Economic Environment
The Indian economy, in 2022, continued to emerge out of Covid-19
impacted decline, the year started with the Omicron wave, which affected the early months,
followed by the Ukraine war, which halted the stabilisation of raw material prices, and in
many cases, the prices reversed and took an upward trend to global headwinds.
Most of the lead indicators remain strong but stubborn in ation, a
waning high-base effect, a slowing global economy (and world trade), and financial market
uncertainties have dragged down growth in H2. The H2 GDP data also point to a plateauing
of economic activity.
As the major central banks continue tightening monetary policy, the
India-US interest-rate differential may shrink further, triggering fresh capital out flows
or at the least, creating volatility. The interest rate increase in the US will impact
financial and currency markets, putting renewed pressure on the rupee, which has clawed
back some ground from record lows earlier this quarter. In addition, a depreciating rupee
would exacerbate Indias in ation-interest rate dynamics, further eroding growth.
Global crude prices continue to move up. As a country, we managed the
situation much better. However, a sizeable part of the raw material base is directly
(through the raw material manufacturing route) or indirectly (using gas and crude as
energy sources) associated with crude and its derivatives. Moreover, the association with
crude and raw materials impacted by it has resulted in challenges in the supply chain and
in ationary pressures.
With supply constraints, European suppliers continued to push for price
increases throughout the year. In the latter half of the year, the surge in Covid-19 in
China also had its supply-side challenge.
On the demand side, the FMCG sector, in a rare phenomenon, bucked the
trend of consumption growth aligned to GDP and had a quarter-on-quarter decline in volume.
For the packaging inks industry, the FMCG sector is the largest customer, and the volume
pressures coupled with price increases, which the companies found dif cult to pass on to
consumers, resulted in intensi ed industry competition and many cases, packaging inks
downgrade to manage cost.
Indias neighbourhood in South Asia has seen a financial crisis in many
countries. India, however, has remained resilient in its forex reserves. However, as
Indian exports to neighbours have been challenging in the second half of the year due to
depleting forex reserves in these countries, this has also impacted the packaging Inks
industry, as most companies supply products from India.
As brand owners accelerated adoption, the industry has seen increased
adoption of toluene-free inks for food packaging. In July, the single-use plastic ban also
opened opportunities for alternate packaging technologies, seldom in demand earlier in
India.
Chinas reopening from a zero covid policy to the rest of the world
and, more importantly, to itself after three closed years promises to constitute among the
most significant global event of 2023. However, an increase in demand within China and a
recession in Europe will constrain the easy availability of raw materials.
The downside risks will weigh on growth and the markets in the coming
months. Headline in ation remains downtrend, with consumer (CPI) and wholesale (WPI) in
ation dropping.
Opportunities & Threats
Opportunity
DIC India has continued to invest in making its manufacturing footprint
more efficient. For example, the new green eld project in Gujarat allows the Company to
access the Western market more efficiently with a reduced cost to serve.
The Company continues to invest in technologies to make it more
sustainable and aligned with DIC groups Vision 2030. It has reported improvement in all
environmental parameters: CO emissions, waste and water management. Its biggest plant in
Noida has shifted to Solar energy which will further help reduce CO emissions. The
continued commitment to governance, investing in social capital with CSR initiatives to
support communities around its new plants, and investment in learning and development for
its people will ensure continued alignment to ESG commitment.
As a responsible corporate and a leading player in its industry, DIC
developed new technologies for food packaging at its regional research centre. It plans to
drive a market shift to safer and more effective technologies.
Threats
Packaging and Publication are vital drivers for the printing inks
industry. The drop in FMCG volume growth, the rural distress and decline in consumption
post covid and the tightening of the money supply to counter in ation will continue to
ensure that the business environment for packaging inks remains challenging in the short
term. The expansion of digital adoption will impact the historically strong publication
Inks business.
DIC India continues to focus on expanding its product range, with DIC
Corporations support and building a more premium and sustainable portfolio. However, the
supply chain stress and volume pressures will continue to impact volume growth and
capacity utilisation in the near term.
The Company continues to review asset productivity and will focus on
the structural alignment of its supply to ensure it remains nimble and efficient.
Segment-wise performance and Industry Outlook
The packaging Ink business has seen a volume decline in 2022. Further,
due to in ationary pressures, there is also a step down in the quality of inks demanded by
customers as they try to balance legislation, performance and cost with a more
t-for-purpose product range.
The adhesive segment has cooled down in pricing actions in the
industry, but margin challenges still need to be addressed.
The Company has expanded its premium portfolio sales in exible
packaging sales, with a combination of aggressive share gain with its new series
introduced in 2022 and long-term contracts with select large converters.
The Company expanded exports of its rigid packaging Inks, which helped
in the top line growth revival. However, the muted demand in the domestic segment and the
emergence of local competition have put margin under pressures on this segment. The
Company is taking suitable measures to address these challenges.
In the adhesives segment the Company has expanded its business in the
sustainable non-lamination adhesives segment. It also has pilot-tested products in
sustainable adhesives range for lamination. The new range will provide an opportunity to
grow its business going ahead.
The publication business, where the Company is the market leader,
continues to expand its market share, with a strong focus on asset productivity and
upstream product portfolio. The segment, however, will continue to see muted or declining
growth due to plateauing demand.
Risk & Concerns
The year 2022 has seen muted /declining demand from its core user base.
The demand decline has been coupled with price increase fatigue with its customers after
two years of relentless price increases and pressure on competition to drive capacity
utilisation with aggressive pricing.
The capital expenditure over the last four years in the industry and
demand expansion has been off tandem over the previous 2-3 years due to Covid, and this
has resulted in surplus capacity in the industry, both at the ink manufacturers level and
printing inks converters end. As a result, the surplus capacity will continue to put
pricing pressures on the industry.
The continued pressure on the supply chain amidst global uncertainty
and erratic price movement of a few critical raw materials has put pressure on balancing
the size and value of inventory.
The tightening money supply by RBI to counter in ation and low
consumption in the industry has put pressure on converters and has the potential to expand
market credit to maintain volumes and reliability of capital rotation in new cases.
The Toluene ban, though announced by the government, continues to see
weaker adoption. As global brands seek to align their packaging with international
sustainable packaging guidelines, they expect similar customer service and prices for
imported technologies as they insist on domestic supplies. As a result, the supply chain
alignment to match customer expectations from new technology platforms can cause pressure
on pro tability and the need for new capital expenditure (when the cost of capital remains
on the higher side).
Business Strategy
DIC India celebrated its 75 years in 2022. It continues to remain
committed to build a business portfolio that contributes to sustainable prosperity for
society in line with Vision 2030 of DIC Corporation and strongly focuses on I-ESG
(Innovation- Environmental, Social, and Governance) to transform its business.
2022 has seen many innovations from DIC India, which will help refresh
its portfolio. Its digital- first approach has ensured the automation of management
approval processes. For example, an integrated CRM to provide improved customer management
and a solid digital marketing drive has helped it manage the costs prudently during in
ationary times and become more responsive.
The digital initiatives have ensured a strengthened internal governance
framework for the Company.
The continued investment in improving yield and lowering CO2 emissions,
water consumption and enhanced waste management has ensured continued progress on
sustainability commitment.
DIC maintained a strong focus on safety and safe operations in 2022,
with no reportable injury case.
DIC India has maintained its cost optimisation program with a
structured Kaizen program. These programs have ensured the productivity of its
manufactured capital.
The Company continued to focus on prudent cash management and was cash
positive in 2022 through improved working capital management, supported by process
improvements which built ef ciency in the supply chain.
DIC aims to leverage LEAP, its CRM and digital marketing based on a
solid technology backbone to reach out to a more extensive customer base and effectively
communicate DICs proposition to customers
DIC India has aligned its CSR objective to focus on SDG (Sustainable
Development Goals) 3,4: Good Health & Well Being and Education respectively. These are
the areas identified as per the guidelines in section 135 of the Companies Act.
Internal Control System and their adequacy
The Companys Internal Control System details and their adequacy have
been furnished in the Boards Report forming a part of this Annual Report.
Even though not mandated by Law, the Company has constituted Risk
Management Committee, with oversight by an independent director. Its risk register
continues to measure the Companys ability to mitigate potential risks through structured
risk mitigation programs with a line of sight to the board of directors.
Financial performance impacted by operational performance
The Company continued to maintain its pro tability despite volume
shrinkage with end users, global in ationary pressures and supply constraints, negative
impact on imports due to financial crisis in the neighbourhood and early recession in many
other countries, along with price increase fatigue in the Indian market.
The Company has rapidly expanded its market share in the premium
segment in both exible and rigid packaging by introducing a series of innovations designed
and developed for the Indian market. In addition, the Company has expanded its market
share in these segments with long-term contracts with many large customers, providing a
sustainable and balanced revenue and income stream.
Human Resource
The Details about Human Resources have been furnished in the Boards
Report forming a part of this Annual Report.
Disclosure of Accounting Treatment
The financial statements are prepared and presented under Indian
Accounting Standards (IndAS) notified under the Companies (Indian Accounting Standards)
Rules, 2015, as amended from time to time as notified under Section 133 of the Companies
Act 2013, the relevant provision of the Companies Act 2013 ("the Act").
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