Global Economic Overview
In 2022, the global economy faced a series of unforeseen challenges
that impacted the global GDP growth. The year began with an optimistic outlook, but the
surging inflation, supply chain disruptions, tightening monetary policies, inflationary
pressures, and concerns of a potential recession. During the year under review, global
inflation reached 8.7%, causing concerns about its impact on consumer purchasing power and
overall economic stability.
One notable factor contributing to the economic fluctuations was the
persisting impact of the COVID-19 pandemic. China, in particular, witnessed a temporary
decline in growth during the fourth quarter of 2022 as it grappled with a surge in
COVID-19 cases. Europe also confronted its own set of challenges. The region faced acute
energy shortages, which affected industrial production and economic growth.
Considering these factors, the overall world economy recorded a GDP
growth rate of 3.4% in 2022, significantly lower than the robust growth of 6.1% witnessed
in the previous year, according to the International Monetary Fund (IMF). The lower growth
rate reflected the difficulties and uncertainties that marked the global economic
landscape throughout the year.
Despite the challenges, there are signs of recovery with inflation is
projected to decline to 7.0% in 2023, offering some relief and contribute to economic
stabilization. The IMF remains cautiously optimistic, forecasting a global growth rate of
2.8% in 2023. While geopolitical tensions and trade conflicts persist, collective efforts
in addressing supply chain disruptions, implementing appropriate monetary policies, and
promoting global cooperation can contribute to sustained growth and economic recovery in
the years ahead.
Global GDP Growth
(%)
|
FY 2021 |
FY 2022 |
FY 2023 |
| World GDP |
3.4 |
2.8 |
3 |
| Advanced Economies |
2.7 |
1.3 |
1.4 |
| Emerging Markets |
4 |
3.9 |
4.2 |
Indian Economic Overview
Amid a challenging global scenario, the Indian economy showcased
resilience and emerged as the worlds fastest-growing major economy in FY23. With a
GDP growth rate of 7.2%, driven by private consumption growth, continued investments and
net exports. India demonstrated robust growth despite global factors, input cost
escalation, and disparities in disposable income distribution. In response to inflationary
concerns, the Reserve Bank of India (RBI) took proactive measures by raising the repo
rate.
Indias economic reforms have been instrumental in fostering
growth. The countrys formalization drive has enhanced transparency, benefiting
businesses. Initiatives like ‘Aatmanirbhar Bharat and ‘Make in India
have propelled the manufacturing sector, positioning India as a potential manufacturing
hub.
Looking ahead, Indias GDP is projected to grow at a rate of 6.5%
in FY 2023-24, indicating a positive outlook. The central governments commitment to
significantly increase capital expenditure, despite targeting a lower fiscal deficit of
5.9% of GDP, will act as a catalyst, stimulating demand and fueling economic growth.
Infiation is projected to moderate to 5% in FY 2022-23, assuming a
decline in oil and food prices. Subsequently, it is expected to slow further to 4.5% in FY
2023-24 as inflationary pressures subside. Monetary policy is anticipated to be tighter in
FY2022-23 due to persistent core inflation, gradually transitioning to a more
accommodative stance in FY 2023-24.
The current account deficit is forecasted to decline to 2.2% of GDP in
FY 2022-23 and further reduce to 1.9% in FY 2023-24. Meanwhile, growth in goods exports is
expected to moderate in FY 2022-23 before regaining momentum in the subsequent years.
Overall, the Indian economy presents a positive outlook for FY 2022-23
and FY 2023-24, driven by improving labour market conditions, increased capital
expenditure, inflation moderation, and a projected decline in the current account deficit.
These factors are poised to sustain economic growth and foster stability in the years
ahead.
Global Industry Overview
Chemical Industry
The global chemicals market exhibited robust growth, increasing from
$4700.13 billion in 2022 to $5079.29 billion in 2023, achieving a CAGR of 8.1%. However,
regional dynamics played a significant role in shaping its trajectory. The Russia-Ukraine
war had far-reaching consequences, disrupting global economic recovery from the COVID-19
pandemic. This conflict led to economic sanctions, supply chain disruptions, and surging
commodity prices, triggering inflationary pressures worldwide.
Europe encountered challenges in the chemicals market, grappling with
higher energy prices and disruptions in supply chains. As a result, Europe transitioned
from being a net exporter to a net importer of chemicals for the first time. Nonetheless,
Europe remains a prominent player in the industry, actively driving innovation and
sustainability initiatives.
The US chemicals sector faced its unique set of obstacles, including
supply chain disruptions and production halts. Despite these challenges, the industry
showcased resilience compared to other regions. The decreased supply of chemical
fertilizers from Ukraine propelled increased prices and exports of US-produced
fertilizers.
China maintained its position as the worlds largest producer and
consumer of chemicals, accounting for approximately 45% of the global chemical market.
However, Chinese chemical production experienced a decline in 2022 due to COVID-19
restrictions, with significant manufacturing hubs like Shanghai operating at minimal
capacity due to lockdown measures and workforce quarantines.
Looking ahead, the chemicals market is projected to reach $6851.59
billion by 2027, with a CAGR of 7.8%. The industrys growth will be fueled by rising
demand in sectors such as manufacturing, construction, automotive, and healthcare.
Moreover, advancements in technology and a growing emphasis on sustainability practices
will shape the future landscape of the chemicals market.
[Source: Research and Markets, American Chemistry Council, Chemical
Industry Association]
Specialty Chemicals Sector
The global specialty chemicals market, valued at USD 272.6 billion in
2022, is projected to reach USD 364.8 billion by 2028, growing at a CAGR of 5.0% from 2023
to 2028. The markets growth is driven by various factors, including the increasing
demand for specialty chemicals in construction, water treatment, electronics,
pharmaceuticals, food and feed additives, Rs avors and fragrances, and other sectors.
These industries rely on specialty chemicals to enhance product performance and meet
specific requirements.
Advancements in process technology and trade liberalization have also
contributed to the growth of the specialty chemicals market. These factors enable
manufacturers to develop innovative solutions, expand their customer base, and enter new
markets. Additionally, the growing focus on sustainability and environmental concerns
presents opportunities for specialty chemicals that offer eco-friendly and sustainable
solutions.
In terms of market dynamics, Asia Pacific stands out as the largest and
fastest-growing market for specialty chemicals. The region benefits from rapid
industrialization, a growing middle class, and the expansion of end-use industries. Asia
Pacifics demand for specialty chemicals is particularly driven by the packaging and
automotive applications.
However, the specialty chemicals market faces challenges due to
government regulations and environmental standards that impose strict rules on companies.
Compliance with these regulations requires significant investments in testing, research
and development, and documentation. Additionally, the market is influenced by the
volatility in raw material prices, which can impact manufacturing costs and profit
margins.
[Source: Grand View Research]
Pharmaceuticals Industry
The global pharmaceutical market is undergoing transformative changes
and exhibiting resilience. In 2022, global spending on medicines increased to $1.48
trillion, reflecting the industrys ability to adapt to challenges. Looking ahead,
the market is projected to grow at a CAGR of 3-6% from 2023 to 2027, reaching
approximately $1.9 trillion. The growth will be driven by improved healthcare access,
increasing demand for chronic and sub-chronic therapies, and the introduction of
innovative medicines. The rise of specialty medicines and biotech is reshaping the
industry, with biosimilars generating significant savings. Oncology is expected to
experience remarkable growth, while immunology may face competition from biosimilars.
Regional trends show diverging growth rates, with developed markets
growing slower than emerging Pharmerging markets. The United States will see steady
growth, while China may face pricing pressures. India, Latin America, and Eastern Europe
are emerging as fast-growing regions in pharmaceutical spending.
[Source: IQVIA Global Medicine Use 2023]
API (Active Pharmaceuticals Ingredients) Sector
The global active pharmaceutical ingredients (APIs) market was valued
at $ 222.4 billion in 2022 and is expected to grow at a CAGR of 5.90% from 2023 to 2030.
The growth will expansion is fueled by various factors, including advancements in API
manufacturing techniques and the rising prevalence of chronic diseases like cardiovascular
diseases and cancer. Furthermore, favorable government policies supporting API production
and evolving geopolitical dynamics contribute to the overall growth of the market. The API
sector has also undergone significant transformations due to the disruptions caused by the
COVID-19 pandemic, leading to changes in supply chains and preferences for API sourcing.
The increasing focus on research and development activities for novel
drug development, coupled with favorable government regulations, has propelled the market
for innovative APIs. Extensive research efforts have yielded promising outcomes, leading
to the development of several innovative products expected to be launched during the
forecast period. This trend not only fosters market expansion but also encourages new
players to enter the segment, driving further growth and competition.
The demand for targeted therapies featuring high potency API compounds,
including highly potent active pharmaceutical ingredients (HPAPIs), has witnessed a
significant surge. Personalized medicines, particularly those leveraging antibody-drug
conjugates (ADCs) that utilize linker technology to target cancer cells, have gained
traction in the pharmaceutical industry. As pharmaceutical companies pursue the
development of such advanced therapies, the market for ADCs and similar innovative
treatments is expected to experience robust growth.
Furthermore, the expiration of patents for branded molecules plays a
pivotal role in the Rs ourishing market of generic API drugs. This has led to an increase
in the production and adoption of generic API medications, particularly in countries like
Brazil and India, where there are substantial unmet clinical needs and a growing
acceptance of over the counter (OTC) drugs.
The global API market has undergone significant changes due to the
supply chain disruptions caused by the COVID-19 pandemic. Geopolitical considerations and
the need to reduce dependency on China for API products have led to a shift in preference
towards countries like India for API exports. Governments of various countries have
recognized the importance of API production and have formulated plans and incentives to
promote domestic API manufacturing, ensuring a more robust and resilient supply chain.
Indian Industry Overview
Chemical Industry
Indias chemical industry is a vital and diverse sector that
encompasses bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers,
and fertilizers. With a global market presence, India ranks among the top exporters and
importers of chemicals.
The industry is fueled by several key growth drivers. Firstly,
Indias strong position in agrochemical production positions it as the fourth-largest
producer globally. In addition, India plays a significant role in dyestuRs s and dye
intermediates, capturing a substantial global market share. These factors contribute to
the industrys expansion and prominence in the international market.
The Indian government recognizes the chemical industrys
importance and has implemented various initiatives to support its growth. Measures such as
mandating certification for imported chemicals and introducing production-linked incentive
(PLI) schemes have been put in place. These initiatives aim to
Specialty Chemicals Sector
Specialty chemicals accounting for 22% of the overall chemical sector
and valued at $32 billion. These chemicals play a crucial role in various industries,
including food, automotive, real estate, clothing, and cosmetics, among others. Driven by
rising demand for value-added products, both domestically and through exports,
Indias specialty chemicals industry has experienced remarkable growth. It is
projected to reach $64 billion by 2025, with a promising CAGR of 12.4%.
India offers a competitive advantage as a specialty chemical
manufacturing hub, with factors such as reduced operational cost disparity with China,
ample feedstock availability, skilled labor, favorable government policies, and strong
intellectual property protection. The "China plus one" offshore strategy has
further enhanced Indias position as a preferred destination for specialty chemical
production. To bridge the export capacity disparity with China, India has the potential to
Pharmaceuticals Industry
The Indian pharmaceutical industry is a global leader, known for its
significant contributions to the market. The industry encompasses diverse segments such as
generic drugs, over-the-counter medications, bulk drugs, vaccines, contract research and
manufacturing, biosimilars, and biologics. With a projected market size of US$ 65 billion
by 2024 and US$ 130 billion by 2030, it is experiencing robust growth. Indias
pharmaceutical industry currently holds a value of around US$ 50 billion, with exports
accounting for over US$ 25 billion. The country is recognized as prevent the inRs ux of
substandard chemicals, promote domestic manufacturing, and drive exports.
Furthermore, the governments commitment to the industry is
evident through budget allocations. In the Union Budget 2023-24, Rs 173.45 crores was
allocated to the Department of Chemicals and Petrochemicals, highlighting the
governments focus on fostering the sectors development.
The outlook for the Indian chemical industry is optimistic, with strong
growth projected in the coming years. The industry is expected to contribute significantly
to Indias GDP, and an investment of Rs 8 lakh crores (US$ 107.38 billion) is
estimated in the chemicals and petrochemicals sector by 2025.
With favorable government policies, investment prospects, and
increasing demand for chemical products, the Indian chemical industry is poised for
continued expansion and will play a pivotal role in driving the countrys
manufacturing sector and overall economic growth.
scale up production and expand its export capacity in various specialty
chemical segments. Improving productivity and competitiveness in areas such as
electronics, food additives, rubber, Rs avors, and fragrances will unlock opportunities
for increased export share.
Amid a resurgence in demand, Indian companies are reassessing their
capacity expansion plans to meet the growing market demands. Capital spending in the
sector is expected to increase by 50% year-on-year, surpassing pre-pandemic levels,
reflecting the industrys commitment to cater to various sectors. With favorable
government policies, promising investment prospects, and a rising demand for chemical
products, Indias specialty chemicals industry is poised for continued growth and
will play a critical role in the manufacturing sector and contributing to overall economic
growth.
the largest provider of generic drugs worldwide and is acclaimed for
its affordable vaccines and generic medications. Indias strength lies in its
adherence to stringent international standards, with a significant number of
pharmaceutical manufacturing facilities complying with regulations set by the US Food and
Drug Administration (USFDA). Furthermore, the country is home to 500 active pharmaceutical
ingredient (API) producers, representing around 8% of the global API market.
[Source: IBEF Pharmaceutical Industry Report, Feb 2023]
API (Active Pharmaceuticals Ingredients)
The Indian Active Pharmaceutical Ingredients (API) Market has witnessed
notable developments in recent years. The COVID-19 pandemic exposed vulnerabilities in the
pharmaceutical supply chain, particularly the dependency on API imports from China. This
disruption resulted in increased costs and shortages of essential drugs, affecting the
treatment of various chronic diseases. In response, the Indian government launched
initiatives to boost domestic API production, aiming to reduce reliance on imports and
ensure a steady supply of medications.
Amidst these circumstances, the API market in India is projected to
grow from $12.59 billion in 2023 to $18.76 billion by 2028, reflecting a CAGR of 8.31%
during the forecast period. This growth is driven by various factors including rising
prevalence of infectious, genetic, cardiovascular, and chronic disorders necessitates a
consistent supply of APIs for the production of effective medications. Furthermore, the
governments initiatives, such as the allocation of significant funds and the
introduction of production-linked incentives, have incentivized domestic API
manufacturing. These measures are aimed at enhancing the production of critical key
starting materials (KSM) and APIs used in essential drugs for treating various medical
conditions, including diabetes, tuberculosis, steroids, and antibiotics. Such initiatives
are expected to drive the growth and development of the API market in India, ensuring a
robust pharmaceutical industry.
Business Overview
IOL is a renowned company in the Active Pharmaceutical Ingredient (API)
and specialty chemicals sectors. With substantive manufacturing capacities, the Company
benefits from economies of scale and cost supremacy. Its extensive expertise in both API
and specialty chemicals strengthens its business model and opens doors to diversified
growth opportunities.
Within the API segment, IOL develops and supplies a wide range of
essential products utilized by pharmaceutical companies worldwide for the production of
key medicines. The company is highly regarded and recognized in the Active Pharmaceutical
Ingredient (API) and specialty chemicals sectors. It serves as a global supplier of
various APIs, including Ibuprofen, Metformin, Clopidogrel, Lamotrigine, Pantoprazole, and
FenoRs brate, alongside other APIs, and maintains a significant presence in all major
therapeutic categories.
Given the increasing prevalence of lifestyle disorders and the demand
for more affordable healthcare delivery methods, the need for APIs continues to rise. IOL
effectively meets this demand and plays a crucial role in the pharmaceutical industry.
In the Specialty Chemicals division, IOL manufactures Ethyl Acetate,
Iso Butyl Benzene (IBB), Mono Chloro Acetic Acid (MCA), and Acetyl Chloride. The Company
is a leader in fostering green chemistry through its extensive production of Ethyl
Acetate, a sustainable and environmentally friendly solvent. As one of the largest
manufacturers globally, the Company plays a vital role in promoting the adoption of
eco-friendly practices in various industries such as pharmaceuticals, printing, flexible
packaging, adhesives, surface coatings, Rs avors, paints & lamination, and essences.
The Companys production facilities are in Barnala District,
Punjab. Furthermore, IOLs R&D center equipped with modern analytical equipment
is approved by the Department of Scientific and Industrial Research (DSIR). The
Companys R&D efforts are centered around developing products that address the
pharmaceutical industrys requirements for uninterrupted supply of superior quality
products. This underscores the Companys commitment to pushing the boundaries of
innovation and driving research and development initiatives. By focusing on promising
innovations, IOL collaborates with innovators to deliver solutions that cater to the
current and future drug needs of pharmaceutical companies worldwide.
SCOT Analysis |
|
Strength |
Challenges |
| - Strong backward integration capabilities. |
- Long durational period for developing
compounds and getting registrations for commercialization |
| - Maximizing export potential by filling DMFs
and getting regulatory approvals |
|
| - Good long-term relationship with customers |
|
- High-quality front-end team
with strong regulatory and manufacturing capabilities |
- Strained supply chain
network across the world |
| - A strong balance sheet with no debt. |
|
| - Strong product pipeline in both the
pharmaceutical and chemical sector |
- Volatility in the pricing of raw materials |
| - Ability to manage high scale complex
operations |
|
Opportunities |
Threats |
- Indian pharmaceuticals and
chemical companies getting increased outsourcing opportunities, fuelled by the China+1
strategy |
- Increasing energy and raw
material prices because of the volatile nature of the changing global scenario, worsened
by the Russia- Ukraine conflict |
- Increasing domestic needs
that are unmet due to the supply chain disruption owing to the disturbed geographical
scenario can be met by the domestic producers |
|
Risk Management
Please refer page 20 in the non-statutory section for details.
Financial Performance
During the year under review, the Company experienced steady growth in
total income, reaching Rs 2,243 crores, a slight increase compared to Rs 2,216 crores in
the previous year.
Segmental Revenue
The pharmaceutical segment accounted for approximately 57% of our total
revenue, showing an improvement from around 46% in the previous year. Meanwhile, the
chemicals segment contributed to approximately 43% of our total revenue, a decrease from
the approximately 54% share it held last year.
EBITDA
Our EBITDA for the year amounted to Rs 252 crores, representing a
decline from the Rs 288 crores achieved in the previous year. This decrease was primarily
due to the rise in costs associated with raw materials, fuel, and energy.
Net Profit After Tax
During the year, our company generated a net profit after tax of Rs 140
crores, compared to Rs 166 crores earned in the previous year.
Balance Sheet
Share Capital: The Companys paid-up equity share capital as
of 31st March, 2023, stands at Rs 58.71 crores, divided into 5,87,05,502 equity
shares of Rs 10/- each. There have been no changes in the capital during the FY 2022-23.
Other Equity The reserves and surplus for the FY 2022-23 amounted
to Rs 1448 crores, compared to Rs 1,332 crores in the previous year.
Net Worth: The Companys net worth has increased to Rs 1507
crores in FY 2022-23 from Rs 1,390 crores at the end of FY 2021-22.
Borrowings: The Company had no long-term secured or unsecured
borrowings as of the end of FY 2022-23. There are no outstanding balances on any term
loans.
Short-term secured borrowings at the end of FY 2022-23 amounted to Rs
80 crores, compared to Rs 43 crores at the end of FY 2021-22.
Assets
Non-Current Assets: The Companys total non-current assets,
including capital work in process, increased to Rs 1,102 crores as of 31st
March, 2023, from Rs 882 crores as of 31st March, 2022, net of depreciation and
additions.
Current Assets and Current Liabilities: As of 31st
March, 2023, the Company had inventories amounting to Rs 326 crores, compared to Rs 410
crores as of 31st March, 2022. Trade receivables stood at Rs 505 crores, an
increase from Rs 470 crores in the previous year. Trade payables amounted to Rs 314
crores, compared to Rs 409 crores as of 31st March, 2022. These changes are in
line with the overall increase in operations.
Cash Flows: For the year ended 31st March, 2023, the
Company had a net cash flow from operating activities of Rs 123 crores, compared to a net
cash flow used in operating activities of Rs 91 crores in the previous year.
The Companys net cash used in investing activities amounted to Rs
119 crores for the year ended 31st March, 2023, compared to Rs 121 crores in
the previous year.
During the year ended 31st March, 2023, net cash used in
financing activities amounted to Rs 4 crores, an increase from Rs 2 crores in the previous
year.
Ratio Analysis
Ratio |
FY 2021-22 |
FY 2022-23 |
| Operating Profit Margin (EBITDA) (in %) |
13.01 |
11.24 |
| Net Profit Margin (in %) |
7.58 |
6.31 |
| Return on Average Net Worth (in %) |
12.50 |
9.66 |
| Trade Receivable Turnover |
5.66 |
4.53 |
| Inventory Turnover Ratio |
5.05 |
4.99 |
| Current Ratio |
2.10 |
2.02 |
People-Centric Culture
With a workforce of over 2,600 employees as of 31st March,
2023, IOL values its human capital and strives to provide a quality workplace. The Company
fosters an inclusive environment, embracing diversity and ensuring equal opportunities
through regardless of their gender, age and background.
IOL prioritizes employee engagement through various communication
channels, town hall meetings, and committees, while comprehensive training and development
programs cater to individual needs and promote career progression. Wellness programs,
including yoga sessions and team-building activities, support work-life balance and
enhance physical and mental well-being.
The Company continually enhances the employee experience based on
insights from surveys, and it has comprehensive rewards and recognition programs that
acknowledge exceptional contributions. With a strong commitment to safety and well-being,
IOL adheres to ethical principles and standards, ensuring a positive work environment and
sustainable growth.
Internal Control System and Their Adequacy
The Company has aligned its current systems of internal controls
including financial controls with the requirement of Companies Act 2013. The
Companys internal controls are commensurate with its size and the nature of its
operations. These have been designed to provide reasonable assurance with regard to
recording and providing reliable financial and operational information, complying with
applicable statutes, safeguarding assets from unauthorized use, executing transactions
with proper authorization and ensuring compliance of corporate policies.
The Company uses best IT system to record data for accounting,
consolidation and management information purposes and connects to different locations for
efficient exchange of information.
The Audit Committee reviews reports submitted by internal auditors
regularly and suggest the improvements from time to time which are being implemented by
the Company.
Cautionary Statement
Statements in Management Discussion and Analysis describing
Companys objectives, projections, estimates and expectations may be
"Forward-Looking Statements" within the meaning of applicable laws &
regulations. Actual results may differ materially from those expressed or implied.
Important factors that could make a difference to companys operations include but
are not restricted to the economic conditions affecting demand/supply and price conditions
in the domestic and overseas markets in which Company operates, changes in the Government
regulations, tax laws, and other statues, as also other incidental factors.
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