bodal chemicals ltd Management discussions

In CY 2022, the global economy showcased utmost resilience amid headwinds, primarily backed by the Governments stance of implementing well-calibrated monetary policies. As a result, it leads to a gradual tempering of inflation from 8.7% in CY 2022 to 7% in CY 2023. Despite these persistent inflationary pressures, the global economy experienced a rapid rebound, instiling optimism about the future.

The International Monetary Funds World Economic Outlook, published in April 2023, revealed that the global economy grew by 3.4% in CY 2022. This growth was primarily driven by declines in energy and food prices, contributing to a decrease in global inflation. The projections indicate a downward trajectory, with core inflation expected to decrease to 5.1% by the end of CY 2023, reflecting a significant adjustment from the previous forecast.

While advanced economies experienced a slowdown in economic growth due to inflationary pressures, emerging markets are anticipated to showcase higher growth prospects. Projections indicate a growth rate of 3.9% in CY 2023 and 4.2% in CY 2024 for these markets. This resurgence of the global economy will be fuelled by robust labour markets, substantial household consumption, increased business investment, and the expansion of consumer demand.

Looking forward, the global economy is expected to continue its path towards recovery. The outlook for CY 2023 suggests a moderate growth rate of 2.8%, with further improvement projected for CY 2024 at 3.0%. Governments across the world are actively implementing contractionary monetary policies and fiscal measures to promote economic stability and facilitate sustained growth, effectively addressing the inflationary pressures that were experienced.

These comprehensive measures aim to lay the foundation for a brighter future, ensuring long-term economic stability. Despite the challenges faced in recent years, the global economy has demonstrated resilience, and the concerted efforts of Governments around the world have positioned it for a more optimistic trajectory in the years to come.

inDian econoMic oVerView

The Indian economy has emerged as the fastest-growing major economy, despite global challenges affecting global growth. This growth is primarily driven by increased private sector spending and the Governments focus on improving infrastructure. The Ministry of Statistics and Programme Implementation (MoSPI) has reported a strong economic performance, with a growth rate of 7.2% by the end of FY 2022-23.

To address inflationary pressures, the Reserve Bank of India (RBI) has adjusted its monetary policies towards a tighter stance. In FY 2022-23, the RBI gradually increased the repo rate in six steps, reaching 6.50% in February 2023. As a result, the Indian economy has started to experience a reduction in inflationary pressures, which has positively impacted the domestic markets demand and fuelled the countrys economic momentum. Despite short-term turbulence, Indias underlying economic fundamentals remain strong, and the long-term outlook is expected to be minimally affected. Growth-enhancing policies, such as the Production-Linked Incentive and the Governments focus on self-reliance, coupled with increased infrastructure spending, are generating a multiplier effect on jobs, income, productivity, and efficiency. Additionally, Indias emphasis on manufacturing, Government incentives, rising services exports, digitalisation and technology transformation are anticipated to contribute to further economic growth. Furthermore, geopolitical conflicts in other regions are positioning India as a preferred investment destination for global in-house centres and multinationals.

Looking ahead, while elevated core inflation has maintained the RBIs tighter stance, there is an optimistic outlook regarding inflation. The RBI foresees inflation moving closer to moderate levels in the first half of FY 2023-24, driven by increased domestic demand. However, external factors may cause inflation to decline to 6.1% in 2023, followed by a rise to 6.8% in 2024. The Union Budget 2023-24, along with increased Government spending, private consumption, and investment, will further stimulate economic activity and boost demand. Nevertheless, the steady growth momentum may be influenced by global spillover effects, necessitating cautious optimism in the economic system in the near future.

inDian cheMicals inDustry

The chemicals industry is a vital sector of the countrys economy, playing a significant role in its growth and development. With a wide range of products and applications, the industry covers more than 80,000 commercial products, showcasing its diverse nature and expansive market presence. As per reports, the market size of the chemicals sector in India was around USD 178 billion in FY 2018-19. Additionally, India holds a strong position in global chemicals exports and imports, ranking 14th and 8th, respectively (excluding pharmaceuticals). This global competitiveness has attracted strategic investors from countries such as Japan, Korea, and Thailand, seeking to diversify their supply chains away from China.

Among the sub-segments of the industry, agrochemicals and specialty chemicals offer significant growth prospects. The agrochemicals sector, in particular, presents untapped potential, with a focus on developing new products and adopting judicious pesticide usage practices. The specialty chemicals sector is projected to reach a value of USD 40 billion by CY 2025, driven by increasing demand for high-value products. Furthermore, the Governments support through research and development initiatives, reduction in customs duty on imported products, and the Make in India campaign further enhance the investment climate for the chemicals industry.

The Indian chemicals industry is experiencing diversification of global supply chains, driven by supply disruptions in China and the closure of plants in the EU and China due to environmental concerns. This shift has favoured Indian manufacturers, who are now being considered reliable alternatives for global end-users. Indian companies are investing further in specialty chemicals, capitalising on this opportunity.

Sustainability is another key trend in the industry, as companies increasingly focus on adopting eco-friendly practices and complying with international sustainability standards. The industry is witnessing technological advancements, including the expansion of skill development programmes in chemicals and petrochemicals, the implementation of production-link incentive systems, and the use of advanced manufacturing technologies. These advancements drive innovation, improve product quality, and enhance the industrys competitiveness.

Moreover, Indias strong presence in the global export market, particularly in dyes, pharmaceuticals, and agrochemicals, offers promising growth prospects. The country exports chemicals to major markets such as Germany, the UK, the US, Switzerland, Spain, Turkey, Singapore, and Japan, further strengthening its position in the global chemicals trade. Export projections suggest that exports in the chemicals industry will experience a compound annual growth rate (CAGR) of 9.5% to 10%, reaching USD 140 billion to USD 145 billion by CY 2040. Even imports are projected to grow at 9% to 9.5%, leading to a trade deficit that is likely to increase.

Among the three main segments of the sector, namely inorganic, petrochemicals (petchem), and specialty chemicals, only the specialty segment is expected to be a net exporter. By 2040, net exports in the specialty chemicals segment are projected to increase by around ten times, soaring from approximately USD 2 billion in CY 2021 to USD 21 billion. In contrast, the petrochemicals segment is anticipated to face a larger deficit of USD 41 billion, nearly twice as large as the inorganic segments deficit of USD 21 billion.

The Indian Governments initiatives, such as the establishment of TC except and (PCPIRs), and the introduction of Production-Linked Incentive (PLI) schemes, provide further impetus to the industrys growth. The Governments focus on reducing imports, improving domestic production, and attracting investments through the Make in India campaign sets the stage for a robust and sustainable chemicals industry in the country.

(https://www.mckinsey.com/industries/chemicals/our-insights/india-the-next-chemicals-manufacturing-hub https://www.ibef.org/industry/chemicals-presentation )

specialty cheMicals inDustry

The specialty chemicals sector, encompassing value-added niche products like dyes and pigments, polymers, surfactants, textile chemicals, water chemicals, and personal care chemicals, is playing a transformative role in shaping the Indian economy. This sector holds a pivotal position within the Indian chemicals industry, contributing approximately 7% to the GDP. By CY 2025, it is projected to reach a staggering USD 304 billion, surpassing the USD 178 billion mark in CY 2022. Not only is it the fastest-growing industry in India, but it has also gained a global reputation for its high-quality products, adherence to compliance standards, availability of raw materials, and skilled labour force.

The Indian specialty chemicals industry is poised to outpace its counterparts in China, Japan, and the rest of the world. In terms of trade, specialty chemicals account for a significant share of over 50% of chemical exports. Active pharmaceutical ingredients (APIs) and dyes & pigments continue to dominate the sub-segments, exerting a substantial influence on export potential. Several factors contribute to Indias emergence as an exporting hub for specialty chemicals. The countrys robust process engineering capabilities, cost-effective manufacturing facilities, and abundant manpower create a plethora of opportunities for both imports and exports in the specialty chemicals domain.

Furthermore, Government initiatives such as the Petroleum, Chemicals, and Petrochemicals Investment Region (PCPIR) policy and the Production-Linked Incentive (PLI) schemes instil confidence in the development of domestic manufacturing and specialty chemicals. These measures provide the necessary impetus to harness the potential of this sector, further bolstering its growth trajectory.

(Source:https://www.crisil.com/en/home/newsroom/ press-releases/2022/03/india-to-double-specialty-chemicals-market-share-in-5-years.html https://www.grandviewresearch.com/industry-analysis/ specialty-chemicals-market)

DyestuFF inDustry

The dyestuff industry has a rich history, spanning centuries of human civilisation. The use of dyes to impart colour to textiles and other materials dates back to ancient civilisations, where natural sources such as plants, minerals, and insects were utilised to create vibrant hues. Over time, advancements in science and technology led to the development of synthetic dyes, revolutionising the industry and expanding the possibilities of colouration.

In recent years, the dyestuff market has witnessed steady growth and innovation. The market size has been on an upward trajectory, driven by the increasing demand for dyed fabrics across various sectors such as fashion, home textiles, and industrial applications. Manufacturers across the globe have embraced synthetic dyes for their efficiency, versatility, and wide colour range, bolstering the demand for dyestuffs.

Overcoming the setbacks caused by the pandemic related halts, the dyestuff industry is poised for a resilient recovery. As vaccination efforts continue and economies gradually reopen, the demand for dyed textiles is expected to rebound. The industry is adapting to new market dynamics, focussing on sustainable practices and eco-friendly dyes to meet the growing consumer preference for environmentally conscious products. Advancements in dyeing technologies and research in developing novel dyes, sustainable dyeing processes, such as natural dye extraction and the use of recycled materials, are gaining traction, aligning with the global focus on environmental conservation.

Looking ahead, the dyestuff market is projected to experience significant growth in the coming years. Factors such as increasing disposable income, urbanisation, and evolving fashion trends are expected to drive the demand for dyed textiles. The market size is forecasted to reach new heights, with a compound annual growth rate (CAGR) of 6.6% during the forecast period of 2022-2027.

(https://www.industryarc.com/Research/Dyestuff-Market-Research-510937 )

opportunities indian chemicals industrys strong global ranking:

India has emerged as a leading economy in the world and its GDP has grown at an average rate of about 7% in the last one decade. The Indian Government recognises the chemicals industry as a crucial driver of the economy and aims for it to contribute 25% to manufacturing GDP by CY 2025. Globally, India has established itself as a prominent player in the global chemicals industry, positioning the country as a reliable and competitive chemicals manufacturer. India holds a strong position in global chemicals exports and imports, ranking 14th and 8th, respectively (excluding pharmaceuticals). With a promising and long-term future, Indian chemical businesses are capitalising on market shifts and working towards improving product quality and productivity.

rising Demand:

The specialty chemicals industry in India is witnessing a surge in demand, driven by sectors like food processing, personal care, and home care. The domestic chemical sector is projected to witness 11-12% growth between 2021-27 and 7 to 10% during 2027-40. Source:https://www.mckinsey.com/industries/ chemicals/our-insights/india-the-next-chemicals-manufacturing-hub. This growth can be attributed to increased domestic demand and higher realisation due to elevated chemical prices.

rise in investment:

The Indian chemicals industry presents numerous untapped opportunities and has gained global recognition for its high potential. It has emerged as a highly sought-after investment destination in this sector. Projections indicate that the next decade holds immense potential, with anticipated investments exceeding USD 87 billion, primarily focussing on major petrochemical products. This underscores the favourable outlook and lucrative prospects for investors in Indias chemicals industry.

the union budget 2023-24:

The Budgets focus aligns with the long-term objective of transitioning to eco-friendly and cost-effective energy alternatives. The substantial increase in budgetary allocation (Rs 160 billion, a 67% increase over FY 2022-23 RE) towards the reform-oriented and result-oriented capital expenditure (Capex) programme is expected to enable state discoms to enhance their infrastructure, leading to improved operational efficiencies.

Other focus areas such as infrastructure development, and schemes such as Make in India, Aatmanirbhar Bharat Abhiyan and the Production-Linked Incentive (PLI) scheme, will also indirectly propel the Indian chemical industry.

coMpany oVerView

Bodal Chemicals Ltd. offers end-to-end speciality chemical solutions as one of the worlds major manufacturers and exporters of dyes intermediate, dyestuff and basic chemicals. Since over 25 years now, it has remained consistent in delivering to its commitment of providing product and service solutions to clients with agility and quality. The Company began as a dye intermediates company in 1989 and has since expanded into producing dyestuff and basic chemicals through forward and backward integration. Bodal is the largest local maker of dye intermediates in India, and in 2006, it got listed on the stock markets, marking a major milestone in its growth history.

Today, the Company operates 10 manufacturing plants in Ahmedabad, Vadodara, Kambhat, Mathura (Koshi) and Punjab, backing our production of over 200 products. It caters to the demands of over 600 customers, serving industries such as textiles, paper, leather, and water purification, with over 70 distributors. The current manufacturing capacity stands at 4,21,000 MTPA with an upcoming capacity of 63,000 MTPA. These facilities are complemented by the Companys 11 depots across India (7), China (1), Turkey (1), Bangladesh (1), and Indonesia (1) alongside two R&D centres in Gujarat.

operational anD Financial oVerView

The past year tested the resilience and commitment of the Company in terms of operating in a challenging business environment. Nevertheless, it stood strong even amid headwinds such that the business momentum forged ahead with preparedness and decent growth figures with no compromise on quality or commitment.

Kpis	standalone
	Fy 2022-23	Fy 2021-22
Revenue (Rs in million)	15,631.02	20,187
EBITDA (Rs in million)	1,291.16	2,320
PAT (Rs in million)	311.43	1,242.64
EBITDA Margin (%)	8.26%	11.49%
PAT Margin (%)	2.00%	6.18%
Net Debt/Equity (in	0.67	0.58
times)
ROE (%)	2.79%	11.80%
Net Working Capital	44.74	52.99
Days
ROCE (%)	5.17%	14.16%
EPS (Rs)	2.48	9.91

 

particulars	Fy 2022-23	Fy 2021-22	reason for change
Total Revenue (Rs in million)	15,631.02	20,186.86	Due to recessionary environment in major economies of the world and ongoing war between Russia and Ukraine leads to lower demand
R&D Expenses (Rs in million)	44.13	49.48
Earnings Before Interest, Tax, Depreciation, and Amortisation (Rs in million)	1,291.16	2,320.20
Profit Before Tax (Rs in million)	425.51	1,654.54	lower volume higher cost of production lower margin lower profitability
Profit After Tax (Rs in million)	311.43	1,242.64
Total Assets (Rs in million)	21,625.63	21,273.85
EPS (Rs)	2.48	9.91

 

name of Metric	Fy 2022-23	Fy 2021-22	% change	explanation in case of change is 25% or More, as compared to previous year
Inventory Turnover	2.55	3.26	(21.67)%	-
Current Ratio	1.31	1.38	(5.08)%	-
Debt-Equity Ratio	0.67	0.58	15.29%	-
Debtors Turnover	3.28	4.30	(23.58%)	-
Operating Profit Margin	4.95%	9.27%	(46.63)%	Due to recessionary environment in major economies of the world and ongoing war between Russia and Ukraine leads to lower demand lower volume higher cost of production lower margin lower profitability. Rate of interest has also increased.
Return on Net Worth	2.76%	11.27%	(75.46)%
Interest Coverage Ratio	3.75	11.05	(66.04)%

capex For Future sustainability

Bodal Chemicals Ltd.s greenfield project in Saykha, Gujarat, is aligned to its focus on expanding its benzene downstream capacity. The Company aims to establish a benzene plant with an annual production capacity of approximately 63,000 metric tonnes. The projects estimated cost is around Rs 2,700 million, which includes the plant infrastructure and related soft costs amounting to approximately Rs 1,200 million, resulting in a total investment of Rs 3,900 million.

Upon achieving a stable operation at the new site and gaining substantial demand visibility, Bodal Chemicals Ltd. plans to resume the operation of its sulphuric acid plant. This strategic decision aligns with the Companys goal of capitalising on opportunities within the pharmaceuticals, agrochemicals, dyes industry, and rubber industry sectors.

Furthermore, Bodal Chemicals Ltd. aims to enhance its specialty chemicals segment by focussing on import substitution, thereby reducing dependency on external suppliers. This integration strategy not only enhances cost efficiency but also improves productivity and enables the Company to achieve higher profit margins.

The proposed Capex also includes a portfolio diversification initiative, allowing Bodal Chemicals Ltd. to expand its product offerings and capture a broader market share. This expansion into new segments within the specialty chemicals domain reinforces the Companys commitment to long-term growth and sustainable success.

risKs anD Mitigation strategies

The Company has various strategies and committees in place to monitor the changes taking place around and within. It realises that the risks forming a part of the dynamic business environment are inevitable and require expertise as well as resilience to tackle the effects. Thus, not undermining the risks or over-estimating its capabilities, the Company takes the following measures with respect to the broad classification of risks as follows:

types of risks	Definition	bodals Mitigation strategy
Competition Risk	The risk of failing to seize timely opportunities and facing intensified competition, potentially impacting market share, margins, and return on capital employed.	Proactive response through the introduction of new products, leveraging long-standing client connections as a preferred supplier and dependable partner.
Foreign Currency Exchange Rate Risk	The risk of substantial financial performance impact due to foreign exchange rate fluctuations, with exports accounting for a significant portion of revenue and raw materials being imported.	Strong foreign exchange hedging mechanisms in place, utilising processes such as forward contracts to manage this risk effectively.
Raw Material Price Risk	The risk of price fluctuations in crude oil and other raw materials, which can impact the companys bottom line.	Strategic backward integration to ensure consistent and cost-effective raw material supply, gradually reducing reliance on external vendors.
Labour Disputes Risk	The risk of industrial conflicts and strikes limiting the companys capacity to meet client demands.	Maintaining open lines of communication with the workforce, fostering a friendly and cooperative environment with employees, workers, sub-contractors and others to mitigate this risk.
Regulatory Compliance Risk	The risk of non-compliance with regulatory requirements, leading to legal penalties, reputation damage, and disruptions in business operations.	Dedicated compliance team and regular audits to ensure adherence to all applicable regulations, continuous monitoring of regulatory changes, and proactive measures to address any compliance gaps.
Quality Risk	The risk of a decrease in product quality, compromising customer relationships and reducing profitability.	Implementation of a rigorous quality control system and adherence to external requirements to maintain high product quality standards.
Supply Chain Disruption Risk	The risk of disruptions in the supply chain, such as delays in raw material delivery, transportation issues, or natural disasters, impacting production and customer satisfaction.	Diversification of suppliers, effective supply chain management systems, and contingency plans to minimise disruptions, maintain alternate sourcing options, and ensure business continuity.
Technology and Cybersecurity Risk	The risk of technology failures, data breaches, and cyberattacks, which can lead to operational disruptions, financial losses, and compromised customer data.	Robust IT infrastructure, regular cybersecurity assessments, imple- mentation of advanced security measures, employee training on cybersecurity best practices, and proactive monitoring to detect and mitigate potential risks.

huMan resource ManageMent

Recognising the pivotal role of employee satisfaction in the overall success of an organisation, Bodal places utmost importance on its human resources. The Company understands that a diverse and inclusive team is vital for driving innovation and fostering a culture of excellence. Its consistent ability to identify, recruit, and retain top talent has been a key driver of its remarkable growth trajectory. The Companys strength lies in its cohesive and collaborative team, where individuals work together towards common goals and grow collectively. Bodal Chemicals understands the value of continuous learning and skill development in personal and organisational growth. With a strong commitment to employee development, the Company conducts regular training and development sessions that motivate and empower its workforce to unleash their full potential. Rigorous training programmes are designed to attract and retain exceptional talent in the industry, ensuring that employees stay abreast of the latest advancements and industry best practices.

The Companys focus on human resources is evident through the successful implementation of significant HR initiatives and effective people management practices. By prioritising employee well-being, career advancement, and skill enhancement, Bodal creates a conducive work environment that fosters engagement and loyalty. As of March 2023, the Company proudly boasts an employee strength of 2,046, a testament to its commitment to nurturing and retaining a talented workforce.

supply chain ManageMent

With a strong global presence spanning over 50 countries, Bodal Chemicals Ltd. is committed to delivering innovative products and services to its esteemed clientele. Recognising the significance of staying ahead in a competitive market, the Company has developed advanced supply chain management systems that empower its customers. Successful supply chain management requires a strategic corporate approach, specialised tools, and collaborative teamwork. It entails meticulous planning and coordination of various processes, including demand forecasting, procurement, manufacturing, inventory management and storage, transportation/logistics, and product returns. As a testament to its dedication, Bodal Chemicals Ltd. consistently invests in optimising its supply chain, nurturing trade partner expertise, and providing comprehensive sales force training. Moreover, the Company maintains a vigilant eye on its production facilities, continually monitoring and making necessary modifications to enhance responsiveness and operational efficiency.

inForMation technology

Bodal Chemicals Ltd. harnesses the power of Information Technology (IT) to establish a strong competitive advantage and streamline its business operations. Recognising the pivotal role of IT in todays society, encompassing software and systems for efficient data processing, the Company prioritises vigilant monitoring and consistent enhancements of its IT infrastructure. A robust IT system effectively manages database, monitors operations and helps in mapping out the way ahead. It enables the Company to gain higher accuracy and preciseness in terms of analysing data as well as in drafting the strategic layout of its plan.

Through timely upgrades and cutting-edge technology, Bodal Chemicals Ltd. ensures precise outcomes and stays at the forefront of technological advancements. Furthermore, the implementation of a robust Enterprise Resource Planning (ERP) system enables seamless supply chain expansion, precise sourcing, and accurate supply projections, further bolstering the Companys operational efficiency.

cautionary stateMent

Statements in the Directors Report, Management Discussion and Analysis or elsewhere in this annual report, contain forward-looking statements including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Bodal Chemicals Ltd.s future business developments and economic performance. While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include but are not limited to, general market, macroeconomic, Governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance. Bodal Chemicals Ltd. undertakes no obligation to publicly revise any forward-looking statements to reflect future/likely events or circumstances.