MANAGEMENT DISCUSSION AND ANALYSIS (MDA)
GLOBAL ECONOMIC OUTLOOK
The global economy is showing signs of resilience in 2023 after a turbulent year.
However, economic growth remains historically low in 2023, as persistent inflationary
pressures, tighter monetary conditions and the prolonged war between Russia and Ukraine
weigh on economic activity. Inflationary pressures are eroding real incomes, triggering a
global cost-of-living crisis and substantially weakening investment growth. Further, the
global banking crisis in the United States has raised concerns over macroeconomic
stability across the markets and an impending global recession. With the central banks
efforts to curb inflation by tightening monetary policy, global inflation is projected to
decrease from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024. Key factors in the
improvement in economic activity and sentiment in 2023 are the rebounding of Chinas
economy, the gradual unwinding of supply chains and the recent decline in energy and food
prices.
Notwithstanding the headwinds, the real Gross Domestic Product (GDP) grew in the United
States, the European Union and major emerging market and developing economies. The real
GDP of the United States grew at 2.1% in 2022 on the back of increased private investment
and consumer spending. It is projected to grow at 1.6% in 2023 and 1.1% in 2024. The
European economy recorded 2.7% growth in 2022 and is projected to grow at 0.8% in 2023
before rising to 1.4% in 2024.
The International Monetary Fund (IMF) has projected global GDP growth to decline from
3.4% in 2022 to 2.8% in 2023 and rise to 3.0% in 2024. The growth of Advanced Economies
(AEs) is projected to decline sharply from 2.7% in 2022 to 1.3% in 2023 before rising to
1.4% in 2024. Economic prospects for Emerging and Developing Economies (EMDEs) are on
average stronger than for Advanced Economies. EMDEs grew at 4.0% in 2022 and are expected
to grow at 3.9% in 2023 and 4.2% in 2024. Asia-Pacific will be the most dynamic of the
worlds major regions in 2023, predominantly driven by the buoyant outlook for China and
India, which will be the major contributors to global economic growth in 2023.
INDIAN ECONOMY
India continues to be among the fastest growing economies in the world. Despite the
spillovers of the global slowdown, the Indian economy is exhibiting resilience and overall
economic activity remains strong. As per the second advance estimates released by the
National Statistical Office (NSO), Indias GDP growth is estimated at 7% in FY 2022-23 as
against 9.1% in FY 2021-22. Further, despite the weakening external demand, the
merchandise exports have registered the highest-ever annual exports of USD 447.46 Billion
with 6.03% growth during FY 2022-23 surpassing the record exports of USD 422.00 Billion in
FY 2021-22.
Domestic economic growth is gaining strength and further traction in 2023. As per the
IMF, Indias GDP per capita at current prices is USD 2,600 in 2023, leading to a surge in
household consumption. The economic growth rate is projected to decline to 5.9% in FY
2023-24 due to inflationary pressures. Higher inflation remains a challenge and the
Reserve Bank of India (RBI) increased the repo rate by 250 basis points in FY 2022-23 to
tame inflationary pressures. As a result, Indias CPI inflation rate eased to 5.66% in
March 2023 from 6.95% in March 2022.
India has a long runway for growth and as per the IMF, the Indian economy is expected
to grow at 6.3% in FY 2024-25. Factors such as a conducive domestic policy environment,
various dynamic reforms undertaken by the government such as higher capital expenditure,
production-linked incentives (PLI) scheme and Atmanirbhar Bharat, thrust on domestic
manufacturing and infrastructure development, strong domestic demand, export growth,
technology-enabled development and energy transition among others will stimulate growth in
FY 2023-24.
INDUSTRY OVERVIEW
The global aroma chemicals market is valued at USD 6.56 Billion in 2022 and is
projected to reach a value of USD 10.3 Billion by 2030, growing at a compound annual
growth rate (CAGR) of 5.8% from 2022 to 2030. The expansion of the aroma chemicals
industry can be attributed to increased demand from the end-user industries, growing
customer base and increased penetration in emerging markets among other factors. Enhanced
consumption of packaged food and personal care products in developing economies, surge in
demand for natural aroma chemicals, technical advancement in the manufacturing process and
increased R&D activities are expected to further propel the market growth of the aroma
chemicals market.
Aroma chemicals including terpenoids, musk chemicals, and benzenoids are used to
prepare fragrance formulations for consumer goods like fine fragrances, cosmetics and
toiletries, food and beverages, soaps and detergents, home care and cleaning products,
medicines, etc. Aroma chemicals form the backbone of ingredients in these products as they
provide flavour and fragrance. With increasing consumer sentiments towards sustainability,
manufacturers are focussing on the sustainable production of eco-friendly aroma chemicals
to reduce emissions and gain a competitive advantage.
Aroma chemicals can be obtained from synthetic or natural sources. In recent times,
almost 90-95% of the raw materials used in fragrance creation are synthetics and only
5-10% are of natural origin. The synthetic chemical is the most lucrative segment due to
the rising utilisation of synthetic products in cosmetics, personal care, and food and
beverage industries owing to easy availability and low cost of production.
The global natural aroma chemicals market is anticipated to witness a CAGR of 6.8% from
2022 to 2030. Growing environmental concerns, regulatory bans on certain molecules and
some synthetic flavours, consumer awareness regarding the harmful effects of chemicals on
health and preference for organic and sustainable products are bolstering the demand for
natural aroma chemicals, which are extracted from natural sources such as various parts of
plants and occasionally from animals. Surging demand for herbal and natural products in
food and beverages, personal care, cosmetics and pharmaceutical industries is anticipated
to fuel the demand for natural aroma chemicals in the global market. The major challenges
for the growth of natural aroma chemicals are high manufacturing costs and their inability
to blend in with other fragrances, resulting in higher prices of the finished product.
AROMA CHEMICAL INSIGHT BY CATEGORIES
• Terpenes and terpenoids
The terpenes and terpenoids segment has been gaining popularity with a volume share of
37.50% in 2021 owing to its natural availability and medicinal properties. This segment is
expected to grow at a CAGR of 4.7% from 2022 to 2030. Terpenes are used in various
applications such as perfumery, alternative medicines like aromatherapy, food and
beverages, personal care products, etc. The surge in demand for fragrances in hand wash
and sanitisers and the large consumption of terpene in pharmaceutical and nutraceutical
applications will fuel its growth.
• Musk chemicals
Musk chemicals are extracted synthetically as well as naturally. Natural musk is
extracted from plants, roots, seeds and some animals like musk deer. Musk chemicals are
used in different applications such as perfumes, cosmetics, and personal care products.
Increasing demand for cosmetics, fine fragrances and aromatic personal care products are
the major growth drivers for this segment.
GLOBAL MARKET
The North American aroma chemicals market is poised to surpass USD 2 Billion by the end
of 2027. The North American market covers the United States, Canada and Mexico. The United
States holds the highest market share, attributing to the growth in the personal care,
cosmetics and FMCG industry. Despite the challenges in 2023, the aroma chemicals market
will grow steadily in North America owing to the presence of major vendors of aroma
chemicals, a large number of end-user industries in the region and high demand for premium
personal care products, especially in the United States and Canada. Further, the
Comprehensive Economic & Trade Agreement (CETA) between Canada and the European Union
is predicted to remove the customs duty on food
and agricultural products and several other industrial products. The agreement is
further intended to propel the trade of essential oils between Europe and North America,
thereby providing a significant growth opportunity for the essential oils & floral
extracts industry players in North America.
The aroma chemicals market in Europe exhibited substantial growth backed by the rising
demand for fragrances in personal care and cosmetic products, soaps, detergents, food and
beverages, etc. There is a huge demand for luxury premium fragrances and cosmetics in UK,
France, and Germany. Furthermore, personal care and cosmetics companies are introducing
new products in the region to attract new customers.
The global market is projected to grow exponentially due to higher demand for fragrant
intensifiers, odorants and flavours and their growing applications in key end-user
industries. The market for aroma chemicals is concentrated in Europe, USA and China.
Growth in the retail sector across emerging economies has made the availability of
products easier and contributed to the growth of the aroma chemical industry.
ASIA PACIFIC
Asia Pacific dominated the global industry in 2022 and accounted for the highest share
of more than 31.40% of the overall revenue. The aroma chemicals market is witnessing
growth in the region due to the shift in choices of consumers towards nutritional and
healthy foods and beverages in most populated countries like India and China and high
consumption of flavours and fragrances in China, India and Japan. China dominates the
Asia-Pacific market as it has the largest personal care and food and beverage market in
Asia-Pacific. Rising disposable income in emerging economies like India and China coupled
with population growth is expected to augment the demand for personal care and cosmetic
products in the industry.
Asian flavours and fragrances have also gained popularity in the major regions of
Europe and North America. Indonesia, India, China, and Vietnam are among the prominent
food flavours markets in the region of Asia Pacific. Multiple manufacturing companies are
focussing on the expansion of their business and investments in R&D facilities in the
Asia Pacific region. Factors, such as government subsidies, tax benefits, and high per
capita income, are attracting global companies to expand and start their operation in this
region.
The synthetic flavours and fragrance segment accounts for the highest market share. The
development of the pharmaceutical industry in the Asia Pacific region is also expected to
provide traction for the market. Advancements in manufacturing techniques, availability of
skilled workforce, higher production capacity, and favourable business models of export
and import are the key reasons for the growing popularity of the developing countries of
Asia Pacific for supplying chemical products.
INDIAN MARKET
India is one of the leading consumers and exporters of speciality chemicals including
aroma chemicals in the Asia Pacific region owing to rising demand from end-user
industries. Speciality chemicals constitute 22% of the total chemicals and petrochemicals
market in India. The speciality chemicals industry is projected to reach USD 65-70 Billion
by 2025.
As per export statistics provided by CHEMEXCIL, the USA contribution is the highest at
17.73% to the overall chemical exports, especially essential oils and inorganic chemicals
from India. Indias Cosmetics, Soap & Toiletries exports to the USA were the highest
among all the key export destinations from India. The export of aroma chemicals, organic
essential oils and end- user products like cosmetics and toiletries experienced
substantial growth in the last two years.
CHEMEXCILS EXPORT PERFORMANCE FOR THE YEARS 2020-21, 2021-22 & 2022-23
Volume in M.T. & Value in USD Million
| Chapter No./Panel |
2020-21 (Actual) |
2021-22 (Actual) |
% Growth |
2022-23 (Provisional) |
% Growth |
|
Volume |
Volume |
Volume |
Volume |
Volume |
Volume |
Volume |
Volume |
Volume |
Volume |
| (33) Cosmetics, (34) Toiletries |
0.00 |
1,618.88 |
7,46,170.32 |
1,973.96 |
0.00 |
21.93 |
7,64,203.94 |
2,408.34 |
0.00 |
22.01 |
| (33) Essential Oils |
11,459.57 |
234.04 |
15,497.86 |
310.64 |
35.23 |
32.73 |
12,734.31 |
306.27 |
-17.83 |
-1.41 |
| (15) Castor Oil |
7,34,336.46 |
917.24 |
7,15,209.56 |
1,175.50 |
-2.60 |
28.16 |
6,45,816.15 |
1,265.64 |
-9.70 |
7.67 |
(Source: DGCI&S)
India continues to invest in research and development, scale and the capacity to
deliver quality products at lower costs to achieve a competitive edge. The reduction in
the basic customs duty on several chemicals and petrochemicals products will further boost
the growth of the chemical industry and create lucrative opportunities for the aroma
chemicals industry.
Aroma chemical companies in India will be benefited from China- plus-one strategy and
the governments campaigns Make in India and Self-reliant India to boost domestic
manufacturing and promote Indian products in the global markets. Global players are
evaluating viable alternative manufacturing countries like India to reduce their reliance
on China and diversify supply risk, thereby improving export opportunities for Indian
players. India is well positioned to expand its global market share and emerge as a viable
alternative hub for speciality chemical manufacturing by leveraging its strength of
low-cost manufacturing, advanced processing capabilities, availability of skilled and
cheaper labour and favourable government policies. Furthermore, the Indian aroma chemical
industry benefits from less-stringent environmental norms as compared to China.
FRAGRANCES AND PERFUMES MARKET
The global flavours and fragrances (F&F) market size was valued at USD 29.15
Billion in 2022 and is anticipated to grow at a CAGR of 5.4% from 2023 to 2030. The global
perfumes market was valued at USD 50.85 Billion in 2022 and is expected to register a CAGR
of 5.9% from 2023 to 2030 owing to the growing trend of personal care and the rising
consumption of fragrance across various end-use products. However, high inflation may
impact demand for non-essential products such as fine fragrances as consumers will
prioritise essentials like soaps, detergents, etc.
The key market players are focussing on producing natural fragrances, due to the
consumer preference for natural fragrances and concerns regarding synthetic fragrances due
to health risks. India has become a prominent global supplier of natural fragrant raw
materials such as essential oils of menthol mint, sandalwood, jasmine and spices. Fine
fragrances have evolved into a significant business in the cosmetics and personal care
industry. Factors, like increased affordability for luxury products, a shift in consumer
preference for premium cosmetics and fragrances, growth in the retail sector and
e-commerce, rising awareness of hygiene, personal grooming trends and the therapeutic
benefits of fragrances are driving the overall market growth. The growing demand for
perfumes with higher fragrance concentrations and customisable and niche fragrances are
driving the sales of perfums (pure perfume) with 15%-40% fragrance concentration. The key
players are making significant investments in R&D and advertising to influence
consumer purchase decisions.
REGULATIONS
The aroma chemicals industry involves strict regulations due to the Safety, Health and
Environment concerns and the harmful effects of the toxicity pertaining to the use of
synthetic chemicals. The F&F industry has strict safety norms, restricting the use of
many chemicals, either due to governmental regulations or due to self-regulation by the
industry itself. For example, some fragrance ingredients are not permitted for use on
grounds of safety, while some others are restricted in their level of use in fragrances,
depending on the intended end-use. IFRA (International Fragrance Association) guides the
F&F industry by providing guidelines for fragrance ingredients as defined and
published in the IFRA safety standards. Regulations on emissions of wastewater, air, etc.
are getting more stringent for environmental protection and the manufacturers are required
to comply with these norms.
GROWTH DRIVERS
• Growing trend in personal care and cosmetics industries
Demand for personal care and cosmetics products has increased due to factors like
increased awareness of personal hygiene and self-care, rising disposable income,
urbanisation, changing lifestyle and growing penetration in smaller cities. Personal care
products and cosmetics have become an integral part of the day-to-day life of millennials.
Consumption patterns of cosmetics among teenagers also increased substantially. A shift in
consumer preferences will create lucrative prospects for the aroma chemicals market.
• Increasing consumption of toiletries and home care products
The rising concerns regarding disinfestation and maintaining a hygienic environment
post COVID-19 have led to a surge in the requirement for surfactants and emulsifiers in
home care products and toiletries. An increase in demand from these segments resulted in
the growth of the aroma chemicals industry.
• Growing demand for convenience food and beverages
The growth of the food processing and beverages market due to consumer preferences for
packaged food and low calories and non-alcoholic beverages will lead to increased demand
for aroma chemicals as they are used to enhance the flavour and act as preservatives in
edible items.
• Favourable government initiatives
Governments initiatives such as the exemption of basic customs duty on denatured ethyl
alcohol and reduction of customs duty on several chemical products, the Make in India
campaign and PCPIR (Petroleum, Chemicals and Petrochemicals Investment Regions) policy to
attract an investment of Rs.20 Lakh Crore by 2035 will boost the growth of the chemical
sector, including aroma chemicals sector. Other initiatives such as the Chemical Promotion
and Development Scheme (CPDS) to facilitate the growth of the chemical industry including
the speciality chemical sector and the Production Linked Incentive (PLI) Scheme for
chemicals, which is in the development stage, will further boost domestic production and
exports of chemicals, directly benefiting the aroma chemical industry.
• Increasing investment in R&D and product development
Increasing investment in R&D and product development will enable manufacturers to
produce new aroma chemical products. With companies focussing on product diversification,
consumers will have wider options to choose from a variety of personal care and skin care
products in different price ranges which is expected to aid the growth of the aroma
chemicals market.
COMPANY OVERVIEW
Privi Speciality Chemicals Limited is Indias leading manufacturer, supplier, and
exporter of aroma and fragrance chemicals and a globally trusted partner and supplier of
bulk aroma chemicals. Privi started manufacturing aroma chemicals in 1992 with only two
products, which gradually expanded to a range of over 50 products today, having a capacity
of over 55,000 tonnes per annum. Privi also develops and produces custom-made aroma
chemicals as per the specific requirement of the customers. The research specialists at
the in-house R&D centre continuously thrive to develop new products and processes.
Privi has state-of-the-art integrated manufacturing facilities situated at Mahad in
Maharashtra and Jhagadia in Gujarat. The facilities are equipped with expertise and
capacity to perform critical reactions. Privi enjoys a competitive edge and economies of
scale in its product segments.
Privi has a total production capacity of - 55,000 TPA spread across Amber fleur,
Acetates, Dihydromyrcenol, Ionones, Nitriles, Sandalwood derivatives and Speciality
chemicals and a Crude Sulphate Turpentine (CST) / Gum Turpentine Oil (GTO) capacity of -
36,000 TPA (Backward integration for captive a & p Pinenes).
Privi is ISO 9001:2015 and ISO 14001:2015 certified for its Environmental Management
System (EMS) and also has ISO 45001:2018 standard certification accredited by Bureau
Veritas Occupational Health & Safety Management System (OHSMS) for all its
manufacturing units in Mahad.
BUILDING BARRIERS TO ENTRY / COMPETITION RISK
Your Company is engaged in supplying aroma chemicals to global companies for over two
decades and has significant in-house expertise and knowledge of the olfactive requirements
of various global and regional customers.
Further, your Company continues to apply backward integration to use waste generated
from pulp mills - CST. These factors provide a distinct competitive advantage to your
Company against the new entrants or existing aroma chemical manufacturers. Your Company
has done research on various components of the CST and keeps working on producing
value-added products.
RISK MANAGEMENT Foreign exchange rate risk:
Fluctuations in exchange rates including the exchange rate between the Indian Rupee and
the U.S. Dollar due to adverse global developments may impact the operations of your
Company.
While your Company depends on over 70% of the raw materials by imports, it also exports
over 70% of the finished goods. Therefore, your Company continues to have a natural hedge
against the depreciation of the Indian Rupee against the US Dollar, after accounting for
some of the borrowings which are denominated in dollars.
Pricing and availability of raw materials:
The pricing of key raw materials also varies considerably during the year and the
recent uncertainties pose even more challenges than ever.
Your Company, as a strategy, continues to enter into half-yearly or annual contracts
with suppliers for raw materials and finished products to mitigate the risks.
Market risk:
Your Company has enhanced the capacities of key products as well as installed new
capacities for certain niche speciality aroma chemicals to stay ahead of the competition.
Your Company continues to be a dominant producer globally in three flagship products:
Dihydromyrcenol, Amber Fleur, and Pine Oil. All these products are developed in fully
integrated manufacturing facilities of your Company, starting from the CST to the finished
products and essential ingredients in the manufacture of fragrances. Your Company
continues to be the largest single CST processing site in Asia.
Your Company has started to manufacture Galaxmusk (Galaxoalide) and Camphor. As your
Company has started to sell these new products, the same over a period of time will
enhance the overall revenue.
In addition to the above-mentioned large volume flagship products, your Company also
manufactures several speciality aroma chemicals, some of which are made from the side
streams generated during manufacturing. Your Company believes in promoting a "Waste
to Wealth" philosophy. Thus, apart from consolidating the market share in the large
volume products, your Company is also working on increasing customer share by supplying
other aroma chemicals.
New customers under which samples are under evaluation are Unilever (India) and
Christian Dior (France).
TECHNOLOGY INITIATIVES
Your Company continues to engage in research and development in respect of technology
and process improvement. This will result in improved, cleaner processes for existing as
well as new products. The following initiatives are under review:
• Green chemistry
• Implementing sustainable solutions at plant scale for units 1, 2 and 3 for Zero
Liquid Discharge (ZLD)
• Renewable Resource Research & Development
Your Company is a member of the Carbon Disclosure Project (CDP). It not only discloses
its carbon emission data but also works on specific projects to lower the carbon emissions
from its operational activities.
Your Company score for CDP stands at B- grade and for EcoVadis stands at Silver for the
year 2022 which is considered to be very effective according to global standards. However,
your Company will strive to work towards getting better each day and moving one notch up.
STATUS OF YOUR COMPANY TOWARDS INTERNATIONAL CHEMICAL REGULATIONS
EU / EEA - Registration, Evaluation, Authorization and Restriction of Chemicals
(REACH):
Requirements: To place any product in European Economic Area in qty > 1 MTPA, the
product is required to be registered within REACH Regulation (EC Regulation 1907/2006).
Your Companys status: So far, your Company has registered 26 products under EU REACH
Regulation, through its Sweden- based representative. This will allow your Companys
EU/EEA customers and its Netherlands office to import the products into EU/EEA.
Key Post-Registration Obligations: After the European Chemical Agency (ECHA) evaluates
the registration dossier, additional animal or product test data is to be provided or
corrections to be made if ECHA finds any information missing or incorrect.
UK REACH
Requirements: EU REACH ceased to apply in Great Britain on January 1, 2021, as a
consequence of the United Kingdoms effective withdrawal from the European Union. GB
manufacturers, importers, distributors and downstream users of chemical substances must
now comply with UK REACH, to place any product in GB-market in qty > 1 MTPA after
Calendar Year 2021, need to submit a Downstream User Import Notification (DUIN) to HSE
(Health and Safety Executive).
Your Companys Status: So far, your Company has registered 20 products under DUIN, as a
result of which it has got an extension of the registration deadline till December 2027.
This will allow your Companys GB customers to import the products into GB-market without
any registration until December 2027.
TURKEY REACH
Requirements: To place any product in Turkey in qty > 1 MTPA after the calendar year
2020, the product is required to be preregistered under Turkey REACH Regulation (KKDIK
regulation) by December 2020. The product is required to be registered by December 2023.
Your Companys Status: So far, your Company has pre-registered 26 products under KKDIK,
as a result of which it has got an extension of the registration deadline up to December
2023. This will allow your Companys Turkish customers to import the products into Turkey
without any registration until December 2023.
OTHER PRODUCT AND MANAGEMENT SYSTEM CERTIFICATIONS
Most of your Companys manufacturing facilities are ISO 9001:2015, ISO 14001:2015 &
ISO 45001:2018 certified, Kosher and Halal certified. The ISO certifications have been
issued by a globally renowned certification body Bureau Veritas whose certification
process involves stringent audits.
OUTLOOK
Your Company is geared to capture the huge demand opportunities in aroma chemicals and
drive significant growth as soon as the global recovery begins.
Your Company has made further inroads into the developing markets (Nigeria, Egypt, UAE,
South Africa, Saudi Arabia, Kuwait and Korea) by seeking more customers as well as
additional market share through existing customers.
HIGHLIGHTS
Your Company has achieved marginal growth on Top Line and the Bottom Line has been
eroded mainly on account of the current market situation which is subdued due to factors
like the ongoing war between Russia and Ukraine, lack of demand, inflation, loss of
employment, economic uncertainties, etc.
With the continued existence of your Companys 100% subsidiary in the USA, its market
share continues to grow year on year. The USA business is witnessing a positive growth
momentum.
Your Company is witnessing a slowdown and is beginning to feel the impact of the same
coming from the key accounts.
Your Company continues to sell value-added products from backward integrated feedstocks
which are contributing to its revenue.
Your Company continues to establish strategic long-term business relations with global
leading companies in the F&F industry such as Givaudan, Firmenich, IFF, Symrise, MANE,
Robertet, Takasago, etc. and with global leading FMCG producers such as P&G, Henkel
and Reckitt Benckiser.
CAUTIONARY STATEMENT
Statements in the Management Discussion and Analysis may be forward-looking
statements within the meaning of applicable laws and regulations. Actual results might
differ substantially or materially from those expressed or implied. Important factors that
could make a difference to the Companys operations include, among others, economic
conditions affecting demand/supply, price conditions in the domestic and overseas markets
in which the Company operates, changes in the Government regulations, tax laws and other
statutes and incidental factors such as Force Majeure Contributors.
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