Dharamsi Morarji Chemicals Co Ltd Management Discussions.


One year into the pandemic, the global sentiments remain highly uncertain. The new virus variants and mutations raise concerns even as the vaccine coverage lifts sentiment. The outlook depends not only on the outcome of the battle between the virus and the vaccine but also on how e_ectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis. After an estimated contraction of –3.3 percent in 2020, the global economy is projected to grow at 6 percent in 2021, moderating to 4.4 percent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 World Economic Outlook (WEO), reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working.

Future developments will depend on the path of the health crisis, including whether the new COVID-19 strains prove susceptible to vaccines or they prolong the pandemic; the e_ectiveness of policy actions to limit persistent economic damage (scarring); the evolution of financial conditions and commodity prices; and the adjustment capacity of the economy. The ebb and flow of these drivers and their interaction with country-specific characteristics will determine the pace of the recovery and the extent of medium-term scarring across countries.


India is witnessing a lopsided economic recovery with some sectors performing better than the others. The economic activity seems to be gathering momentum at a sustainable pace with people demonstrating greater confidence in stepping out and spending. India has exhibited an average 7% gross domestic product (GDP) growth rate in the last 20 years despite major recessions and economic slowdowns. The GDP is expected to contract by 9% in FY 2020-21 owing to the COVID-19 pandemic, followed by a bounce back with over 10% in FY 2021-22, surpassing the major economies in the world.

The Government spending is estimated to be higher than the previous financial year with fiscal deficit at 7.2% of GDP as against a budgeted 6.8%, mainly due to a higher food subsidy bill and lower asset sale revenue. Monetary conditions are expected to remain accommodative as inflation increases with an upside risk caused by rising global commodity prices.


India has one of the largest global chemical markets, and is ranked sixth in the world and fourth in Asia in terms of global sale of chemicals. The Indian chemical industry is fragmented with large, medium and small companies manufacturing major petrochemicals, alkali chemicals, inorganic chemicals, organic chemicals, pesticides, dyes and pigments and other chemicals. Indias chemical industry was estimated to be worth USD 178 billion in FY 2019-20 and has a significant potential to reach USD 300 billion by FY 2024-25. In terms of demand, the industry has grown at approximately 1.3 times the countrys average GDP growth in the last five years and shows a strong linkage with its GDP.

Source: DCPC and PwC analysis

COVID-19 has severely a_ected the Indian chemical industry and disrupted supply chains and the demand for chemicals. Consequently, it is expected to show a downturn in FY 2020-21 while still adapting to the shock expected in Indias GDP. With the IIP of chemical and chemical products manufacturing being on


Covers Ranked
>80,000 products, an inevitable part of daily life third-largest consumer of polymers globally

2.5% of global chemical sales

Employs two million people
Ranked sixth in the world and fourth in Asia for chemical sales Ranked fourth-largest producer of agrochemicals globally
Ranked second-largest manufacturer and exporter of dyes Contributes

1.4% of the national GVA

Contributes 8.8% of Indias manufacturing Contributes 2.1% of total FDI equity inflows
Weightage of 7.87% – IIP Contributes 11.3% of Indias exports

the verge of attaining the pre-COVID index, the chemical industry is expected to witness a V-shaped recovery by FY 2021-22 by adapting to Indias GDP growth trend. The industry is expected to grow at a CAGR of 9.2% by FY 2024-25, reaching up to USD 276 billion in the next five years.

In order to achieve its target of USD 300 billion by FY 2024-25, the chemical industry needs to grow at a CAGR of 11% in the next five years, which is possible considering Government initiatives and the growth in the consumer base, changes in lifestyle, increase in disposable incomes and focus on healthcare and hygiene.


Shift in customers preferences

Customers are increasingly getting interested in environmentally friendly and socially responsible products and services. Moreover, they are becoming conscious of health and hygiene and are demanding milder and safer products with pure ingredients.

Increasing per capita consumption

The current per capita consumption of chemical products in India is about one-tenth of the global average and is expected to double by 2025.

Increasing M&A and investment-related activity

Downstream value-added opportunities, the continued strength of speciality chemicals and realignment of portfolios are the key drivers of strong M&A and investment activities. Global oil and gas majors and leading chemical companies are looking for downstream opportunities in India and other high-growth economies.

China shift

Consolidation in the industry, environmental reforms and tightened financing is changing the structure of Chinas chemical industry, resulting in uncertainty for companies dependent on the country for their supply of raw material. In addition, the COVID-19 outbreak has compelled companies to move their supplier base and look for alternative locations such as India that o_er the advantage on low-cost labour and favourable investment policies.

Innovation and sustainability

Adding value by balancing the economic, social and environmental impact of the pandemic is becoming an overarching management principle in the chemical industry value chain. Chemical companies are incorporating sustainability and green-chemistry initiatives by constantly improving products, technology and processes, and working closely with customers and suppliers across their value chains. Expenditure on R&D in the chemical industry in India increased at a CAGR of 7.91% between 2009 and 2019.


Rise in demand from end-user industries such as food processing, personal care and home care is driving development of di_erent segments in Indias speciality chemicals market.

The domestic chemicals sectors small and medium enterprises are expected to showcase 18-23% revenue growth in FY 2021-22, owing to an improvement in domestic demand and higher realisation due to high prices of chemicals.


Indias speciality chemicals companies are expanding their capacities to cater to rising demand from domestic and overseas.

With global companies seeking to de-risk their supply chains, which are dependent on China, the chemical sector in India has the opportunity for a significant growth.


The Governments plans to introduce production-linked incentive (PLI) scheme to promote domestic manufacturing of agrochemicals.

Under the union Budget 2021-22, the Government allocated D 233.14 crores

(USD 32.2 Million) to the Department of Chemicals and Petrochemicals.


PCPIRs are expected to attract investments worth D 7.63 lakh crores

(US$ 104.36 Billion).

Indian chemical companies spend ~1% of their revenue on R&D.

An investment of D 8 lakh crores

(US$ 107.38 Billion) is estimated in the Indian chemical and Petrochemicals sector by 2025.


The journey of The Dharamsi Morarji Chemical Company Limited to become a global leader began in 1919 with just one product and one manufacturing unit. The Company, at present, is a leading manufacturer of speciality and bulk chemicals with a global footprint. The product portfolio constitutes speciality and bulk chemicals across sulphur, boron and ethanol chemistry. Chemicals manufactured by us find application in a wide range of industries like pharmaceuticals, detergents, dyes, fertilizers, pigments, cosmetics, and other chemical applications. Today, the Company takes pride in its 100+ years of expertise in Sulphur chemistry and has also diversified its operations across other downstream products. It exports cost-e_ective and value-added products to more than 25 countries across 6 continents. Dharamsi continues to maintain the highest standards of safety in its functioning, adopt practices and processes for safer and responsible manufacturing operations to reduce the impact of its operations on the environment.


Bulk Chemicals

Various industries across the globe increasingly want to partner with trusted manufacturers for their essential input requirements. We are leveraging the strong foundation of our sulphuric acid business built over more than 100 years to cater to clients and grow.

Commodity in nature, this segment operates on low margins and high volumes coupled with high price sensitivity. Performance in this segment is dependent on uninterrupted material availability, high plant utilization levels, and strong logistics management. These products are sold domestically within a limited radius from the manufacturing site. Around 50% of the production is sold o_ in the markets, and the rest is consumed captively. The upcoming 350 TPD capacity shall be the last capacity expansion in this segment for the foreseeable future. However, the bulk chemicals plant will be set up first, which will result in a higher contribution from this segment in FY 2021-22.

Speciality Chemicals

Exit from the fertilizers business has simplified the product portfolio of the Company, and there are now strong synergies between all businesses underpinned by our expertise in sulphur chemistry. The focus now remains to scale our speciality chemicals business while we retain scale in our bulk chemicals business. The balance sheet strength of the Company now enables it to drive scale in speciality chemicals portfolio. The chemicals in these segments are more knowledge-based that are created from strong process competencies and technical skills in handling hazardous reactions. The growth in this segment is tied to long-term strategic relationships with customers. The chemicals in this segment are less a_ected by raw material price volatility. 65-70% of the chemicals manufactured in this segment are exported. Speciality chemicals contributed 65% to the top line as compared to 55% in the previous year. The planned capital expenditure in this segment will begin commercial production with a lag of one quarter from the commencement of the bulk chemicals plant. The

Company has further decided that a major part of all incremental capital expenditure will be done for expansion in speciality chemicals. Strong demand from export markets will augur well for our margins in the coming years. In addition, our capacity expansion projects will ensure process and product development and further our vision of becoming global leaders with the lowest production costs on the back of integrated operations. We expect investments worth D 50 crores made in this segment to yield asset turns of more than 2x, and we hope to achieve optimum utilisations by the end of FY 2022-23.


The company continued with its investments in diversifying the product portfolio and strengthening its infrastructure and processes to drive greater e_iciencies during the year. Preparing for the next leg of growth, the Company is strategically positioned with upcoming capacities in value-added segment. The strategy of de-risking the business model and making incremental capex in more value-added assets will help us deliver long-term value to all our stakeholders.

In FY 2020-21, revenue from operations increased to D 200.15 crores, a growth of 6.65% from D 187.66 crores in FY 2019-20. EBITDA came in at D 43.27 crores; up by 27.09% from D 34.05 crores the previous financial year and PAT was at D 32.58 crores; up by 3.55% from D 31.46 crores in the last financial year.

Key Ratios

Operating Profit Margin 18.14% 21.62% 19.16%
Net Profit Margin 16.77% 16.28% (2.91)%
Debtor Turnover 6.84 7.02 2.57%
Inventory Turnover 3.52 2.88 (18.20)%
Interest Coverage 13.73 15.18 10.62%
Debt Equity* 0.12 0.16 29.37%
Current Ratio 2.13 1.68 (21.10)%
Return on Net Worth 21.72% 18.81% (13.38)%

* The increase in long term borrowings of the Company on account of the ongoing capital expenditure has led to an increase in the debt equity ratio.


The Company remains focused on building distributed leadership and succession planning processes and is coming up with ways to enhance organisational capabilities. Accordingly, risk management has always been an integral part of your Company. Backed by strong internal control systems, existing risk management framework and policies we have laid down the roles and responsibilities for various business segments. These responsibilities today o_er a strong foundation for appropriate risk management procedures, their e_ective implementation as well as the independent monitoring and reporting handled by Internal Audit and the top management team.

Raw Material Risk

Unavailability of raw material and fluctuation in its prices is a major threat to our business.


The long-standing relationships with our suppliers ensure steady availability of raw materials at competitive prices. Also we follow a raw material-plus pricing mechanism for speciality chemicals, which further reduces the risks of margin and top-line pressures in scenarios of rising input costs.

Customer Retention Risk

The inability of the Company to retain its customer may a_ect the financial performance of the Company.


Due to the quality of the products manufactured coupled with competitive prices o_ered, your Company is the preferred supplier to many of its customers. Also no industry contributes to more than 10% to the Companys revenues providing enough diversification benefits and reducing the client concentration risk.

Risk of availability of skilled personnel

The key enabler of success for any Company depends on its ability to retain and attract skilled personnel. Any failure in being able to do so could impact the operations and performance of the Company.


The Company always endeavours to keep its human capital at the centre and has initiated multiple steps for the overall development of its employees. We undertake various initiatives to ensure an all-round learning experience for our employees. The Company also encourages on-site and o_-site team building activities to inculcate a sense to togetherness amongst all the employees of the Company.

Risk of Foreign Exchange

The Company generates a significant part of its revenues from exports and hence is exposed to risk of fluctuations in currency values.


The Company keeps a close watch on Rupee movement and enters hedging and swap contracts to mitigate the risks arising out of any unfavourable movement in currency leading to financial losses.

Regulatory Risk

If the Company is unable to obtain any regulatory approval required by the concerned authorities, it may adversely a_ect its business operations and resulting financial performance.


The Company is aware and compliant of all the regulatory requirements of the concerned authorities. The Company also makes conscious e_orts to ensure that it is compliant with the regulatory requirements of global markets to ensure smooth functioning of operations.

Economic Uncertainty

A decline in economic activity could have an impact on our business operations.


The Company has been making conscious e_orts in increase its global presence. It has substantially reduced its dependency on performance of any specific economy.


Your Company has well laid down policies, guidelines and procedures which form part of its internal control system. The Audit Committee of the Board periodically reviews reports of Internal Auditors, inter alia, on adherence by the operating Management of such policies and procedures and suggests changes/modifications and improvements on a continuous basis. The Company has an independent and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposal and the transactions are authorised, recorded and reported correctly. The internal control systems are supplemented by a programme of internal audit.


The Company has continued with its drive to institutionalise and upgrade its HR processes. The diversified skill sets of our employees add significant worth to the Company. Every organisation which values and appreciates its Human Resource succeeds in its goals and receives positive results. At DMCC, we always belive in the concept of human empowerment. We firmly believe that human resource is the most important assets of the organisation, as it influences growth, progress, profits and shareholders values. During the year, we continued our e_orts aimed at improving the HR policies and processes to enhance our performance. Special emphasis is being led continually on recruitment of multi -disciplinary and experienced sta_ to carry forward the growth objectives of the Company. Regular training programmes are being held for the benefit of the sta_ and the workmen. The Company believes in a collaborative approach and works closely with the unions, and Industrial relations have been cordial all along. The number of permanent employees on the rolls of the Company as on 31st March, 2021 are 323.


Statements in this "Management Discussion and Analysis Report" describing the Companys objectives, projections, estimates, expectations or predictions may be considered as "forward looking statements" within the meaning of applicable security laws and regulations. Many factors may a_ect the actual results, which could be di_erent from what the Directors envisage in terms of the future performance and outlook.