Bhageria Industries Ltd Management Discussions.

Global economic overview

Following a robust growth of 3.8% in 2017 that extended into the first half of 2018, the global economy slowed significantly in the second half of 2018, reflecting a confluence of factors such as the failure of the Brexit negotiations, tightened financial conditions, geopolitical tensions, and higher crude oil prices that affected the major economies. Owing to this, global economic growth in 2018 was estimated at 3.6% and projected to slow to 3.3% in 2019. Crude prices remained volatile due to multiple factors including American policy pertaining to Iranian exports and the softening of global demand. Oil prices dropped from a four-year peak of US$ 81 per barrel in October 2018 to US$ 61 per barrel in February 2019.

Global economic growth over the years

Year 2015 2016 2017(E) 2018(E) 2019 (P)
Real GDP growth (%) 3.2 3.1 3.8 3.6 3.3

[Source: World Economic Outlook, April 2019] E: Estimated; P: Projected

Indian economic overview

India retained its position as the sixth-largest economy and the fastest-growing trillion-dollar economy through a major part of the year under review (except in the last quarter of 2018-19). After growing 7.2% in 2017-18, the Indian economy is estimated to have grown 6.8% in 2018-19 as per the Central Statistics Office release, May 2019.

The principal developments during the year under review comprised a sustained increase in per capita income, decline in national inflation, steadying interest rates and weakened consumer sentiment from the second half of the financial year. The weaker sentiment was on account of a large non-banking financial institution announcing its inability to address liabilities. This affected credit expansion, financial markets and consumer sentiment, which in turn resulted in slower GDP growth that declined to 5.8% by the fourth quarter of 2018-19, the slowest growth in a single quarter in years.

In 2018, the country attracted ~US$ 42 billion in FDI inflows as per the World Investment Report 2019. Driven by strong policy reforms, India witnessed a record 23-notch jump to the 77th position in the World Banks latest report on the ‘Ease of Doing Business that captured the performance of 190 countries.

The commencement of the US-China trade war opened new opportunities for India, particularly in the agro sector. Infiation (including food and energy prices) was estimated at 2.6% on an annual basis, one of the lowest in years and well below the Reserve Bank of Indias medium-term target of 4%. The rupee rebounded after touching a low of H. 74.45 to a dollar to close the financial year at H. 69.44. During the fiscal under review, the Indian Government continued to invest deeper in digitisation, renewable energy capacity generation and infrastructure building.

Key government initiatives

The Indian government continued to take a number of initiatives in strengthening the national economy.

Bank recapitalisation scheme: In addition to infusing र 2.1 lakh crore in public sector units, the Indian Government announced a capital infusion of H. 41,000 crore to boost credit for a strong impetus to the economy in FY2018-19. The Budget 2019-20 mandated that the Union Government will infuse र 70,000 crore to strengthen and enhance their lending capacity. (Source: Hindu Business Line)

Expanding infrastructure: Indias proposed expenditure of H. 5.97 trillion (US$89.7 billion) towards infrastructural development In the Union Budget 2018-19 is expected to strengthen the national economy. As of November 2018, the total length of projects awarded under Bharatmala Pariyojana (including residual NHDP works) was 6,460 kms for a total cost of र 1.52 trillion (US$ 21.07 billion). The Government has announced to invest र 10,000,000 crore (US$ 1.5 trillion) in infrastructure over the next five years in Budget 2019-20. (Source: IBEF)

Ujjwala Yojana and Saubhagya Yojana: With the help of this initiative, the Government has transformed the lives of every rural family, dramatically improving the ease of their living by providing electricity and clean cooking facility to all willing rural families by 2022.

UDAAN: This Scheme is directed towards providing air connectivity to smaller Indian cities, enabling the common citizen to avail the option of travelling via air. Under this scheme, a number of airports are likely to be constructed.

The Insolvency and Bankruptcy code (Amendment), Ordinance 2018: Passed in June 2018, the ordinance provides significant relief to home-buyers by recognising their status as financial creditors.

The major beneficiary of the ordinance are the MSMEs, as it empowered the Indian Government to provide them with a special dispensation under the code. (Source: PIB)

Pradhan Mantri Kisan Samman Nidhi: In February 2019 the Indian Government announced the Pradhan Mantri Kisan Samman Nidhi, a scheme promising an annual assured income of H. 6,000 (US$84.5) for any farmer owning less than equal to 2 hectares of farmland. The Budget for fiscal year 2020 allocated र 75,000 crore for the scheme, benefiting ~120 million land-owning farmer households. (Source: PIB)

Direct Benefit Transfer: The Direct Benefit Transfer initiative re-engineered the cash disbursement process in welfare schemes through simpler and faster flow of information/funds to ensure accurate targeting of beneficiaries, de-duplication and reduction of fraud. In 2018-19 alone, this scheme is estimated to have transferred over र 3,00,000 crore and the gains to have accrued since scheme implementation (upto March 2019) estimated at र 1,41,677.56 crore. (Source:


Indias economy is expected to remain sluggish through 2019-20 before reviving thereafter in line with its long-term potential. (Source: CSO, Fitch, Economic Times, Business Standard, IBEF, Business Today, India Today)

Global dyes and pigment industry overview

The global pigments markets revenue reached US$ 30.42 billion in 2016 and is estimated to reach US$ 42.19 billion by 2023, growing at a CAGR of ~5%. Of this, the organic pigments market size was estimated at US$ 3.69 billion in 2018 and projected to reach US$ 4.67 billion by 2023, growing at a CAGR of 4.8%. The dyes market size could register a CAGR of more than 4% till 2023.

Asia-Pacific remained the largest and fastest-growing market for organic pigments on account of rising demand from the packaging, automotive and construction industries. The market is expected to be driven by a growing demand for paints and coatings over the next five years.

There is a deep relationship between dyes and pigments on the on the one hand and paints and coatings on the other, the latter being downstream for the former. Manufacturers from the aviation, construction and automotive industries blend surface coating products like varnishes, sealants, paints and coatings with pigments and dyes. This enhances aesthetics, protects materials from rust and offers UV resistance. The demand for organic dyes and pigments is increasing owing to a growing preference for eco-friendly products, contributing to the demand for automotive paints and coatings. (Source: Mordor Intelligence, Grandview Research, Technavio, Markets and Markets)

Emerging trends

Increasing demand in the textile industry: The textile sector is a major buyer of dyes. The textile dyes market was expected to grow from US$ 7.8 billion in 2018 to US$ 13.0 billion by 2027 at a CAGR of 6% between 2018 and 2027. The growing demand for textile dyes for various fiber types like cotton, polyester and viscose, is expected to catalyse the growth of the dyes market.

Increasing demand in the paper industry: The paper Industry has been using dyes for decades. The demand growth for paper dyes in APAC is driving the global paper dyes market. This global market was estimated at US$ 920.4 million in 2017 and projected to reach US$ 1,099.3 million by 2022, at a CAGR of 3.62%.

China impact: The Chinese Government imposed closure and production limitations to reduce effluents and emissions generated by the chemical industry. This resulted in a limited availability of pigment intermediates, increasing costs. Approximately 40% of Chinas factories were shut down by the environmental bureau and more than 80, 000 factories were slapped with fines for pollution emissions. (Source: Forbes, Modor Intelligence, Technavio, Markets and markets)


The global market for dyes and dye intermediates is witnessing technological advancements. Companies are seeking to develop new ways of manufacturing dye intermediates, to grow the market. Increasing textiles demand and extensive use in the printing and ink Industry are driving the dye market, prompting companies to increase production. The abundant availability of raw materials is expected to strengthen the manufacture for dyes and dye intermediates.

The robust growth of the dye and pigment industry in China and India is likely to catalyse the leadership position of the Asia-Pacific region in the global market, marked by a healthy growth in downstream demands. Manufacturers are deepening their R&D investments to produce environment-friendly dyes and pigments to comply with government regulations restricting the use of toxic inputs in dyes. (Source: Ken Research, Mordor Intelligence, Market Watch)

Indian dyes and dyestuff industry overview

Basic organic chemicals and their related products (fertilisers, paints, varnishes, glass, perfumes, toiletries, pharmaceuticals, etc.) constitute a significant part of the Indian economy. In the most diversified industrial sectors, chemicals cover an array of more than 70,000 commercial products.

India is the seventh largest global producer and the third largest Asian producer of chemicals. The country ranks third globally for the production of agro chemicals and contributes around 16 per cent to the global dyestuff and dye intermediates production.

Total export of dyes and dye intermediates, organic and inorganic chemicals, including agro chemicals, cosmetics and toiletries, essential oils, incense sticks and castor oil, stood at US$ 28.38 billion during 2017-18. The US, the UAE, the UK, Bangladesh and Saudi Arabia are the leading importers of cosmetics, toiletries and essential oils.

The Indian dyestuff market is expected to grow to US$2.45 billion by FY21, registering a strong CAGR of ~19%. This was primarily led by a growth in end-user industries like textiles, paper, plastics, printing inks, foodstuff and leather. The future of the textile industry appears optimistic, buoyed by strong domestic consumption and export for high demand. The domestic textile market is expected to ride economic growth and higher disposable income. Maharashtra and Gujarat account of 90% of Indias dyestuffs production.

The Indian dyes and pigments industry is the second-highest exporter in the chemical industry. At 16% of global production, the dyestuff and dye intermediates industry is experiencing a continuous increase in export, with the export of chemicals and chemical products reaching C~995.5 billion in 2017.

Dye intermediates comprise products like H-acid and Vinyl sulphone, which are used to manufacture dyes. India possesses Vinyl sulphone and H-acid manufacturing capacity of 67,400 MTPA and 43,700 MTPA respectively. The export of dyes and dyestuffs from India was estimated at US$ 2.4 billion in 2017 with synthetic organic colouring matter accounting for more than 88% of the share of the export market. USA, Turkey, Bangladesh, China & Germany were the principal customers. (Source: Ken Research, Indsec, Trade Promotion Council of India and JM Financial)

Indias dye exports (in US$ million)

Country FY16 FY17 FY18
USA 179.0 168.2 182.9
Turkey 141.3 142.8 170.0
China P RP 70.1 86.8 126.8
Bangladesh PR 102.0 115.4 120.1
Germany 92.7 91.7 103.5
Italy 88.7 89.9 100.5
Netherland 68.5 68.3 97.3
Brazil 73.0 89.3 93.2
Indonesia 72.7 76.5 81.1
Singapore 49.0 54.0 77.4

Key downstream sectors

Textiles: The Indian textiles industry is expected to grow from an estimated US$ 100 billion to US$ 226 billion by FY2023. Foreign direct investment into Indias textiles sector (including dyes and printed textiles) was US$ 2.97 billion by June 2018. The cost-effectiveness and eco-friendliness of pigments enhance suitability of applications in the textile value chain.

Paints and coatings: Indias paints and coatings market is projected to grow at a CAGR of 11.4% till 2023, driven by growing investments in the infrastructure and real estate sectors. Pigments play a growing role in the manufacture of opaque and glossy colours in the formulation of paints and coatings.

Automobile: In the automotive sector, paints and coatings are used in automobile protection and aesthetics. With the automotive segment growing at 5.2%, pigment ofitake is expected grow in the coming years.

Construction: The size of the Indias construction industry is expected to reach US$ 1 trillion by 2025. Growing housing demand could increase the demand for paints and coatings. (Source: PR Newswire, Make in India, IBEF)

Opportunities and threats


• Large domestic market

• Capacity closures in China due to environmental norms, an opportunity for Indian players.

• Established quality of Indian dyes industry, a headroom for growth.

• Quality human resources

• Major raw materials available within the country

• Established production facilities


• Stringent environmental norms

• Dependence on China for crucial dyes and dyestuffs

• Major production in the MSME sector without backward or forward linkages

• Low investment in organised Research & Development


The growth of the dyes sector depends on demand from end-user industries like paints, textiles, printing inks, paper, plastics and foodstuffs. Changing customer preferences and infrastructure expansion across the world could create opportunities for the dyes industry. The dyes intermediate segment is expected to report demand growth on account of growth of the dyes industry. The industry is likely to introduce dyeing technologies leveraging technical and R&D capabilities. (Source: Ken Research)

Indian solar energy market overview

The total solar energy production reached to 27.548 billion units in FY2018-19. In 2018, India installed 1 MW of solar capacity every hour. Solar power is the second largest source of renewable energy accounting for 34.03 per cent of total installed capacity in renewable energy in 2018. India is located in the solar belt, enjoying abundant sunshine. Indias installed solar generation capacity rose by more than 10x in five years, validating its popularity. (Source: IBEF)

Governmental initiatives

• The Ministry of Environment, Forest and Climate Change, the Government of India, announced that solar photovoltaic power, solar thermal power projects and solar parks would be exempt from the mandatory environment clearance certificate under the provisions of Environment Impact Assessment Notification, 2006.

• The Government of India set an ambitious target for deploying 100 GW of solar power by 2022.

• Sixty solar cities are expected to be developed in India as a part of the Ministry of New and Renewable Energys Solar Cities programme.

• The Government of India aims to set up 25 solar parks and ultra-mega solar power projects targeting 20,000 MW of solar power installed capacity by 2019-20. (Source: IBEF)


Indias solar energy installation is expected to increase 360 per cent by 2020, surpassing the installed capacity of wind-power and expected to reach 100 GW by 2022. The future for Indias solar energy industry appears positive due to improved capacity addition, favourable policies and rising demand for non-fossil fuel-based energy sources.(Source: Economic Times, ICRA)

The Companys overview

Incorporated in 1989, Bhageria Industries Limited is engaged in manufacturing dye and dye-intermediates. The Companys manufacturing facilities (Vapi and Tarapur) produce Vinly Sulphone, H-Acid and Gamma Acid. Nearly 35% of the output is principally exported to Korea, Japan, Taiwan, China, Germany and US as well as other European countries. The Company also invested in solar power generation comprising a 30 MW solar power plant in Ahmednagar and a 4.88 MWP solar rooftop outlay located mostly in Chennai.

Financial review

The Companys revenues grew by 22% to र 468 crore in FY2018-19 following improved sales. EBIDTA stood at र 130 crore compared to C91 crore in the previous year. The Company reported a post-tax profit of र 72 crore during FY2018-19 compared to a post-tax profit of र 40 crore in the previous year. The Company proposed a final dividend of र 2.25 per equity share following interim dividend of र 3.75 per equity share.

Key ratios

Particulars 2018-19 2017-18
EBIDTA/Turnover (%) 27.84 23.73
EBIT/Net interest ratio 28.43 11.31
Debt-equity ratio 0.07 0.28
Return on equity (%) 22.43 14.41
Book value per share (C) 156.90 135.33
Earnings per share (C) 32.73 18.45

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:

Debtors turnover: The Companys debtors turnover stood at 6.14 times compared to 5.35 times in FY2017-18.

Inventory turnover: On account of growth in sales, inventory turnover improved to 18.59 times compared to 13.61 times earlier.

Interest Coverage ratio: The Companys interest coverage ratio stood at 28.43 times against 11.31 times in FY2017-18. This was because of an increase in profitability and repayment of debt.

Current ratio: The Companys current ratio stood at 1.98 in FY2018-19 compared to 1.35 in the previous financial year due to faster conversion of cycle of debtors and reduction in current liabilities.

Debt-Equity ratio: The debt-equity ratio of the Company improved to 0.07x following र 60 crore debt repayment in FY2018-19.

Operating Profit: Operating profit margins improved by 138 bps to 33.29 per cent following improved performance.

Net Profit margin: The net profit margin was 15.29% compared to 10.46% in FY2017-18 on account of higher volumes and realisations.

Return on Net Worth: The return on net worth improved by 802 bps to 22.43% following improved performance.

Risk management

Industry risk: A fall in downstream sector demand could affect production and revenue of upstream products manufactured by the company.

Mitigation: Demand from end-user industries is growing especially in the Asia-Pacific region. Following increasing demand for high-grade paints/coatings, quality textiles and plastic in end-user industries, the demand for dyes, dye intermediates and pigments is expected to grow sustainably.

Technology risk: Technology obsolescence could affect profitability.

Mitigation: The Companys state-of-the-art manufacturing capabilities and cutting-edge technologies empower the Company to deliver quality products on schedule, strengthening the Companys position as a dependable partner.

Economic risk: A slowdown in the economy could affect the industry.

Mitigation: The Indian economy is less exposed to a slowdown in global manufacturing trade growth than other major Asian economies. However, the company has hedged against this possibility through increased exports (32% of revenues, 2018-19).

Raw material risk: Increase in the cost of input materials could affect the Companys profitability.

Mitigation: The Company has invested in a strong supply chain with a focus on timely resource availability. The Company has also embarked on the manufacture of specific resources that are expected to strengthen its backwards integration and widen its presence across a wider value chain.

Liquidity risk: A liquidity crunch could affect day-to-day operations.

Mitigation: The Company is long term debt free and enjoys a strong cash flow with working capital cycle of 34 days in FY2018-19.

*Working capital days are calculated on sales

Human resources

In recent times the traditional responsibilities of the HR department, such as ensuring equitable benefits and compensation, overseeing employee engagement and retention, enhancing diversity, handling workplace issues etc., have evolved.

At Bhageria, we focus on enhancing employee wellbeing and potential. The Company provides an invigorating workplace environment, attractive career growth, fair performance management, compensation and operational transparency.

The Companys employee strength stood at 255 as on March 31, 2019. The average age of employees was 38 years by the close of the year under review.

Internal control systems 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.