MANAGEMENT DISCUSSION AND ANALYSIS
I. INDUSTRY STRUCTURE AND DEVELOPMENTS : AGROCHEMICALS
Following a period of decline in overall market values, the global pesticides industry as expected has recovered in 2011 and has registered a modest growth. Although highcereal stocks in Europe, high energy costs, over supply of pesticides globally andconcerns over reregistration in various important markets has limited gains, thissmall rise represents an improvement over the past few years. At a time of rising foodprices, population growth, increased demand for biofuels and concerns over globalfood security, there is a growing need for using every available technology including pesticides, to meet future food needs and tackle the emerging challenges ofclimate change and resource conservation.
The Indian crop protection chemicals market has seen a sustained increase from 2005onwards, resulting in India being ranked third in best global market performance after Argentina and Brazil, with a compound annual growth rate of 10 percent. This ismainly due to the consistent monsoon seasons, oversupply resulting in pesticidesbeing more financially feasible for usage by farmers and growth seen in the export market.India has raised the level of its export competency with a consistent quality and supplyrecord and possession of a vast unexplored market. Chemicals manufacturers have targetedproduct awareness campaigns at Indian farmers, as the countrys affordability hasincreased with the cultivation of highvalue crops. 'The per capita consumption ofpesticides in India is still very low compared to the developed countries andmanufacturers need a smart get to market strategy to achieve better reach andacceptance of products. The demand will also be driven by the rising food grain demand andincreasing awareness about pesticide usage among the farmer community. However, threat ofillegal, cheap imports from China is ever present and becoming a big factor in performanceof local Indian producers.
With the global pesticides market expected to grow at an average annual rate of 2.2%till 2014 and with favourable market factors lead by sustained demand for foodgrains and biofuels and governments focus on development of agriculture, theoutlook for Meghmani is improving. The year saw an average performance in exports mainlybecause of the imposition of international embargo on Iran one of our main exportmarkets, low offtake from Argentina, reregistration requirements in some ofthe Latin American countries and a general malaise seen within the existing customer base.
II. PERFORMANCE OF AGRO BUSINESS (DIVISION WISE)
|Particulars ||31.03.2012 ||31.03.2011 |
|Domestic ||Rs. in Mn ||Rs.in Mn |
|Agro Chharodi (Agro I) ||689.09 ||1080.04 |
|Agro Ankleshwar (AgroII) ||329.15 ||507.18 |
|Agro Dahej (AgroIII) ||23.19 ||11.24 |
|Agro Panoli (AgroIV) ||107.49 ||- |
|Total ||1,148.92 ||1,598.46 |
|Export || || |
|Agro Chharodi (Agro I) ||735.99 ||780.16 |
|Agro Ankleshwar (AgroII) ||1311.49 ||1682.87 |
|Agro Dahej (AgroIII) ||404.33 ||106.41 |
|Agro Panoli (AgroIV) ||389.36 ||236.40 |
|Total ||2,841.17 ||2,805.84 |
|Grand Total ||3,990.09 ||4,404.30 |
III. AGROCHEMICALS OVERVIEW OF THE COMPANY
The Company has 4 Agrochemical manufacturing facilities situated at :
|Agro I ||Plot No. 402,403,404,452 & 455, Village Chharodi, Taluka Sanand Ahmedabad, |
|Agro II ||Plot No. 5001 B, GIDC Ankleshwar |
|Agro III ||Plot No. CH1+2/A GIDC Industrial Estate, Dahej, Taluka:Vagra, Bharuch. |
|Agro IV ||Plot No. 20, GIDC Panoli, Ankleshwar |
The Company produces commonly used pesticides for crop and noncrop applicationssuch as public health, insect control in wood preservation and food grain storage. TheCompany counts amongst its customers leading pesticide manufacturers from North America,Europe, Latin America Asia, Brazil, and South Africa.
The production processes of the Companys Agro businesses are largely verticallyintegrated. We manufacture some Pesticides Intermediates which are used in the manufactureof our Pesticides Technical. Such vertical integration allows us to effectively manage ourraw materials costs and assures us of a constant supply of such raw materials at aconsistent quality and consequently, has reduced our reliance on third party suppliers forsuch raw materials. Past three years have shown highly inconsistent raw material supplieswith production sites in both India and China getting afflicted by environmental issues,thereby adversely affecting the production within the Company. Therefore, the future focusfor the Company would be further backward integration.
IV. STRATEGY OF THE COMPANY
To offer a complementary set of products and to expand the product basket, theAgrochemicals Division has started production of one of the most widely used herbicide 2,4D at its Dahej site. The site is backward integrated to manufacture theintermediates MCAA and TCAC. The site is strategically located adjacent to ourChloralkali plant. With the shift in the product mix towards herbicides in India,this new project is expected to yield good results for the Division in coming years. Theformulation plant at GIDC Panoli, Ankleshwar is also performing at its peak capacity.
At the domestic front we have our own sales force in Andhra Pradesh, Maharashtra,Madhya Pradesh, Rajasthan and Gujarat (the list has grown to 15 states now!).
We have consciously developed our intellectual property rights in the form oftrademarks for our products, as well as our logo and corporate name. Our logo and name,viz. "MOL" and "Meghmani" have been registered as trademarks. TheCompany has 25 registered Trade Marks.
We believe that our trademarks have significant value and are important to our brandbuilding efforts and aid in the marketing of our products.
In recent years, we have focused on increasing the number of product registrations incountries such as United States of America, Australia, Brazil, Bangladesh, China, Mexico,Malaysia, Turkey, Taiwan, etc. Being a manufacturer and distributor of existing moleculeswith expired patents, we consider registration as crucial and considerable investments arefocused on registrations. Our focus on research and development has also led to anincrease in the number of products developed, which has translated, into numerousapplications for registrations for our products. To date, 85 exports registrations havebeen received and applications for 587 registrations have been made in different parts ofthe world. The Company has 173 registration of Central Insecticides Board (CIB),Faridabad.
RISKS, CONCERNS AND THREATS AGROCHEMICALS
Besides international Agrochemical producers, there are competitors in India havingsimilar products as our Company. We compete against our competitors on our quality,technical competence, distribution channels, logistics facilities, after salesservice and customer relationships.
We sell our products to customers from various countries in North America, Europe,Central and Latin America, AsiaPacific, South Africa and Brazil. As a result, ourbusiness and future growth is dependent on the political, climatic, economic, regulatoryand social conditions of these countries.
Any change in the policies implemented by the governments of any of these countrieswhich result in currency and interest rate fluctuations, capital restrictions, and changesin duties and tax that are detrimental to our business could adversely affect ouroperations, financial performance and future growth.
The performance of Agrochemical industry is dependent on monsoon. The erratic rainfallaffect the crop acreages, pest application and overall productivity directly affect thesales.
Adverse Dollar / Rupee exchange rate could also impact revenues as well as costs in theforeseeable future. The increase in crude prices have an impact on the costs and prices ofvarious products.
The Company is relocating its Agro chemical Plant from Village Chharodi, Taluka Sanand,District: Ahmedabad to Agro Division II and the relocation process isexpected to be completed during the current year. The Turn over and Profitability of theCompany will be affected till it achieves full production capacity.
The Company is engaged in the manufacturing and exports of phthalocyanine pigments andits derivatives. Pigments are industrial chemicals which are used as coloring agents andfind varied application in printing inks, plastics, paints, textiles and papers. Pigmentscan be classified into two broad categories namely Pthalo and Azo. The Pthalo encompassthe Green and Blue colour pigments while Azo includes Yellow and Red pigments.
Phthalocyanine pigments accounts for 60 percent of the world organic pigments. They areone of the largest categories of pigments manufactured in India.
Your Company is engaged in manufacturing various grades of both Blue and GreenPigments. The Company has two dedicated manufacturing facilities for pigments in theindustrial state of Gujarat. The Vatva plant manufactures Green pigments, while Panoliplant is involved in CPC Blue Crude & Beta Blue Pigment.
I. INDUSTRY STRUCTURE AND DEVELOPMENTS PIGMENT
World demand for dyes and organic pigments is forecast to increase 3.9 percent per yearthrough 2013, in line with real (inflationadjusted) gains in manufacturing activity.Volume demand will grow 3.5 percent annually. While the textile industry will remain thelargest consumer of dyes and organic pigments, faster growth is expected in other marketssuch as printing inks, paint and coatings, and plastics. Market value will benefit fromconsumer preferences for environmentally friendly products, which will support consumptionof high performance dyes and organic pigments.
ASIA/PACIFIC REGION TO REMAIN FASTEST GROWING
Following trends seen over the past decade, the Asia/Pacific region will experience thestrongest growth and increase its share of the global dye and organic pigment market.China is by far the largest single consumer in the world and the fastest growing nationalmarket. India will also post rapid increases, but demand levels will remain well belowthose of China. China alone is expected to account for about twofifths of globalgains in dye and organic pigment demand between 2008 and 2013. Strong gains will alsooccur in other developing areas such as the Africa/Mideast region and Eastern Europe,while market maturity will limit advances in developed areas such as North America,Western Europe and Japan.
ORGANIC PIGMENT DEMAND TO OUTPACE DYE CONSUMPTION
Growth in dye consumption will trail increases in organic pigment demand, although dyeswill continue to represent the lions share of the overall market both in volume andvalue. Among the different dye product types, disperse dyes are expected to see the mostrapid gains, due to their usage in the fastgrowing polyester fiber industry. For theirpart, organic pigments find increasing use in inks and coatings due to their ability toprovide intense and bright colors. However, drawbacks to the use of organic pigmentsinclude their generally higher price points than those of inorganics and their onlymoderate ability to provide opacity. The best prospects are for highperformanceproducts such as quinacridones, which will experience favorable gains as end users requiremore exacting properties from their coloring agents While specialized pigment grades willoffer good opportunities due to their enhanced environmental acceptability and superiorperformance characteristics, classical or conventional grades are expected to continue todominate the organic market. These relatively lower priced commodity organic pigments willremain widely employed in largevolumemarkets with less exacting performancestandards for colorants, such as printing inks.
This is expected to reach US$ 27.8 billion by 2016, corresponding to its annual growthrate of 5%. Although organic pigments account for only 5% of all pigments based onquantity, they cover 28% when based on their value.
Ceresana Research forecasts that the global pigment market will earn revenues of morethan US$45 billion in 2018. Ceresana Research expects the AsiaPacific will continueto significantly influence market dynamics over the next years. Rapidly developingemerging markets have the greatest growth potential, above all China and India. Moreover,South America and the Middle East register aboveaverage growth rates of 3.6% to4.4%. . (Source: www.ceresana.com)
Demand and production of pigments are continually shifting from the USA, Western Europeand Japan to the emerging markets of Asia, especially China and India. This is mainlybecause of lower wages. Within emerging countries, especially India and China, themselves,domestic demand for consumer products containing pigments is growing. While a few largesuppliers of pigments dominate the relatively saturated markets of industrializedcountries, Asian markets remain fragmented.
Almost all industrial sectors need pigments, with printing ink, paints, lacquers, andplastics all being growth markets for pigments. More and more manufacturers use newcolours and visual effects for their packaging and advertising material. In addition,sectors such as cosmetics, paper, textile, building material, ceramics, and glass makegreat demands on pigments to add more brilliance to their products. The textile industryincreasingly substitutes pigments for dyes.
II. PERFORMANCE OF PIGMENT BUSINESS (DIVISION WISE)
|Particulars ||31.03.2012 ||31.03.2011 |
| ||Rs. in Mn ||Rs. in Mn |
|Domestic || || |
|Pigment Vatva ||96.42 ||56.21 |
|Pigment Panoli ||535.80 ||852.88 |
|Total ||632.22 ||909.09 |
|Export || || |
|Pigment Vatva ||1,229.28 ||942.73 |
|Pigment Panoli ||1,402.78 ||1,697.68 |
|Total ||2,632.06 ||2,640.41 |
|Grand Total ||3,264.28 ||3,549.50 |
III. PIGMENT: OVER VIEW OF THE COMPANY
We have two manufacturing facilities for the manufacture of our Pigment products, onelocated in Vatva, Ahmedabad where we manufacture our Pigment Green 7 products and theother located in Panoli, near Ankleshwar where we manufacture our CPC Blue and PigmentBlue 15 products.
IV. STRATEGY OF THE COMPANY
We are one of the largest Pigment manufacturing sites in the world. We would like tooffer specialized products to our customers at the best possible price leveraging oneconomies of scale. Our midterm focus is to introduce range of Pigments for evergrowing coatings and plastics industries.
We are also benefiting from growth of India and equally focusing on Indian domesticmarket. Indian market is expected to grow double digit for consumption of Paint, Plasticsand Inks. To serve our newly added domestic customers, we have employed local staffsupported by warehousing facilities at the strategic locations.
During the year, Ministry of Commerce and Industry, Office of the DevelopmentCommissioner, Dahej Special Economic Zone, Ahmedabad, vide their letter No.KASEZDCO/03MOL/0809 VOLII dated 25th November, 2011 approvedchange of name of entrepreneur from Meghmani Chemtech Limited to the Company. Theownership of project of Meghmani Chemtech Limited situated at Plot No. Z 31 & Z 32 ofDahej SEZ Limited, Dahej, Bharuch to produce viz., CPC Blue (Crude), Beta Blue and AlphaBlue been now transferred to the Company. The Pigment expansion of Rs. 60 Crores will benow completed by the Company.
V. RISKS, CONCERNS AND THREATS PIGMENTS
There are competitors in India having similar products as our Company. We competeagainst our competitors on our quality, technical competence, backward integration,logistics facilities, after sales service and customer relationships.
The Company specializes in the manufacture of green and blue pigment products that spanmultiple applications such as printing inks, plastics, paints, textiles, leather andrubber. Its pigment customers comprise mainly MNCs who are leading players in theirrespective industries.
The production processes of our Pigments businesses are vertically integrated. Wemanufacture CPC Blue which is the primary raw material required in the manufacture of ourPigment Green and Pigment Blue products. Such vertical integration allows us toeffectively manage our raw materials costs and also ensures consistent quality of inputs.
VI. INTERNAL CONTROL SYSTEM
The Company has a proper and adequate system of Internal Control commensurate with itssize and the nature of its operation to ensure that all the assets are safeguarded andprotected against unauthorized use or disposition, true and fair reporting and compliancewith all the applicable regulatory laws and company policies.
Internal Auditors reviews the internal control systems on a regular basis for itseffectiveness and necessary changes are suggested which are incorporated into the system.Internal Audit Reports are reviewed by the Audit Committee of the Board
The Audit Committee also meets the Head Internal Audit and Statutory Auditorsseparately to ascertain their views on the adequacy and efficacy of internal controlsystems.
VII. The following ratios reflect the financial performance for the year in relation tothe previous year.
|Particulars ||20112012 ||20102011 |
|Sales Growth ||4.67% ||15.82% |
|Profit before Depreciation, Interest and Tax (Rs. Mn) ||824.77 ||979.21 |
|Profit Before Tax (Rs. Mn) ||304.70 ||600.01 |
|Profit After Tax (Rs. Mn) ||165.84 ||471.81 |
|Debt / Equity Ratio ||0.25 ||0.26 |
|ROE ||3.15 ||8.85 |
|Earning Per Share ||0.65 ||1.86 |
|Book Value Per share ||20.73 ||20.97 |