kanoria chemicals industries ltd share price Management discussions


The financial year 2021-22 was another challenging one for the Indian and global economy. Covid restrictions in the first half of the year had a significant impact on economies around the world, leading to very slow global GDP growth. The Indian economy too was also adversely impacted and GDP growth lagged behind estimates. The Covid-19 pandemic has given rise to newer ways of doing business and accelerated the pace of digitalisation, with an increased focus on sustainability and resilience. At KCIL, with the support of our employees, vendors, customers and bankers, we were able to take on the challenges in the business environment efficiently in these unprecedented times. The Companys assessments and prospects outlined hereunder are to be read in the context of the evolving and ever-changing situation.


Financial Performance with respect to Operational Performance

After a dif cult year characterised by disturbances in business activities caused by the Covid-19 pandemic, the Company, backed by strategic initiatives taken in earlier years, better efficiencies and improved demand for the Companys products delivered a significantly improved performance which further strengthened the Balance Sheet of the Company. The Revenue from Operations of the Company on a standalone basis increased by 67% from Rs. 3,879 million in the year 2020-21 to Rs. 6,491 million in the year 2021-22. The EBITDA more than doubled from Rs. 334 million in the year 2020-21 to Rs. 704 million in the year 2021-22. The Company during the year generated a Net Pro t of Rs. 250 million as against a loss of Rs. 37 million in the immediately preceding financial year. The operations at APAG CoSyst Group (APAG), engaged in the manufacturing of electronics for the Automotive segment, were hampered by the acute global shortage of semiconductors. As a result, APAG could not operate its plant at the desired capacity which adversely impacted the expected revenue. The increased materials cost as also allocation of xed overheads over less than expected revenue had a material impact on the pro tability of APAG. APAGs Revenue from Operations marginally improved from Rs. 5,694 million in the year 2020-21 to Rs. 5,918 million in the year 2021-22. The EBIDTA decreased from Rs. 370 million in the year 2020-21 to Rs. 66 million in the year 2021-22. APAG during the year suffered a Net Loss of Rs. 230 million as against a profit of Rs. 73 million in the immediately preceding financial year. The year under review was also a challenging one for Kanoria Africa Textiles plc (KAT), another foreign subsidiary of the Company based in Ethiopia.

Events such as a political crisis, civil unrest, high cotton cost and continual devaluation of the Ethiopian Birr had an adverse impact on revenue and pro tability. KATs Revenue decreased by 7% from Rs. 1,375 million during FY 2020-21 to Rs. 1,282 million in the year 2021-22. The EBIDTA decreased from Rs. 425 million in the year 2020-21 to Rs. 253 million in the year 2021-22. The Net Pro t for the year was Rs. 2 million as against a profit of Rs. 123 million in the immediately preceding financial year. The Consolidated Revenue from Operations increased by 25% from Rs. 10,949 million in the previous year to Rs. 13,691 million in the year under review. The Groups EBITDA decreased from Rs. 1,056 million in the year 2020-21 to Rs. 970 million in the year 2021-22. The Groups Net Pro t stood at Rs. 22 million as against Rs. 160 million in the previous year.

Key Financial Ratios

2021-22 2020-21
Debtors Turnover 6.51 5.30
Inventory Turnover 13.39 7.81
Interest Coverage Ratio 9.90 2.92
Current Ratio 1.44 1.25
Debt Equity Ratio 0.15 0.20
Operating Pro t Margin (%) 9.15 7.34
Net Pro t Margin (%) 3.79 (0.93)
Return on Net Worth (%) 3.99 (0.60)

1. Inventory Turnover Ratio improved due to increased sales due to better off take for Companys products.

2. Debt Equity Ratio improved due to increased pro tability and reduction in total debt.

3. Interest Coverage Ratio, Operating Pro t Margin, Net Pro t Margin and Return on Net Worth Ratio improved due to increased pro tability.

Alco Chemicals Segment

Industry structure and development

The Alco Chemicals Division of the Company caters to a diverse range of industries including primarily, pharma, construction, agrochemicals, infrastructure and paints. It produces products such as Formaldehyde, Pentaerythritol, Hexamine, Sodium Formate, Acetaldehyde and Phenolic Resins, in its state of art facilities located at Ankleshwar (Gujarat), Vizag (Andhra Pradesh) and Naidupet (Andhra Pradesh).

The Company is a leading producer of Formaldehyde, Pentaerythritol, Phenolic Resins and Hexamine in India. Its Formaldehyde plants are equipped with state-of-the-art technologies that have the advantages of lower operational costs and better product quality. Our Pentaerythritol, Hexamine and Phenolic Resins manufacturing technologies have been developed in-house by the Company and have been re ned over the years to compete globally on cost and quality.

The state-of-the-art Phenolic Resin production plant of the Company has collaborative agreements with Bakelite Synthetics - a global leader in thermoset resins, and ASK Chemicals - a global player in foundry solutions and other resins. These collaborations enable the Company to add specialised, high-value products to its manufacturing portfolio.


The Company continued to retain the Responsible Care Logo (“RC Logo”) in the year 2021-22. The Company now stands among the prestigious 100 chemical companies across India which has been awarded with this recognition. RC Logo is an initiative voluntarily undertaken by chemical companies worldwide to address public concerns about manufacturing, distribution and use of chemicals, all having the common theme of making progress towards the vision of no accidents, injuries or harm to the environment.

The Companys new Formaldehyde plant at Naidupet in the state of Andhra Pradesh is in operation. Work on new Formaldehyde consuming plants by reputed manufacturers in nearby areas is under progress. Once these plants are established, it will further improve our capacity utilisation at Naidupet.

Considering the optimum capacity utilisation of the present Formaldehyde plant at Ankleshwar and upcoming demand from the Engineering Wood sector, the Company is assessing the opportunity to expand Formaldehyde manufacturing capacity in Ankleshwar.

The Company has debottlenecked its Formaldehyde manufacturing capacity at Vizag from 300 TPD to 345 TPD.

Phenolic Resins are used in a wide variety of applications. There is great potential for developing high value resins through continuous research which the Company is focussing on. Considering the success achieved so far, the Company has started the work on setting up a new Phenolic Resin plant at Ankleshwar.

The Companys “Business Excellence Cell” is fully functional, and is working towards better management of plants for cost reductions and better ef ciencies.

The Companys newly formed “New Product Development Cell (NPD Cell)” has been working on identifying new products for the Company to manufacture. The work of this team will start bearing fruit in the coming years.


Inordinate fluctuations in Methanol and Phenol prices due to disruptions in global supply chains and Covid-19 pandemic could affect margins.

Cheaper imports of Pentaerythritol, Sodium Formate and Hexamine.

The uncertainty of the evolution of the Covid-19 pandemic and its consequent impact on our operations.

Geo-political disturbances and its consequent impact on our business.


The operations of the Alco Chemicals Division were partially disturbed during April-September 2021 due to Covid-19 restrictions in different Indian states. Production and sales volume of products of the Division were higher than the previous year.


The Governments focus on infrastructure and affordable housing should result in increasing overall demand for our products.

The demand for our products is linked with Indias GDP growth. Although Covid-19 has again reared its head in some states in India, the full year GDP growth in 2022-23 is estimated to be still quite good. Consequently, demand for our products is also estimated to be good.

The production and revenues for the year 2022-23 are estimated to be higher over the previous year primarily due to improvement in the Indian economy on account of easing of Covid restrictions.

Solar Power Segment

Industry structure and development

The Companys Solar Power Division located at Village Bap in Jodhpur District in the state of Rajasthan is engaged since 2012 in the generation of power from solar energy using Photovoltaic (PV) technology. The 5.0 MW capacity plant was set up under the Renewable Energy Certificate (REC) scheme. The plant is equipped with a dual axis tracking system in 2.5 MW capacity, which ensures capture of maximum solar radiation by orienting the modules to face the sun at all times. The renewable energy sector, however, continues to face policy implementation and procedural dif culties. The Government also reduced the prices of RECs without commensurate adjustment in the number of RECs held. This is being collectively contested by the renewable energy industry through the concerned trade bodies, the Green Energy Association and the Indian Wind Power Association before the Honble Supreme Court.

The state Government has not extended the Power Purchase Agreement beyond 31 March 2019 and the same is being contested by us in the Honble High Court of Rajasthan.


The Government has ambitious targets for renewable energy generation.


Power Purchase Agreement with Discom was not renewed by Discom during the year under consideration.


The operation of the Solar Power Division was partly affected due to breakdown of inverter, tracking system and 1.25 MVA transformer. Thus, generation was lower during the year. The generation has since improved after replacement of Inverter and recti cation of 1.25 MVA transformer.


We have replaced the failed Inverter with a new Inverter and the fault in 1.25 MVA tranformer was recti ed, thus Solar Power generation is expected to improve.


The manufacturing units of the Company at Ankleshwar, Vizag and Naidupet had the ISO 9001:2015 (Quality Management Systems), ISO 14001:2015 (Environment Management Systems and practices) and ISO 45001:2018 (Occupational Health and Safety Management Systems) during the year. All the units are also RC 14001:2015 certified for implementation of Responsible Care management system, The Company has the permission for the use of Responsible Care Logo (RC) at the Ankleshwar unit till 2024.


The Company maintained its safety record and it remained an accident free year at all units. Proactive practices in managing and protecting the environment ensured control on wastage and recycling resources. On the sustainability front, the Company has formed a HAZOP team to ensure maximum safe man-hours during operations at its manufacturing sites.


Currently, the Company perceives the following main business risks:

Restricted economic activities due to COVID-19 could severely hamper demand for our products in domestic and International markets.

Cheap imports and dumping by other countries threaten to adversely impact domestic prices leading to lower margins.

Extreme volatility in prices of raw materials and other inputs could lead to uctuating margins.

Non extension of Power Purchase Agreement by State DISCOM and reduction of REC price by the Central Electricity Regulatory Commission (CERC) are areas of concern for the Companys Solar Power business.


An adequate system of internal control is in place. The assets, buildings, plant and machinery, vehicles and stocks of the Company are adequately insured, including for loss of pro ts.

The key elements of the control system are:

Clear and well-de ned organisation structure and limits of financial authority.

Corporate policies for financial reporting, accounting, information security, investment appraisal and corporate governance.

Annual budgets and business plans, identifying key risks and opportunities.

Internal audit for reviewing all aspects of laid down systems and procedures as well as risks and control.

Risk Management Committee that monitors and reviews all risk and control issues.


The Company has consistently laid focus on people development and the role played by its human resources in inculcating organisational excellence in a fast changing business environment. The Company adopts appropriate HR practices to impart fairness and transparency in all its operations. Each employee is guided by a detailed Code of Conduct that helps the organisation to achieve its goals in an ethical manner. KCI regularly conducts training programmes for different levels of employees to ensure mapping of job requirement and skills base. The industrial relations climate of the Company continues to remain harmonious and cordial with focus on improving productivity, quality and safety. The number of persons permanently employed by the Company as at the end of the year was 409.


Textiles Segment

The Companys integrated denim manufacturing unit in Ethiopia, Africa operates through its wholly owned subsidiary, Kanoria Africa Textiles Plc (“KAT”) incorporated in Ethiopia.

The last year has been challenging for KAT. The short-term future will see a return to steady cash pro tability. With time, strategic projects that have begun this year will lead to higher pro tability in the long-term.

KAT has endured a dif cult period with a political crisis and civil unrest which hampered the supply chain and markets. Moreover, the last months were characterised by unexpectedly and abnormally high world cotton costs KATs main raw material comprising ~70% of sales. Continuous devaluation of the Ethiopian Birr also provides a challenge as many of KATs costs require foreign exchange whilst the COVID pandemic has made export sales a poor proposition in terms of contribution margin.

With some stabilisation and control over cash reserves, KAT is starting to show improving performance. Cash reserves and working capital financing efforts are enabling strategic cotton procurement. This helps both to take advantage of seasonal low prices and increase negotiating power. Moreover, big opportunities for operational improvement are starting to be capitalised on and higher production ef ciency is contributing to growing production and thereby steady monthly margins. A major near-term opportunity with existing capacity is the spinning division which is still operating at only 50% utilisation because it is waiting for machine components. In addition to this immediate opportunity, small strategic technology investments in the range of USD 500,000-700,000 can yield sizeable production volume and performance consistency outcomes.

This amount of investment has been identified for projects which are calculated to break even within 1.5 years. These projects are being explored and prioritised now.

Quality consistency is an area that needs to be addressed. This will allow the development of higher value, export customers a need for the company to sustainably generate foreign exchange sales to service its debt and import raw material procurement.

Automotive And Industrial Electronics


APAG CoSyst Electronic Control Systems designs, develops, and produces electronics and lighting for the automotive and industrial sectors. The current and short-term future of the company is hampered by the COVID pandemic and the severe and unprecedented global shortage of semiconductors. The long-term prospects, however, remain bright.

With the pandemic, the gestation period for the Canadian plant got prolonged. Projects which were to ramp-up over the past years are now concentrated for ramp-up in the current scal year 2022-23. This concentration of ramp-ups is a challenge but will catapult the revenue of the North American operations to approximately fix the previous year (2021-22) and bring the division to close to EBITDA break-even performance as long as the supply chain issues do not hamper material procurement. The semiconductor shortage is slowly abating. The impact of this on APAG, however, unfortunately lags other industries. This is because the peripheral/luxury automotive components that APAG specialises in use chips that give chip makers lower margins than those used in consumer and industrial electronics. Constant vigilance and quick response to the evolving situation has helped APAG in maintaining its customers and markets. Nonetheless, with over 5000 types of components for over 350 types of finished modules, lead times as high as 2 years, and late delivery of components critical to convert stock into sellable finished goods, managing inventory and maintaining healthy liquidity is a challenge.

In the long-term, contrasting the current situation, APAG is poised to grow. Future contracted sales (based on single-source awarded projects) are high with no additional sales effort, 2023-24 should see the company break the CHF 100 mn. turnover barrier and then remain above for the following two years. The order book is very healthy with contracted sales in excess of CHF 90 mn. for the year 2022-23 but we expect supply chain challenges may prevent delivery this year. As the situation of raw material shortage improves the prospects look bright.