master chemicals ltd Management discussions


REVIEW OF ECONOMY

2021 was a highly volatile and challenging year. Covid-19 changed almost every aspect of human lives in ways never imagined. The economic toll from the pandemic was unprecedented. Operational challenges mounted due to restricted movement and disrupted supply lines. As the Covid-19 cases continued to rise exponentially, the economy declined sharply. Our focus was on our peoples health & safety, caring for the communities in which we operate, preserving cash and protecting our business model.

In 2022, depressed economic activity and wages, increasing interest rates and geopolitical tension, foreign exchange rate volatility, and a downturn in some industries such as cars, travel, and tourism would all pose challenges to development. However, due to advanced economies resilience against recession and a better than-expected recovery in emerging markets, a faster vaccination, central bank monetary support, and fiscal stimulus across major economies have significantly reduced the magnitude of the economic downturn than previously predicted. We expect this growth to intensify in the coming months, resulting in global economic normalization.

Covid - 19 has been the overriding concern for our people during the year as the pandemic impacted virtually every part of their lives, especially work arrangements. Through our engagement, we also consistently see that career opportunities, wellbeing, purpose, sustainability and being a more simple and agile business remain important for our people.

As the country navigated through the crisis, the Government and the Reserve Bank of India took effective measures to support a robust economic recovery. The Union Budget 2022 focused on regaining the growth momentum in the economy through several measures including keeping tax rates stable and enhancing investments in infrastructure.

The Indian economy is projected to contract by 4.5% in FY 2021-22 due to the recent COVID-19 pandemic. The pandemic is expected to have far-reaching economic and social consequences for the country, with strong cross-border spillover Management discussion. In FY 2021-22, the economy is expected to record 6% growth, owing to varied government initiatives and policies aimed at instilling confidence and improving sentiments.

Industry Trends and Outlook

Indias gross domestic product (GDP) is expected to keep growing at a rapid pace and achieve upper middle income status on the back of digitization, globalization, favorable demographics, and reforms. India has made progress on structural changes in the recent past and the implementation of the Goods and Services Tax (GST) will help reduce internal barriers to trade, increase efficiency and improve tax compliance. The corporate debt overhang and associated banking sectors credit-quality concerns have exerted a drag on investment in India. The massive bank recapitalization programme will improve the banking sectors ability to support growth.

INTERNAL CONTROLS

The company has adequate systems of internal control in place, which is commensurate with its size and the nature of its operations.

Internal Audit function plays a key role in providing to both the operating management and to the Audit Committee of the Board, an objective view and reassurance of the overall control systems and effectiveness of the Risk Management processes across the Company and its subsidiaries. Internal Audit also assesses opportunities for improvement in business processes, systems and controls and provides recommendations designed to add value to the operations.

The Audit Committee meets on a quarterly basis to review and discuss effectiveness of the internal control system. The Audit Committee also meets the Statutory Auditors separately to ascertain their views on the adequacy and efficiency of the internal control systems.

Swot Analysis Opportunities:- Government Initiatives

The chemicals industry of India contributes 2.1% towards the nations gross domestic product (GDP) and accounts for 15.95% of Indias manufacturing sector.

Chemicals industry occupies a pivotal position in meeting basic needs and improving quality of life. The industry is a key enabler for industrial and agricultural development of the country and provides building blocks for several downstream industries, such as textiles, papers, paints, varnishes, soaps, detergents, and pharmaceuticals. It is also among the most diversified industrial sectors and covers over 80,000 commercial products.

The government permits 100% foreign direct investment (FDI) in this sector under the automatic approval route. Manufacturing of most chemical products inter-alia covering organic/inorganic, dyestuff and pesticides is de-licensed.

Factors such as boost to speciality and agrochemicals chemicals due to rapid development in construction and agricultural sector, inadequate per capita consumption and strong demand from paints, textiles and diversified manufacturing base shall aid towards the development of Indian chemicals sector, the same is expected to grow at around 9% per annum and touch US$ 214 billion.

Government of India has launched several schemes and initiatives to encourage growth of the sector which include:

Petroleum, Chemical and Petrochemical Investment Region (PCPIR) scheme: concept of PCPIR is a cluster approach to promote petroleum, chemicals and petrochemical sectors in an integrated and environmental friendly manner on a large scale.

PCPIRs have already received investments worth US$ 24.68 billion till now, these PCPIRs are expected to attract investment in the tune of US$ 117.42 billion approximately.

PCPIRs are being developed in Andhra Pradesh, Gujarat, Odisha and Tamil Nadu and have already generated direct and indirect employment for 0.2 million people with total potential of 3.4 million.

Threats

Lack of availability of skilled manpower:-

Despite having a favorable demographic profile, labour and skill shortage continues to be one of the key concerns for the Indian chemical industry. The Government along with Industry bodies are putting their best foot forward to have education and vocational training institution arming the manpower with appropriate skill set. The special mention for development of skilled manpower in the Union Budget is expected to resolve the dearth of skilled manpower.

Cheap Imports:-

Structural shifts in the Chinese market arising from over capacity coupled with weakening prices are threatening the Indian players. As China threat was partly getting managed through the anti dumping duty route, we now have Russian problem. Russia is a key producer of steel and as its currency has hit rock bottom, the Indian market can see cheap imports.