Meghmani Organics Ltd Management Discussions

Economy overview

Global economy1

The global economy demonstrated resilience, despite various headwinds such as persistent geopolitical conflicts, increased inflation rate and tight monetary policy by the central banks. Notwithstanding the decline in global economy in CY 2022, the global economy resurged in CY 2023, growing at 3.2% rate, with the advanced economies growing by 1.6%.

In CY 2023, the global supply chain faced difficulties due to Middle East and Red Sea conflicts disrupting international trade and the global supply chain, further increasing the global transportation cost. Due to robust monetary policies implemented by central banks in major economies enabled to rein in inflation. With the decline in global inflation from its peak in CY 2022 to 6.8% in CY 2023, economic activities gradually recovered.

Outlook

Looking forward, the global economy will maintain its growth rate at 3.2% for both CY 2024 and CY 2025. While the advanced economies are expected to grow by 1.7%, emerging market and developing economies (EMDEs) are expected to grow at 4.2% in CY 2024.

This growth is anticipated to be complemented by global inflation levels coming to their targets. With the global inflation expected to fall from its level in CY 2023 to 5.9% in CY 2024 to 4.5% in CY 2025, it is anticipated that the easing of policy rates of major economies will provide an opportunity for the global economic activities to grow. However, there are still downside risks which may hurt global growth prospects.

Indian economy

The Indian economy is one of the fastest-growing economies in the world, surpassing the United Kingdom to become the fifth largest economy in the world. In FY 2024, the Indian economy achieved a growth rate of 7.6%2 . The economy is ranked third in terms of its purchasing power parity (PPP).

The Government of India and the Reserve Bank of India (RBI) made significant contributions to strengthening the economy, cushioning the country from high global inflation and a sluggish global economy.

With inflation anchored at 5.4%3, it significantly increased private consumption, protecting the Indian economy further from various uncertainties. Moreover, the economy attracted foreign direct investment (FDI) in FY 2024. This FDI growth can be attributed to relentless initiatives undertaken by the Indian government to cultivate a favourable business environment in India.

In addition to this, the Indian rupee became the third most stable Asian currency. In FY 2024, the total export by India was USD 64.56 Bn whereas, the total imports were USD 71.07 Bn4. Amongst all the sectors contributing to merchandise export, chemical sector made the most significant contribution to export.

Outlook

The Indian economy is expected to maintain its positive growth trajectory in the forthcoming years. Additionally, it is anticipated that the Indian economy will become the third largest economy, with a GDP exceeding USD 5 Tn by FY 20285.

Looking forward, various government policies and programmes are expected to augment holistic development across different economic sectors. The Interim Budget 2024-25 also stressed upon strengthening the manufacturing industry, supporting the Indian Governments aim to develop India as a manufacturing hub.

*https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024

2https://pib.gov.in/PressReleasePage.aspx?PRID=2010223#:~:text=The%20growth%20rate%20of%20GDP,growth%20rate%20of%209.1%20percent. 3https://www.cmie.com/kommon/bin/sr.php?kall=warticle&dt=20240208113526&msec=190 4https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2020659#:~:text=Indias%20total%20exports%20(Merchandise%20and,per%20cent%20over%20 April%202023.

5https://economictimes.indiatimes.com/news/india/india-to-be-a-usd-5-trillion-economy-by-fy28-reach-usd-30-trillion-by-2047-fm/articleshow/106697419. cms?from=mdr

Industry overview

Global agrochemical industry

The market size of the global agrochemical industry was USD 225.8 Bn in CY 20236. As the Asia Pacific markets generated substantial revenue, exceeding 27%, it demonstrated a dominant global agrochemical industry market7. The rising global population, coupled with a shift in consumer preferences towards nutritious food, resulted in a higher agricultural production. However, urbanisation, poor land management and pest attacks caused a decline in the arable land size.

Additionally, strategic collaborations contributed to the industrys growth by facilitating innovation and the development of new products to meet the market demand.

Looking ahead, the global agrochemical industry is estimated to attain a market size of USD 253.29 Bn in CY 2024. The industry is expected to reach a market size of USD 308.17 Bn by CY 20298, supported by the growing need for crop protection products among the farmers and increasing demand among consumers for nutritious foods.

Agrochemicals Market

Market Size in USD Bn CAGR 4%

Indias agrochemical industry

India is the worlds 4th largest producer of agrochemicals and the 2nd largest exporter of agrochemicals9. The country is steadily emerging as a global manufacturing hub for agrochemicals attributed to strong manufacturing capacity and availability of abundant labour at a lower cost. The industry significantly contributes to the GDP and the Gross Value Addition (GVA).

The export of agrochemicals played a pivotal role in supporting the industry. Indias key exporting countries included the US, China, Japan and Brazil. With the persisting uncertainties in the global landscape coupled with the China+1 business strategy, global economies are aiming to diversify its supply chain, benefitting the country as an alternative with its varied agrochemical products. The Government of India has identified the industry as one of the top sectors in the economy to attain global leadership.

The Indian agrochemical industry experienced a decline in FY 2024, with the market value of the industry at USD 8.22 Bn for the year under review. However, analysts are optimistic about the industrys future growth10. It is anticipated that the industry is at the cusp of a transformative era, emerging as a dominant player in the global agrochemical markets. The Federation of Indian Chambers of Commerce and Industry (FICCI) reports that the industry is projected to grow by 8-10% through FY 2025.

6https://www.maximizemarketresearch.com/market-report/global-agrochemicals-market/105150/ 7https://www.maximizemarketresearch.com/market-report/global-agrochemicals-market/105150/ 8https://www.mordorintelligence.com/industry-reports/agrochemicals-market

9https://timesofindia.indiatimes.com/blogs/voices/indian-agrochemical-sector-poised-for-growth/?source=app&frmapp=yes 10https://timesofindia.indiatimes.com/blogs/voices/indian-agrochemical-sector-poised-for-growth/

This industrys growth is expected to be primarily driven by programmes and policies drafted by the Indian Government in favour of the Indian agrochemical sector. Expansion of the production capability, strong manufacturing facilities and growing demand for Indian agrochemical products in the global markets, coupled with underutilisation of agrochemicals in India, highlights the potential for market expansion of the industry.

Relentless initiatives undertaken by the GoI, especially the ‘Make in India policy is expected to play a significant role in driving the growth of the industry. The policy is expected to improve essential infrastructure, enhance research and development activities and streamline investments. This will not only bolster growth but will also contribute to positioning India as the global manufacturing hub for agrochemicals.

4th

Largest producer of agrochemicals

2nd

Largest exporter of agrochemicals

Global pigment industry11

Pigments are fine and soluble powdered particles that are used in varied industries including paints and coatings, plastics, textiles and inks. In CY 2023, the market size of the global pigment industry was USD 24.13 Bn, dominated by the Asia-Pacific markets. Additionally, China, India and Japan were the highest contributors during the year under review.

The industry was provided with strong growth opportunities including growth in the demand for packed foods and ready-to-eat foods. The demand for natural food additives has led to an increased interest in pigment production from microbial sources. Along with this, the emerging use of nanotechnology in the pigment industry is also bolstering the growth of the industry.

The pigment industry is segregated into organic and inorganic pigment markets. The inorganic pigment provides stability, durability and provides a range of colours, finding its application in various industries ranging from automotive, packaging and construction. Titanium dioxide (TiO2), carbon black, and iron oxides are some of the most commonly used inorganic pigments. On the other hand, the organic pigments are usually used in automobile and plastics.

Looking forward, the industry is estimated to reach a market size of USD 30.23 Bn in CY 2024, further reaching USD 34.86 Bn by CY 2029 . Additionally, the global organic pigments market is expected to reach a market size of USD 4.4 Bn by CY 2024, further projected to become USD 6.0 Bn by CY 2029.12 Conversely, the global inorganic market is expected to experience 9.9% growth by CY 2031. Increase in construction activities, followed by rapid urbanisation and growth in the disposable income of the consumers, are expected to drive the growth in the inorganic pigment industry.

Pigments Market

Market Size in USD Bn CAGR >2.80%

Indian pigment industry

Once heavily reliant on imports, the Indian pigment market has undergone significant transformation. It has emerged as an export-driven sector. In FY 2024, the industry growth can be attributed to increasing demand for paint and coatings, surge in construction activities and expansion of automobile industries, heightened sales in textiles and robust infrastructure rehabilitation efforts.

The industry is expected to grow and reach a market size of USD 2.95 Bn by 202613. With the increase in exports, growth in the research and development and governmental initiatives such as the ‘Make in India initiative, it is expected to make a positive contribution to the industry.

Company overview

Founded in 1986, Meghmani Organics Ltd. (MOL) is a fully integrated, diversified chemical company, specialising in Crop Protection, Crop Nutrition and Pigments. MOL is a leading player, ranking among the top three global Phthalocyanine based pigment companies, enjoying

8% market share. It is also one of the leading manufacturers of pesticides in India with a marked presence across the entire value chain

The Company has a backward-integrated, versatile manufacturing facilities situated within the chemical belt of Gujarat. MOL has 36+ brands of various pesticides formulations in India and has over 400+ customer base across diverse industries. The Company has established a global presence in 75+ countries and a wide distribution network of 3,500+ distributors and dealers across India.

Business overview and performance

Crop Protection Segment

With four manufacturing facilities and 19 warehouses across India, MOL is an established crop protection manufacturer, catering many multinational corporations (MNCs) and other crop protection majors in more than 75 countries. The Companys diversified product portfolio include insecticides, herbicides and intermediates, providing a myriad of applications, including crop protection, veterinary pesticides, household insecticides and public health products.

Pigment Segment

MOL takes pride in being one of the largest manufacturer of phthalocyanine-based pigments in the world with an 8% market share. With three manufacturing facilities, the Company has established an extensive distribution network and global presence in more than 75 countries.

The Companys pigment catalogue include Phthalocyanine Pigments, Azo Pigments, High Performance Pigments is and Titanium Dioxide (TiO2). TiO2 well recognised as the most often used white pigment, valued highly for its brightness and efficient UV light absorption qualities. The white pigment finds its application across multiple industries, providing enriched whiteness and opacity to a wide range of products including paints, coatings, plastics, papers, inks, foods, medications, and toothpastes. is inert, thermally stable, non- TiO2 flammable and non-toxic. It is mostly available in Rutile Grade and Anatase Grade. The production is dependent on critical raw materials such as ilmenite ore and sulphuric acid with the majority of ilmenite sourced from heavy mineral concentrations in beach sands.

Financial performance

Ratio	31st March 2024	31st March 2023	%change	Reason for variance above 25% year on year
Debt-Equity Ratio	0.38	0.42	-8.55%	No major variance
Debt Service Coverage	0.14	0.77	-81.92%	There is a decrease in Debt service coverage
Ratio				ratio due to decrease in profitablity because of decrease in sales.
Return on Equity Ratio	-3.51%	16.17%	-121.72%	There is a decrease in return on equity ratio on account of decrease in Net profit for the year.
Inventory Turnover Ratio	2.80	4.10	-31.71%	There is a decrease in inventory turnover ratio due to decrease in revenue.
Trade Receivables Turnover Ratio	3.16	4.72	-32.99%	There is a decrease in Trade Receivables Turnover ratio due to decrease in revenue.
Trade Payables Turnover Ratio	2.06	3.15	-34.54%	There is a decrease in Trade Payables Turnover ratio due to decrease in purchase
Net Capital Turnover Ratio	13.23	5.97	121.58%	There is a increase in Net Capital Turnover Ratio due to decrease in revenue.
Return on Capital Employed	-1.80%	14.24%	-112.62%	There is a decrease in return on capital employed on account of decrease in Net profit for the year and increase in capital employed.
Return on Investment	2.5%	3.9%	-36.05%	There is decrease in the return on investment on account of decrease in interest income and Net gain on Investment in Mutual Funds and increase in average investments.

 

Particulars	FY24 (Rs Crore)	FY23 (Rs Crore)	YoY (in %)
Net Sales	1,540	2,557	(40%)
EBITDA	9.5	364	(97%)
PBT	(74.2)	327	(123%)
PAT	(56.6)	250	(123%)

Outlook

Looking forward, the Company expects to sustain its growth, supported by its advanced infrastructure and plant capabilities along with a diversified product portfolio. Additionally, the Companys robust manufacturing units are set to capitalise on the evolving market trends, providing the Company a competitive advantage in terms of productive capability.

Human capital

The Company firmly believes that its employees are at the core of all its operations. It regards its employees as its most valuable asset and endows its people with a healthy and competitive milieu to outshine and establish novel benchmarks of quality, productivity, efficiency and customer satisfaction. In addition to this, the Company focuses on maintaining a diversified workforce in its organisation. The Companys dedicated HR policies assist in drawing in and retaining an exceptional talent pool.

The details of the number of employees as of March 31, 2024 are provided in the Business Responsibility and Sustainability Report.

Risk management

The Company implements a robust risk management policy to identify, assess and manage risks. The Company ensures that each risk is addressed and proper strategies are developed to effectively mitigate the major risks.

Risk mitigation

Risks	Risk description	Mitigation strategy
International risk	The Company has established a strong international presence. However, fluctuations in exchange and interest rates have the potential to impact the profitability of the Company.	MOL successfully mitigates probable risks arising from international presence through its effective forex management policy. This includes hedging against the volatile foreign currency.
Raw material prices	Fluctuations in raw material price owing to persistent geopolitical conflicts, supply chain disruptions, inflation, and other issues. These pose as significant risk to the Companys growth.	The Company is backward and forward integrated. Additionally, the Company follows effective procurement practices, quality control measures and employs robust logistic management to maintain a loyal client base.
Competition risk	The Company operates in a highly competitive industry with organised domestic and international players. This increases competition and disrupts operations, impacts profitability and hinders long-term growth of MOL.	MOL follows a diversified business approach to maintain its market position in both domestic and global markets. The Companys diversified geographical presence reduces reliance on a single organisation.
Regulatory risk	Due to its global operations, MOL has to adhere to various compliance frameworks. Any policy change in any of the countries may result in a revenue loss.	The Company had effective strategies in place to reduce its reliability on one country to sell its products.

Internal control system

In order to guarantee that all assets are protected against unauthorised use or disposal, honest and fair reporting, compliance with all relevant regulatory requirements, and adherence to business policies, the business maintains an appropriate and sufficient system of internal controls appropriate to the scale and nature of its operations. The Boards Audit Committee reviews internal audit reports.

Cautionary statement

The Companys plans, beliefs, and expectations for the future, as well as other forward-looking statements based on managements current expectations or beliefs, may be expressed in part in the Management Discussion and Analysis. A number of assumptions regarding the Companys operations, external factors, and third-party sources are taken into account. Both known and unknown risks and uncertainties are included, which could result in actual results that are materially different from those anticipated by the relevant forward-looking statements. It is important to remember that any forward-looking comments in the Management Discussion and Analysis about previous patterns or actions do not imply that they will persist in the future. Any forward-looking statements made, whether in response to new information, anticipated events, or otherwise, are not subject to correction or revision. It is not advisable to overly depend on forward-looking statements, as they are only indicative as of the Annual Reports publication date.