MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Global Economic Overview
In FY 2022-23, the global economy continued to grapple with several macroeconomic
pressures. The continued war between Russia and Ukraine, the impact of supply chain
disruptions and mounting inflationary pressures affected countries globally. The sudden
surge of COVID in China dampened growth prospects further, as global inflation remained
high at an escalated 8.7%1.
The global economy demonstrated tentative signs of a soft landing in early 2023. The
recent financial sector turmoil and sticky inflation have posed a risk to sustained
growth. The slowdown is most pronounced in advanced economies, especially in the Eurozone
and the United Kingdom. Moreover, central banks monetary policies are expected to bear
fruit, contributing to a drop in global inflation. The Emerging Markets and Developing
Economies (EMDEs), including India, are powering ahead, with growth rates anticipated to
witness a significant upsurge this year.
In terms of the global economy, the baseline forecast is that growth will decline from
3.4%in 2022 to 2.8% in 2023 before levelling off at 3.0% in 2024. Conversely, a
particularly sharp drop in growth, from 2.7% in 2022 to 1.3% in 2023, is anticipated for
advanced economies. Despite this, the baseline global headline inflation rate is projected
to drop from 8.7% in 2022 to 7.0% in 2023 as a result of reduced commodity prices, however
the rate of decline for underlying (core) inflation is anticipated to be slower. Even if
monetary policy has tightened, domestic demand in EMDEs like ndia and China has so far
remained healthy. The IMF projects that these regions will contribute significantly to the
global economy in FY 2024 as its anticipated expansion accelerates to 4.2% from 3.9% in
over the previous year FY 20232.
Indian Economy Overview
India sustained its position as the worlds fastest-growing major economy after
remaining mostly insulated from the gloomy global outlook in FY 2022-23. Throughout this
year, the domestic economy demonstrated remarkable resistance to global headwinds. The
National Statistical Offices (NSO) second advance estimate reveals that the Indian
economy is in a sweet spot and expected to clock a growth rate of 7% in FY 2023-24. Amid
global uncertainty, the Indian economy continues to be resilient.
In the fiscal year under review, there was a consistent rise in GST collections,
electronic toll collections and the volume of E-Way bills generated. Indicators of the
services sector (UPI transactions, high credit demand) also point towards sustained
expansion.
Notwithstanding the fact that the post-pandemic private investment recovery is still in
its nascent stage, there are early signs that suggest that India is well-positioned for a
robust investment upcycle in both the manufacturing and services sectors.
Overall, Indias demand remains conducive to economic growth. India remains bullish
about the next fiscal year on the back of its underlying and overall macroeconomic
stability. However, it remains cautious about emerging geopolitical and geo- economic
concerns.
Global Pigment Industry Overview
Pigments find application in a wide range of industries, such as paints, coatings,
plastics, printing inks, textiles and cosmetics. Dyes and pigments are the dominant
sub-segment of Indias speciality chemicals market. The end-user industries include
textiles, paints and coatings, as well as personal care products such as cosmetics and
hair care.
The market for dyes and pigments was estimated to be worth US$ 38.2 billion in 2022 and
is expected to grow at a CAGR of 5.3% between 2023 to 2030 reaching a market size of US$
57.8 billion by 2030. During the projection period, the Asia-Pacific region is predicted
to experience the fastest CAGR growth in product demand. An expanding building sector,
rapid industrialisation, and urbanisation, along with rising disposable income in the
regions emerging economies, will be the main driving forces of this sector3.
The pigment industry has faced many challenges as other businesses due to current
geopolitical events - increase in overall inflation, subdued demand, supply chain
disruptions, exponentia increase in prices of raw materials, energy, and logistics. This
has led to major destabilizations in pigment industry leading to plant shutdowns and
disruptions in production.
Market Consolidation
The last few years have also been marked by acquisitions and consolidation among major
players in the pigments industry. This has been a key factor in the pigment industry.
China, plus one
Post Covid, China plus one movement was much talked about, however this momentum has
gathered pace now. This China, plus one movement, will benefit domestic producers as
global end- use industries looking to de-risk their supply chains from Chinese suppliers
look at establishing and diversifying outside of China. This is a positive for the Indian
pigment industry which stands to gain immensely from this trend.
Long term shift in type of pigment
The printing ink market, the biggest consumer of pigment is expected to decline
gradually as sales for printed publications start to decrease.
Even though there will be an overall reduction in the demand for Printing ink, demand
for digital ink is expected to grow. The packaging market continues to be an area of
consistent growth with demand for sustainable products. The consumers are pushing ink
makers to focus on regulatory compliant inks with low-odor and without migratory
substances.
European Demand to remain flatfish; long term opportunities for Indian Exporters
The European Union (EU) demand is expected to remain largely flatfish over FY 2023-24
as the region continues to grapple with increasing energy costs which will have a negative
impact on manufacturing costs. The increased cost of production is likely to result in
high chemicals prices within EU, thus encouraging imports from lower cost regions
including India.
Key Growth Drivers
Higher demand for pigments in various end-use applications
Pigments are extensively employed in a variety of end-use applications, including
paints, coatings, plastics, printing inks, textiles and cosmetics, as they are
fundamentally necessary for colouring and improving the aesthetic appeal of products. In
the construction business, pigments are used to colour, mortar, and other building
materials. While pigments are used to colour paints and car coatings in the automotive
industry, they also play a role in the packaging sector to colour plastic films and
containers.
The development of the automotive, packaging, consumer goods, cosmetics and
construction industries will have a considerable impact on the need for pigments.
Adoption of high-performance pigments
High-performance pigments offer superior colour strength, stability, and durability.
They are used in applications that require high-quality and long-lasting colour. The
greater demand for high-performance pigments from industries such as automotive, aerospace
and electronics is expected to drive market growth.
Growth of emerging economies
Rising populations, urbanisation, and enhanced standards of living in these regions are
expected to fuel demand for pigments in various applications. The growth of the food and
beverage industry is also expected to create new opportunities for the pigment market, as
pigments are used to improve the visual appeal of food products. Furthermore, the EMDEs
construction industry is expanding due to favourable government initiatives, strong
assistance, and investment, which is expected to contribute to an increasing demand for
goods throughout the Asia- Pacific region. The burgeoning personal care and cosmetics
industry in India will further accelerate the demand for organic pigments.
Business Overview
Sudarshan has a wide portfolio of organic and inorganic product offerings, including
azos, high-performance pigments, phthalocyanines (blue and green) and pearlescent
pigments, among others, which are utilised in a range of finished products and end
applications.
Over the last decade, Sudarshan has transformed from being a domestically oriented
company to a leading global provider of colour solutions to a worldwide clientele. This
transformation was achieved by focussing on establishing a portfolio of specialty
pigments, growing our international business and building a world-class organisation.
The Companys investments in the pigment technical marketing capabilities during this
period also helped in growing speciality pigment.
Over the last few years, The Company has embarked on transformation journey and have
made significant investments in new product capabilities, in adding capacities in the
existing pigment business, building new businesses of specialised pigment chemistries and
creating world class infrastructure.
All these projects will drive the companys future growth. From the long-term
perspective, this has transformed product portfolio into one with the widest and most
comprehensive product range in the industry.
The Company caters to international markets through globalised operations in countries
such as Europe, North America, Mexico, China, Japan, and several other geographies. With
strong sales teams, focus on product quality and supply chain management, we have seen
growth in export market. Key account management and building healthy customer relationship
over the years, has also helped in growing the international business. We expect higher
growth to continue in the international market.
The Company is the market leader in the domestic market with around 35% market share.
With the expansion of product portfolio, resilient Indian economy, we expect, domestic
business continues to grow.
The Company focuses primarily on product innovations, efficiency, R&D, and
sustainability. Sudarshan has a team of highly qualified scientists and engineers working
to develop new products and enhance existing ones. This team constantly strives to explore
new products, technology and processes that can be used to develop superior, eco-friendly,
and more sustainable colour solutions.
Sustainability continues to be central to Sudarshans functioning and is embedded
across all facets of our operations. The Company strives to lower its carbon footprint
through the implementation of energy- efficient practices and increasing in renewable
energy sources. To ensure the adoption of ethical practices throughout the supply chain,
we collaborate with suppliers and undertake responsible sourcing of raw materials.
Financial Overview
Despite the setbacks we faced by various macro events such as Geopolitical situation,
inflation across economies, restrictive monetary policies, we ended the financial year
with stable performance.
The Companys gross margin was impacted due to rising raw material costs and limited
ability of price pass through which was due to subdued demand across the globe. Apart from
raw material costs, energy costs and logistics costs have remained high for majority part
of the year. The Company had aggressively pursued cost reduction efforts considering the
difficult external environment and executed a pricing strategy with a balanced approach to
maintain volume growth.
Despite recent disruptions in the industry, we have successfully commissioned several
capex projects which we will continue to gradually scale-up over the next few years.
Going forward, as we pursue our goal of being amongst the top three pigment
manufacturers in the world, we will continue to expand our product portfolio, strengthen
our manufacturing capabilities, explore new markets, invest in our people and integrate
sustainability into all areas of our business.
Standalone
The Companys total income on a standalone basis is Rs.980 crore vs Rs.1,927 crore, a
growth of 3%. EBITDA was t181.5 crore in FY 2022-23 as against Rs.233.3 crore in FY
2021-22 and Profit After Tax was Rs.31.4 crore as against n00.4 crore the previous year.
Earnings Per Share {excluding exceptional items (net of related tax) and tax related to
earlier year} in FY 2022-23 were Rs.4.5 as compared to Rs.14.5 over the previous fiscal.
Pigment consolidated
Segment revenue for the pigment business was Rs.2,079.1 crore as against Rs.2,019.7
crore in FY 2021- 22, registering a growth of 3% YoY. EBITDA stood at Rs.193.7 crore
(9.3%) in FY 2022-23 as compared to Rs.269.3 crore (13.3%) last fiscal. Export sales
reported were n,024 compared to Rs.987 crore in FY 2021-22, a growth of 4% YoY. Domestic
sales grew by 2% YoY and was reported to be Rs.1,055 crore. Sales from the speciality
pigment business stood at n,435 crore and formed 69% of revenues. Non-speciality sales
formed 31% of revenues and stood at Rs.644 crore.
Consolidated
The Companys total income grew by 5% to Rs.2,306.5 crore on a consolidated basis from
Rs.2,205.8 crore in FY 2021-22. EBITDA for the year stood at Rs.210.6 crore with margins
of 9.2% as compared to Rs.274.8 crore with margins of 12.5% during the prior year.
Profit after tax was recorded at Rs.44.8 crore in FY 2022-23 as compared to Rs.130
crore in FY 2021-22".
Earnings Per Share from deducting extraordinary items (net of associated tax) and tax
connected to the preceding year was at Rs.6.5 as compared to Rs.18.8 in the previous year.
| Particulars |
Standalone |
Consolidated |
|
Year Ended 31st March, 2023 |
Year Ended 31st March, 2022 |
Year Ended 31st March, 2023 |
Year Ended 31st March, 2022 |
| Income from Operations |
1,976.1 |
1,918.9 |
2,301.7 |
2,200.8 |
| Other Income |
4.2 |
8.4 |
4.8 |
5.0 |
| Total Income |
1,980.3 |
1,927.3 |
2,306.5 |
2,205.8 |
| Earnings before interest, tax and depreciation and amortization (EBITDA) |
181.5 |
233.3 |
210.6 |
274.8 |
| Profit before tax and exceptional items |
37.8 |
137.5 |
59.8 |
171.1 |
| Less: Tax Expense |
6.4 |
37.1 |
15.0 |
41.1 |
| Profit after tax |
31.4 |
100.4 |
44.8 |
130.0 |
| Key Ratios (Consolidated) |
FY 22-23 |
FY 21-22 |
| Return on Capital Employed (ROCE) |
6.1% |
11.5% |
| Debt to Equity Ratio |
1.0 |
1.0 |
| Current Ratio |
1.1 |
1.1 |
| Earnings Per Share |
6.5 |
18.8 |
| Operating Profit Margin |
9.2% |
12.5% |
| Net Profit Margin |
2.0% |
6.0% |
| Debt to Tangible Net Worth Debt Service |
1.1 |
1.0 |
| Coverage Ratio |
1.0 |
1.5 |
| Interest Coverage Ratio |
4.5 |
10.6 |
| Cash Conversion Cycle (in days) |
74 |
96 |
Risks and Concerns
Framework and risk management
The Company recognises the potential threat from emerging risks, including sectoral
risks, sustainability risks, operational risks, financial risks, and cyber/ information
risks. Effective risk management, coupled with the capacity to capitalise on
opportunities, are key components of the Companys risk management framework.
At Sudarshan, risk management is an ongoing procedure that entails identifying,
evaluating, and prioritising risks, as well as applying resources in a coordinated and
economical way to lessen, monitor and control the likelihood and/or impact of uncertain
events or to maximise the realisation of opportunities. Additionally, risk management
seeks to detect and control any potential dangers that could have severe consequences.
The Board of Directors oversee the Companys risk management framework. In compliance
with Regulation 21 of the 2015 Listing Regulations, a Risk Management Committee has been
established. Reviewing the Companys risk management strategy and ensuring that risks are
managed within acceptable bounds are the Committees major objectives.
A documented risk management policy and an up-to-date risk register are part of the
Companys risk management system. Sectoral risks, sustainability risks, operational risks,
financial risks, and cyber/information risks are all compiled in a risk register.
Risk ratings and management controls are also included here. Considering changes in the
operational environment and the Companys operations, these are continually reviewed and
updated. Additionally, independent assessments of risk management controls and procedures
are carried out every year, with the results reviewed twice annually by the Risk
Management Committee.
Additionally, the Company has a strong insurance programme with the goal of
transferring insurable risks for future catastrophic losses.
Navigating through uncertainties with strategic initiatives
The Company periodically reviews uncertainties and after careful evaluation, short- and
longterm measures are finalised and implemented to reduce risks. FY 2022-23 also presented
several challenges, including global supply chain interruptions and soaring inflation that
worsened as a result of geopolitical unrest.
Amidst supply chain disruptions and inflationary trends, the procurement team took
several measures to ensure raw material availability and efficient procurement. The
Manufacturing and Operations team ensured efficient manufacturing and focused on
aggressive cost cutting, the Sales team took a calibrated approach on product pricing and
price negotiations for margin protection as well as growth.
The projects and product development team also worked to complete commissioning of
entire capex project plan.
Environmental, Social and Governance (ESG)
The Company is dedicated to safeguarding the environment and diligently works to
conserve limited natural resources. As Indias leading pigment manufacturer, Sudarshan
seek to play a key role in advancing the countrys chemical sector towards sustainability.
It acknowledges the fact that sustainable business growth results from understanding and
addressing environmental challenges in all aspects of its operations, including product
creation and delivery.
Sudarshans social duty goes beyond legal requirements.
It is deeply embedded in the Companys culture. To assist its people, business partners
and communities, the Company has undertaken various initiatives that have enabled it to
better manage the emotional health of its employees and their families.
Under Sudha, various programmes focused on womens empowerment, education, health and
community development are being conducted. The goal of these programmes is to foster
holistic community development.
Additionally, Sudarshan has aligned its organisational ideology by incorporating the
fundamentals of good governance because it prioritises professional conduct and robust
corporate governance. We have strengthened the ERM framework and internal business
mechanisms and remain committed to enhancing our business practices further.
Initiatives implemented for a greener environment
Being a responsible corporate entity, the Company is cognisant of its environmental
footprint and endeavours to reduce it through calibrated, need-based measures. Energy
Management, Water Management, Waste Management and Climate Change are key focus areas for
us, and we have set specific, timebound targets under each of them.
Sudarshan complies with all environments laws and regulations. We have made significant
investments in the renewable energy space, including solar and wind energy. Sudarshan
contributes to overall sustainability by reducing and minimising waste, managing trash and
recycling. We have set up sophisticated effluent treatment facilities and waste management
systems across the manufacturing locations to minimise environmental damage.
People and Culture
Fostering employee engagement
Sudarshan puts its employees first and is committed to ensuring their overall
well-being. The Company acknowledges the role of its human capital and how crucial it is
for creating shared value because companies are centred around people. Whether it be in
terms of compensation, health and safety, well-being, or learning and development,
Sudarshan has always adopted fair work practices. With numerous engagement and development
activities, Sudarshan is dedicated to creating a secure and uplifting work environment.
The Company has initiated several programmes to ensure a positive and healthy work
culture in order to create an open, engaging, and lively work environment.
Diversity & Inclusion Initiatives
Sudarshan is an equal opportunity employer and strives to create an inclusive workplace
and work culture. The Company is committed to treating all people with respect, care,
fairness, sensitivity, and dignity.
SUDA SAKHI ERG (Employee Resource Group) is a platform developed for women to discuss
their challenges and concerns. Every month 2 training sessions are conducted on various
topics like health and safety, self-defence, and emotional well-being.
The Company proactively works towards ensuring that its workforce comprises people with
disability, subject to applicable regulations, qualifications, and merit of the
individual. As on March 31, 2023, Company has six differently abled personnel working in
various departments.
SUDA Tribe is an ideation workshop which aims to bring a diverse work group together to
create conversations and exchange ideas for cultural integration. SUDA Tribe has provided
a platform for employees, old-timers, and lateral hires, to meet and share their
experience.
Sudarshan Learning Academy
The Company strives to foster the holistic growth of its personnel and help them
acquire new si ills.
It has created a platform called the Sudarshan Learning Academy. The Company has
embarked on a transformational journey to hone the capabilities of its personnel and
created a competency-building plan for senior and mid-level managers to develop their
technical and behavioural competencies.
Internal Control Systems and their Adequacy
Sudarshan believes that Internal Control is one of the key pillars of governance, which
provides freedom to the management within a framework of appropriate checks and balances.
The Company has developed and put in place a robust internal control framework
considering the nature, size and risks that could hinder them from achieving its
objectives. Adequate internal control systems are in place along with reasonable
assurances on authorising, recording and reporting transactions in its operations.
The Company had already developed and implemented a framework to ensure internal
controls over financial reporting. This framework includes entity -level policies,
processes and operating level standard operating procedures (SOPs).
Internal control systems are an integral part of the Companys Corporate Governance
structure. Information Technology (IT) policies and processes play a key role in achieving
these objectives. The application systems and business processes are continuously improved
by adopting best-in-class processes and automation and implementing the latest IT tools
which further help maintain financial and commercial discipline.
The entire control framework is designed to provide reasonable assurance about the
credibility of data and compliance, inter-alia:
• Recording and providing reliable financial and operational information;
• Complying with the applicable statutes;
• Safeguarding assets from unauthorised use;
• Executing transactions with proper authorisation, and ensuring compliance with
corporate policies;
• Prevention and detection of frauds and errors;
• Continuous updating of IT systems.
The Management has assessed the effectiveness of the Companys internal control over
financial reporting as of 31st March 2023. Sudarshan has appointed Price
Waterhouse Coopers (PWC) to assess the effectiveness of its internal financial controls.
Their assessment was based on an internal audit plan, which was reviewed in consultation
with the Audit Committee and was found to be quite adequate.
The Audit Committee reviewed the reports submitted by the Management and Internal
Auditors. Based on their evaluation (as defined in Section 177 of the Companies Act, 2013
and Regulation 18 of the Listing Regulations, 2015), the Companys Audit Committee has
concluded that, as of 31st March 2023, the Companys internal financial
controls were adequate and operating effectively.
Cautionary Statement
Under the applicable securities laws and regulations, certain comments within
Management Discussion and Analysis that describe the Companys goals, plans, estimates,
expectations, or predictions may be considered forward-looking statements. The Companys
operations are influenced by several internal and external factors that are beyond its
control. Therefore, even though the expectations are based on reasonable assumptions, the
actual results may materially differ from those stated or indicated. The Company denies
any obligation to update any forward-looking statements in the public domain in light of
new information, future developments, or other factors.
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