<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>
Global Agrochemical Market
The global market for agrochemicals attained a valuation of US$ 66.6
billion in 2020 and is anticipated to ascend to US$ 91.7 billion by the year 2025,
displaying a CAGR of 6.5%. This growth trajectory is underpinned by the burgeoning global
population and its increasing affluence, leading to notable shifts in consumption
patterns. This paradigm shift necessitates not only augmenting production to match demand
but also ensuring the fulfilment of nutritional requirements for the expanding populace.
The domain of Crop Protection Chemicals & Solutions is rapidly evolving on a global
scale, characterised by a climate of openness to innovation. It stands as a pivotal tool
for safeguarding crops and bolstering yields. Given the current landscape, the judicious
application of crop protection chemicals within the confines of a regulatory framework
assumes paramount importance. The agrochemical market emerges as a significant support
pillar for the agricultural sector, effectively boosting agricultural output.
The landscape of agriculture has undergone transformational changes,
largely propelled by continual technological advancements. This has precipitated a shift
in farming practices. Moreover, the era of globalisation, liberalisation, and
privatisation has positioned manufacturing and service industries as primary employment
sources for masses, ushering them into the realms of urbanisation for sustenance and
consumption.
This transition, however, has prompted the diversion of land from
agricultural to commercial and residential purposes, diminishing the expanse available for
agricultural and related pursuits. Consequently, this trend has heightened the demand for
agrochemicals, facilitating increased food production within limited land resources. In
the face of surging global population and diminishing arable land, the significance of
crop yield has magnified. Additionally, the imprint of climate change has amplified the
menace posed by plant pests, wreaking havoc on economically vital crops and posing an
escalating threat to both food security and the environment. In this landscape, crop
protection chemicals assume a pivotal role, standing as the guardians of crops, serving to
meet the imperative of human food security.
Global Organophosphate Market
Organophosphate pesticides stand as one of the most widely utilised
pesticide categories on a global scale, constituting nearly 30% of the total insecticides
sales worldwide. As of 2021, the global organophosphate industry commanded a valuation of
US$ 7.28 billion, and projections indicate a robust ascent to US$ 9.41 billion by 2026,
exhibiting a noteworthy CAGR of 5.27%. This industrys trajectory is set to be marked by
promising growth in the upcoming years, buoyed by a burgeoning presence of players.
Driving the upward trajectory of the organophosphate sector are various factors, including
the growing roster of industry players, the escalating demand for versatile and
broad-spectrum pesticides, and the mounting urgency to enhance yields of food crops.
Organophosphates play a pivotal role in meeting these critical agricultural demands. Much
akin to the Global Agrochemicals market, the Global Organophosphates market is dominantly
shaped by the Asia-Pacific (APAC) region, followed closely by North America and Europe.
Global Pyrethroids Market
The global Pyrethroids market achieved a valuation of approximately US$
3.3 billion in the year 2020. Demonstrating commendable growth from 2015 to 2020, the
market exhibited a CAGR of 4.7%. Looking ahead, it is projected to maintain an upward
trajectory with a CAGR of 6.4% until 2025, ultimately reaching a value of US$ 4.5 billion
by that year. Pyrethrins, which are natural pesticides derived from certain species of
chrysanthemum flowers like cinerariaefolium and coccineum, hold a significant place in
this market. These compounds find application in various pest control practices. Notably,
the Asia-Pacific (APAC) region occupies a dominant position in the consumption of
pyrethroid insecticides, driven by robust insecticide sales owing to its substantial
population base. Within the APAC region, emerging economies such as China, India,
Malaysia, Thailand, and Indonesia emerge as key consumers of pyrethroid insecticides,
underpinning the regional markets prominence.
Global Agrochemical Market Growth Drivers
SWELLING GLOBAL POPULATION
The worlds population continues to experience steady growth, and this
trend is poised to persist in the foreseeable future. With an expanding populace, the
demand for sustenance is expected to outpace the available arable land, inevitably
fostering the necessity for agrochemicals to enhance crop yields.
LIMITATION OF LAND AND SOIL HEALTH
The expanse suitable for agricultural cultivation remains constrained
and steadily diminishes. Moreover, the fertility and vitality of these cultivable lands
have suffered significant degradation over time, owing to multifarious factors. This dual
challenge collectively curtails agricultural output. Nonetheless, the global demand for
nourishment keeps escalating, compelling the adoption of diverse plant protection measures
and growth-enhancing agents to amplify production and meet burgeoning requirements.
ELEVATING CROP RESILIENCE AND OUTPUT
An estimated 25% of the worlds annual crop production succumbs to
losses due to pest infestations, diseases, and rampant weed proliferation. Consequently, a
substantial quantum of food is squandered, contributing to scarcity. This concerning
phenomenon has spurred heightened reliance on agrochemicals, plant protection strategies,
and growth stimulants to curtail losses, bolster resilience, and augment yields.
Indian Agrochemical Market
India holds the distinction of being the worlds fourth-largest
agrochemical producer, trailing only the USA, Japan, and China. In the year 2020, the
Indian agrochemicals sector garnered a valuation of US$ 5.95 billion. Notably, the exports
of crop protection chemicals from India experienced a robust CAGR of approximately 9.4%
from 2015 to 2020. During the same year, domestic consumption accounted for around 45% of
the total agrochemicals production, with exports constituting the remaining 55-57%. In the
Indian context, the domestic crop protection chemicals market was evaluated at US$ 2.6
billion in the year 2020, and an anticipatory growth of about 6.5% is projected over the
ensuing five years, foreseeing a valuation of US$ 3.5 billion by the year 2025.
Against the backdrop of Indias diminishing per capita arable land to
accommodate the housing demands of a burgeoning population, trends in low crop yield have
emerged. These trends are attributed to a dearth of mechanisation, erratic climatic
conditions, excessive reliance on monsoons, subpar logistics infrastructure, inadequate
post-harvest support, among other factors. Notably, India registers one of the worlds
lowest per capita consumption rates of crop protection chemicals per hectare. This
consumption stands in stark contrast to more developed nations like the United States or
Japan, where per hectare usage is in the double-digit kilograms range. Countries such as
Taiwan, China, and Japan consistently employ double-digit kilograms per hectare of crop
protection chemicals, juxtaposed with Indias meagre 0.6 kg per hectare. This glaring
disparity underscores the immense potential for growth in the space of crop protection
chemicals within India. This growth not only holds the potential to elevate agricultural
productivity but also to mitigate the scarcity of farm labour through the extensive
adoption of herbicides and similar measures.
Export Markets for Indian Agrochemical
Indias prowess was evident by securing the fifth position globally in
agrochemical exports in terms of value and a commendable third position in terms of volume
during the year 2020. Remarkably, Indias pesticide exports reached a substantial sum of
US$ 3.4 billion, representing about 7% of the worldwide exports. A promising projection
reveals that by 2025, Indian exports will encompass nearly 60% of the domestic
agrochemicals production (presently, exports comprise approximately 55% of the total
market share). As of now, China is the front-runner in pesticide exports, commanding a
substantial 37% market share globally, followed by Germany (8%), India (7%), the US (7%),
France (6%), and others. India is poised to escalate its exports share to approximately
10% by the year 2025. The nations standing in terms of imports of pesticides ranks sixth
in value and fifteenth in volume. In 2020, Brazil and the US held dominant positions in
imports of crop protection chemicals, each occupying a market share of approximately 6%.
The import leaders are pursued by France (4%), Canada (5%), Austria (4%), Germany (4%),
Nigeria (3%), and others in terms of volume.
Indian Agrochemical Market Growth Drivers
CATALYSTS FOR GROWTH IN THE INDIAN AGROCHEMICALS SECTOR
Beyond reaping the benefits of the China+1 strategy, the Indian
agrochemicals industry is propelled by an array of influential factors, propelling exports
and fostering expansion within this domain.
ESCALATING EXPORT FOOTPRINT
Indias export trajectory has witnessed a notable ascent driven by
multiple tailwinds, prominently the China+1 strategy. In this strategic paradigm, global
enterprises seek to diversify their reliance on China. The impetus to explore alternative
supply bases stems from escalating compliance and operational costs in China, import
substitution, and mounting logistical complexities.
POPULATION SURGE AND ESCALATING FOOD NEEDS
Agriculture remains a cornerstone of the Indian economy, with
approximately half of the nations population reliant on it for sustenance. Nevertheless,
with shrinking arable lands and a consistently growing populace, the imperative to amplify
agricultural output to meet escalating food demands has emerged as a pivotal driver
propelling the adoption of agrochemicals.
CURTAILING CROP LOSS
The Indian Council of Agricultural Research (ICAR) underscores that
nearly 30-35% of annual crop yields are imperilled by pests. The strategic implementation
of agrochemicals can mitigate this predicament while concurrently augmenting crop yields.
FLOURISHING HORTICULTURE SECTOR
Fruits and vegetables encompass nearly 90% of Indias horticultural
production, vaulting the nation into the position of the worlds second-largest producer
in this category. The burgeoning growth of horticulture and floriculture sectors augurs an
augmented demand for agrochemicals, particularly fungicides.
CHANGING CLIMATE PATTERNS
Modern-day erratic climate fluctuations severely impact crop yield. For
instance, irregular monsoons coupled with inadequate irrigation culminate in diminished
agricultural productivity. Favourable conditions, such as humid and warm weather, foster
weed proliferation, necessitating agrochemical intervention to avert propagation and
safeguard crops.
HEIGHTENED AWARENESS
Holistic educational campaigns are empowering farmers with enhanced
agrochemical proficiency, advocating accurate application techniques and dosage. These
initiatives are poised to heighten awareness about the manifold benefits of agrochemicals,
thereby eliciting a positive upswing in demand.
Company Overview
Established in 1987, Aimco Pesticides Limited stands as an integrated
agrochemical enterprise engaged in the manufacturing, marketing, and exports of diverse
agrochemical products. Anchored by a robust focus on Research and Development (R&D),
AIMCO has maintained a DST-recognised R&D laboratory since 1995, positioning itself as
an entity proficient in the production of technical-grade agrochemicals. Beyond this core
competency, the Company also encompasses a footprint within the domain of branded
formulations. With an expansive portfolio that boasts more than 300 SKUs encompassing
Insecticides, Fungicides, and Herbicides, Aimco has etched its presence in this sector.
Recognised as a Government of India approved 3-star Export House, an accolade that attests
to its extensive global outreach spanning across approximately 45 countries. Moreover, the
Company upholds its commitment to quality and standards, being bestowed with ISO 9001,
14001, and OHSAS 45001 certifications.
Business Verticals
TECHNICAL VERTICALS
Aimco places its emphasis on the production of technical-grade
agrochemicals, also known as Technicals, spanning various categories encompassing
Pesticides, Insecticides, and Herbicides. These technical-grade agrochemicals are either
utilised in-house for our formulations or sold to external formulators both within India
and abroad. Technicals segment extends its services to clientele worldwide, notably
catering to markets in the USA and Australia. The Company boasts an in-house Research and
Development (R&D) centre, validated by the Department of Science and Technology (DST),
complemented by a formidable R&D team. This collective expertise serves to support
process engineering, development initiatives, and the commercialisation of off-patent
molecules. At present, the Company has a comprehensive portfolio of 11 molecules, spanning
diverse categories. Among these, key products such as Triclopyr, Bifenthrin and
Chlorpyrifos (Ethyl & Methyl), hold prominence. Ongoing developmental efforts
encompass various categories including Herbicides, Insecticides, Plant Growth Regulators
(PGR), as well as Bio-fertilizers & Bio-stimulants. In alignment with its
forward-looking approach, the Company remains committed to broadening its product
portfolio. This commitment is realised through sustained engagement in process research,
the securing of product registrations in international markets, and the proactive
commercialisation of new products.
FORMULATIONS VERTICALS
Aimco is involved in the production, direct promotion, and export of
agrochemical formulations. These formulations are meticulously crafted within the confines
of the Companys cutting-edge Lote Parshuram facility, which boasts the capabilities to
manufacture a diverse range of formulations, encompassing EC, SC, SL, WDG, WP, DP, and GR.
The Companys impressive product portfolio encompasses 90+ distinct formulations. Aimco is
actively engaged in both Bulk (Business-to-Business, B2B) and Branded
(Business-to-Consumer, B2C) formulations, reflecting the multifaceted nature of its
operations.
BRANDED
The Company is engaged in the direct marketing of its branded
formulations portfolio to end consumers within India. At present, the Company boasts a
comprehensive product portfolio comprising more than 300 SKUs, featuring a collection of
distinguished brands with a legacy spanning two decades. Prominent among these brands are
Anaconda, Pyriban, Bykill, Profenotox, and others. This particular business vertical is
distinguished by its higher-profit margins than Bulk formulations. The Company is working
on driving growth within this domain, yet remaining mindful of undue extension of its
working capital cycle and steadfast emphasis on a low-receivables business model.
B2B
The Company sells a comprehensive range of formulations, available in
both industrial and retail packaging, to fellow agrochemical marketers and distributors,
primarily on an international scale. This business segment is marked by significant
volumes coupled with narrow profit margins. Nevertheless, it allows the Company the
opportunity to enrich its distribution network and expand its geographical footprint
within key markets.
TRADING
The Company participates in trading operations with a focus on selected
and strategic opportunities, a segment anticipated to constitute a modest portion of
Aimcos overall business scope.
FY23 Performance Discussion
FY23 has undoubtedly been a challenging year for the Company, with
various external factors beyond the Company’s control affecting its performance
adversely. The convergence of factors, such as destocking at the customer level
internationally, heightened inventory levels within trade channels, continuous decrease in
agrochemical and raw material prices, and subdued demand across diverse markets, wielded a
substantial influence on the Company’s sales and volumes.
Consequently, the outcomes for FY23 did not align with its
expectations. Our Revenue from Operations mounted to 206.19 crore, in comparison to the
previous years 311.99 crore. Our operating profit experienced a decline from 18.73 crore
to 3.22 crore, culminating in an operating profit margin of 1.5% in FY23 as against 6.0%
in FY22. Meanwhile, Profit After Tax (PAT) for the year stood at (2.19) crore.
| Financial Ratio |
FY23 |
FY22 |
% Change |
Remarks |
| Current Ratio (times) |
1.18 |
1.21 |
(2.61%) |
NA |
| Debt-Equity Ratio (times) |
0.27 |
_ |
100.00% |
Higher ratio is on account of outstanding borrowings from a
bank as against nil borrowings as of FY22. |
| Debt Service Coverage Ratio (times) |
8.46 |
4.82 |
75.43% |
The ratio is healthier on account of lower interest cost
incurred on borrowings during the year. |
|
|
|
|
|
| Return on Equity Ratio |
(4.20%) |
23.32% |
(118.00%) |
Lower Return on Equity is on account of lower sales and
higher finance cost during the year as compared to previous year. |
| Inventory turnover ratio (times) |
2.65 |
4.49 |
(40.86%) |
Lower Inventory turnover ratio is due to lower sales turnover
during the year. |
| Trade Receivables turnover ratio (times) |
6.29 |
9.35 |
(32.70%) |
Due to lower sales turnover during current year, Trade
Receivables turnover ratio is lower in comparison with previous year. |
| Trade payables turnover ratio (times) |
1.72 |
2.91 |
(41.06%) |
Variation in Trade payables turnover ratio is on account of
increase in average payment/credit period in current year in comparison with previous
year. |
Outlook
In the coming years, the Company will prioritise the expansion of its
Technicals business vertical by scaling manufacturing operations, aiming for sustainable
and consistent profitability. Notably, the Company has recently augmented its production
capacity from 4,500 tonnes per year to 6,000 tonnes per year during FY23. Concurrently,
endeavours to bolster this business vertical will encompass investments in product
registrations and the commercialisation of new molecules to diversify our product range.
To support these initiatives, the Company is committed to investing in its R&D
pipeline, data generation, product registrations in export markets, as well as expanding
manufacturing facilities to accommodate both heightened capacities and the incorporation
of fresh products. Additionally, the Company is poised to direct its attention towards
Domestic Branded Formulations, adopting a cautious yet gradual growth approach in this
business vertical.
Risks and Concerns
In spite of robust growth catalysts, the agrochemicals sector in India
encounters challenges attributable to limited farmer awareness (only 25-30% are acquainted
with agrochemical products and their application). Navigating inventory management and
delivery costs remains intricate for industry participants, given the dispersed end-user
landscape across the expansive Indian subcontinent. The escalating proliferation of
counterfeit pesticides, imported off-the-shelf formulations lacking proper Technical
registration, and adulterated bio-pesticides pose a significant threat to the sectors
progress. The reliance on a robust monsoon season and precipitation persists as a
challenge due to the limited reach of water canals. Another focal point of industry
concern pertains to the efficacy of supply chain management methodologies. The sector
grapples with predicaments arising from the seasonal demand pattern, the unpredictability
of pest incursions, and a pronounced dependence on monsoons. The recurring challenges
include month-end imbalances and surplus inventory within the distribution network. These
challenges are distinctively entrenched within the contours of the Indian agrochemicals
industry. To diminish dependence on any single product, clientele, or market, the Company
is committed to extending its footprint into diverse domains and expanding its customer
base. The Companys efforts centre on the registration and commercialisation of new
molecules. In recognition of the inherent risks within its operations, the Company has
acknowledged the imperative of amplifying investments and initiatives in Environmental,
Health, and Safety standards, particularly as the demand for its production capacity
escalates. Our initiatives have yielded outcomes such as augmented yields, solvent
reduction, and the segregation of effluent streams, thereby minimising waste to the
greatest extent possible. Looking ahead, our aim is to attain the status of Zero Liquid
Effluent Discharge, reflecting our commitment to sustainable practices.
| ENVIRONMENT |
The Company continuously endeavours to elevate its
environmental performance. Utmost dedication is invested in the refinement of effluent
treatment and disposal processes, meticulously aligning them with the stipulated standards
of the pollution control authorities. Your Company holds membership in the Lote Common
Effluent Treatment Plant, ensuring that our effluent discharge consistently adheres to
CETP norms. Monitoring of the discharge is overseen by CPCB through online probes that
have been installed by the Company. In line with our aspirations, the Company is steadfast
in its pursuit of attaining Zero Liquid Effluent |
|
Discharge status in the coming years. |
| HEALTH |
The Company has implemented sufficient steps to enhance the
well-being of its employees. Every year, employees undergo comprehensive health
assessments. A health centre within the Companys premises has been established, overseen
by a team of medical professionals. Furthermore, all employees receive training in
preventive first-aid measures. |
| SAFETY |
The Company places the utmost significance on employee
safety. To this end, safety visual display boards are prominently exhibited throughout the
plants, featuring hazard points within each operational unit. Additionally, regular
training sessions on fire safety and the management of hazardous reactions are
consistently provided to our workforce. |
Internal Control Systems
The Company possesses a comprehensive and sufficient internal controls
framework, assuring the adequate protection of all assets. Correspondingly, the Company
has fitting internal control mechanisms overseeing its operational procedures, financial
disclosures, and adherence to relevant legislation and regulations. The Company upholds an
appropriate and effective internal control structure commensurate with its size and
business nature. These internal protocols guarantee the judicious utilisation and
safeguarding of the Companys assets and resources, adherence to policies and legal
statutes, and the prompt generation of financial and operational reports. The Company
maintains robust and comprehensive internal control systems that guarantee asset security
and accurate authorisation, recording, and reporting of all transactions. The Company
maintains well-structured control mechanisms and appropriate monitoring protocols for the
procurement of raw materials, inventory, plant and machinery, equipment, other assets, and
the sale of goods. The finance and commercial departments have been organised to offer
ample support and oversight for the Companys business operations.
Industrial Relations and Human Resource Development
The Company has implemented diverse strategies aimed at enhancing the
efficiency and efficacy of its human resources, alongside other initiatives geared towards
optimising talent acquisition, bolstering employee contentment, fostering skill
enhancement, and promoting talent retention. The Company firmly holds that its human
resources constitute the most invaluable assets. It is an ongoing endeavour for the
Company to foster a productive work culture that equips its workforce to adeptly confront
the evolving challenges posed by the competitive external landscape. The Company takes
pride in possessing a harmonious blend of skilled professionals and executives within its
ranks and is steadfast in its commitment to furnishing ample growth avenues within the
organisation. Extensive training programmes encompass a spectrum of areas such as personal
effectiveness, corporate compliance, first aid, secure driving practices, crisis
management and fire-fighting, employee well-being and safety, as well as risk appraisal.
As on 31st March 2023, the Company has 149 employees.
Cautionary Statement
The discussions and analyses presented in this MDA, outlining the
Companys objectives, projections, estimations, anticipations, or forecasts, might qualify
as ‘forward-looking statements’ under the purview of applicable securities laws
or regulations. These statements are established upon specific assumptions and prospects
of forthcoming events. Nevertheless, actual outcomes have the potential to diverge from
those articulated or inferred. A multitude of pivotal factors, including but not limited
to global and domestic demand-supply dynamics, price fluctuations, raw material costs and
availability, shifts in governmental regulations, alterations in tax legislation and other
legal frameworks, as well as instances of force majeure, hold the capacity to exert
influence on actual outcomes, potentially resulting in deviations from the envisaged
future performance and outlook.
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