ABOUT NIKHIL ADHESIVES LIMITED
With more than three decades of industry experience, Nikhil Adhesives
Limited (Nikhil) is one of the recognised players in Specialty Chemicals and Industrial
emulsions and adhesives, with a strong domestic presence catering PAN India with an
excellent distribution network. Leveraging its well-equipped manufacturing infrastructure,
result oriented Research & Development team.
Nikhils major thrust will be to build space in consumer products.
KEY HIGHLIGHTS FOR 2022-23
? Opened warehouses/godowns in Gujarat, Maharashtra, Punjab, Madhya
Pradesh, other places for quicker logistics and wider customer reach. ? Expansion at
manufacturing units viz Tumkur, Mehatpur & Dahej factories.
? Appointment of professionally qualified & highly experienced CEO.
? Development of Proprietary technology of Re-dispensible Polymer (RDP)
used on wall putty, a 100% import substitute. The RDP project is under implementation at
Dahej with a manufacturing capacity of 12,000 tonnes per annum.
GLOBAL ECONOMIC OVERVIEW
The world economy is now projected to grow by 2.3 per cent in 2023
(+0.4 percentage points from the January forecast) and 2.5 per cent in 2024 (-0.2
percentage points), a slight uptick in the global growth forecast for 2023. In the United
States, resilient household spending has prompted upward revision of growth forecast to
1.1 per cent in 2023. The European Unions economy driven by lower gas prices and
robust consumer spending is now projected to grow by 0.9 per cent. Chinas growth
this year is now forecast at 5.3 per cent as a result of COVID-19 related restrictions
being lifted.
But a sombre picture still remains. Despite this uptick, the growth
rate is still well below the average growth rate in the two decades before the pandemic of
3.1 per cent. For many developing countries, growth prospects have deteriorated amid
tightening credit conditions and rising costs of external financing. In Africa and Latin
America and the Caribbean, GDP per capita is projected to increase only
marginally this year, reinforcing a longer-term trend of stagnating economic performance.
The least developed countries are forecast to grow by 4.1 per cent in 2023 and 5.2 per
cent in 2024, far below the 7 per cent growth target set in the 2030 Agenda for
Sustainable Development.
Global trade remains under pressure due to geopolitical tensions,
weakening global demand and tighter monetary and fiscal policies. The volume of global
trade in goods and services is forecast to grow by 2.3 per cent in 2023, well below the
pre-pandemic trend.
The global economy is heading for its weakest medium-term growth in
more than 30 years as the world grapples with geopolitical fragmentation, slower labour
force growth and weaker prospects for previously fast-growing economies such as China, the
International Monetary Fund (IMF) warns in its latest World Economic Outlook.
It expects global growth to be around 3% in 2028 the lowest medium-term
forecast in an IMF report since 1990.
Global trade
Global trade growth decelerated in the second half of 2022, in tandem
with deteriorating activity in major economies. Weakening trade mirrored the slowdown in
global industrial production, as demand shifted toward its pre-pandemic composition and
away from goods. Despite this moderation, goods trade surpassed pre-pandemic levels last
year; meanwhile, services trade continued to recover, supported by the gradual shift in
demand toward services. Tourism flows rebounded many countries eased travel restrictions
but remained well below pre-pandemic levels and uneven across regions (WTO 2022).
Although global supply chain pressures are still above pre-pandemic
levels, they have eased since mid-2022. Weakening demand for goods is expected to reduce
these pressures further in 2023. After softening to 4 percent in 2022, global trade growth
is expected to decelerate further to 1.6 percent in 2023, largely reflecting weakening
global demand
PERFORMANCE OF MAJOR ECONOMIES
The January 2023 World Economic Outlook Update projects that global
growth will fall to 2.9 percent in 2023 but rise to 3.1 percent in 2024. The 2023 forecast
is 0.2 percentage point higher than predicted in the October 2022 World Economic Outlook
but below the historical average of 3.8 percent. Rising interest rates and the war in
Ukraine continue to weigh on economic activity. Chinas recent reopening has paved
the way for a faster-than-expected recovery. Global inflation is expected to fall to 6.6
percent in 2023 and 4.3 percent in 2024, still above pre-pandemic levels.
The baseline forecast is for growth to fall from 3.4 percent in 2022 to
2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are
expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3
percent in 2023. In a plausible alternative scenario with further financial sector stress,
global growth declines to about 2.5 percent in 2023 with advanced economy growth falling
below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent
in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core)
inflation is likely to decline more slowly. Inflations return to target is unlikely
before 2025 in most cases.
INDIAN ECONOMIC OVERVIEW
India was one of the fastest growing economies in the world. The
overall growth remains robust and is estimated to be 6.9 percent for the full year with
real GDP growing 7.7 percent year-on-year during the first three quarters of fiscal year
2022/23. There were some signs of moderation in the second half of FY 22/23. Growth was
underpinned by strong investment activity bolstered by the governments capex push
and buoyant private consumption, particularly among higher income earners. Inflation
remained high, averaging around 6.7 percent in FY22/23 but the current-account deficit
narrowed in Q3 on the back of strong growth in service exports and easing global commodity
prices. Growth is expected to be constrained by slower consumption growth and challenging
external conditions. Rising borrowing costs and slower income growth will weigh on private
consumption growth, and government consumption is projected to grow at a slower pace due
to the withdrawal of pandemic-related fiscal support measures. The central government is
likely to meet its fiscal deficit target of 5.9 percent of GDP in FY23/24 and combined
with consolidation in state government deficits, the general government deficit is also
projected to decline. As a result, the debt-to-GDP ratio is projected to stabilize. On the
external front, the current account deficit is projected to narrow to 2.1 percent of GDP
from an estimated 3 percent in FY22/23 on the back of robust service exports and a
narrowing merchandise trade deficit.
GDP revisions point to Indias resilience in the past
India recently released GDP estimates for the October December quarter
of FY 2022 23 (Q3) along with revisions of the past three years data. GDP data
suggests that India emerged stronger from the pandemic than initially assumed, with growth
gathering steady momentum since FY 2022 23 (figure 1). GDP growth for FY 2020 21 was
revised up by 0.77 percentage points, implying the recession was not as deep as previously
thought. For FY 2021 22, meanwhile, growth was revised up from 8.7% to 9.1%, suggesting
stronger rebound. This upward revision was primarily because of the
stronger-than-anticipated growth in manufacturing and construction.
Data for the latest quarter (Q3) points to 4.4% year-over-year (YoY)
growth in Q3, which is close to what we had estimated (4.5% YoY) in January (figure 2).
Although it appears to be the weakest quarter of this fiscal, the significant upward
revision of last years data increased the base for this years growth
estimates.
Despite the global slowdown, exports performed well, probably because
of the depreciated currency against the dollar. While goods exports remained modest,
Indias services exports skyrocketed by 30% between April and February. A strong
digitization drive the world over, cost-cutting measures by businesses to deal with the
impending slowdown, and the growing trend of remote working increased demand for exports
of services in technology, where India has a comparative advantage. Interestingly, the
share of business and professional services in total services exports also increased as
companies globally now prefer outsourcing a wide range of professions, such as accounting,
audit, R&D, quality assurance, and after-sales service.
(Source:
https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html)
INDIAN ECONOMIC REFORMS & BUDGET 2022-23 PROVISIONS
A key theme of Union Budget 2023-24 is the focus on inclusive
development - Sabka Sath, Sabka Vikas which specifically covers;
Farmers, Women, Youth, Scheduled Castes, Scheduled Tribes, Other
Backward Classes (OBCs), Divyangjan (PwDs) and Economically Weaker Sections (EWS),
Overall priority for the underprivileged (vanchiton ko variyata),
There has also been a sustained focus on UTs of J&K and Ladakh and
the Northeast Region (NER).
Infrastructure and Investment
Increase in Capex for Infra: Capital investment outlay increased
for the third consecutive year - by 33% to Rs 10 lakh crore making it 3.3% of GDP. The
‘Effective Capital Expenditure is budgeted at Rs 13.7 lakh crore - 4.5% of GDP.
OUTLOOK
India is projected to grow at an average 6. 7% for the next three
years, retaining the fastest-growing major economy tag, said
S&P Global Ratings in its latest report. The economic outlook
released Monday by the global rating agency kept Indias growth forecast unchanged at
6% for this fiscal year, projecting a sharp bounce back to 6. 9% in FY25 and FY26. The
Indian economy grew at 7. 2% in FY23. The agency noted that in India, growth in the March
quarter outperformed its expectations with the upward revision of "whole-year GDP
growth in fiscal 2023 (year ending March 30) to 7.2 % from the earlier 7.0% confirming a
strong recovery from Covid-19". The inflation and rate-hike cycles have peaked, in
our opinion. But we expect the Reserve Bank of India to cut rates only in early 2024, as
it wants to see consumer inflation moving to 4% the centre of its target range. The rates
are not expected to fall below 5% in the medium term.
It projected 5% inflation in FY24, on the assumption of a normal
monsoon, further declining to 4.5% over the next two years
Our Consumer products businesses is providing customers with a complete
range of consumer adhesives mainly woodworking, packaging adhesives, rubber adhesives,
Construction based adhesives. Our Adhesive Brands "MAHACOL"
"FORMISOL" "EMDILITH" "EMBRO" have strong market
presence and are known for its product quality among the influencers and consumers. With a
nationwide network, our brands "MAHACOL" "FORMISOL" and
"EMDILITH" enjoy a very respectable position and popularity in the adhesive
market. We are working on having a PAN India intricate distribution and networking through
our distributor & dealer network and are expecting exponential growth in the coming
year, which in the initial stages had created disturbances in the working of
countrys economy, have now been evolved and adapted by various industries. This
followed by a strong Government re-elected at the Centre would ensure continuity of
policies and ease of doing business.
Paint Emulsions: Nikhil Adhesives Limiteds (NAL) main
customers are Akzo Nobel, Asian Paints & Dow. Due to flat demand in paint industry,
our business was impacted. However, current year was promising. Moreover, NAL & JSW
will have relationship in coming years.
Textile Business: Textile business has attended new heights due to
introduction of few products mainly printing binders, improvement in performance of
existing products, on time delivery and increase in distributor network due to which the
volume has gone up by 2600 MT.
Export: Export business remains stable in current financial year.
NAL will expand its business in Asia specific.
Overall NAL has achieved volume growth of 6% in spite of adverse market
situation. In view of recession in FY 23-24, NAL is expanding its horizon by adding new
products/territories.
GLOBAL OUTLOOK
S&P Global projected Chinas growth to slow to 5.2% from the
5.5% projected earlier. It also reduced the growth estimate for
Asia Pacific by 0.1 percentage point. The rating agency also raised its
growth forecast for the US and the Eurozone on account of a "better-than-expected
outcome in the first quarter."
SPECIALITY CHEMICALS INDUSTRY
The Specialty chemicals manufacturing is entrepreneurial, innovative
and customer driven. Specialty chemicals are manufactured and sold based on their
performance or function, unlike commodity chemicals which are strictly based on their
chemical composition.
Nikhils major business segments are Branded Consumer products
under the brands names "MAHACOL" "FORMISOL" "EMDILITH"
"MAHAQUICK" "EMBRO" AND "MAHABOND" and Industrial
products are under various brands names such as "EMDILITH"
"EMDITEX" "EMDICRYL" and "EMDIBIND".
Mahacol RDP Re-dispensible Polymer, a 100% import substitute, will be
launched in Q2 (23-24). SWOT ANALYSIS Strengths
Well equipped manufacturing infrastructure Rich history of more
than 30 yrs. Strong domestic network (PAN India distribution) Mfg. units in North, West
and South of India
Weakness
Low brand awareness & limited retail reach in Consumer Segment
Opportunities
New opportunity areas with huge potential for growth, such as
Construction Chemicals and Consumer Products & RDP.
Threats
Fluctuation in Raw Material Prices Looming threat of global recession
Competition from domestic and foreign players
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has strong internal control procedures in place that are
commensurate with its size and operations. The Board of Directors, responsible for the
internal control system, sets the guidelines and verifies its adequacy, effectiveness and
application.
The Companys internal control system is designed to ensure
management efficiency, measurability and verifiability, reliability of accounting and
management information, compliance with all applicable laws and regulations, and the
protection of the
Companys assets. This will help identify and manage the
Companys risks (operational, compliance-related, economic and financial).
HUMAN RESOURCES/INDUSTRIAL RELATIONS
The Company believes that employees are the foundation for the
superstructure of any corporate organisation. The Company considers its employees as its
most significant asset and provides them with a healthy and competitive work environment
to excel and set new standards of quality, productivity, efficiency and customer
satisfaction. The Companys consistent HR policies aid in attracting and retaining the
best talent pool.
FINANCIAL HIGHLIGHTS AT A GLANCE
Adhesives
(i) Consumer & Contract Manufacturing Adhesives (MAHACOL)
Branded consumer & Contract manufacturing adhesives products
contributed 26% of the total volume sales of the Company. Consumer products include Wood
adhesives, Packaging and Lamination Adhesives, Sticker Adhesives and Art and Craft
Adhesives, Rubber & PU Adhesives and Tape Adhesives.
(ii) Industrial Adhesives
Industrial Adhesives contributes 11% of the total volume sales of the
Company.
(iii) Construction Chemicals
Company has achieved 21% of total volume sales of the Company.
(iv) Export
Company exports adhesives and emulsions to Nepal, Taiwan,
Bangladesh, Philippines and Kenya which contributes to 2% of the total volume sales of the
Company.
(v) Speciality Emulsions
The Companys speciality emulsions contribute 40% of the total
sales volumes
a) Paint Emulsions (EMDILITH, EMDICRYL) Majority of the paint emulsions
sales is supplied to large corporate paint manufacturers & the balance through
distribution channels.
Out of the total sales volume of the Company, paint emulsions
contribute 30%.
b) Textile Emulsions (EMDITEX, EMDIBIND)
The Company has a network for textile emulsions and binders through
distributors PAN India, textile emulsions contribute 10% of the companys total sales
volume.
Profit Before Tax (PBT) has decreased from 33.99 cr. (FY 2021-22)
to 23.54 cr. (FY 2022-23) and Profit After Tax (PAT) has decreased from
25.26 cr. (FY 2021-22) to 17.03 cr. (FY 2022-23).
MANUFACTURING
During the year, volume wise production has increased Current Year:
93,306 MT (Previous Year : 84,290 MT). However, in terms of value, the manufacturing sales
has decreased from 634.41 Crore to 596.48 Crore.
TRADING
Revenue from trading segment has decreased from 167.41 Crore to 133.83
Crore during the year ended 31st March 2023 as there was a huge fluctuation in
international market for the entire chemical segment, therefore the company has decided to
reduce its activities.
FOREIGN EXCHANGE FLUCTUATIONS
During the current year ended 31st March 2023, loss arising
from forex fluctuation is of 356.17 Lakh as compared to forex gain 110.77 Lakh (FY
2021-22). This is mainly because of the international political instability leading to
depreciation in Indian rupee.
Information pursuant to part B1 (i) of Schedule V SEBI (Listing
Obligations and Disclosures Requirements) Regulations, 2015 as amended.
Details of Significant changes in key financial ratios along with
detail explanation:
Sr. No Particulars |
Current Year |
Previous Year |
% Change |
| 1. Debtors Turnover Ratio (in days) |
54.11 |
64.90 |
-16.63 |
| 2. Interest Coverage Ratio |
3.72 |
5.28 |
-29.59 |
| 3. Net Profit margin (%) |
2.29 |
3.10 |
-26.18 |
| 4. Return on NetWorth (%) |
18.21 |
34.53 |
-47.25 |
1. Debtors Turnover Ratio: Improved realisation from customers
during the year resulting in decreased corresponding debtors & average credit period
2. Interest Coverage Ratio: The Company has availed a new term loan
during the year for its capex and availed bill discounting facilities to benefit from
better interest rate. Further, net profits were affected due to crash in international
prices of the products dealt by the Company, including loss arising out of forex
fluctuation.
3. Net Profit margin: Net profits have been affected predominantly
due to crash in international prices of the products dealt by the Company, including loss
arising out of forex fluctuation.
4. Return on NetWorth: Net profits have been affected predominantly
due to crash in international prices of the products dealt by the Company, including loss
arising out of forex fluctuation. However sales volume has increased and remained
unaffected.
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