Asahi Songwon Colors Ltd Management Discussions.

OVERVIEW

Color trends over the past few years are moving towards brighter colorful palette. Phthalocyanine Blue also known as phthalo blue is bright blue color used by most of the industry.

Aashi Songwon Colors Limited (ASCL) is specialized in spreading a dash of colors into the homes of millions across the globe by producing high quality pigments. We are one of the worlds leading manufacturers of Phthalocyanine Blue Crude and a range of blue pigments. Your Company has significant presence in inks, paints, coating and plastics application and positioned itself as preferred supplier to major players in Global Market.

The Company has a dedicated plant operating at Padra near Vadodara, Gujarat manufacturing pigments. All the three plants of the Company are on the same location. The facility is fully integrated and equipped to manage products from the stage of chemical treatment to dispatch lending competitive advantages such as cost effectiveness and maintenance of quality standards. The manufacturing facility is ISO 14001:2015 and ISO 9001:2015 certified reflecting the Companies commitment towards quality, safety and sustainable environment.

Overall global economic growth in 2018-19 was as strong as expected at the beginning of the year. However, momentum slowed considerably over the course of the year, market sentiments turned bearish and economic expansion moderated. The global economy recorded a healthy growth of 3.6% up to 2018 end. The global economy was weighed down by the escalating trade dispute between the United State and China.

On the other hand, Indian economy exhibited mixed record. Indian economy witnessed a growth of 6.8 percent during financial year 2018-19, on account of improved customer confidence, slowing inflation and robust investment as the policy reforms have materialized. However, tight financial conditions faced by the non-banking financial sector and moderation of external demand were the key challenges faced by the economy. Consumption growth declined during the second half of the year, but there were some signs of revival. Overall, Indias microeconomic environment remained healthy.

In this market environment, the revenue figures of the Company on year to year (YoY) basis were sustained. However, margins were under pressure on account of increasing crude and copper prices with strengthening rupee. This has improved thereafter.

INDUSTRY STRUCTURE AND DEVELOPMENTS

The global pigments industry produces hundreds of colourants for a wide spectrum of industries and consumers. The major markets are printing inks, paints and coatings, plastics, paper, ceramics, textiles, glass, food and cosmetics.

Pigment industry is divided into organic and inorganic pigments based on their chemical composition, whereas organic pigments consists of high performance pigments, AZO pigments (red, yellow and orange) and Phthalocyanines (Phthlo) pigments (blue and green). India is dominant player in the green and blue and China is a clear force in the yellow and red.

Your Company is specialized in Phthlo pigment and is one of leading manufacturers of the blue pigments in India. With India slowly becoming the preferred location for phtahlocyanine pigments apart from China, globally, the market is becoming more favourable for the Company. Over the years, your Company has transformed from being just a raw material supplier (CPC Blue Crude) to pigment manufacturing Company. With a strong emphasis on research and development is on path to be emerged as preferred specialty pigment manufacturer.

OPPORTUNITIES, THREATS, RISK & CONCERNS

The pigment industry is seeing another brush of restructuring. Environmental regulations have forced many western players to look eastward. China is the key global Chemical supplier. Due to the US-China trade war and tightened global supply due to stringent environmental norms in China, there will open up growth opportunities for the Company. With our quality and service reliability, competitive pricing, strong relations and adherence to environmental norms we would stand advantaged to make the most of this opportunity.

Your Company actively seeks out opportunities available in the market and works on converting the opportunities into viable business. Your Company is one of the largest and preferred producers of pigments and pigments intermediates in the World with massive quantity under one roof this reduce overhead cost. The Company believes in long term strong relationship on the back of our quality, supply reliability and costs.

The Company is exposed to the risk of foreign currency fluctuations as it derives substantial portion of its revenues from the exports. Though the Company has a natural hedge, if there is any adverse fluctuation in the foreign currencies, it may affect the overall performance of the Company.

The cost of raw material consumed make up a large portion of our operating expenses. These raw materials are sourced primarily from third party suppliers. The key raw materials used in the manufacture of the pigments are derivatives of crude oil. Hence, prices of raw material vary with fluctuation in the international crude oil prices. The Company has an in built system of monitoring the inventory and logistics. Further production process of the Company is vertically integrated, where CPC Blue Crude is the primary raw material for the production of Pigment Blue. This helps the Company to manage the raw material cost.

Economic slowdown or factors that affecting the economic health of the customer countries may increase risk to revenue growth of the Company. Our product cater to requirements of diverse downstream industries like printing inks, plastics, paints with robust quality standards, good relationship and environment friendly production process, we remains preferred customer. We are continually striving for continuous product development and innovative methods to enhance our manufacturing capabilities and cater to the stringent quality requirements of our customers.

There are continuous environmental head winds in many parts of the world, especially in Asia. There has been tightening of pollution control norms in India particularly related to water and industrial waste treatment. The Company has to address the issues of REACH compliance. The Company has been investing continuously in meeting the relevant statutory and environmental compliances. Safety and environmental standards are periodically reviewed and upgraded. The Company has a state of the art emissions and effluent management system. To reduce our carbon foot print and water consumption and ensure discharge is well within the prescribed norms, the Company had installed Electrostatic Precipitator (ESP) for Boiler and TFH flue gases, thereby, reducing air emission.

The Company is having a well structured risk management system under the guidance of experienced Board of Directors. The Audit Committee monitors the implementation of the risk mitigation plans.

OUTLOOK AND STRATEGY

Global economic outlook for 2019-2020 has turned more challenging as growth momentum has softened. The slowdown of the worlds economy and in the major industrial countries is further clouded by the uncertainties surrounding the outcome of the United States-China trade conflict, the possibility of a disorderly withdrawal of the United Kingdom from the European Union and the stance of monetary tightening in the United States.

India remains one of the most attractive economies of the world, with stable government, focus on wide-ranging reforms and robust macroeconomic fundamentals. A number of factors such as ease of doing business, infrastructure creation and digital outreach will help to accelerate the countrys growth trajectory. India Government has set an ambitious target of making India a USD 5 Trillion economy by 2024-2025.

Further, with the global pigments market is anticipated to grow at healthy CAGR of 4.5% during the forecast period from 2018 to 2026, growth is expected to be depicted in the form of revenue worth US$43bn projected by 2026. (Source: - Transparency Market Research). With robust growth in end user industry like printing inks, plastics, paints and coating industry demand of pigment is to intensifying.

The Company will continue with its efforts to increase the utilisation of its installed capacities, which will be crucial to achieve an improvement in the operational results. Priority will be on the quality of the products. The disciplined focus will be cost reductions, operating efficiencies and diligent cash deployment in value creating opportunities.

Looking ahead in 2019-2020, the Company will continue to focus more on research and development, new product launches, process reengineering and reduction in carbon foot print.

INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has Internal Control Systems commensurate with the nature of its business, size and complexities. They have been designed to provide reasonable assurance with recording and providing reliable financial and operational information, complying with the applicable Accounting Standards and relevant statutes, safeguarding assets from unauthorized use and executing transaction with proper authorization. The Company has appointedIndependentInternalAuditorswhoperiodicallyaudittheadequacy and effectiveness of the internal controls and suggest improvements.

Internal Control Systems are reviewed by Audit Committee headed by a Non-Executive Independent Director on a regular basis for its effectiveness and the necessary changes suggested are interpreted into the system. Every quarter the Audit Committee reviews the adequacy and effectiveness of internal control systems and monitors the implementation of improvement actions.

Further, the Statutory Auditors of the Company also carried out audit of the Internal Financial Controls over Financial Reporting of the Company as on March 31, 2019 and issued their report which forms part of the Independent Auditors report.

FINANCIAL PERFORMANCE

The year under review has been difficult in terms of the operating business environment. The economic downturn both at global and national level has affected the business volumes. Despite of all the odds your Company was able to sustain profits of the Company.

( Rs In Lakhs)
Particulars 2018-2019 2017-2018
Revenue from Operations 29,362.04 29,383.17
Other Income 4.24 447.21
Total Income 29,366.28 29,830.38
Operating Profit 3,957.69 4,271.77
Finance Costs 517.27 353.28
Depreciation and Amortization Expenses 816.12 721.93
Profit for the year before extra ordinary 2,624.30 3,196.56
item and tax expenses
Extra Ordinary Item - -
Profit for the year before tax expenses 2,624.30 3,196.56
Tax Expenses 794.80 889.00
Profit after Tax 1,829.50 2,307.56

Results of Operations

During the year under review, the Company earned a total income of Rs 29,366 lakhs compared to Rs 29,830 lakhs in the previous year.

The total sales of the Company stood at Rs 29,362 lakhs compared to Rs 29,383 lakhs in the previous year. The profit after tax (PAT) stood at Rs 1,830 lakhs (Previous year Rs 2,308 lakhs).

Exports

During the year under review, the total exports value to Rs 18,873 lakhs compared to Rs 21,241 lakhs during the previous year. Your Company continues to view focus on export markets for its products and see good potential for growth to the export business.

HUMAN RESOURCES DEVELOPMENT

Overall industrial relations climate of your Company continue to remain harmonious with a focus on productivity, quality and safety. During the year under review, there were, no significant labour issues outstanding or remaining unresolved during the year.

There was no change in the attribution rate. As on March 31, 2019 the Company has 144 employees on its pay roll as compared to 140 in the previous year and increase of 2.86% year to year.

The Board records their appreciation of the commitment and support of the employees and looks forward to its continuation.

CAUTIONARY STATEMENT

Some of the statements in this “Management Discussion and Analysis”, describing the Companys objectives, projections, estimates, expectations and predictions may be “forward looking statements” within the meaning of applicable securities laws and regulations. Although the expectations are based on reasonable assumptions, the actual results could materially differ from those expressed or implied, since the Companys operations are influenced by many external and internal factors beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.