<dhhead>Management discussion and analysis</dhhead>
ECONOMIC OVERVIEW
GLOBAL ECONOMY
According to the World Economic Outlook, the global economy is poised
for gradual recovery, with projections forecasting growth to fall to 2.8% in 2023, before
rising modestly to 3% in 2024. Driven by accumulated consumer demand, persistent supply
interruptions, and significant increases in commodity prices, inflation reached its
highest levels in many economies last year. As a result, central banks took decisive
measures to counteract this trend by implementing strong measures to align it with their
goals and ensure that inflation expectations remain stable. It is expected to reduce from
8.7% in 2022 to 7.0% this year and 4.9% in 2024. The disruptions in supply chains are
gradually resolving, and the effects of the war on energy and food markets are fading.
China’s economy rebounded strongly, paving the way for a faster-than-expected
recovery. Emerging markets and developing economies are making significant progress, as
evidenced by their growth rates (comparing fourth quarters) surging from 2.8% in 2022 to
4.5% this year. Conversely, the deceleration is primarily seen in advanced economies,
notably in the euro area and the United Kingdom.
The downside risks continue to outweigh the positives, with adverse
factors, such as severe health outcomes in China, Russia’s war in Ukraine, and
tighter global financing costs, all posing significant challenges. The rise in commodity
prices has added to the risk of an economic hard landing. This at the back of inflation,
which is likely to hit in the first half of 2023 further exacerbates the economic
uncertainty. However, on the upside, pent-up demand in numerous economies, a faster fall
in inflation, and greater multilateral cooperation could mitigate the adverse effects. To
this end, it is necessary to deploy macroprudential tools and further strengthen debt
restructuring frameworks, while fiscal support should be targeted at those most affected
by elevated food and energy prices.
Bolstering multilateral cooperation can safeguard the fruits of a
hard-won, rules-based global economic system and address the urgent challenge of climate
change by curtailing emissions, and strengthening investments in green technologies. Such
efforts will not only foster a more sustainable future for the planet but also enhance the
resilience of the global economy against future shocks.
2.8%
THE GLOBAL ECONOMY IS POISED FOR GRADUAL RECOVERY, WITH PROJECTIONS
FORECASTING GROWTH TO FALL TO 2.8% IN 2023, BEFORE RISING MODESTLY TO 3% IN 2024.
INDIAN ECONOMY
The Indian economy maintained a comparatively steady stance amid the
global disruptions arising from the Russia-Ukraine conflict. According to the National
Statistical Office (NSO), the economy recorded a growth rate of 7.2% in FY2023, which
marked a decline from the 9.1% growth observed in FY2022. This impressive performance can
be attributed to various growth factors, such as surge in exports, which accelerated the
production process. Private consumption witnessed a strong surge, fuelling production
across sectors.
The impressive upswing in economic growth can also be attributed to the
government’s burgeoning capital expenditure, which surged by an astounding 63.4%
during the first eight months of FY2023.
Furthermore, the MSME sector, a crucial cornerstone of the Indian
economy, witnessed an extraordinary uptick in credit growth, with an average of 30.5%
recorded between January and November 2022.
Rising global commodity prices had a ripple effect on India, causing
retail inflation to reach a high of 7.79% in April 2022. This exceeded the Reserve Bank of
India’s medium-term target range of 2-6%. Responding decisively, the RBI implemented
rigorous measures to address the escalating prices, raising the repo rate six times during
FY2023. The repo rate climbed from 4% at the start of May 2022 to 6.5% by the end of the
financial year.
The combination of better global supply chains, decreasing commodity
prices, and a decrease in domestic demand is expected to lead to a decrease in inflation.
With a workforce that’s expanding, a significant domestic market,
investments in infrastructure and the rise of digital technology, India is strongly
positioned to become the world’s fastest-growing major economy. The International
Monetary Fund anticipates India’s GDP to achieve a growth rate of 5.9% in FY2024.
Robust credit disbursal, and capital investment cycles, further
bolstered by the expansion of public digital platforms, and ground-breaking initiatives,
such as PM GatiShakti, the National Logistics Policy, and the Production-Linked Incentives
schemes to accelerate manufacturing output are expected to augur well in the
country’s favour
INDUSTRY OVERVIEW
INDIAN CHEMICAL INDUSTRY
The Indian chemical sector is one of the most integral components of
India’s GDP, contributing a staggering 7% to it. With India ranking 6th in the world
in terms of chemical production, and 3rd in Asia, the industry is poised to capitalise on
forthcoming opportunities.
The Indian chemicals industry stood at $178 billion in 2019 and is
expected to reach $304 billion by 2025 registering a CAGR of 9.3%. The demand for
chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected
to contribute $383 billion to India’s GDP by 2030. Growing demand, policy support and
increasing investment are expected to augur well for the industry. Rise in demand from
end-user industries such as food processing, personal care and home care is driving the
development of different segments in India’s specialty chemicals market. With global
companies seeking to de-risk their supply chains, which are dependent on China, the
chemical sector in India has the opportunity for significant growth. Under the Union
Budget 2023-24 the government allocated 173.45 crore to the Department of Chemicals and
Petrochemicals. The government is also planning to introduce a production-linked incentive
(PLI) scheme to promote domestic manufacturing of agrochemicals.
As the pandemic recedes and with the rise in disposable income,
industries, such as cosmetics and fashion, and other FMCG are set to flourish. This bodes
well for segments, such as perfumery cosmetics, essential oils, and sensory-linked
products, which are a few of the many strong points for the country. It also spells
accelerated growth for chemicals linked to product packaging.
On a worldwide scale, India holds the position of the fourth-largest
agrochemical producer, trailing only the United States, Japan, and China. The nation
contributes to approximately 16-18% of the total global output of dyestu_s and dye
intermediates, solidifying its significance in the colorants industry with an approximate
market share of 15%. Notably, India’s chemicals sector operates in a de-licensed
manner, with the exception of a limited number of hazardous chemicals. Demonstrating its
robust standing, India plays a significant role in both the international export and
import of chemicals, securing the 14th rank in exports and the 8th rank in imports
globally (excluding pharmaceuticals).
ORGANIC PIGMENT INDUSTRY
Organic pigments have emerged as a game-changer in various industries.
With non-toxic properties, cost-e_ectiveness and high colour power, these pigments have
become an irresistible choice for numerous applications. From the visual arts to high-tech
industries, such as photo reproduction, optoelectronic display, and optical data storage,
the demand for organic pigments has skyrocketed owing to their availability in a wide
range of hues.
Additionally, they are extensively used in paint, ink, and the
production of polymer and rubber. These pigments also serve as fillers and reinforcing
agents for a wide range of applications, including colouring agents for plastics and
synthetic fibres. The global market for organic pigments is predicted to grow from $15.09
billion in 2022 to $16.17 billion in 2023, marking a noteworthy Compound Annual Growth
Rate (CAGR) of 7.1%. Asia-Pacific led the organic pigments market in 2022 due to its swift
economic advancement and burgeoning population. This region is expected to maintain its
rapid growth, becoming the fastest-growing sector during the projected period, with a
substantial market share of around 46.5% between 2021 and 2031.
This growth is driven by the rising demand for organic pigments across
diverse sectors like automotive, construction, and packaging. The Asia-Pacific region is a
major player in both production and consumption, fueled by factors such as robust
expansion in construction and automotive industries, increased demand for consumer goods,
and urbanization. These dynamics have resulted in a significant demand for organic
pigments used in products like paints, coatings, plastics, and related items.
The global demand for organic pigments is on the rise due to strict
regulations governing the use of printing inks in food packaging. These regulations aim
for more environmentally friendly pigments as concerns grow about the safety of food
packaging and potential colour transfer into consumables. This has led to a surge in
demand for high-quality organic pigments that offer colour stability, viscosity control,
and versatility in printing on various materials. Additionally, the strong colouring
capabilities of organic pigments allow for a wide range of customized colours, enhancing
the visual appeal of products.
Simultaneously, the growth in construction and infrastructure projects
in India and China has boosted furniture consumption. Initiatives like "Make in
India" and investments in electric vehicles have also expanded the use of organic
pigments in paints and coatings for the Indian automotive sector. These pigments find
application in the plastics industry as well, with the Asia-Pacific region contributing to
52% of the world’s plastic production. Alongside the region’s cost-e_ective
labour and abundant raw materials, this positions it as a hub for organic pigment
manufacturing, driving significant market growth.
Source: ‘Organic Pigments Global Market Report 2023’ by The
Business Research Company, Mordor Intelligence
The global market for active pharmaceutical ingredients (APIs) stood at
a staggering $204.08 billion in 2023 and is poised to reach $285.29 billion by 2027,
growing at a CAGR of 6.93%.
The API industry has emerged as a dominant force in the healthcare and
pharmaceutical domain, buoyed by a multifarious range of drivers. Conducive government
policies, a remarkable stride in the API manufacturing space, coupled with the escalating
incidence of chronic illnesses, such as cancer, and cardiovascular diseases have given a
boost to the sector.
Further, due to changes in geopolitical situations, countries such as
India are preferred over China for the export of APIs, as governments strive to reduce
dependence on China for API products.
It is worth noting that the pandemic has, paradoxically, provided an
impetus to the growth of the global API market. As the world grappled with the pandemic,
the pharmaceutical industry took centre stage in treating its numerous symptoms. This
heightened popularity of the pharma industry during the pandemic has, in turn, propelled
the API market to new heights. Moreover, the development of precision medicine, primarily
for oncology, and the growth in biosimilars market owing to the rise of various diseases
is further boosting demand for APIs.
At present, the API market is under the substantial influence of North
America, and this dominance is anticipated to persist for the foreseeable future. The
region’s grip on the market is projected to strengthen further due to a surge in
disease prevalence and a progressively aging population. Notably, the United States holds
a significant portion of the market within the North American territory.
Source: Mordor Intelligence
The API segment’s growth is expected to remain robust in the
upcoming years, driven by substantial investments from major players to set up advanced
manufacturing facilities. The said players are also focused on leveraging their production
capabilities in Asian countries to cater to the API demands of other drugmakers. Moreover,
the Indian government’s announcement of a 9.4 billion stimulus package for the bulk
drug industry is expected to further bolster domestic production and boost exports. The
outsourcing segment of the API industry has witnessed substantial growth, largely owing to
the significant contributions of top biopharmaceutical players. By outsourcing API
manufacturing to developing countries, such as India, the industry has effectively
capitalised on the cost advantages that these countries offer, thereby boosting profit
margins and accelerating the segment’s growth trajectory. Meanwhile, the generic drug
market is poised to achieve exceptional growth rates, particularly in regions, such as
Brazil and India, owing to its high unmet clinical needs and acceptance of
over-the-counter drugs.
Source: MarketsandMarkets
BUSINESS OVERVIEW
Asahi Songwon Colors Limited (Asahi), a leading manufacturer and
exporter of colour pigments, has diversified its business portfolio with a recent foray
Into the pharmaceutical industry. In 2019, the Company expanded its product line to
include yellow and red (Azo) pigments, in addition to its core offering of Phthalocyanine
pigments used in printing inks, paints, plastic, textiles and paper industries. Through
the acquisition of Atlas Life Sciences Private Limited, a renowned manufacturer of
anti-convulsant anti-psychotic and anti-diabetic APIs, Asahi is now home to a third
manufacturing facility located in Odhav. The Company is aggressively striving to expand
its manufacturing footprint, with a fourth unit in Chhatral, which will be commissioned by
October 2023. This strategic move has allowed the Company to cater to the growing demand
for high-quality APIs backed by Atlas Life Sciences’ expertise in the field.
The Company’s manufacturing facilities, situated in Padra and
Dahej have an installed capacity of 16,800 MT and cater to over 40 international and
domestic customers. With a strong team of 580+ employees, the Company has garnered more
than 60% of its revenue from exports to MNCs in 20+ countries, a testament to its global
presence and commitment to delivering incremental value to its customers. To further
strengthen its position in the market, Asahi has invested in a phase 2 brownfield capex,
which will double the capacity of yellow pigments at the Dahej site. Asahi is guided by a
competent and diverse Board of Directors, comprising professionals with a wealth of
experience in various fields. With their expertise, the Company ensures the highest
standards of corporate governance, striving to maintain transparency and accountability in
all aspects of the business.
PHTHALOCYANINE PIGMENTS
According to Business Research Insights, the Phthalocyanine pigments
market is anticipated to grow at a rate of $2215.8 million with CAGR of 4.8% during
2022-2028. The market size is likely to reach a valuation of $2215.8 million by 2028, up
from an estimated value of $1672.5 million in 2022. This market’s growth is driven by
factors such as evolving industrial and consumer demand patterns, rapid urbanisation and
higher standards of living. Further, there is a surge in interest to incorporate
architectural aesthetics in buildings, which is contributing to high the demand for
superior-quality paints and coatings.
Over the past 15 years, the competitive dynamics within the
Phthalocyanine pigments sector have undergone a notable transformation. During this
period, India has emerged as a formidable contender in the market, progressively capturing
market share from China. Previously, China held a dominant position, contributing over 70%
of the Phthalocyanine pigment market share. Presently, India has ascended to a position of
prominence, catering to over 70% of the global demand for Phthalocyanine pigments. Asahi,
a leading manufacturer of Phthalocyanine pigments, caters to the diverse needs of various
industries such as printing ink, packaging ink, paint, plastic and textile. Asahi is one
of the largest manufacturers of CPC blue crude globally. Leveraging its expertise and
knowledge, Asahi has signed long-term contracts with its clients and is committed to
providing them with superior-quality pigments, thus contributing to the growth of the
industry.
AZO PIGMENTS
The global market for Azo pigments is a highly competitive area where
multinational corporations offer attractive discounts to maintain their market share. Azo
pigments are witnessing a quick acceptance as an eco-friendly alternative to dyes, which
is driving their demand in high-grade plastics and coating applications. According to
Persistence Market Research, the global market for Azo pigments is expected to stand at
$1,618.6 million in 2023. Leading Azo pigment manufacturers are prioritising strong
partnerships with key distributors and long-term contracts with clients to maintain
dominance. Meanwhile, India’s pigment sector is emerging as a formidable competitor
to China, owing to its growing environmental compliance and wage costs. Asahi has
partnered with Tennants Textiles Colours Limited (TTC), one of the leading colour
manufacturers in the UK, to produce a range of red, yellow and orange pigments. The
successful completion of the planned capex has enabled the Company to leverage the growing
demand for Azo pigments in various end-user industries. With its proven delivery across
the world, combined with its scale, Asahi is a highly attractive partner for large-scale
manufacturers and companies seeking high-quality pigments at affordable prices.
PREGABALIN
Pregabalin, an anti-convulsant medication, has emerged as a promising
treatment for various medical conditions, such as epilepsy, neuropathic pain,
fibromyalgia, and general anxiety disorders. Owing to its ability to reduce pain from
injured nerves throughout the body, pregabalin is experiencing a steady demand across the
world. The global consumption of pregabalin is 1,430 tonnes growing at 10% CAGR. The
market is dominated by North America, with Asia-Pacific emerging as a key growth region,
owing to the surging prevalence of convulsions and anxiety disorders, growing healthcare
infrastructure and rising geriatric population in the region. Furthermore, a large number
of initiatives by public and private organisations to spread awareness, at the back of
rising healthcare expenditure, will expand the market.
As the global consumption of pregabalin continues to grow at a robust
pace, Indian manufacturers are driving process efficiency and competitiveness to meet the
rising demand. With a well-equipped manufacturing base and more 15 key producers, the
country is contributing significantly to the global market share. In addition, India
accounts for a 28% share of global consumption, almost 395 tonnes out of 1,430 tonnes.
Asahi has opened up exciting new avenues for growth with its recent
acquisition of Atlas Life Sciences, a prominent player in the pregabalin market. This
strategic move not only strengthens Asahi’s foothold in the industry but also enables
the Company to tap into emerging opportunities, diversify its portfolio and thus stay
ahead of the competition.
$2,215.8 mn
THE PHTHALOCYANINE PIGMENTS MARKET IS ANTICIPATED TO GROW AT A RATE OF
$2215.8 MILLION WITH CAGR OF 4.8% DURING 2022-2028.
$1,618.6 mn
THE PERSISTENCE MARKET RESEARCH, THE GLOBAL MARKET FOR AZO PIGMENTS IS
EXPECTED TO STAND AT $1,618.6 MILLION IN 2023.
END-SECTOR GROWTH DRIVERS
The expanding textile industry has paved the way for the increased use
of colourants in modern textile solutions, making colour a critical component in product
marketing. This trend is expected to continue as pigment consumption rises and the textile
industry continues to grow rapidly. Additionally, the growth of the paints and coatings
sector can be attributed to the rise in residential and commercial building construction.
This sector is likely to propelled by factors, such as government and private sector
investments in infrastructure development, increased consumer spending, higher per-capital
earnings, and improved quality of life.
1,430 tonnes
THE GLOBAL CONSUMPTION OF PREGABALIN GROWING AT 10% CAGR
Moreover, the packaging ink sector is one of the fastest-growing
end-use industries with screen printing and digital printing applications contributing to
its growth. This rise in production and sales of organic pigments is also due to the
increased demand for various printing inks. The sector’s growth is further driven by
the emergence of digital printing ink in the sports and leisure, packaging and textile
sectors. The pharmaceutical industry on the other hand has been experiencing remarkable
growth in recent years, driven by several key factors. One of the most significant
regulations aimed at ensuring patient safety and improving healthcare outcomes. These
regulations have led to a greater demand for innovative medicines, as well as increased
R&D activities within the industry.
Managed care and insurers have also been playing a critical role in
driving growth within the pharmaceutical sector. The rising focus on cost containment and
quality of care has resulted in a greater emphasis on preventive care and early detection
of diseases, leading to a rise in the use of pharmaceutical products. Additionally, the
growing trend towards personalised medicine and the use of biologics has created new
opportunities for pharmaceutical companies to develop specialised treatments for a range
of medical conditions.
OUTLOOK AND STRATEGY
Asahi’s Azo business is already gaining steady momentum and the
demand for Phthalocyanine pigments is gradually improving. The Company continues to
cultivate enduring client relationships owing to its exceptional product quality. The
establishment of the new Dahej plant positions Asahi among a cluster of distinguished
chemical enterprises. This strategic move a_ords the Company the advantage of accessing a
proficient workforce, robust shared infrastructure and convenient proximity to raw
materials, culminating in substantial savings on logistical expenditures. The greenfield
investment in Chhatral is poised to elevate operational efficiency and bolster overall
profitability while cementing our position as the market leader in the production of APIs
and raw materials for pregabalin. Plans are underway to ramp up the capacity of the
intermediates for pregabalin and supply them to the Odhav facility instead of buying them
from external sources. Anticipated industry consolidation within the global pigment sector
will also propel the Company onto a trajectory of renewed growth.
With customers diversifying supply chains away from China, India, and
by extension, Asahi, emerges as a promising contender. This outlook is further augmented
by India’s favourable access to indigenous raw materials, cost-e_ective labour and
vertically integrated operations.
RISKS
Regional disease outbreaks can harm chemical supply networks. Global
economic uncertainty may reduce demand. Despite higher immunisation rates, new Covid-19
variants still affect people, especially employees, amid government movement restrictions.
Variable raw material prices, reliance on key imports and high global crude oil costs
pressure product margins. Fluctuations in Rupee and Yuan versus the Dollar significantly
affect pricing, as Indian manufacturers compete with Chinese peers in the organic pigment
industry. The concentrated pigments market faces ESG concerns. Businesses might grapple
with compliance costs and complex regulations.
Asahi is well-prepared and equipped to effectively manage these risks.
With a robust strategy, dedicated team and proactive measures in place, the Company can
effectively navigate challenges and continue delivering value
HUMAN RESOURCES
As Asahi navigates through diverse challenges and opportunities, the
contributions of each team member remain under constant recognition. The collective skills
of the team propels the organisation forward, driving the accomplishment of its
objectives. The team’s adaptability, resilience and collaborative efforts serve as a
continual source of inspiration. It is essential to bear in mind that the employees
constitute the core of the organisation, with their well-being being of utmost importance.
The Company is committed to cultivating a nurturing environment that facilitates their
personal and professional growth. As on March 31, 2023, the Company had a workforce of
580+ employees.
580+
WORKFORCE AS ON MARCH 31, 2023 analysis (Continued)
INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company upholds an unwavering commitment to the implementation of
internal financial control systems that are proportionate to the size and complexity of
its operations. The primary objective of these systems is to provide reasonable assurance
by ensuring the accuracy and reliability of financial and operational information,
complying with relevant accounting standards and statutory requirements, protecting assets
from unauthorised use, and ensuring proper authorisation of transactions.
To ensure the adequacy and effectiveness of the internal controls, the
Company has appointed independent auditors who conduct periodic audits and make
recommendations for improvements. The Audit Committee, led by a non-executive Independent
Director, regularly reviews the internal control systems for their effectiveness and
translates the recommended changes into the system. Furthermore, the Company’s
internal audit reports are subjected to thorough review and scrutiny by the Board’s
Audit Committee, thus providing a robust system of checks and balances.
FINANCIAL PERFORMANCE |
|
|
| |
|
( in lakh) |
Particulars |
FY23 |
FY22 |
Revenue from operations |
50,455.14 |
41,082.26 |
Other Income |
586.93 |
561.12 |
Total Income |
51,041.07 |
41,643.38 |
Total operating expenses |
49,926.83 |
37,870.07 |
Interest cost |
1,401.96 |
472.42 |
Depreciation |
1,486.45 |
1,195.70 |
Profit before tax, excluding exceptional
items |
(1,774.17) |
2,088.25 |
Profit after tax |
(1,846.88) |
1,465.07 |
Particulars |
FY23 |
FY22 |
Variance |
Debtors turnover ratio (times) |
5.09 |
4.86 |
5% |
Inventory turnover ratio (times) |
5.23 |
5.30 |
(1%) |
Current ratio (times) |
1.12 |
1.62 |
(31%) |
Debt-equity ratio (times) |
0.69 |
0.31 |
125% |
Operating profit (PBIT) margin (%) |
(0.74) |
6.23 |
(88%) |
Net profit margin (%) |
(3.66) |
3.57 |
(203%) |
Return on net worth (RoNW) (%) |
(6.78) |
5.24 |
(229%) |
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis and other parts of
the report describing the Company’s objectives, projections, estimates and
expectations may be forward-looking statements. Actual results may differ materially from
those expressed or implied due to various risks and uncertainties. Important factors that
could make a difference to the Company’s operations include economic and political
conditions in India and other countries, in which the Company may operate. Other factors
that may impact the Company’s operations include volatility in interest rates,
changes in government regulations and policies, tax laws, statutes, and other incidental
factors. The Company does not intend to update these statements.
+91-9892691696
