Bharat Rasayan Ltd Management Discussions.
While the global economy is battling headwinds, India continues to be one of the fastest growing major economies in the world in FY 2018-19, driven by strong household spending and corporate fundamentals. Despite external vulnerabilities in the form of high oil prices, trade tensions between major global trading partners and the US monetary tightening, the Indian economy remained resilient. The World Bank estimated the Indian economy to grow by 7.2% in FY 2018-19.
The reforms undertaken are expected to have a positive impact on the fiscal and current account deficit over the medium to long term. Additionally, they will increase the efficiency and transparency of the Indian economy. Together, these will increase the confidence of both corporates and investors in the Indian economy.
INDIAN AGROCHEMICAL INDUSTRY
Agriculture inputs play a decisive role in enhancing crop production. With arable land declining, production of crops can only be increased by using quality inputs through a scaled-up country-wide effort. Concerted efforts are being taken to transform agriculture, improve farm productivity and farmer prosperity, achieve food security and environmental sustainability.
Agrochemicals are chemicals that help boost crop productivity through prevention of destruction of crops by pests such as insects, weeds, fungus, etc. The global economy, in general, and Indian, in particular, is facing a multitude of challenges such as to feed an evergrowing population, reducing arable land bank and dealing with adverse climatic changes. Under such circumstances, the traditional methods of growing more crops are rendered inadequate. There is a growing acceptance to launch advanced agrochemical solutions to achieve higher field productivity.
Agriculture which contributes to 16% of the GDP and provides employment to nearly half of the countrys population, plays an important role in the Indian economy. India is a leading farm producer as well as an exporter of many agro commodities. Its agro economy faces multiple challenges which is reflected in the relatively lower productivity compared to the advanced economies of the world. Science provides solutions to address some of these challenges and in turn, these provide opportunities for businesses involved in agriculture inputs.
Indian agriculture is on a growth path, with an increase in investments and private funding in the past few years. The sector is expected to grow with better momentum in the next few years, owing to an increase in investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs, time, better port gate management and fiscal incentives will also contribute to this upward trend. Furthermore, the increased use of genetically modified crops is also expected to better the yield of the Indian farmers.
IMPACT OF CLIMATIC CONDITIONS ON GLOBAL AGRICULTURE
The year 2018 became the fourth warmest on record since 1880, according to an independent analysis by NASA and the National Oceanic and Atmospheric Administration. Preliminary data indicated that 2018 global temperatures were 0.79 Degree Celsius above the 20th century average. The warming was largely driven by increased emissions of carbon dioxide and other greenhouse gases into the atmosphere caused by human activities. Unfavorable weather for crops in key growing regions adversely impacted crop production and yield.
IMPACT OF CLIMATIC CHANGES ON AGRICULTURAL PRODUCTION
As per the India Meteorological Department (IMD), 2018 was the sixth warmest year on record in India with patchy monsoon and average temperature being significantly above normal. The rainfall during the annual monsoon season was less than the original forecast at 91% of the long-term average. Nearly 50% of Indias cultivable farm area is dependent on the monsoon, making it lifeline of the countrys rural economy and agriculture sector. However, most major crops producing states witnessed normal monsoon rainfall, hence the production of food grains for FY 2018-19 is higher.
A number of measures and policies have been introduced by the Government. The pro-farmer policies will help the cultivators attain higher levels of agricultural produce and enable a structured income support for them. Agricultures role in the process of economic growth in India is unprecedented. Agriculture, with its allied sectors, is the largest source of livelihood in India. Advancement in agriculture and allied sectors is positive for inclusive economic growth at the national level. India is the largest producer, consumer and importer of pulses in the world. As farmers find themselves in a more comfortable situation, the agriculture sector will gather further momentum.
CROP PROTECTION INDUSTRY
Crop protection chemicals play a major role in increasing agriculture productivity. They help in minimising plant diseases, weeds, and other pests that damage agriculture crops, and thus increasing and maintaining year-on-year crop yield. Around 25% of the global crop output is lost due to attacks by pests, weeds and diseases. India is the 4th largest producer of agrochemicals, after the US, Japan and China. In India, better timing and spatial distribution of rainfall, higher pest incidence, and steps by the Government to improve farm income are expected to increase the application of agrochemicals. The industry faces several challenges due to strict environmental regulations. Crop protection comprises of insecticides, fungicides, herbicides and bio-pesticides. Indias pesticides consumption is currently one of the lowest in the world among other economies.
In FY 2018-19, the Indian crop protection chemical industry witnessed several challenges. Uneven distribution of rainfall and its skewness in certain regions led to a significant change in the pest load factor, impacting its consumption. In Rabi season, significant rainfall during beginning of cropping period led to a decline in pest infestation. The industry further faced the challenge of fluctuation in the prices of raw materials as supply got impacted due to operational issues in China led by environmental crackdown.
We have installed effluent treatment plant. All effluents generated at plant are segregated into hazardous and non-hazardous categories and they are effectively treated, recycled and reused, wherever possible.
RESEARCH & DEVELOPMENT
Being actively engaged in product and process development activities across various segments of its businesses, Research & Development (R&D) is an integral part of the Companys operations. We have dedicated R&D plant at Bahadurgarh, Haryana is certified by the Ministry of Science and Technology, Government of India with pilot plant having a qualified team. We also have R&D Plant at Dahej, Gujarat having NABL Certification from National Accreditation Board for Laboratories as a certified research lab, alongwith Pilot plant. Both the plants are working round the clock working on new chemistries.
In addition to ISO 9001:2015 for Quality Management, the professional commitments of high order have earned the rating of ISO 14001:2015 for Environment Management System and also ISO 45001:2018 Certification for Occupational Health & Safety norms. The Company is also registered with global mercantile data compiler and rating agency Dun & Bradstreet.
Your Company has highly qualified and dedicated team of professionals in various work profile to focus on quality improvement in existing products, marketing the products to prevailing customers and exploring new domestic and overseas customers for the Company. Your Company achieved a turnover of Rs992.18 crores registering an increase of about 22.43% over previous year turnover of Rs810.40 crores and earned a Profit before Tax (PBT) of Rs155.13 crores and Profit after Tax (PAT) of Rs111.52 crores.
Apart from loyal customer base that the Company is enjoying since last several years now, many more new domestic as well as overseas customers are added to the portfolio of the Company during the year & same is expecting to increase in near future due to Companys commitment of supplying high quality product in a time bound manner.
Moving ahead, the Company remains poised to implement key initiatives across functions to enable itself to face market challenges and leverage the emerging opportunities. It remains focused on improving revenue growth and profitability, driven by high growth segments such as seeds and nutrients.
The Companys total expenses increased by 23.26% from Rs679.72 crores in FY 2017-18 to Rs837.79 crores in FY 2018-19. Major expense items of the Company comprise cost of material consumed, purchase of stock-in-trade, power and electricity, freight & forwarding outward, employee benefits expenses, depreciation and amortisation expenses and finance costs.
Cost of materials consumed increased by 46.86% from Rs493.61 crores in FY 2017-18 to Rs724.90 crores in FY 2018-19 owing to increase in major raw material prices.
Power and Electricity expenses increased by 8.66% from Rs17.79 crores in FY 2017-18 to Rs19.33 crores in FY 2018-19, largely due to increase in prices of utilities.
Employee benefit expenses increased by 15.83% from Rs49.52 crores in FY 2017-18 to Rs57.36 crores in FY 2018-19 owing to increase coming from annual increment and new recruitment.
Finance costs increased by 42.65% from Rs11.09 crores in FY 2017-18 to Rs15.82 crores, subject to regrouping as per Ind-AS.
RISKS AND CONCERNS
Risk management comprises all the organizational rules and actions for early identification of risks in the course of doing business and the management of such risks along with identification of opportunities. Despite the strong growth drivers, Indian agrochemicals industry faces challenges in terms of low awareness among large number of end users spread across the geography. Managing inventory and distribution costs is a challenge for the industry players in the wake of volatility in business environment. The performance of the crop protection industry and other agri-inputs is dependent on monsoons, pest and disease incidences on crops. As this years monsoon failure has shown, major fluctuations in total rainfall and its distribution affect the crop acreages and overall productivity and have a direct correlation with sales. Agrochemical companies face issues due to seasonal nature of demand, unpredictability of pest attacks and high dependence on monsoons.
Compliance to growing regulatory norms is a continuing requirement and could lead to delays in obtaining necessary approvals. Changes in guidelines or policies in various geographies may also lead to sudden disruption of business in specified products.
In order to minimize the risk, a comprehensive and integrated risk management framework is followed by the Company.
INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
The Company has created internal control systems which are commensurate with the size, scale and complexity of its operations. The Company has also identified entity level controls for the organization, covering integrity and ethical values, adequacy of audit and control mechanisms and effectiveness of internal and external communication, thereby strengthening the internal controls systems and processes with clear documentation on key control points. The internal controls are formulated and implemented by the management with an objective to achieve efficiency in operations, optimum utilization of resources and effective monitoring and compliance with applicable laws.
HUMAN RESOURCES DEVELOPMENT
The Company invested in a strong workforce and working environment to report sustainable growth, reflected in the continuous improvement in operating processes and new product introduction. The Company believes in a performance-driven culture.
The Company organized training programmes based on emerging requirements, covering technical, behavioral, customer orientation, safety, code of ethics, product training and other needs. The Company continued to recruit skilled scientific, technical and managerial personnel.
Certain Statements made in this report relating to Companys objectives, outlook, future plans etc. may constitute "forward looking statement" within the meaning of applicable laws and regulations. Actual performance may differ materially from such estimates or projections, whether express or implied. Important factors that could make a difference to the Companys operations; include Government Regulations, Tax regimes, Economic developments within India and countries in which the company conducts business and other allied factors.