Bodal Chemicals Ltd Management Discussions.

Economic Overview Global

The global economic growth decelerated from 3.6% in 2018 to 2.9% in 2019. This tepid performance was the outcome of a host of factors like intense US-China trade war, the escalating geo-political tension and rising global debt. On the contrary side, stable crude oil prices, easing concern on Brexit, US-China trade talk and pro-active involvement by the global central banks, enthused some hope in the economy by the end of 2019. Growth in developed economies decelerated to 1.7% in 2019, down by 50 basis points from a year ago. This slowdown occurred due to sluggish growth in manufacturing activity. To offset the same, companies adjusted the production in accordance to the demand. Emerging and Developing Economies (EMDE) posted a growth of 3.7% as some of the countries in the region benefited from diversion in the trade flows. Among the developing economies, the Asia-Pacific (APAC) regions performed well, as the region integrated well into global flow of trade, capital, talent, and innovation. Hence, the growth trajectory of these regions is relatively expected to stay stronger in longer term. The outlook for the global economy 2020 looked hopeful until the outbreak of Covid-19. It unleashed an unexpected blow through lockdown, by clogging off the demand and disrupting supply chain worldwide. This led the Government all around the world to announce stimulus packages to revive business, strengthen public health safety and security. The gradual lifting of lockdown will slowly allow reopening of the economy and force major economies to re-think about their raw material procurement strategy which was highly dependent on single source.


In the past decade, Indias GDP growth has remained one of the highest in the world, pegging a CAGR of 6-7% (Source: Economic times, November 2019). Urbanisation, technology adoption and rising overseas investment played a key role in nations efficiency and productivity. However, during the financial year 2019-20, Indias GDP shrank to 4.2% as compared to 6.1% in 2018-19. This slowdown can be attributed to governance issues, falling government expenditure, subdued demand, rising NPAs, trade deficit and debt level. Responding to these, the

Indian Government took various measures like opting out of RCEP deal, introducing Competition commission of India (CCI 2.0) bill, decision to privatise few public companies, slashing down the corporate, GST and income tax rates. Even RBI reduced repo rate on various occasions to boost liquidity. Going into 2020-21, all these measures were anticipated to push the demand and supply side of the Indian economy. However, the Covid-19 outbreak led to a nationwide lockdown, severely affecting the labourer, vendors and MSMEs. Right before we were struck by this health emergency, the Government and RBI had intervened to bring in some relief through various measures in the form of monetary policy, fiscal stimulus, reforms and easing of lockdown.

Chemical Industry

The world landscape of the chemical industry is rapidly changing. The western countries are losing their share due to high energy prices, labour cost, and currency appreciation. Thus, emerging countries like India and China are capitalising on this, pushing the industry to the next stage through development in technology, innovation, and trade. This trend is expected to continue in the future.

The size of the Indian chemical industry is ~USD 163 Billion, wherein Pharma, Agro, Dyes and Pigments, other speciality and Fine Chemicals contribute around 50% (Source: Economic times, , October 2019). Over the past ten years, the Indian chemical industry has clocked a CAGR of over 10% (Source: Business Today, February 2020). This growth is the testimony of structural advantage, diversified industry, promising export potential and high domestic consumption. Slowly and gradually, India is emerging as a preferred choice for chemical products, as domestic players are addressing environmental issues through adoption of best global practices and by staying committed towards sustainability programs. These augur well for the country as it already enjoys the advantage of cheap labour and easy availability of raw material. Going forward, in the near term, the Covid-19 landscape is bound to bring some volatility in the market. But, in longer term, the industry is expected to register a growth of 13-14% over the next 5 years owing to growth of strong intellectual property regime and infrastructure development like warehouses, waste management facilities and ports (Source: Maeirvidorno, December 2019).

Speciality Chemical: The next wave of growth

Speciality Chemicals are low volume, high margin products catering niche segments. Ever since Chinas chemical plant shutdown, owing to violation of environmental norms, Indian speciality companies have seen their fortune turn. Domestic companies have spent vital amount of money to comply with regulatory norms which has helped them gain market share. This increased their utilisation level, economies of scale and improved margins. Further, to meet the rising demand, the Indian Speciality Chemical industry also spent a decent Capex to build a world-class facility and move up the value chain at a rapid pace. This capital spending is likely to decrease the nations chemical import bill. Indian speciality market looks promising, as the Chinese counterparts lose the power of better pricing due to rising environmental cost factor. This pace is expected to spur as Indians consume more food, wear more clothes and buy plastic.

Dyestuff Industry

The growth of the chemical industry is majorly supported by the uptrend in Dyestuff industry. Textile constitutes ~80% of the total Dyestuff consumption, signifying the pivotal role it plays in pushing the Dyestuff market value (Source: Trade Promotion council of India, August 2018). Dyes and Pigments are used in varied number of applications, thus making it safe in terms of any slowdown in specific end-user industry. In India, Dyestuff production is growing at a satisfying level wherein, Gujarat is a leader with over 75% market share (Source: Financial express, 26th February 2020). Going forward, the scope for Dyestuff industry looks huge with its production volume projected to hit 572.2 thousand tons in 2024, increasing at a CAGR of 9.11% from 2020-2024 (Source: Economic times, 14th May 2020). This production level could be challenged by growing Coronavirus (Covid-19) scare in near term for smaller domestic companies. However, at the same time, this could also open doors of opportunities for big players to grow their dominance through consolidation.

Production volume of Dyes and Pigments in India (in 1,000 metric tons)

Opportunities and Growth Drivers Policy changes in China

As a step towards reducing the emissions and managing waste properly, the Chinese government laid down various stringent measures. This has led to an increase in the compliance cost. The Chinese government also declared some areas of the Yangtze river as a protected zone, mandating no factories to be built within the 1 kilometre of the river. These measures are expected to eliminate smaller companies from China. And the decreasing chemical production from Chinese companies is anticipated to shift the demand to other countries. These developments augur well for the Indian chemical companies. Bodal Chemicals, with its high production capacity and export capability, stands at the forefront of meeting this demand from the western countries. (Source: JM Financial Report)

Lower tax rates

To revive the consumption and demand, the Indian Government decreased effective Corporate tax rate from 30% to 22%. This lower tax rate is expected to benefit Bodal Chemicals through increase in its profitability in terms of value as well as margins.

Low per capita consumption in chemical industry

Indias chemical per capita consumption is 1/10th of the global standards (Source: HDFC Securities). Over the next decade, the domestic chemical per capita consumption is expected to increase owing to rising income level and industries. Bodal Chemicals is well positioned to cater the countrys rising consumption through its expanding capacity and wide product portfolio.

Ease of doing business

India moved up from 77th position in 2018 to 63rd position in 2019 on the World Banks ease of doing business index, riding the back of various favourable reforms and friendly policies. This is expected to attract more overseas end-user industries to set up a manufacturing base in the country. Bodal Chemicals, catering a wide range of industries, is bound to benefit from such shift of preference.

Social and physical infrastructure development

The industry requires good ports and connectivity to become competitive amongst peers. Responding to this, the Government has placed huge emphasis on infrastructure through Rs. 100 Lacs Crores investment under its five-year plan. This will help reinforce the existing ports while building new ones. These initiatives are expected to allow Bodal Chemicals with better supply turnaround time.



The Government has allowed 100% FDI in chemical sector. This has resulted in domestic players facing stiff competition from foreign multinationals, capable of exerting strong price pressures on local markets. Bodal Chemicals views this as a healthy indicator of further thriving and leveraging on its attributes. Better pricing, quality products, high volumes and strategic locations, compared to its peers, are some of the factors that places the Company in a better position to face this competition.

Company overview

Established in 1989, Bodal Chemicals is the leading Indian integrated chemicals manufacturer, catering 150+ global and domestic marquee clients. The Company offers 150+ types of Dyestuff, 25 varieties of Dye intermediates and 12 kinds of basic chemicals under its product portfolio. With nine manufacturing facilities situated in Gujarat and one located in Uttar Pradesh, domestic region remains Bodal Chemicals primary revenue market. However, with time, the Company is also strengthening its footing in the overseas market through export, building diverse sales avenue. With its six operating subsidiaries, Bodal Chemicals is strengthening its position in marketing and trading sales domain.

Financial Performance (Consolidated) (Rs. in Million)

2019-20 2018-19 Reason for decline
Revenue from operation 13,748 14,235 Volatile raw material prices
EBITDA 1,481 2,495 Increase in depreciation and financial cost
Profit after tax 867 1,413 Lower demand
Earnings per share (Rs.) 7.16 11.56 Write off of Saykha Project capital WIP (Rs. 8.80 Crores)

Details of significant ratio changes (Consolidated basis)

Ratio 2019-20 2018-19
Return on Operating Capital Employed (RoCE) % 12.91 27.01
Return on Net Worth (RoNW) % 12.91 27.52
Basic EPS (Rs./Share) 7.16 11.56
Debtors Turnover (Days) 105.06 88.26
Inventory Turnover (Days) 86.54 68.96
Interest Coverage Ratio 6.32 25.15
Current Ratio 1.53 1.50
Debt Equity Ratio 0.26 0.20

Segment-wise Performance

Productions (MT)

Capacity utilisation (%)

Reason for decline
2019-20 2018-19 2019-20 2018-19
Basic chemical 1,98,732 188,534 87.93 83.42 Subdued demand in end-user industries
Dye stuff 18,890 18,588 53.97 71.74 Company undergoing an expansion phase
Dye intermediate 23,898 33,000 79.66 78.91 While total production has increased year on year, utilisation levels have declined due to increase in the capacities

SPS and Trion

SPS Loss stood at Rs. 24.81 Million, whereas Trion posted a loss of Rs. 119.99 Million

Human Resource Management

It is important to adopt the best working methods to evolve with the changing industry scenario. This approach, along with the right team, is crucial for progress. The Company has overcome hurdles and thrived ahead amidst a rough operating environment. This has only been possible with the people of Bodal Chemicals, the most valued assets of the Company. They bring the Companys values to life while helping it achieve its full potential. Bodal Chemicals moves ahead with the approach of attracting the best talents. It further nurtures them to the global industry standards, so they can perform in an agile and collaborative manner.

The Company places great importance towards cultivating employees skills, promoting a diverse workforce and building a pipeline of future leaders. The ambition is to create a great workplace where every employee contributes to the Companys success. For this purpose, the Company launched an ESOP earlier, to share success with recognised individuals who go ‘above and beyond to deliver outstanding results and make exceptional contributions to the business. Events like World Environment Day, Safety Week Celebration and Independence Day are celebrated with the aim of aligning and bringing together teams across all levels and the organisation. During the year, an HR mobile application was launched which automated many tasks, reducing employees dependency on HR. The application comprises and shares Company news, leave details, salary details, and other individual information in real time.


No. of employees as on 31st March 2020

Safety Health Environment Safety

Bodal Chemicals takes various measures to protect its human life. Regular safety trainings for employees across all the chemical manufacturing units are organised. These trainings ensure the right maintenance of all the safety equipment. Moreover, the Company also has doctors and medical representatives, available through the day, at its health centre. These doctors and medical representatives are well-versed to tackle any emergencies. The Company also carries out regular health check-up for its employees.

Environmental management

Bodal Chemicals is committed towards keeping its surrounding areas unimpacted by its manufacturing facilities. The Company responsibly uses and manages natural resources and concentrates on priority issues like climate change through its environmental management initiatives. The Companys water treatment plants testify as an evidence towards its best environmental practices. These plants give Bodal Chemicals a competitive advantage in terms of efficiency, performance, and productivity. The Company holds ISO 9001: 2015 and ISO 14001: 2015 certifications, showcasing its quality adherence.

Risk Management

The Company believes it is necessary to recognise business sustainability risks and opportunities on an ongoing basis. The Company embraces processes which continuously enhance risk awareness and promote a culture of effective risk management.

Risk Impact Mitigation
Economic externalities Macroeconomic factors such as liquidity crisis, subdued consumption, trade wars and pandemic, can affect the business plan in near to medium term. The Company hedges itself from the country and sector specific risks as it caters wide range of industries and exports to about 45 countries. Moreover, maintaining a strong financial position helps overcome any headwinds and turbulence in the economy.
Operational discrepancy The chemical industry is complex and integrated. Any disruption across the value chain can ensue production loss, decreasing the revenue. The Company carries out regular maintenance and inspection programmes to recognise any discrepancy before it erupts.
Cyclicality of the industry The industry is determined by market demand and supply. Therefore, an increase in raw materials price can affect operating margin. The Company manages its inventory effectively to ensure that the sales are met through right production volumes. Additionally, it also stays competitive by reducing raw material dependency on suppliers for procurement. This is done by strengthening the vertical as well horizontal product integration through in-house manufacturing.
Reputational risk The Company is known as the reliable partner today. Therefore, any issue in the quality of the product and failure to comply with quality standards can impact its reputation. The Company follows strict quality control processes and also adheres to all the applicable external standards across all manufacturing sites.
Sustainability risk Any kind of soil and air pollution/leaks of harmful substances/tightening can result in legal penalties. The Company takes Environmental, Social and Governance (ESG) into consideration for its sustainable growth. The Company has installed treatment plants at its facilities to save water and be energy efficient. It also covers various areas of CSR activities and stays committed to the best of governance.

Internal Control System and their Adequacy Supply chain management

There are about 200 products manufactured and sold across more than 45 countries, resulting in a widespread supply chain network. Bodal Chemicals continually invests in initiatives for supply chain optimisation, capability building of its trade partners and the sales force. The constant observation and revision for all the manufacturing facilities helps get better response. The key to an efficient supply chain management system is the use of technology solutions and predictive analytics for capturing accurate data, making proper decisions.

Information technology

Information technology provides continuous support to business operations, offering competitive advantages to the Company. A comprehensive ERP system has been implemented which helps Bodal Chemicals to increase its supply chain and provides accurate forecasts for the sourcing and supply. The IT system and infrastructure are continuously examined and improved with appropriate and timely upgradation.

Cautionary Statement

Statements in the Directors Report, Management Discussion and Analysis or elsewhere in this Annual Report, contain‘ forward-looking statements including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Bodal Chemicals future business developments and economic performance. While these forward-looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, general market, macroeconomic, Governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance. Bodal Chemicals undertakes no obligation to publicly revise any forward-looking statements to reflect future/likely events or circumstances.