 50:50 joint venture entity i.e., Augene Chemical Pvt Ltd (subsidiary till July 22, 2024) has been consolidated using equity method.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position with diversified segmental and geographical revenue contribution

AIL has maintained its dominant market position in the Nitro-chlorobenzene (NCB),  Di-chloro Benzene (DCB), Nitro Toulene and Aniline-based specialty chemicals segment. The company also operates in other chemical value chains such as Ethylated compounds and sulphuric acid amongst others. It has been gradually ramping up capacity utilization of all product lines. AIL is the largest producer of benzene derivatives in India, and a major player among global manufacturers, with a 25-40% global market share across various products. The company supplies diverse end-user industries such as polymer additives, pigments, dyes, paints, pharmaceuticals, agrochemicals, fertilizers, fuel additives and fast-moving consumer goods, and is thereby insulated from downturn in any particular industry. During fiscal 2024, AIL expanded its product value chain into energy additives end user segment; and the key product value chain in the said vertical is “Methyl Aniline (MMA)”, and expected capacity is around 260 KTPA (as on June 30, 2025). The company has built large capacities and has also started executing large volume bulk orders. The energy additives business vertical contributed to 15% of revenues during fiscal 2023, increased to over 35% in fiscal 2025.

 

Diversified product value chains covering various end user industries, insulates the company from industry downturns. For instance, agrochemicals, and pharmaceutical revenue contribution declined from 30% and 18% respectively during fiscal 2023 to 18% and 10% during fiscal 2025; Industry downturn witnessed in agrochemicals was partially mitigated by increasing revenue contribution in  energy segment whose revenue contribution increased from from to 15% during fiscal 2023 to 36% during fiscal 2025.

 

AIL also has a near equal mix of revenue contribution from domestic markets and export markets, which further insulates the company from industry downturn in any particular economy. The geographic mix as on March 31, 2025, stood at 56% export contribution and 44% domestic contribution.

 

High integration of operations and strong relationship with suppliers enable effective mitigation of supply chain issues

AIL enjoys high economies of scale as it is the largest producer of NCB, DCB and Nitrotoluene in the domestic market and has built up a large and flexible manufacturing capacity. Operating efficiency is also supported by strong research and development (R&D) capability. Integrated operations to manufacture higher-order derivatives of benzene, toluene, and chlorine along with the ability to change the product mix according to the demand-supply scenario, and continuous process improvement for maximizing the share of value-added benzene, toluene, and chlorine derivatives enable AIL to sustain comfortable operating efficiency. In fiscal 2023, the company entered into long term offtake agreement with Deepak Fertilizers and Petrochemicals Corporation Ltd for sourcing of Nitric Acid (supply commencing from April 01, 2023, onwards). The said agreement eliminates the need to invest in backward integration.

 

In addition, owing to the increase in revenue contribution from the energy additives business vertical, import dependency on raw material, especially ‘aniline – key raw material for energy additives business vertical’ has increased, which is currently sourced from China. That said, healthy relationship with Chinese vendors have ensured consistent supply of the aforementioned raw material at longer credit terms.

 

Adequate financial risk profile

The financial risk profile remains adequate, supported by sizeable net worth of over Rs.5,376 crores, and comfortable adjusted gearing levels (0.70 times) as on March 31, 2025. Adjusted gearing is expected to remain below 0.8 times in the next 2 fiscals, despite sizeable capex spends of around Rs. 2,800 crore over fiscal 2025-27, which will be partly debt funded. That said, with lower than expected profitability in fiscal 2026 and continuing sizeable debt funded capex, the anticipated recovery in key debt protection metrics such as gross debt/EBITDA will be delayed in fiscal 2026. With stabilization of new capacities in fiscal 2027, profitability is expected to gradually recover, supporting key debt protection metrics; gross debt/EBITDA is expected to recover to ~3 times.

 

Weaknesses:

Large working capital requirement

AIL’s operations have remained working capital intensive marked by high gross current assets (GCA) net of cash days ranging between 120-170 days in past five years ended fiscal 2025. The higher working capital requirement is mainly owing to the need to maintain large inventories; the company maintains around two months of raw material inventory and has large number of products in the portfolio leading to high finished goods inventory requirement as well. That said, shift in product mix towards the energy additives business vertical, which have a leaner cash collection period, and when coupled with higher credit period from vendors, net working capital cycle improved from over 70 days in fiscal 2022-24 to around 27 days in fiscal 2025, and the same is also expected to sustain over the medium term.

 

Exposure to project risk and risk related to volatility in commodity prices

The company has been carrying out a large capital expansion in the past and will continue to do so over the medium term, thereby increasing capacities in multiple value chains to increase market share as well as for long-term contracts with global MNCs. The company has carried out sizeable capex of over Rs. 5,500 crore during fiscal 2019 through to fiscal 2024; and is expected to incur further capex of Rs. 2,800 crore over fiscals 2025-27. As a result of heavy capex investments, RoCE has moderated over the years from 17.2% in fiscal 2019 to 6.6% in fiscal 2025. In addition, termination under the first long-term contract also weighed on RoCE. Ramp up of newly added capacities and offtake of projects in zone 4, especially the downstream chlorotoluene product value chains leading to an increase in scale of operation and improvement in return metrics, will remain closely monitored.

Although the capex is in similar product segments, ensuring the projects are completed in the stipulated time and within stipulated costs will be critical. In addition, overall ramping up of capacities as envisaged will remain a key monitoring factor.

Additionally, the main raw material, benzene, toluene, and aniline are crude derivatives, prices of which remain susceptible to any sharp volatility in crude prices. While the group has consistently demonstrated its ability to pass on the volatility in raw material prices due to its cost-pass on business model, which has reflected in consistent absolute operating profitability over last 10 fiscals; nevertheless, it remains exposed to the volatility in commodity prices.

Liquidity: Strong

AIL has strong liquidity, supported by annual cash accruals of Rs. 700-965 crore expected over fiscals 2026-2028, which will sufficiently cover debt re-payment obligations of Rs.238 crore in fiscal 2026 and Rs.304 crore in fiscal 2027. The company also had commercial paper (CP) of Rs. 400 crores outstanding as on July 31, 2025 (CP limit Rs.600 crore), which is not carved out of its working capital limits, and the same is expected to be rolled over on maturity. Further, AIL maintained liquid surplus of Rs.177 crore as on July 31, 2025 (standalone) The company typically maintains average monthly unencumbered liquid surpluses of around Rs.100-150 crores.

 

Average utilization in past 12 months ending July 2025 for fund-based limit has been 72% and for non-fund-based limit utilization was 68%. Around Rs.780 crore of fund based limits were unutilized which provides additional cushion.

 

To meet its capital expenditure requirements, including debottlenecking and capacity additions, the company is expected to secure funding through loan refinancing or other necessary measures, while keeping leverage under check

Outlook: Negative

Given current geo-political related tensions and higher US tariffs, AIL’s business performance will witness some moderation compared to earlier expectations, impacting cash generation, and delaying envisaged improvement in key debt metrics.

Rating Sensitivity Factors

Upward factors

• Recovery in scale of operations with operating margins stabilizing at ~15-16% on sustained basis, also benefitting cash generation
• Improvement in financial risk profile and debt metrics; for instance gross debt to EBITDA improving to ~2.75 times on a sustained basis.

 

Downward factors

• Any delays in ramp-up of capacities of key product value chains or any further impact on realisations impacting revenues and resulting in operating margins dropping below 12-13%
• Higher-than-expected debt-funded capex or acquisitions or sizeable stretch in the working capital cycle, impacting debt metrics; for instance gross debt to EBITDA remaining above 3.60-3.75 times.

 

ESG Profile

Crisil Ratings believes that AIL’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile.

 

The Chemical sector has a high impact on the environment because of the high greenhouse gas (GHG) emissions, and high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce, the impact on the health and wellbeing of its workers and the local community on account of its nature of operations.

 

AIL Ltd has continuously focused on mitigating its environmental and social impact. 

 

AIL Limited’s Key ESG highlights:

• AIL’s total scope 1 and scope 2 emission intensity per rupee of turnover remained stable at 1.11 during fiscal 2024 (1.13 during fiscal 2023). In addition, the company recycled / reused / recovered around 92% of total waste generated during fiscal 2024 (as against 91% during the same period of last fiscal year). Water recycling rate remained stable at 44% during fiscal 2024.
• AIL’s percentage of ESG screened vendors improved to 51.45% in fiscal 2024 (42.85% in fiscal 2023; 38.00% in fiscal 2022). The company also reported no fatal injuries during fiscal 2023, and LTFIR decline to 0.04 in fiscal 2024 (0.15 in fiscal 2023).
• AIL’s governance structure is characterized by 50% of its board comprising independent directors, presence of investor grievance redressal mechanism, and high quality of financial disclosure.

 

There is growing importance of ESG among investors and lenders. AIL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its medium share of market borrowings in its overall debt and access to both domestic and foreign capital markets.

About the Company

AIL, the flagship company of the Aarti group, manufactures organic and inorganic chemicals at its major facilities in Vapi, Jhagadia, Dahej and Kutch, in Gujarat and in Tarapur in Maharashtra. The company has a strong market position in the NCB-based specialty chemicals segment. The company also commissioned a Greenfield Nitrotoluene facility in Jhagadia in fiscal 2018 and two units for high-value specialty chemicals in Dahej in fiscal 2020. In fiscal 2017, it commenced calcium chloride facilities in Jhagadia and a multipurpose ethylation unit at Dahej. The company also has four full-fledged R&D centers, recognized by the Department of Scientific and Industrial Research, Government of India. In fiscal 2020, it commissioned its flagship research and technology center in Navi Mumbai called the Aarti Research and Technology Centre, which will house about 250 scientists and engineers.

 

AIL reported profit after tax (PAT) of Rs. 43 crore on revenues of Rs. 1,675 crore in the first quarter of fiscal 2026, compared with PAT of Rs. 137 crore on revenues of Rs. 1,851 crore in the corresponding quarter of fiscal 2025.

Any other information: Not Applicable