REPORT MANAGEMENT DISCUSSION AND ANALYSIS REPORT INDUSTRY STRUCTURE AND DEVELOPMENTS The Indian Specialty Chemicals Sector over the last 4-5 year has been growing at approximately 12-15% and is expected to grow at a CAGR of 17% in the next 5 years mainly on account of exports as the key driving force and providing growth opportunity. The growth momentum is expected to continue going forward with booming domestic consumption and fast growing export opportunities. Factors such as increasing cost brssure, apbrciating currency (Yuan apbrciating against US dollar), increasing cost of labour and power and stringent pollution control norms diluted the cost advantages which was brviously been exploited by the Chinese manufacturers. India is rightly positioned to make benefit of these emerging opportunity and is expected to increase its exports exponentially. Our company has a strong focus on Innovation, R&D, Diversified Product Profile and Large Customer Base which will help us to benefit from these emerging growing opportunities in the medium to long term. Opportunities The Global Speciality Chemicals industry is around $740 bn (FICCI Speciality Chemical report & 12th Five year plan document) accounting for around 20-22% of the overall global chemical industry. The industry is expected to grow at a CAGR of 5.4% annually to reach $970 bn by FY 16. The major part of this growth is expected to be contributed by Asia-Pacific and Middle Eastern countries. World class engineering and strong R&D capabilities, Low cost of manufacturing, Huge growth for domestic export market, rising power cost and tightening pollution control norms in China and rise in GDP and purchasing power have all contributed to the enormous growth opportunities to boost the industry growth. The structural eastward shift of chemical industry continues to benefit China & India. The shift is mainly due to the increasing consumption of in emerging markets of Asia; and to leverage greater manufacturing competitiveness of emerging Asian economies. China has emerged as a leader in global chemical industry having 27% of total production in value terms with the industry size of $ 1 trn. The Indian Speciality Chemical industry is likely to reposition itself as a strategic partner for growth in knowledge based, process driven chemicals. With this change coming in, it will likely widen prospects for the industry as various global players would like to join hands with Indian manufacturers. The Indian Chemical Industry which is 3% of the global market size, is pegged at approximately $ 108 bn . Due to growing domestic demand and attractiveness as a manufacturing base, it has a huge potential to capture the large global market. With the growing levels of pollution in China, the Chinese Government is acting strictly against the polluting industries. This has led the high-polluting industries to implement appropriate corrective measures, which in turn increases their capital expenditure thereby reducing their competitiveness. With a Yuan apbrciating and on the other hand the Rupee debrciating by ~22% in the same period, the companies are finding it more economical to shift their manufacturing locations. Also India has stronger track record of Intellectual Property Rights (IPR) protection when compared to China which makes it a better choice when it comes to innovation, R&D-intensive and early technology lifecycle production in concerned. According to the IPR Index report 2013, India's standing in terms of IPR & legal rights is better than that of China. The Indian Government has taken steps to improve competitiveness in the sector. The major being: • Industrial licensing being abolished for most sub-sectors • FDI upto 100% granted in the chemicals sector • Greater investment in technology up-gradation and modernisation. • Policies initiated to set up Petroleum Chemicals & Petrochemicals Investment Regions (PCPIR) which will be a region sbrad across 250 kms. for manufacturing of domestic and export-related products of Petroleum, chemicals and petrochemicals The Speciality Chemicals companies have seen a steady growth in the past 5-6 years led by both, exports and domestic revenues. The export revenues grow faster (CAGR ~18%) than the domestic revenues (CAGR ~14%). This growth is driven by currency debrciation, as adjustment in price lag. Speciality Chemicals being chemicals classified on "what they do" rather than "what they are" is a knowledge-based sector competing on the basis of R&D capabilities and the understanding of chemistry. Customer approval processes are majorly based on 2 aspects :- (i) product quality - ensuring the product meets the specific specifications as wanted by the customer; and (ii) consistency of order delivery. By delivering these 2 aspects, a dedicated customer profile, as compared to base chemical companies can be achieved. Limited number of suppliers globally in each product is leading the industry towards being niche and specialised. The advantages of economies of scale are limited as the industry majorly deals in low volume products thereby giving limitation to the size that can be achieved. Long-term contracts signed between customers and suppliers provide for better terms of trade to both parties. On one hand it limits the ability of company to sustain high margin levels, as most benefits would be passed on to the end-customer, while on the other hand it protects the companies from large volatility in raw material prices. Company Section Our Company has a product range of over 400 products with brsence in 33 countries like Argentina, Bangladesh, Indonesia, Thailand, Pakistan, Colombia, Singapore, Sri Lanka, Tanzania etc. We have expertise of over 35 years in Speciality Chemicals. Majority of our products mainly fall under the Specialty Chemical business which is a very dynamic and emerging sector with increased dependence on knowledge, innovation and R&D. The products of the Company can be used in industries like Textiles & Garments, Adhesives, Leather, Water Treatment and Agro Chemicals Industries. The uses of these products find their way in almost all industries with the textile sector being the major market of the Company's products. The products can be customised as per customer specifications.. With this we are aiming to increase our market share by bringing in economics of scale due to upgradation and expansion activities at the Company's existing facilities. With an experienced and qualified R&D team, state of the art laboratories and modernised equipments, we are well placed to cater to our varied customer base. The acquisition of the well known chemical company "Biotex" in Malaysia helped us diversify further. Adding to that Technical Know-How from Europe and also multinationals who provide us valuable information to continuously improve our products. The main features of these innovative products include: • Process Improvement by providing new generation products and increased productivity leading to reduction in time and energy • Reduction in Effluent Load by providing an environmentally conscious approach • Products with Higher Efficiency suitable for all types of Substrates, Processes and Machines • Reduction in per unit cost leading to higher yield products and improved productivity Having built a solid reputation for quality and reliability and shipping to different countries, our company's success is based on Quality, Continuity, Flexibility, Reliability, Competitive Pricing, Technology Upgradation and New Product Development. Outlook The companies having a stable and large customer base, diversified & Innovative product leadership with strong effluent treatment measures will emerge as sector leaders. The Speciality Chemical Sector offers growth opportunity in medium to long term for industry players with strong knowledge dependent product development through innovation and continues R&D. DISCUSSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONS The Company's performance during the year shows a jump of 92.83% in profit after tax over the last year. There is a quantum jump in profitability due to Company's conscious effort to improve quality of the products as per customers' requirements which has helped in enhancing margins as well as increase in the market share However due to the rising raw material costs the profit before tax has remained almost at the same level in the year under review. The Company is a zero debt Company with no borrowings for its local operations. Short term borrowings are restricted to need based working capital requirements. The salient indicators are as under :- During the year under review the plant had smooth operations. The certification received by the Company is ISO 9001:2000 from JAS-ANZ in 2007. The Company received the proceeds on the Initial Public Issue (IPO) in the last fortnight of March 2011. By the end of March 2014, it has fully utilised the IPO proceeds as permitted by the shareholders. Securities Exchange Board of India had sought some information on this which the Company has provided. As per the Accounting Standard 17 issued by the Institute of Chartered Accountants of India and Companies (Accounting Standards) Rules, 2006, the Company has only one segment i.e. specialty or auxiliary chemicals and brparations which are mainly used in textile processing. The Company's products play an important role in the textile manufacturing processes. With the cautious growth expected in the textile industry in the coming year with increasing demand for chemicals needed for this industry based on the increasing expectation of quality and fashionable textile products, the Company expects a growth in turnover for the current year. However the margins continue to be under stress. The total quantitative sales in 2014-15 were 7,725 MT against 6,967 MT in 2013-14. It is pertinent to note that quantity is not a very indicative criteria to evaluate performance as the quantity may vary depending upon the concentration level of products sold. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Your Company has an effective system of receipt, storage, and utilization of materials -especially in the environment in which the Company operates. Its products are not standardized but each supply has to meet the requirements of the customer on his shop floor. This is backed by quality control at each stage of production, finished product storage and dispatch. It has also in place adequate accounting, administrative and adequate system of internal check and controls to ensure safety and proper recording of all assets of the Company and their proper and authorised utilisation. The Company is aware that Internal Control measures require constant review and modifications to meet the changing requirement of the Indian as well as Global environment. The Company constantly reviews its adherence to the environmental norms. The Company has its own Internal Control system and the Audit Committee reviews its adequacy from time to time. Measures are taken to strengthen the same. HUMAN RESOURCES The Company has 42 employees at the year end including whole time Directors. The current workforce structure has a good mix of employees as all levels. The Company is aware that the success of its business depends upon its technical expert's co-ordinating with research and development staff on the one hand and marketing on the other. The Company's employee's age bracket rebrsents a healthy mix of experienced and willing to - experience employees. Necessary training and orientation in this regard is done on a regular basis. During the year a few innovative ideas were received from the staff, many of which were implemented for improvement in cost control and for achieving greater efficiency. (Alok Dhanuka) Director 06491610 For and on behalf of the Board (Sanjay Tibrewala) Executive Director & CFO 00218525 PLACE: Mumbai Dated: 29-May-2015 |
