bhageria industries ltd Management discussions

GLOBAL OVERVIEW

The IMF opines that the world economy scenario is a little less encouraging than the previous year. Advanced economies are expected to have an especially pronounced growth slowdown from 2.7 % to 1.3% in 2023. A hit by nearly 50%.

The baseline forecast in 2022 was 3.4% against 2.8% in 2023 before settling around 3% in 2024. According to the World Bank, there will be a global economic slowdown in 2023 leading into 2024 causing financial stress and economic consequences.

Tight monetary policies will weigh down growth in years 23 and 24. There will be restricted conditions that shall pose critical changes for vulnerable EMDE. Unfortunately the world has not fully recovered from the COVID setback. Economically slightly depressing and gloomy will be 2024. And lower growth prospects in 2023.

INDIAN OVERVIEW

The Indian scenario seems better placed, more impressive and encouraging. With a good half of 2023 gone, while the world is in turmoil, recession is coming down in the US which augurs well for India and the world too!

Indian economic activity is gaining momentum amid continuing global uncertainties. For instance theres good news on the GDP front. The growth in the fourth quarter has pushed up the full year GDP growth of FY2022-23 to 7.2%; 200 basis points (bps) higher than the earlier estimate.

In the recently released Annual Economic Review for the month of May 2023, the post pandemic quarterly trajectories of consumption and investment have crossed pre-pandemic levels. Its a proud moment to state that economists and analysts are highly bullish about the Indian economy. The growth forecast for FY 2023-24 remains pretty much the same to the April forecast.

Given the mood and buoyancy of the economy the lower limit of the range has been raised. A decent 6 to 6.3% growth is what is expected in FY 23-24 with an even more positive outlook thereafter. If the global uncertainties recede, the growth could surpass 7% in the coming two years. India currently is supposed to be in the Goldilocks period: that means not too good, not too bad either. Many sectors are expected to boom such as construction and agriculture. The manufacturing sector has played a stellar role in the same quarter the previous year!

There was good news on the export front. In spite of global comedowns exports recorded good results. Simultaneously imports too slowed down. So both proved a boon for the economy. Private consumption, the largest component of Indias final demand, scaled up to 7.5% in FY 2022-23. Although this demand for private consumption fell in the last quarter its expected to rally again and surge.

Increase in domestic air passenger traffic, rise in the value of UPI transactions, enhancement in rural demand via increase in sales of tractors and non-durable goods, shows that the coming year should be good. Inflation has been steady, GST collections superb, the revenues should be excellent. Moreover the credit-deposit ratio is continuing to improve in spite of rising interest rates. Plenty of lending in the industry and services sector means improvement in investment leading to supply gearing up to meet rising demand. All in all, a good futuristic year is expected with the belief that nothing in the world will shake things. Awaiting a more robust and growing Indian economy.

INDUSTRY OVERVIEW Global Dyes and Pigment Industry

Dye Intermediate is the main ingredient used for the manufacturing of dyestuff. The manufacturing Chain of dye can be traced back to petroleum-based products. Naphthalene and natural gas are utilized for the manufacturing of benzene and toluene, which are subsequently utilized for producing nitro-aromatics.

The global dyes and pigments market size was valued at USD 38.2 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 5.3% from 2023 to 2030. Increasing demand from various application industries such as textiles, paints & coatings, construction, and plastics is expected to drive the market growth. Major producers are actively venturing into enhancing their products by utilizing advanced technologies for the efficient removal of hazardous pollutants during the manufacturing process. Manufacturers are likely to experience varied production costs due to volatility in the prices of raw materials.

Factors, such as water pollution during the manufacturing processes, high metal content in pigments, and high water consumption in the textile industry to rinse dyes, are the major environmental threats. Stringent regulations have been imposed in regions, such as Europe, North America, and China, which may challenge market growth.

However, increasing environmental concerns are resulting in policy changes across the globe, which is anticipated to restrain the market growth over the forecast period.

Reactive Dyes

The reactive dyes segment dominated the market with a revenue share of more than 57% in 2022. These products are composed of highly colored organic substances and have primary applications in tinting textiles. They have a high resistance to fading and are available in a range of bright shades, which makes them suitable for colouring cotton and rayon. Moreover, they can form a covalent bond with fibres during the process of dyeing. It also includes a parent dye, a linking group, and an active group. These advantages enable them to inhibit characteristics, which are superior and preferable over other dyes used in cellulose fibres. The segment is estimated to expand further at the fastest CAGR from 2023 to 2030.

Countries, such as China, India, Germany, exhibit significant growth potential in the global Chemical sector.

INDIAN DYESTUFF INDUSTRY

At present, India contributes about 6% of the share in the global market with a CAGR of more than 15% in the last decade. Thedye market are mostly dominated by reactive and disperse dyes. The demand for reactive and disperse dyes is expected to grow in future as these two dyes are dominant in all the regions.

Dyestuff sector is one of the core chemical industries in India. It is also the second highest export segment in chemical industry. The Indian dyestuff industry is made up of about 1,000 small scale units and 50large organized units, who produce around 1,30,000 tonnes of dyestuff. Maharashtra and Gujarat account for 90% of dyestuff production in India due to the availability of raw materials and dominance of textile industry in these regions. The major users of dyes in India are textiles, paper, plastics, printing ink and foodstuffs. The textiles sector consumes around 80% of the total production due to high demand for polyester and cotton, globally. Globally the dyestuffs industry has seen an impressive growth. Initially the industrys production bases were mostly in the west, but in the last few years, they have been shifting to the East. Dyestuff can be used for Printing inks, plastics, textiles, paper and foodstuff. The world consumption for dyestuff accounts for printing inks at 40%, paints 30%, plastics 20% and others from segments like textiles.

At present, India contributes about 6% of the share in the global market with a CAGR of more than 15% in the last decade. The dye markets are mostly dominated by reactive and disperse dyes. The demand for reactive and disperse dyes is expected to grow in future as these two dyes are dominant in all the regions. The demand for reactive and disperse dyes are common in all the regions whereas disperse vat and other dyes are stagnant. In the Asian region, China, Korea and Taiwan are strong players in disperse dyes, while India leads in the production of reactive dyes due to an availability of intermediate vinyl sulphone in the country.

The dyestuff industry has recently seen movement towards consolidation and as a result, organized players are now poised to take a leading the global market. Small units (around 1000) that exist today still compete in the segments where price realization is lower and the competition severe. Large and organized players (around 50) are gearing up for global competitiveness leveraging technology, product innovation and brand building. Increased focus is being laid on environmental friendliness and at the same time the industry is ensuring greater customer focus through technical services and marketing capabilities, in order to face global competition.

The growth of dye sector in the future continues to depend on the performance of end user industries like paints, textiles, printing inks, paper, plastics and foodstuffs. The changing customer preferences, boom and expansion of infrastructure in certain parts of the world creates new market opportunities for the dye industry. To achieve global standards the industry needs to put efforts in critical areas so as to adopt aggressive growth and focus on exports, R&D, co-marketing alliances, up- gradation of manufacturing facility, contract manufacturing with companies having established markets, identification of areas of core competence, consolidation, collaboration by cluster development, outsourcing, environmental consciousness, cost reduction etc. The industry is likely to see many new dyeingtechnologies coming into the market with the help of good technical expertise and R&D achievements. Globally the high usage of cotton, polyester and the banned vat and azo dyes in some of the countries has paved the way for reactive and disperse dyes. It is expected that in future these two dyes would lead the market. The Industry feels unless the labour laws, power supply and infrastructure are improved, it would be very difficult to compete globally with rapidly declining duty differentials and appreciation in the value of rupee.

Outlook

The Indian dyes and dyestuff industry is poised for significant growth, supported by increased demand from various sectors such as textiles, automobiles, and plastics. While the industry faced challenges in the recent past due to consumption downturns and economic slowdowns, it has shown a strong recovery. The growth is fueled by a growing middle-class population and rising per capita incomes, as consumers aspire to improve their lifestyles, leading to higher demand for dyes and pigments. Moreover, evolving customer preferences and the expansion of infrastructure in certain regions present new market opportunities for the dye industry. As a result, the future outlook for the Indian dyes and dyestuff industry remains optimistic and promising.

INDIAN SOLAR ENERGY MARKET

Indias solar energy sector has witnessed remarkable growth in recent years, having already installed 60 GW of solar capacity, and there are still around 58 GW of utility-scale projects in the pipeline. This rapid expansion highlights the competitiveness and viability of solar energy as an alternative power source in the country. Projections indicate that Indias share of the worlds primary energy demand could quadruple to 11% by 2040, necessitating a substantial increase in power generation to meet this demand and fulfill its commitment to reduce carbon emissions by 35% from 2005 levels. To achieve this, India will need to triple its power generation by 2030, given the soaring energy requirements driven by the rapid growth of its economy, establishing itself as a global industrial powerhouse.

Indias rising demand for solar energy

Increased urbanisation -• Rising incomes -• Continually growing population

Solar energy has made a significant impact on Indias energy landscape in recent years. Millions of people in Indian communities have benefited from solar-powered decentralized applications, meeting their cooking, lighting, and energy needs in an environmentally friendly manner. Additionally, Indias solar sector has emerged as a major player in grid-connected power generation, contributing to the countrys long-term growth, energy security, and meeting increasing energy demands.

Government Initiatives

The Indian government has undertaken several significant initiatives to promote solar energy adoption and boost renewable capacity. These initiatives include the development of Solar Parks and Ultra Mega Solar Power Projects, with a

target of over 40,000 MW of solar power capacity by 2025-26. The Grid Connected Solar Rooftop Programme aims to achieve 40,000 MW of cumulative rooftop solar capacity by 2022, encouraging individuals and businesses to install solar panels with incentives and subsidies. The Off-grid and Decentralized Solar PV Applications Programme focuses on installing 118 MWp of off-grid solar capacity, including solar street lights, study lamps, and off-grid solar power plants.

The Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyaan (PM KUSUM) aims to add 30,800 MW of solar and other renewable capacity by 2022, supporting farmers in setting up solar projects for irrigation and energy needs. Cofounding the International Solar Alliance in 2015 demonstrates Indias commitment to global solar energy promotion, seeking over a trillion dollars of investment in solar projects by 2030. Additionally, the establishment of Solar Parks across states like Rajasthan, Gujarat, and Karnataka encourages large-scale solar energy development by providing essential infrastructure to attract private investors and developers. These initiatives collectively drive Indias progress in harnessing solar energy and contributing to sustainable energy growth.

Outlook

The future of the Indian solar market appears promising. The governments ambitious renewable energy targets and continued policy support are expected to drive further growth. Technological advancements and innovations in energy storage are likely to improve grid integration, ensuring a stable and reliable power supply.

The Indian solar market also presents significant opportunities for international companies to invest in the sector, further boosting the countrys solar capacity. As awareness about climate change and sustainable practices grows, the demand for renewable energy is expected to rise, further driving the expansion of the solar market.

COMPANY OVERVIEW

Bhageria Industries Limited, established in 1989, is a prominent manufacturer and exporter of dyes and dye intermediates. The Company operates manufacturing units in Gujarat and Maharashtra, with its products primarily exported to various countries including South Korea, Japan, Taiwan, China, Indonesia, Thailand, USA, Europe, and Africa. Bhageria Industries is also engaged in solar power generation and EPC contracts, having constructed a solar facility in Ahmednagar and securing a power purchase agreement with SECI.

With a strong focus on research, analysis, and innovation, Bhageria Industries effectively integrates creative trends, quality management, and work process excellence. It is recognized as a Two Star Export House by the Government of India, highlighting its position as a key manufacturer in the industry.

Furthermore, Bhageria Industries received the prestigious Gold Award in 2022-23 in the SSM & Merchant Exporter category for its outstanding export performance in the year 2017-18. Thisrecognition further solidifies the Companys commitment to excellence and its significant contribution to the export sector.

Since its inception, Bhageria Industries has made significant advancements in the field of Dye Intermediates and related products. The Company boasts a team of professional chemists and highly efficient workers who prioritize innovation, continuous quality improvements, and meeting consumer demands. Through constant coordination with customers, Bhageria Industries has earned a reputation for being customer- friendly.

ANALYSIS OF FINANCIAL PERFORMANCE

Standalone performance for the year ended March 31,2023:

The Companys revenues in FY 2022-23 is 505.10 Crore. EBIDTA stood at Rs.58.14 Crore compared to Rs.125.00 Crore in the previous year. The Company reported profit after tax of Rs.15.05 Crore during FY 2022-23 compared to profit after tax of Rs. 70.50 Crore in the previous year. The Company proposed a Final Dividend of Rs.1 per equity shares on the Face Value of Rs. 5 each.

(Rs. in Crores)

PARTICULARS	FY 2022-23	FY 2021-22
Total Income*	505.10	605.28
EBITDA	58.14	125.00
EBITDA Margin (%)	11.51	20.65
PAT	15.05	70.50
PAT Margin (%)	2.98	11.65

* It comprises revenue from operations and other income. Financial Ratios

PARTICULARS	FY 2022-23	FY 2021-22
Inventory Turnover Ratio (in times)	7.43	8.35
Interest Coverage Ratio (in times)*	7.93	75.09
Current Ratio (in times)	2.79	2.68
Debt Equity Ratio (in times)	0.07	0.03
EBITDA Margin (%)*	11.51	20.65
Return on Equity (%)*	2.98	14.72
Net Profit Margin (%)*	2.98	11.65
Earnings per share (in Rs.)*	3.45	16.15

Details of significant Changes (Change of 25% or more as Compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

*The decrease in profitability during the current financial year can be attributed to several factors, including lower demand, fluctuations in raw material prices, and increased depreciation and financial costs. These combined circumstances have resulted in a decline in profitability compared to the previous financial year.

Consolidated performance for the year ended March 31,2023:

The Companys revenues in FY 2022-23 is 505.33 Crore. EBIDTA stood at Rs. 55.59 Crore compared to Rs.125.69 Crore in the previous year. The Company reported profit after tax of Rs. 14.71 Crore during FY2022-23 compared to profit aftertax of Rs. 70.60 Crore in the previous year.

(Rs. in Crores)

PARTICULARS	FY 2022-23	FY 2021-22
Total Income*	505.33	610.58
EBITDA	58.33	125.69
EBITDA Margin (%)	11.54	20.58
PAT	14.71	70.60
PAT Margin (%)	2.91	11.56

* It comprises revenue from operations and other income.

Financial Ratios

PARTICULARS	FY 2022-23	FY 2021-22
Inventory Turnover Ratio (in times)	7.43	8.43
Interest Coverage Ratio (in times)*	6.78	52.71
Current Ratio (in times)	2.83	2.51
Debt Equity Ratio (in times)	0.08	0.07
EBITDA Margin (%)*	11.54	20.58
Return on Equity (%)*	2.90	14.73
Net Profit Margin (%)*	2.91	11.56
Earnings per share (in Rs.)*	3.38	16.17

Details of significant Changes (Change of 25% or more as Compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

*The decrease in profitability during the current financial year can be attributed to several factors, including lower demand, fluctuations in raw material prices, and increased depreciation and financial costs. These combined circumstances have resulted in a decline in profitability compared to the previous financial year.

RISK MANAGEMENT

Risk Category		RISK		MITIGATION
Technology Risk		Bhageria prioritizes staying updated with technological advancements to enhance competitiveness and improve product quality.		Bhageria has commitment to innovation and staying up-to-date with new technologies enables it to meet clients quality criteria and drive growth.
Competition Risk (^)		The industry has experienced a significant rise in global competition, with numerous major players entering the market to expand their market share.		Bhageria continues to maintain a dominant market position through its strong emphasis on product innovation, technological integration, and brand creation. By leveraging technical expertise, market skills, and enhanced customer interaction, the Company can further expand its global reach and strengthen customer engagement.
L	iquidity Risk	Bhageria is exposed to potential losses stemming from market conditions such as fluctuating commodity prices, currency exchange rates, and supply and demand imbalances.		Bhageria has employ strategies such as risk hedging, diversification, financial risk management, market intelligence, strategic partnerships, and contingency planning. These measures help the company navigate fluctuating commodity prices, currency exchange rates, and supply-demand imbalances more effectively.
Regulatory Risk		Bhageria has to be updated with the modifications and changes made by the government in the laws and policies in order to safeguard its assets.		Bhageria has an extensive internal processes and quality monitoring systems to ensure full compliance of its assets and operations.
Human Risk			Bhageria success depends on their ability to retain and attract qualified employees. The inability to retain them or recruit additional qualified employees may make it difficult to successfully develop the business		Bhageria provides an excellent working environment for its employees. The Company also conducts various training programmes for the employees to keep their skills updated.
Environment Risk (lift lea)			Bhagerua faces the risk of increased operational costs due to stringent environmental regulations and heightened customer awareness.		Bhageria has developed sustainable technologies, with increased focus on environmental friendliness and co-ordination with regulatory procedures.

STRATEGY

Our long-term strategy revolves around several key principles that are crucial for ensuring the long-term sustainability of our business.

Firstly, we prioritize sustaining our market share across key geographies in India and around the world. This involves actively monitoring and responding to market dynamics to maintain our competitive position.

Secondly, we are proactive in capitalizing on emerging opportunities within chemical, pharmaceutical and solar sector. With our enriched product portfolio, we continuously identify and pursue new avenues for growth, leveraging market trends and customer demands.

Thirdly, our commitment to backward integration plays a pivotal role in building economies of scale. By integrating various stages of the supply chain, we enhance operational efficiency, strengthen profitability, and fortify our reserves, enabling sustainable business expansion.

Fourthly, we remain steadfast in our dedication to Environmental, Social, and Governance (ESG) principles. We are focused on scaling up our captive consumption of solar energy, reducing our carbon footprint, and optimizing costs. These efforts not only align with sustainable practices but also contribute to long-term environmental stewardship.

Lastly, our vigorous Environment, Health, and Safety (EHS) protocols ensure a safe working environment across our sites. By prioritizing the well-being of our employees and maintaining high safety standards, we ensure seamless business continuity while upholding our commitment to a sustainable and responsible operation.

By adhering to these key principles, we strive to create a foundation for long-term success, ensuring business sustainability, growth, and positive impact on our stakeholders and the environment.

HUMAN RESOURCE

Bhageria places a strong emphasis on its human resources as a critical asset in driving progress and achieving success. The Company highly values the abilities, commitment, and enthusiasm of its employees, considering them essential resources for accomplishing organizational goals and strategic objectives.

To nurture and develop its workforce, Bhageria has established robust People Development Processes that prioritize the honing of skills and delivering excellent value. These processes concentrate on areas that are crucial for realizing the Companys vision and objectives. Through various programs and initiatives, Bhageria provides its employees with multiple opportunities to enhance their knowledge, develop their skills, and foster their talents, ensuring continuous professional growth and advancement.

As of March 31,2023, Bhageria had a total of 334 employees. During the fiscal year 2023, the Company recruited 36 new personnel, accounting for attrition. Bhagerias HR approach encompasses key aspects such as recruitment, training, development, and remuneration. By focusing on these elements, the Company ensures an integrated and comprehensive approach to effectively manage its human resources and support the long-term success of its workforce.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Companys internal audit system is continuously monitored and updated to ensure that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The audit committee reviews reports presented by the internal auditors on a routine basis. The committee takes note of the audit observations and takes corrective actions whenever necessary. It maintains a continuous dialogue with the statutory and internal auditors to ensure that internal control systems are operating effectively.

CAUTIONARY STATEMENT

Statements in the management discussion and analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. The important factors that could make a difference to the Companys operations include global and Indian demand and supply conditions, finished goods prices, raw material availability and prices, cyclical demand, changes in government regulations, environmental laws, tax regimes, economic developments within India and the world, as well as other factors such as litigation and industrial relations.