Global economic overview
In CY 2023, the global economy experienced a period of muted growth of 3.2%1 due to persistent geopolitical challenges resulting in global energy and food crises, fluctuating commodity prices and rising inflation. While central banks resorted to calibrated interest rate hikes to rein in inflation, its impact weighed upon global growth. However, effective monetary policies and resilience of economies worldwide prevented a global recession, with inflation moderating towards the end of the year.
Despite navigating various headwinds, emerging markets showed relatively stronger growth compared to advanced economies. The US economy grew by 2.5%1, buoyed by strong consumer spending and increased government expenditure. On the other hand, the European Union saw modest growth of 0.8% and 0.9% in the Euro area2, influenced by internal policies and external risks. Among the emerging markets and developing economies, China recorded a sluggish growth of 5.2%,1 rattled by real estate issues and low consumer confidence.
Real GDP Growth, Percentage Change
Outlook
The global economy is expected to sustain its growth rate at 3.2% in CY 2024 and CY 2025. While the projection falls below the historical levels, this estimate reflects the resilience of the global economy to endure the macroeconomic challenges. Further, inflation is predicted to decrease gradually, from 6.8%1 in 2023 to 5.9% in 2024, and further to 4.5% by 20251. With inflation steadily declining faster-than-anticipated in most regions, economic activities are expected to slowly gain momentum, reducing the risk of financial instability.
Easing monetary policies from major central banks, a strong labour market, increased manufacturing activities and rising household incomes are expected to play a major role in sustaining economic growth in the coming years. However, challenges such as evolving trade patterns and fluctuating cross-border investments pose as significant challenges for the global economy.
Indian economic review
In FY24, India achieved a remarkable growth rate despite a sluggish global economy. According to the estimates of National Statistical Office (NSO), Indias economy has expanded 7.8% in Q4, lifting the growth rate of FY24 to 8.2%3. This remarkable performance, amid global challenges, positions India as the fastest-growing economy among major advanced and emerging markets. Effective fiscal management, with a focus on fiscal consolidation, supported growth of capital expenditure from 10.5 lakh crore in FY23 to 12.7 lakh crore in FY244. The emphasis on public capital spending not only attracted private investments but also bolstered overall demand.
Positive economic indicators, such as credit growth, GST collections and the Purchasing Managers Index (PMI) for manufacturing and services sector, indicate a healthy economic trajectory. The manufacturing PMI consistently remained above 50, showing strong sectoral growth. Overall, Indias strategy of enhancing public capital expenditure while maintaining fiscal discipline has established a solid foundation for continued growth and stability in the coming years.
Outlook
The Indian economy is expected to maintain its positive growth momentum in the forthcoming financial years as well5. Substantial public and private investments in key infrastructure projects are anticipated to stimulate economic activity in sectors such as transportation, housing and urban development.
With the anticipated improvements in global economic conditions,followedbyadoptionofmoreaccommodative monetary policies by central banks in developed countries, it is expected to propel private investments and enhance Indias export capabilities. Additionally, rising private consumption is projected to create significant demand across various consumer goods and industries, further accelerating economic growth.
Industry overview
Global Surfactants Market
In 2023, the global surfactants market was valued at USD 45.18 billion, with projections indicating growth to USD 47.36 billion in 2024 and reaching USD 70.13 billion by 2032 with a compound annual growth rate (CAGR) of 4.9%. This robust growth can be attributed to the increasing demand for personal care and household cleaning products, as well as expanding industrial applications6.
Surfactants ability to reduce surface tension and improve the efficacy of detergents and cleaners, have made surfactants an integral component for myriad of products. With growing consumer awareness about the ecological impact of chemical products and stringent environmental regulations, the market is witnessing a paradigm shift towards sustainable and bio-based surfactants. With industry key players innovating to stay ahead of the curve, increasing efficacy and affordability of surfactants are propelling the market growth. The industry players are focusing on the development of eco-friendly surfactants to meet the rising demand for sustainable products.
The Asia-Pacific region, particularly countries such as China and India, continues to dominate market growth, owing to rapid industrialisation, urbanisation and increasing consumer awareness regarding hygiene and personal care.
Key Macro Trends
Several macro trends are shaping the global surfactants market, influencing demand and driving innovation:
Growth of the Packaging Industry: With the increasing popularity of e-commerce platforms, the packaging industry has significantly benefitted from the rising demand, especially segments such as adhesives, inks and flexible packaging options. Additionally, in emerging economies such as India and Southeast Asia, there is a notable shift from plastic to board packaging materials, further fuelling demand for surfactants.
Rise of Bio-Derived Surfactants: With growing awareness about contributing towards a healthier future, bio-derived surfactants made from sources such as castor oil and natural fatty alcohols are gaining popularity. These surfactants are highly favoured for their superior biodegradability and compliance with strict environmental regulations in Europe and the United States.
Agricultural Sector Shifts: As the agricultural sector is transitioning towards adopting sustainable agriculture practices, it is increasing the usage of biopesticides, driving the demand for environmental-friendly surfactants such as alkyl polyglucosides and fatty alcohol ethoxylates. Transition to Electric Mobility: With automotive industry shifting towards electric vehicles (EVs), it is transforming the market for metalworking fluids (MWFs) and lubricant additives. As the manufacturing process of EVs requires less oil, it has declined the demand of MWF, while simultaneously increasing the need for low-foaming systems and non-ionic emulsifiers suited for electric car production.
Dominance of the Asia-Pacific Market
In 2023, the Asia-Pacific region held a significant share of the global surfactants market, valued at USD 18.21 billion7. This dominance can be primarily attributed to the increasing demand for home care and personal care products from developing countries such as China, Japan and India. Furthermore, economic development and evolving consumer lifestyles are surging the demand for personal care products.
Additionally, a flexible labour market and low manufacturing costs in these emerging economies are prompting several industry players to shift their operations to the Asia-Pacific region, expanding their global presence while catalysing their growth potential. Further, robust industrial base and favourable economic policies in this region propel market expansion.
Indian Surfactants Market
In FY 24, the Indian surfactants market was valued at USD 2.48 billion. It is anticipated that the market is projected to reach USD 5.05 billion by FY31, growing at a CAGR of 9.3%8. This growth can be attributed to the thriving economy, increasing urbanisation and rising disposable incomes. A growing middle-economic class, supported by rising awareness of hygiene and personal care and the growth of various end-use industries, are further anticipated to bolster the industrys growth.
The Indian surfactant market is highly competitive with key players consistently innovating to outperform their peers. Brands are setting high industry standards and diversifying their product portfolio to enhance consumer experience. Additionally, governmental policies aimed at augmenting manufacturing and promoting industrial growth are also providing a favourable environment for the surfactants market. Moreover, the rise of smart cities and infrastructure projects across the country is creating new demand for industrial and construction-related surfactants.
Industry-Specific Growth Trends
Home Care Industry
The Indian home care segment is witnessing significant growth due to increased consumer awareness about cleanliness and hygiene, especially in the post-pandemic era. In 2023, the industry was valued at USD 8.1 billion; it is anticipated that the market is expected to grow at a CAGR of 6.2% between 2025 and 20309.
The rise of modern retail formats and increase in the popularity of e-commerce platforms have redefined the distribution of home and laundry care products. While traditional small local grocers account for dominant market share, the proliferation of supermarkets, hypermarkets and online retail platforms has also provided consumers with better accessibility to a plethora of products, enabling more informed choices.
Product innovation and differentiation are the key trends in this market. Companies are introducing products with enhanced features to meet evolving consumer needs. With increasing hygiene awareness, there has been increase in demand for disinfectant and antibacterial cleaning products. Additionally, the industry is observing an enhanced preference for eco-friendly and sustainable products, surging the sales of items free from harmful chemicals and featuring biodegradable or recyclable packaging.
Hair Care Industry
Indias hair care market is flourishing, with the industry expected to grow from USD 5.85 billion in 2024 to reach USD 8.93 billion by 2029, at a CAGR of 8.80%10. The increased emphasis on personal grooming and wellness has driven demand for hair care products. The industry is also witnessing consumers increasingly seeking products tailored to various hair types and mitigate specific concerns. The market has also recorded a paradigm shift towards organic and chemical-free formulations, surging the sales of natural and herbal products.
Skin and Personal Care Industry
The year under review recorded the Indian beauty and personal care market reach approximately USD 23.99 billion. It is projected that the market will grow at a CAGR of 10.8% between 2024 and 203211. A burgeoning population coupled with rising disposable incomes and rapid urbanisation, is driving the growth of the market.
The industry is observing a growing preference for multi-functional products that provide a plethora of benefits. Additionally, the emergence of indigenous direct-to-customer (D2C) beauty brands and the growing demand for premium products, have propelled the market growth.
Oral Care Industry
In 2023, the Indian oral care market was valued at USD 2,058 million. It is anticipated that the market will grow at a CAGR of 8.69%12 in the upcoming years. The increasing focus on preventive dental care and development of innovative cosmetic dental solutions are driving the growth of the industry. Further, with increased awareness of oral health and hygiene, oral hygiene products sales are steadily gaining momentum. Key market players are also innovating their product portfolio to cater to the evolving market demands. Additionally, the introduction of advanced oral care technologies is further shaping the market landscape.
Baby Care Industry
The India baby care products market is expected to grow at a CAGR of 15.3% between 2024 and 2032, reaching USD 26.31 billion by 203213. The segment is witnessing rapid transformation, facilitated by rising birth rates and increasing parental awareness of infant health and hygiene. This has resulted in a growing demand of products such as baby shampoos, lotions, powders and wipes. The market is also observing a growing shift towards organic and hypoallergenic products, perceived as safer and more suitable for delicate baby skin.
Industrial Surfactants
The Indian surfactants market was valued at USD 2.48 billion in FY2023 and is expected to grow to USD 5.05 billion by FY2031, with a CAGR of 9.3%14. This growth can be attributed to increased demand across various industrial applications, including oil and gas, pharmaceuticals, agrochemicals, construction and paints and coatings.
Oil Exploration:
Oil exploration, both onshore and offshore, significantly drives surfactant demand in India as surfactants play a crucial role in oil exploration. Surfactants not only reduce friction and provide lubrication for smooth drilling operations, it also facilitates the flow of oil and gas through pipelines and equipment, especially in challenging offshore environments. With increase in oil exploration activities, it is expected to augment surfactant demand.
PharmaceuticalIndustry:
Thepharmaceuticalsectorisoneofthemajordriversofthesurfactantindustry.Assurfactants play a vital role in drug formulations, affecting efficacy, stability and delivery, the expansion of the pharmaceutical industry, it is surging the sales of surfactants. India is a major supplier of vaccines and generic medicine throughout the world. With the country aiming to bolster domestic and export demand, the surfactants industry is poised for further growth in the upcoming years.
Agrochemicals: Surfactants are widely used in the agrochemical sector as it enhances the effectiveness of pesticides and herbicides. With farmers adopting advanced agricultural practices and the growing necessity for higher crop yields, it is further propelling the demand for surfactants in the sector.
Company Overview
Aarti Surfactants Limited (ASL) is a leading Indian manufacturer of specialty chemicals, specialising in a diverse range of surfactants and related products. The Companys comprehensive product portfolio caters to diverse industries, offering a wide array of ionic and non-ionic surfactants, mild surfactants, rheology modifiers, pearlizing agents and other specialty ingredients.
Manufacturing Infrastructure
Demonstrating robust manufacturing capabilities Our Company has two manufacturing units at Pithampur and Silvasa. It has a sulfonation unit at Pithampur in the state of Madhya Pradesh, with the capabilities to manufacture Sulfonated Compounds on an active basis and has another manufacturing unit at Silvassa, Dadra, and Nagar Haveli which has logistical advantages on account of its proximity to major ports and FMCG companies in India. Our manufacturing units are equipped with machinery and technologies and have in-house R&D facility. Both of the facilities are equipped with latest technologies to aid business operations.
Management
We are driven by a qualified and dedicated management team, comprising of professionals with experience across various sectors, which is led by our Board of Directors. We believe that our management teams collective experience and capabilities enable us to understand and anticipate market trends, manage our business
(H in Lakhs) | |||
Particulars |
FY 2023-24 | FY 2022-23 | % change |
Revenue from operations | 58,985.74 | 60,129.32 | (0.02) |
PBT | 3,218.88 | 1,780.06 | 0.81 |
PAT | 2,121.32 | 1,276.45 | 0.66 |
Rs
Ratio |
FY 2023-24 | FY 2022-23 | Increase/Decrease |
Explanation |
Interest Coverage Ratio | 4.49 | 3.23 | Increase | Improvement is |
Operating Profit Margin | 10.68% | 7.95% | Increase | largely on accountd> |
Net Profit Margin | 3.77% | 2.11% | Increase | of improved |
Return on Net Worth | 11.50% | 8.36% | Increase | profitability. |
Key Strengths
Experienced promoters and strong management team:The Companys extensive industry expertise and established track record enables them to make strategic decisions and adeptly navigate regulatory challenges. This proficiency facilitates the establishment of valuable partnerships, optimisation of production processes and maintenance of stringent quality control standards. Its experienced team leads the Company towards a sustainable growth and ensures profitability.
Strong financial performance: A strong financial performance results in an efficient cash flow, which can be allocated towards strategic investments such as R&D or expanding the production capacity. A track record of profitability can enhance investor confidence, potentially facilitating smoother access to capital for future growth.
Reducing dependence on import of raw materials: Reducing dependency on the import of raw materials shields the Company from fluctuations in global prices and potential disruptions in the supply chain. The Company can enhance profit margins and re-invest in domestic production. Emphasising on domestic sourcing can also fortify relationships with local suppliers, potentially resulting in improved quality and a more dependable supply chain.
Opportunities
Technological Advancements: Leveraging new technologies can help in the development of high-performance and specialised surfactants, diversifying product portfolio and meeting varied industrial needs.
Sustainability Focus: With increasing demand for sustainable solutions, developing eco-friendly and biodegradable surfactants enable adherence to environmental regulations and can attract environmentally conscious clients.
Pharmaceutical Growth: As the Indian pharmaceutical industry expands, it is expected to propel the demand for surfactants.
Agrochemical Expansion: Addressing the rising demand for surfactants in agrochemical formulations to enhance pesticide and herbicide efficiency, can open new revenue streams.
Strategic Partnerships: Forming alliances with diverse industries and research institutions can facilitate innovation, provide access to new technologies, enhance capabilities and open up new markets opportunities.
Geographic Expansion: As emerging economies undergo rapid transformation, following rapid industrialisation and urbanisation, it is projected to boost the growth of the surfactants industry.
Threats
Regulatory Challenges: Navigating complex and evolving environmental regulations can disrupt business operations, impact product development and prevent market entry.
Competitive Market: Intense competition from global and local surfactant manufacturers require continuous innovation and differentiation.
Pharmaceutical Growth: As the Indian pharmaceutical industry expands, it is expected to propel the demand for surfactants.
Raw Material Volatility: Fluctuations in raw material prices and availability could negatively impact profitability.
Supply Chain Disruptions: Potential disruptions in the supply chain could interrupt production schedules and delivery timelines.
Human Resources
Aarti Surfactants Limited (ASL) proudly acknowledges its employees as its most valuable asset. Recognizing the critical role that its workforce plays in delivering products and services synonymous with quality and excellence, the Company is committed to fostering a supportive and dynamic work environment.
ASL places a strong emphasis on creating a safe and conducive workplace that nurtures trust, transparency, and teamwork. The Company regularly conducts training workshops to enhance individual capabilities and improve operational efficiency, ensuring that employees stay current with the latest industry trends.
Employee well-being is a top priority at ASL, demonstrated by the implementation of stringent safety protocols and continuous safety training. The Company is dedicated to maintaining harmonious industrial relations and fostering professionalism and teamwork through comprehensive HR policies.
These initiatives collectively support both the personal and professional growth of employees, driving the consistent development of ASLs workforce. As of March 31, 2024, Aarti Surfactants Limiteds total employee strength stood at 334, reflecting the Companys commitment to nurturing and expanding its talent base.
Risk Management
Risk Management at Aarti Surfactants is a continuous and dynamic process which includes identifying, assessing, measuring, and recommending mitigation plans/techniques for known risks. The primary objective of risk management is to help business teams make informed decisions and take proactive measures to manage and mitigate the risks effectively to ensure financial sustainability. This includes,
a) Ensuring regulatory compliance on risk management and prudential norms set by Regulators and by the Board.
b) Identifying the areas of risks involved in the business and suggest the method to measure/ quantify the risks.
c) Evaluating current controls and suggest enhancements/risk mitigants, if required, for identified risks.
d) Monitoring the Risk Appetite thresholds approved by the board for the key risks.
e) Envisaging emerging risk based on recent developments on the Regulatory and Economic front and evaluate the impact.
To enable efficient management of risk, an independent Risk Governance Structure, in line with regulations is in place. This is in the context of separation of duties and ensuring the independence of risk measurement, monitoring and control functions. The various risks across your company are monitored and reviewed through the Risk Management Committee (RMC). The RMC is a board level committee which meets regularly.
The six step of the Risk Management Process
Risks and Mitigations
Risks |
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Risk of Competition, pricing pressure and government control on prices |
Impact on profitability and rendering some products unavailable at times. | Expanding the current portfolio and introducing new products. |
The arrival of new competitors in established product categories intensifies competition, exerting pressure on the pricing. | Advancing in the product value chain and introducing complex products with substantial entry barriers to minimise new competition. | |
In certain nations, government regulations periodically control medicine prices, aiming to enhance affordability for the patients. | Executing various cost optimisation strategies throughout the value chain. | |
Risk related to economic and political situations |
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Regular political shifts, including civil unrest and situations resembling warfare in various locations, affect the economic operations within those regions. | Considerable uncertainty surrounds the Companys operations in regions affected by political instability. | Ongoing assessment of political and economic conditions around the world in order to limit exposure to the affected regions. Securing receivables via letters of credit or advance payments. |
Risk of regulatory actions due to noncompliance of quality standards |
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Failureto adhere to regulations in specific regions affect the Companys presence in those areas. | Regulatory penalties or compliance notices issued by authorities and customers. | Ongoing assessment of relevant regulations to maintain compliance consistently. |
Damage to reputation posing a threat to future operations. | Fostering a solid quality culture throughout the organisation and integrating new technologies and automation for enhanced compliance. | |
Taking measures to enhance systems and processes in response to regulatory actions taken against other entities. | ||
Risk of litigation related to intellectual |
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properties |
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Legal disputes may arise from infringement of patents owned by innovators. | Launching products may be deterred due to patents held by innovators. | Introducing a review mechanism to assess potential infringement of intellectual property rights before initiating development and filing dossiers. |
Litigation with tax authorities can occur due to differing interpretations of various provisions stemming from frequent changes in tax laws. | Ensuring adherence to diverse statutory requirements. | |
Risk of Market Volatility in Raw Materials |
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Unexpected price hikes for the raw material could erode profit margins and impact overall financial performance. | Aarti Surfactants is continuously evaluating its production processes and exploring ways to improve resource efficiency. This can help reduce the overall impact of raw material price fluctuations on production costs. | |
High market volatility can introduce uncertainty into production planning and budgeting, making it challenging to maintain efficient operations. | ||
Risks |
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Risk of delay in new product approvals |
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Delay in the launch of newly developed products | It affects the growth and profitability of operations in various markets. | Implementing a mechanism to thoroughly review all new product dossiers prior to submission to regulatory authorities. Promptly addressing queries raised by regulators regarding product dossiers to accelerate approvals. |
Risk of international operations including forex risk |
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Operating in various geographic locations exposes the company to fluctuations in currencies across different countries. | The Companys growth, profitability, investments and foreign currency debt obligations fluctuate in response to currency fluctuations. | Implementing a suitable hedging strategy to protect against unfavourable currency fluctuations. |
Risk of cyber-attack on digital infrastructure |
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Disruption to the Companys operations resulting from a cybersecurity breach on its digital infrastructure. | Financial, operational and reputational loss. | Initiating efforts to reduce operational and strategic risk profiles and promptly address emerging risks across all business areas. |
Risk of supply chain vulnerability |
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Increased costs of raw materials, utilities and logistics. | Substantial impact on profitability due to rising costs of raw materials, utilities and logistics. | Identifying critical excipients and other inputs and continuously monitoring pricing trends to make informed purchasing decisions and mitigate cost increases. |
Supply chain disruptions due to geopolitical and socio-economic threats. | Inability to meet global customers demand. | |
Identifying alternative vendors for essential raw materials and nurturing domestic suppliers in India to enhance cost, quality and supply control. | ||
Risk of failure to achieve the objectives of |
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large projects |
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Failure or delay in accomplishing objectives of major inorganic opportunities or capital projects. | Significant impact on profitability and return on investments. | Ensuring a pragmatic approach to valuation and conducting thorough evaluation and due diligence on all aspects of the project. |
Regularly monitoring the implementation of key strategies and the achievement of milestones compared to the plan. | ||
Maintaining discipline in investments and debt procurement. |
Environmental, Social and Governance (ESG)
ESG is gaining wider traction the world over - sustainability in operations is becoming a prerequisite for functioning rather than a hygiene factor. Our Company has taken an early lead and has demonstrated transparency in its governance with adequate disclosures, green initiatives, and digitalization of processes
3 pillars of ESG Internal Control Systems and Internal Audit
The Company has an adequate internal Control System to ensure adherence to the companys policies and procedures, compliance with applicable laws and regulations, to ensure that management information and financial reporting are correct, reliable, and complete, to enable the detection and prevention of fraud and errors and to safeguard the company assets against loss from unauthorised use or disposition, amongst others. Further, the internal control system is commensurate with the size of the business as well as the industry in which the Company operates. The framework endorses ethical values, good corporate governance, and risk management practices. The Company has appointed Internal Auditors to ensure compliance with the companys policies and procedures and compliance with applicable laws and regulations. The Audit Committee of the Board reviews the performance of the internal audit, the adequacy of the internal control systems and compliance with regulatory guidelines. The Audit Committee also provides necessary oversight, gives recommendations, and monitors the implementation of such recommendations.
The internal audit is performed as per the Annual Audit plan approved by the Audit Committee of the Board. The Company has a Risk-based Internal Audit process covering Plants and HO processes which is commensurate with the size and nature of its business. Observations and recommendations from the Internal Audit review are placed before the Audit Committee. Agreed actionable are monitored till closure and the status of the actionable are presented to the Audit Committee periodically.
Cautionary Statement
The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditionsaffectingdemand-supplyandpriceconditionsin the domestic and overseas markets in which the Company operates, changes in the government regulations, tax laws and other statutes and other incidental factors.
Readers are cautioned not to place undue reliance on forward-looking statements as several factors could cause assumptions, actual future results, and events to differ materially from those expressed in the forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements based on any subsequent developments.
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