I G Petrochemicals Ltd Management Discussions

Management Discussion and Analysis

1. ECONOMIC SCENARIO AND OUTLOOK

In 2023, the global economy displayed signs of stabilisation on the back of a swiftly recovering US economy and resilient large emerging markets. The risk of a global recession was diminished by favourable factors such as robust labour markets, increased household consumption, and the strength of emerging economies. The International Monetary Fund (IMF) forecasts global growth at 3.2% in 2024 and 2025.

India demonstrated resilience amidst a challenging global environment, rising to become the fifth- largest global economy with an estimated GDP of $ 3.7 trillion in FY 2023-24. The Indian economy continued outperforming its global peers, with real GDP expanding 8.2% YoY in FY 2023-24. This growth is attributed to robust domestic demand and strong performance in the manufacturing and services sectors. Supported by strong macroeconomic fundamentals, healthy financial institution balance sheets, moderating inflation, and improving external sector position, the Indian economy and financial system remained resilient.

Outlook

Global economic growth is anticipated to slow down in 2024 due to the delayed effects of monetary tightening, fiscal consolidation, diminished savings buffers, and declining pent-up demand for services. However, the Indian economy is poised to maintain a real GDP growth rate exceeding 7% in the coming years. As inflation is expected to align with targets by 2025, the economy stands to gain from relaxed monetary policies. The focus on infrastructure in public policy is anticipated to propel gross fixed capital formation, contributing to Indias economic resilience. The strong momentum in manufacturing, coupled with higher urban spending, surpassing rural demand and increased investments on infrastructure positions the country on a promising growth path.

2. GLOBAL CHEMICAL INDUSTRY

According to Verified Market Research, the global chemical industry was valued at $ 839 billion in 2023 and is projected to reach $ 982.2 billion by 2030, growing at a CAGR of 4.8% during the forecast period 2024-2030. This sector is integral to industries such as manufacturing, construction, agriculture, healthcare, and consumer goods. Chemical products are essential in everyday life, serving as raw materials for countless products and processes.

The industry is entering 2024 with a positive outlook. Despite the challenges faced over the last few months, the chemical sector anticipates a gradual rebound in 2024. Although hurdles persist, the collective impact of heightened demand, favourable regulations, and the industrys emphasis on sustainability, decarbonisation, digitalisation, and innovation is laying a robust groundwork for future growth and prosperity.

Key trends

• The shift towards cleaner energy sources, such as wind, solar, and electric vehicles, requires the development and production of advanced materials and chemicals

• The competitive landscape at regional levels has undergone substantial transformations in recent years, prompting re-evaluation of long-term strategies among players in the chemical industry.

• Digital and artificial intelligence technologies hold significant importance for the future across various sectors, yet within the chemical industry, data is emerging as a crucial resource for driving innovation and operational efficiency.

• Enhanced transparency and collaborative efforts can significantly help chemical companies in fostering trust and distinguishing their brand in the market.

3. INDIAN CHEMICAL INDUSTRY

The Indian chemicals sector is distinguished as one of the fastest-growing industries worldwide. It accounts for approximately 7% of the GDP, positioning India as the sixth-largest chemical producer globally and third- largest in Asia. Chemicals and chemical products play a crucial role in various manufacturing sectors, including food and beverages, textiles, leather, metal extraction and processing, petroleum refining, pharmaceuticals, and rubber, owing to their direct and indirect applications. Forecasts indicate that the industry is set to reach $ 304 billion by 2025, with a compound annual growth rate (CAGR) of 9.3%, primarily driven by increasing demand in end-user segments, particularly for specialty chemicals and petrochemicals. Moreover, it is anticipated that the demand for chemicals and petrochemicals in India will nearly triple, reaching $ 1 trillion by 2040.

Whether its the China-Plus-One strategy, aimed at establishing alternative manufacturing centers, with India positioned as its primary beneficiary, or the broader global trend of countries and companies seeking to diversify and mitigate risks in their supply chains, the landscape is evolving rapidly. Factors such as shifting geopolitics, trade tensions, stricter environmental regulations, and rising costs in China, alongside the surge in domestic chemical consumption in India, are all propelling the Indian Chemical industry toward unprecedented growth. Demographic dividends, low per capita consumption, increasing export demand and enabling Government initiatives are expected to transform India into a global manufacturing hub for chemicals and petrochemicals, and help realise the vision of the country becoming a $ 5 trillion-dollar economy.

Key factors that determine Indias ability to emerge as a critical player in chemical industry

• India continues to be a preferred manufacturing destination for players across the globe given its low cost of manufacturing, cheap labour wage rates and rich availability of skilled manpower

• Strong IPR protection is a key benchmark for global innovators looking to source materials, and India has established itself as a strong supporter of IPR protection

• Indias specialty chemical industry enjoys strong global acceptance, with exports constituting more than 50% of the production in sub-segments, such as flavours, fragrances and nutraceuticals

Key trends and opportunities driving the industry Shift in customer preferences

Consumers are increasingly seeking innovative and personalised goods and services, while also becoming more mindful of the products they use and their effects on both health and the environment. This awareness has led to a notable shift in preferences towards milder and safer products crafted from natural ingredients. Simultaneously, consumers are demonstrating a willingness to invest more in environmentally friendly alternatives, even if it means paying a premium. For instance, the rising demand for eco-friendly food packaging and sustainable home and personal care products vividly illustrates this evolving consumer sentiment.

Digitalisation

Digitalisation offers competitive edge through enhanced integration, operations management, innovation, and new digital business models. Chemical firms are integrating digital initiatives into supply chains, demand planning, and pricing strategies. Utilising data-driven approaches, organisations are implementing sensors for real-time operational data, optimising processes, and preventing production losses through predictive maintenance, leading to substantial cost and time savings.

Innovation and sustainability

In India, the concept of green chemicals or sustainable chemistry is gaining momentum. With increasing awareness of the risks posed by hazardous chemical elements to both health and the environment, theres a growing concern about the environmental impact of chemicals. As a result, governing bodies and stakeholders are actively exploring the transition towards sustainable methods of chemical manufacturing. Companies are proactively developing sustainable and innovative products, while also adopting new technologies to enable circularity in their processes.

Outlook

The knowledge- and capital-intensive chemical sector is the backbone of industrial and agricultural development, providing building blocks for downstream industries such as textiles, papers, paints, soaps, detergents, and pharmaceuticals, among others. Competitive manufacturing costs, skilled labour availability, stringent intellectual property protection laws, and favourable government policies will be the primary growth drivers for Indian specialty chemicals companies. Because of Chinas production cuts, Indian firms can compete with global peers if they expand their scale of operations. The trend of supply chain diversification from China to India, combined with increased domestic consumption, is expected to drive growth in the sector over the medium term.

Phthalic Anhydride (PAN) Market

Phthalic Anhydride, with the chemical formula C6H4(CO)2O, is a white crystalline compound and an anhydride of phthalic acid. It serves as a crucial ingredient in the production of plasticizers, pigments, dyes, and resins, finding applications across various industries. According to Industry Arc, the Global Phthalic Anhydride Market is projected to reach $ 7.33 billion by 2025, with a compound annual growth rate (CAGR) of 4.6% during 2020-25. This growth is attributed to the increased utilisation of polyvinyl chloride and polyester resins in key sectors such as construction, electronics, equipment manufacturing, marine, and automobiles.

Over the years, application of PAN has expanded significantly cross various industries. Today, PAN is not only utilised in traditional sectors like plasticizers and resins but also finds its way into specialty chemicals, agrochemicals, specialised polymers, electric vehicles, electronic products, insect repellents, and urethane polyester polyols. Moreover, innovative uses such as manufacturing plastic currency, paper boards, leisure boats, and windmill sails have emerged.

As of FY2023, Indias PAN market size stands at approximately 5,00,000 metric tons, with an expected growth rate of 6-8%. The market growth of PAN is being driven by increasing demand from the construction and paints & coatings sectors. As these industries continue to expand, the need for PAN, which is a key ingredient in various construction materials, paints, and coatings, is on the rise. Besides government initiatives, innovative projects such as smart city developments are contributing to the increasing demand for PAN, further propelling its market growth.

Maleic Anhydride Market

According to Market Research Future, the Maleic Anhydride market size reached $ 2.34 billion in 2023 and is projected to grow to $ 3.93 billion by 2032, with a compound annual growth rate (CAGR) of 5.84% during the forecast period (2024-32). Key drivers of this growth include increasing demand for unsaturated polyester resins (UPR) in the construction and automotive sectors, rising demand for lubricant additives in the automotive industry, and growing demand for tetrahydrofuran in the production of spandex and polyurethane.

The automotive industrys expanding demand, particularly for passenger and commercial vehicles, has significantly contributed to the Maleic Anhydride market growth. Maleic Anhydride-derived Unsaturated Polyester Resin (UPR) is favoured for its design versatility, lightweight nature, and mechanical properties, making it ideal for automotive part construction.

Moreover, the construction industrys upward trajectory is expected to further drive the Maleic Anhydride market. Maleic Anhydride is utilised in construction materials to enhance performance and durability, providing properties such as chemical resistance, corrosion resistance, easy maintenance, thermal insulation, and design flexibility.

Di-ethyl Phthalate Market

According to Research Nester, the Di-ethyl Phthalate market is forecasted to reach $ 253 million by 2036, with a growth rate of 5% during 2024-36. In 2023, the industry size of Di-ethyl Phthalate stood at $ 141 million. The main driver behind the expansion of the Di-ethyl Phthalate market is the increasing use of makeup and personal hygiene products in the cosmetic sector. The younger demographic is increasingly embracing cosmetics and personal care items such as hair sprays, cleansers, shampoos, aftershave lotions, and nail polishes, driven by a growing awareness of skincare importance and the damaging effects of sunrays, leading to a significant user base for anti-aging and sun protection solutions.

Moreover, Di-ethyl Phthalate is utilised in agrochemicals to prevent pests and insects from crops, addressing the growing need for insecticides due to increased insect attacks on crops. Additionally, pesticides containing Di-ethyl Phthalate are used on animals for food production, further driving the demand for Di-ethyl Phthalate in pesticides and insecticides, which is expected to boost farmer revenue.

Plasticizer Market

According to Research and Markets, the plasticizers market has seen substantial growth in recent years. It is expected to increase from $ 100.57 billion in 2023 to $ 108.57 billion in 2024, with a CAGR of 7.9%. The market is projected to continue its significant expansion, reaching $ 145.7 billion by 2028, at a CAGR of 7.6%. This growth is driven by the rising demand for plastic and PVC, along with an increasing need for plasticizers in the healthcare sector. Key trends during this period include advancements in recycling technologies, circular economy practices, and a shift towards bio-based and biodegradable plastics. The Asia Pacific region currently dominates the market due to its strong manufacturing base and growing demand from various end-use sectors.

Meanwhile, North America is emerging as a fast-growing market, driven by a focus on innovative plastic solutions and stringent environmental regulations.

4. COMPANY OVERVIEW

Incorporated in 1988, I G Petrochemicals Limited is the largest producer of Phthalic Anhydride (PAN) in India with more than 50% market share. IGPL also produces Maleic Anhydride (MAN) and is Indias only Maleic Anhydride producer. IGPL also produces Benzoic Acid and Di-ethyl Phthalate (DEP).

5. FINANCIAL REVIEW

		(Rs. in crore)
Year	FY 2023-24	FY 2022-23
Revenue	2,130	2,375
EBITDA	136	340
PAT	40	200

Operational performance overview and the significant changes in ratio

Particulars	FY 2023-24	FY 2022-23	Changes (%)	Reason
Debtors Turnover	6.33	7.00	(9.50)	-
Inventory Turnover	9.60	11.36	(15.48)	Optimum Utilisation of Inventories
Interest Coverage Ratio	2.76	12.23	(77.41)
Current Ratio	1.59	1.75	(9.12)	-
Debt Equity Ratio	0.22	0.16	39.72	Due to increase in borrowings
Operating Profit Margin	4.00%	12.44%	(67.81)
Net Profit Margin	1.90	8.53%	(77.77)	Due to lower margin on sales during the year
Return on Net Worth	0.05	0.19	(73.46)	Due to lower margin on sales during the year

6. RISK MANAGEMENT

The Companys risk management framework defines its approach, perception, and mitigation measures regarding risks. This includes identifying, assessing, analysing, and responding to factors that could pose a threat to the business. By implementing an effective risk management process, the company aims to minimise the likelihood of risks occurring and their potential impact. The Board of Directors consistently reviews the outcomes of the Risk Management Committees efforts to ensure robust risk management practices are in place.

Raw Material Risk: The Company relies on crude derivatives for raw materials, making it vulnerable to fluctuations in crude prices which could impact profitability. However, due to rising demand and the absence of alternative products, the company can pass on increased raw material costs to end consumers

Import Risk: IGPL faces the risk of losing market share to cheap imports from other countries. IGPL has advantage of low cost of production plus benefit of yield and other products helps is mitigating the risk of import.

Environmental Risk: The inherent toxicity of the products exposes the company to environmental risks. To address this, we adhere to the highest environmental protection standards globally. This ensures that both plants and products meet all government regulations. Additionally, we have established a new Effluent Treatment Plant (ETP) to enable our facility to achieve Zero Liquid Discharge, further mitigating environmental impact.

Interest Rate Risks: The Company faces exposure to fluctuations in interest rates, which can impact its financial stability. We conduct regular reviews of working capital loans, commercial borrowings, and rupee term loans, further we use alternative banking facility to minimise the risk of increased interest rates. We ensure that all risks associated with debt are either fully hedged or covered through natural hedge, leveraging existing profitability. This proactive approach helps manage interest rate risks effectively.

7. HUMAN RESOURCES

The Company continued to strengthen its position in the petrochemical industry through strategic initiatives aimed at enhancing operational efficiency, fostering innovation, and prioritizing employee well-being. Central to our success is our commitment to placing people strategy at the forefront, aligning our HR initiatives closely with our organizational goals. These efforts have been pivotal in driving sustainable growth and achieving operational excellence across our business segments.

During the year, the Company human resources initiatives have been specifically tailored to support our strategic vision. We revamped our performance management system to include defined Key Performance Indicators (KPIs) and implemented regular performance feedback sessions, reinforcing a culture of accountability and continuous improvement. Additionally, initiatives such as the Buddy Program and mentoring by senior leaders have facilitated knowledge transfer and strengthened our talent pipeline, ensuring leadership continuity and fostering a collaborative work environment.

Employee engagement and experience remained a priority, evidenced by our diverse range of activities including picnics, sports events, and cultural celebrations. These initiatives not only promote team cohesion but also contribute to a positive workplace culture where every employee feels valued and motivated. Moreover, our focused efforts on diversity hiring plans have enriched our workforce with varied perspectives, enhancing innovation and bolstering our competitive edge in the marketplace.

Looking forward, the Company is poised for continued growth and market expansion. Leveraging the expertise of our management team and the capabilities of our workforce, we are well-positioned to capitalize on opportunities in existing and new geographies. The addition of qualified professionals to our team further strengthens our operational capabilities, enabling us to navigate challenges independently and sustain our leadership in the global petrochemical sector.

The year 2023-24 has been a transformative year for the Company, characterized by significant achievements in both operational performance and human resources management. Our strategic focus on innovation, employee development, and technological advancement underscores our commitment to long-term value creation for our stakeholders. As we move forward, we remain steadfast in our pursuit of excellence, driving sustainable growth and delivering superior returns to our shareholders.

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8. CORPORATE SOCIAL RESPONSIBILITY

In our commitment towards good corporate citizenship, we are determined to create a positive social change. Corporate Social Responsibility (CSR) attempts to transform the landscape of our businesses with a focus on creating value for indigent communities that desire a secure future by creating sustainable livelihoods for them.

1. Partnered with Tata Community Initiatives Trust to establish a skill development center at Taloja Manufacturers Association, Taloja. This center aims to offer employment-linked entry-level skill training programs like field electrician, AC Technician and Bank Executive, leading to gainful employment for underprivileged youth from Taloja and its surrounding areas. The initiative is expected to benefit up to 325 students by providing them with the necessary skills and job opportunities. We have been successful in graduating 252 students till now and facilitated employment for more than 50% of the students. We have plans to introduce some new courses for the beneficiaries to take more advantage and in turn have a good impact in skill development sector.

2. Partnered with Saraswati Shishu Mandir Trust for the construction of a school in Vrindavan, named after the Companys Co-founder Late Shri Shyam Sunder Dhanuka. The school, catering to pre-primary and primary sections, was completed during the year and commenced operations in early 2023, serving the community effectively.

3. Collaborated with Saksham Foundation to create self-help groups aimed at training women in skills such as tailoring and food processing. Additionally, the Company actively supports initiatives related to old age homes, organizations for the blind, animal welfare, medical equipment and spectacles provision, and the renovation of fitness centers. These efforts highlight the Companys commitment to social responsibility and community welfare. 5 SHGs are formed in which more than 58 women are a part of the group. The impact of the group is expected in the upcoming year.

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9. INTERNAL CONTROL

The Internal Control process of the Company aims to provide a reasonable assurance of the effectiveness and efficiency of operations, reliability of financial reporting and adherence to the applicable laws and regulations. The audit plan is laid out for the year by the Internal Auditor on the guidelines as set out by the Audit Committee and the management.

The Internal Control activities are the specific policies and procedures which involves segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. In order to establish effective internal controls, the Company continuously assess the risk, monitor control implementation, and modify controls as and when required.

The Internal Auditor participates in all meetings of and reports directly to the Audit Committee. The internal audit reports dwells on the detailed observations and its rating, the recommendation and corrective action proposed to be initiated. The Companys internal financial control systems commensurate with its nature of business, size and operations.

10. CAUTIONARY STATEMENT

This report contains statements that are "forward looking statements" including, but without limitation, statements relating to the implementation of strategic initiatives and other statements relating to Companys future business developments and economic performance. While these forward looking statements indicate our assessment and future expectations concerning the development of our business, several 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. Company undertakes no obligation to publicly revise any forward looking statements to reflect future/likely events or circumstances.