chemfab alkalis ltd Management discussions

Industry Structure and Developments

Chemfab Alkalis Limited ("CCAL") has established the first Membrane Cell cell plant for Chloralkaline production in India; it has also built a long legacy of sustainability and diversity in the workplace. CCAL is one of the first major chemical organizations in India to introduce and implement innovative technologies successfully and stay at the forefront of the industry. With considerable investment in processes and quality improvement, CCAL?s operations have been at the cutting-edge of technology since its inception.

CCAL, established by Dr. Rao in 1985, has many ‘firsts? to its credit and has received numerous patents and worldwide recognition for the viability and implementation of various innovative technologies in the Chloralkali sector.

Notably, adoption of Membrane Technology for Chloralkali production in its Kalapet facility has resulted in nationwide reform of the sector. Today, all new and expanding Chloralkali plants in India must implement Membrane Technology - that was once believed to be unviable and impractical.

Our Founder?s farsightedness, perseverance and quest for excellence have driven our success. His ‘green? stance has resulted in innovations for the betterment of the environment and the well-being of the earth?s citizens.

Working with local communities, and with a group of diverse and talented employees, we are proud to say that the company has spearheaded many firsts in the industry and in the country. Making a difference in technology and society alike!

The company operates in two segments viz Chlor- alkali segment and Oriented PVC Pipes segment.

CHLOR-ALKALI INDUSTRY

In the last year, the Global Caustic Soda Lye prices were buoyant and reached historic high due to Russia Ukraine war. In the domestic front, India has become a next exporter of Caustic Soda Lye, with steady exports taking place throughout the year. There has been a demand revival in almost all the sectors except for a few products which depend on the export market.

During the Financial Year 2022-23, the Chemical division?s product realisation showed marked improvement in the first half. Except in the last quarter, there was softening in the domestic prices in line with the fall in international prices, the prices coming back to normal levels after reaching highs of USD 7750-800/MT. Presently, prices are stable at around 450/500 CIF India price band.

During the financial year under review the Company has obtained statutory approvals for expansion in the capacity from 155 TPD to 180 TPD. The refurbishment of the plant is underway, and the expansion is expected to get effected from the month of June 2024.

ORIENTED PVC PIPES (PVC-O PIPES)

The Financial Year 2022 - 23 is a watershed year for the PVCO segment of the Company as more State Government Water Boards have approved inclusion of PVCO Pipes in the projects. This has significantly improved the order visibility for the FY 2023- 24

During the year PVC Resin prices have corrected sharply and have come back to pre-covid levels.

OPPORTUNITIES AND THREATS CHEMICAL

Globally, the supply demand situation of caustic across continents is diverse and varying and thus the trade flow pattern would be different and needs to be watched. However, global inflation and the anticipation of slowdown in various parts of the advanced economies continue to pose a threat on the industry and it is likely to impact both the manufacturers and the end users. Geopolitical issue continues to be a major concern point.

There has been significant Capacity addition build - up in the domestic industry in 2022-23 especially in western India. However, India becoming an active exporter, a large portion of the surplus is getting exported. Also, significant expansion in the Alumina capacity will improve demand.

PVCO

In India, both the Center and the State Governments are focusing on proving potable water to each household, and the demand for high pressure pipe is encouraging. The Company is well placed to meet the enhanced demand expected. With the PVCO pipes included in various State Water Board projects the demand visibility has greatly enhanced and is expected to boost revenues for this segment.

OUTLOOK

CHEMICAL

With the Chlor - Alkali products being the inorganic building block, the growth will move in tandem to growth in the country?s GDP in 2023-24. China?s domestic consumption, post covid, is improving and should help global demand balance. Overall we expect caustic prices to be stable during the year, in USD 450-500/MT CIF India price band.

PVCO

With the focus of both the Central as well as State Governments on water connectivity and distribution, the demand for the product is expected to be robust. Presently, PVCO Pipes have been accepted both in the Government and non-Government projects and with the proven track record, we expect good growth in market demand.

RISKS AND CONCERNS

For the Chlor-Alkali business dependence on grid power continues to be a risk. Though the Puducherry power scenario remains reasonably stable, the possibility of the increase in the cost of power is a concern in the long run.

For the PVCO Pipes business, delay in implementation of the govt projects is a potential risk.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has well-defined and adequate internal controls and procedures, commensurate with its size and the nature of its operations. This is further strengthened by the Internal Audit done concurrently.

Besides, the Company has an Audit Committee, comprising Non-Executive Directors, to monitor its financial systems, controls, management, and operations.

The Company has obtained certification for ISO 14001 and OHSAS 18001 systems to take care of critical operational areas. We also engage the services of professional Consultants to continuously analyze and upgrade our operations. The Company has also implemented Process Safety Management (PSM). Also, Sustainability Reporting has been carried out enhancing our commitment to sustainable development.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year, the realization for the Chemical Division increased substantially which resulted in a increase in sales turnover and profitability of the company. However, the off take of pipes in the PVCO segment remained dull leading to decreased operational capacity. Further, the PVC resin prices remaining high during the major part of the FY and the high prices of Industrial Grade Salt, impacted the margins

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PERSONS EMPLOYED.

During the year under review, Industrial Relations continued to be cordial. The Company had 193 direct employees on the payroll as of 31.03.2023 and had provided indirect employment to 199 persons on average during the FY 2022-23.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations, therefore, including:

S. No.	Ratio Analysis	FY 22-23	FY 21-22	Variance	Variance %	Remarks
(i)	Debtors Turnover Ratio (Times) (Revenue from operations / Average Trade Receivables)	15.35	14.84	0.51	3%
(ii)	Inventory Turnover Ratio (Times) (Revenue from operations / Average Inventories)	23.03	25.71	-2.68	-10%
(iii)	Interest Coverage Ratio (Times) (EBIT / Finance Cost)	400.50	39.68	360.82	909%	Increase due to Increase in EBIT
(iv)	Current Ratio (Times) (Current Assets/ Current Liabilities)	2.74	1.84	0.90	49%	Improved mainly due to increase in current investments under the head current assets
(v)	Debt Equity Ratio (Times) (Current + non-current borrowing and lease liability / total equally)	0.01	0.03	-0.02	-79%	There is an improvement in debt equity ratio on account of decrease in borrowings due to repayment of term loan during the year and higher profitability
(vi)	Operating Profit Margin (%) (Profit before exceptional items - Other Income / Revenue from Operations)	26.88%	12.33%	14.55%	118%	Increase due to increase in Revenue and Margins
(vii)	Net Profit Margin (Profit for the year / Revenue from Operations)	19.98%	10.62%	9.36%	88%	Improved due to increase in profit

The above comparison is on standalone financial statements.

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof:

		FY 22-23	FY 21-22	Variance
	Return on Net Worth (Profit after tax/ Total Equity) %	18.23%	9.67%	8.56%

Return on net worth is computed as a ratio of Profit after tax to total equity. The positive variance is mainly due to higher profit after tax in the current year compared to the previous year.

CAUTIONARY STATEMENT

The statements made in this Report on Management Discussion and Analysis, describing the Company?s views may be forward looking statements within the meaning of the applicable security regulations and laws. These statements are based on certain expectations on demand, imports, availability, and cost of power, etc. and any change in Government laws and the economic situation in the country would have its impact on the Company?s operations.

The Company assumes no responsibility in respect of the forward-looking statements herein, which may undergo changes in the future for reasons beyond its control.