MANAGEMENT DISCUCUSSION AND ANALYSIS
Global economic activity is experiencing a broad-based and
sharper-than-expected slowdown, with inflation higher than seen in several decades. The
cost-of-living crisis, tightening financial conditions in most regions, Russias
invasion of Ukraine and its effects, climate change and the lingering COVID-19 pandemic
all weigh heavily on the outlook. IMF forecasts global growth to slow 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. However, with the recent relaxations of COVID-19 restrictions in China
and the unleashing of the pent-up demand, there is an expectation of faster-than-expected
recovery in the global economy in a gradual manner. Indias GDP is projected to grow
around 6 percent this year, though the ongoing Russia & Ukraine war, financial bank
crisis in US, and the elevating fuel & food prices may also cast some clouds in 2023
for India.
Indias GDP growth might fall short of 6 percent as higher interest
rates and global economic slowdown weigh on investment and exports. Agriculture is
projected to grow by 3.5 percent in 2022-23 as compared to 3 percent in the previous year.
The industry sector is projected to witness modest growth of 4.1 percent in F.Y. 2022-23
relative to 10.3 percent in F.Y. 2021-22. The services sector is set to rebound with y-o-y
growth of 9.1 percent in F.Y. 2022-23 over 8.4 percent in 2021-22. Positives for India are
the lowering of the unemployment rate to 6.4 percent, the lowest in the last 5 years,
easing of inflation to ~5.5 percent in 2023-2024 and lower energy import cost. Despite the
fears of recession in some parts of the global economy, India remains a largely domestic
economy, which provides strength to growth.
Exports during the second half of the calendar year 2022 faced a
challenging environment due to a range of macroeconomic factors. Weak demand in the West
caused by high inflation impacted industries viz. leather, textile, food & feed &
pharma. Zero COVID-19 policy and trade tensions compounded the market instability in China
stemming further from a weak Yuan currency and a downturn in the property market. This
resulted in a drop in demand and subsequent price crash felt across multiple value chains
in China.
The domestic demand decreased significantly due to high crude oil
prices, high inflation, and weaker festival demand. This combined with intense competition
from China, which had a weak demand, and higher costs from Europe, adversely impacted the
competitiveness of your Companys products imported from Europe.
Your Company continued to support customers by leveraging its strong
customer relationships thereby mitigating the difficult business environment and securing
majority supply share of our key products. With continued focus on key industries, your
Company was able to overcome most of the challenges with proper mitigation measures e.g.,
by improving cash flow through inventory control measures.
Uncertainties in the global market, volatility in raw material costs,
oil and energy prices; and supply chain disruptions are some of the challenges, which
continue to drive the dynamics of the Intermediates business.
Impact of War on Leather Chemical Industries
The war in Ukraine has pushed up feedstock and energy costs for
chemical producers. Increasing fuel costs are causing inflation, leading to high freight
rates. In addition, safety concerns have disrupted land and air transport routes via
Ukraine and Russia, which has made rerouting even more expensive.
As the Russia-Ukraine conflict is intensifying, the rift between the
two countries has snowballed into causing a major economic turmoil across the globe.
Several countries are directly or indirectly dependent on Russia and Ukraine for various
commodities, which has severely impacted the price of food, energy, fertilizers,
pharmaceuticals, etc. Russia and Ukraine are the biggest exporters of raw materials to
markets around the world. Before war, Ukraine has a thriving synthetic chemical sector
where thousands of novel compounds were being produced. Around 80% of all screening
compounds used in the research and development of drugs were either manufactured in
Ukraine or Russia.
Prices of natural gas and crude oil are skyrocketing in Europe, which
is forcing chemical producers to increase selling prices. This is putting them at an
increasing disadvantage compared to competitors in the US, Asia, and Middle East. The war
in Ukraine has pushed up feedstock and energy costs for chemical producers. Increasing
fuel costs are causing inflation, leading to high freight rates. In addition, safety
concerns have disrupted land and air transport routes via Ukraine and Russai, which has
made rerouting even more expensive. Even countries that do not have trade restrictions are
struggling to import from the region due to disrupted maritime transport sector. Thus,
international trade of raw materials is severely impacting industries across the globe,
especially the chemical sector.
Impact of Covid 19 on Leather Industries
Like in many parts of the globe, Indian economy too was hard hit due to
Covid19. GDP in India contracted by 5.5 percent in fiscal 2021 on account of the pandemic
and then began to stage recovery when it grew at 9.1 percent during FY22. According to
National Statistical Organisation (NSO), the GDP during FY 23 is expected to end up at 7
percent and FY24 may post at 6 percent. India is better placed compared to the global
trends. According to IMF in its latest updated World Economic Outlook – January 2023,
global growth is expected to slow from 3.4% in 2022 to 2.9% in 2023.The slowdown will be
more pronounced for advanced economies. China and India is expected to account for 50% of
global growth. Global headline inflation is expected to fall from 8.8% in 2022 to 4.3% in
2024. Core inflation, however, is more persistent and remains too elevated. That is the
reason the US Fed and advanced economies are hawkish in their future outlook and the rise
in interest rates are expected to continue till the inflation tames down to 2 percent
which is a very hard task. With the onset of bank failures in US, there could be some
review in its policy. The government came up quickly on March 30, 2020, with its
well-calibrated stimulus package of Rs.1.70 lakh crores to provide relief in kind (food
grains and pulses) and cash under Pradhan Mantri Gareeb kalyan yozana (PMGKY). The relief
scheme was last extended until December 2022. As larger part of Covid19 relief measures,
100 percent government guaranteed loans were provided by banks and non-banks under
Emergency Credit Line Guarantee Scheme (ECLGS) to business enterprises and MSMEs to meet
additional working capital and term loan requirements to revive the activities that were
either shut down or substantially slowed down. It benefited around 1.2 crores
MSMEs and other businesses till November end 2022. The ECLGS started
with limit up to Rs. 3 trillion was later extended to Rs.5 trillion extending the scope of
lending to hospitality, high contact activities and civil aviation sector. The scheme is
valid till March 31, 2023. Your Company also ensured that its manufacturing plants operate
safely with appropriate pandemic approvals and hygiene measures together with monitoring
of health of personnel working at the plants. Your Company continues to maintain high
plant reliability by adopting appropriate maintenance strategy & system management
viz. risk-based maintenance, spare parts management, implementation of reliability tools
like FMEA (Failure Mode & Effect Analysis), RCM (Reliability Centered Maintenance),
continuous improvement on maintenance maturity & SAP Plant Maintenance at all the
plants.
HUMAN RESOURCES AND INDUSTRIAL RELATIONS:
Your Company recognizes human resource a one of its prime resources.
Your Company enjoyed excellent relationships with workers and staff during the year under
review and considers them their most important assets. Your Company has been actively
working with employees and proactively engaging & motivating them through the tough
period of the COVID-19 pandemic. Your Company has continuously & transparently
maintained communication with its employees on pandemic and business updates. Your Company
is committed to build and strengthen our human capital by defining policies that support
their growth, goals and help them achieve excellence.
SPECIALTY CHEMICALS MARKET - GROWTH, TRENDS, COVID-19 IMPACT, AND
FORECASTS (2022 - 2027):
The global specialty chemicals market was valued at USD 272.6 billion
in 2022 and is projected to reach USD 364.8 billion by 2028, growing at a cagr 5.0% from
2023 to 2028. Specialty chemicals is a whole ecosystem consisting of multiple chemicals
within the category.
Due to the expansion of different end- use industries, including
automotive, electronics, construction, medical, and packaging, the demand for specialty
chemicals has been rising recently. One of the biggest consumers of specialty chemicals is
the automotive industry. Specialty chemicals are used in the manufacturing of a few
automobile parts, including tires, coatings, and adhesives in order to enhance their
performance and durability. The demand for specialty chemicals is expected to grow further
as these sectors develop and innovate, presenting potential for producers in the specialty
chemicals market.
The regulatory framework in which the specialty chemicals industry
operates frequently puts strict rules on the companies. To protect workers, customers and
the environment, these rules are implemented by government organizations and environmental
authorities. Although these laws are essential for safeguarding the publics health
and reducing their negative effects on the environment, they can be difficult for the
companies to comply with. To satisfy the required standards, they must spend a lot of
money on testing, research and development and documentation.
Specialty chemicals that provide eco-friendly and sustainable solutions
now have a lot of opportunities because of rising environmental concerns and standards
around sustainability. The need for specialty chemicals that support these initiatives is
rising as the companies work to minimize their environmental impact and implement more
eco-friendly practices. These specialty chemicals are essential for lowering emissions,
increasing energy effectiveness, and promoting sustainability in a variety of industries,
including consumer goods, construction, and the automobile industry.
Growing Demand
The global leather chemicals market size expected to reach USD 15
billion by 2030, growing at a CAGR of 6.6 % during the forecast period (2022-2030).
Opportunities
Indias specialty chemicals companies are expanding their
capacities to cater to rising demand from domestic and overseas. With global companies
seeking to de-risk their supply chains, which are dependent on China, the chemical sector
in India has the opportunity for a significant growth.
Policy Support
In the Union Budget 2023-24, the central government allocated US$20.93
million to the Department of Chemicals and Petrochemicals. This allocation underscores the
governments commitment to support and further develop the chemical sector.
Furthermore, the Government of India is considering launching a
production-linked incentive (PLI) scheme for the chemical and petrochemical industry to
boost domestic manufacturing and exports. This scheme is designed to provide companies
with incentives based on the increase in sales from products manufactured within the
country.
Market Size
The Indian chemical industry is expected to reach US$304 billion by
2025, registering a compound annual growth rate (CAGR) of 9.3 percent.
The chemical industry in India is valued at a substantial US$220
billion and experts predict that it could reach an astonishing US$1 trillion by 2040.
By 2025, the demand for chemicals in India is expected to grow by 9
percent per annum, and the chemical industry is anticipated to contribute US$383 billion
to Indias GDP by 2030. This increase is expected due to the rise in demand in the
end-user segments for specialty chemicals and petrochemicals segment.
According to Invest India, the market size of the chemical and
petrochemical sector in India is US$178 billion.
The Indian chemical industry covers around 80,000 commercial products,
employees over two million people, and makes up 3.4 percent of the global chemical
industry.
India holds a strong position in international trading of chemicals and
ranks ninth in exports and sixth in imports at a global level (excluding pharmaceuticals).
India accounts for 2.5 percent of the worlds global chemical sales and exports to
more than 175 countries worldwide. The major export destinations are the United States,
China, and new destinations—Turkey, Russia, and Northeast Asia (China, Hongkong,
Japan, Korea RP, Taiwan, Macao, and Mongolia).
Government Initiatives
The Indian Government actively supports the chemical industry,
prioritizing growth in R&D capacity, manufacturing under the Make in India or
Atmanirbhar Abhiyan initiatives, and reductions in the basic customs duty on several
products.
2034 vision for chemicals and production-link incentive scheme: A 2034
vision for the chemicals and petrochemicals sector has been set up by the government to
explore opportunities to improve domestic production, reduce imports, and attract
investments in the sector. The government plans to implement a production-linked incentive
system with 10-20 percent output incentives for the agrochemical sector to create an
end-to-end manufacturing ecosystem through the growth of clusters.
The Production Linked Incentive (PLI) Scheme, approved on 12th May
2021, aims to enhance Indias manufacturing capabilities and exports in Advance
Chemistry Cell (ACC) and Battery Storage. It targets the establishment of 50 Giga Watt
Hour (GWh) capacity manufacturing facilities over 5 years, incentivizing domestic and
international players to set up competitive ACC battery units in India. Subsidies are
provided based on applicable subsidy per KWh and percentage of value addition achieved on
actual sales for manufacturers with production capacities ranging from 5 GWh to 20 GWh.
Road Ahead
The Remission of Duties and Taxes on Export Products (RoDTEP) Scheme,
which became effective January 1, 2021, replaced the Merchandise Exports from India Scheme
(MEIS) with the sole aim of boosting exports. The scheme allows exporters to receive
refunds on the embedded central taxes and state duties that were previously
non-recoverable on input products.
Additional support, in terms of fiscal incentives, such as tax breaks
and special incentives through PCPIRs or SEZs to encourage downstream units will enhance
production and development of the industry. The dedicated integrated manufacturing hubs
under Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract
an investment of Rs. 20 lakh crore (US$ 276.46 billion) by 2035.
To bring about structural changes in the working of domestic chemical
industry, future investments should not only focus on transportation of fuels such as
petrol and diesel, but also on crude-to-chemicals complexes or refineries set up to cater
to the production of chemicals.
Specialty Chemical Segment
Challenges: Volatility in raw material prices
The specialty chemicals manufacturing process includes the use of
various raw materials. Specialty chemicals often depend on specific raw materials, and any
changes in their prices can have a major impact on manufacturing costs and profit margins.
The cost of producing specialty chemicals can be directly impacted by changes in the price
of these raw ingredients. If the prices of key raw materials increase significantly, it
can result in higher production cost for plastic additive, rubber additives, adhesives and
other specialty chemicals manufacturer. When the cost of raw materials used in specialty
chemicals rises, manufacturers may face challenges in maintaining competitive pricing.
Specialty chemicals may be more expensive and less appealing to consumer if they are
unable to bear the extra costs.
Indias makers of specialty chemicals have benefited from a spurt
in both domestic and global demand as customers sought to reduce their dependence on
China.
Indias share of the global specialty chemicals market is expected
to double to $64 billion by 2025.
Asia is expected to drive 70% of the incremental specialty chemicals
demand till FY25, primarily fueled by disproportionate growth in China, and India, thereby
laying an imperative for players to make bold moves.
The global specialty chemicals market was valued at USD 272.6 billion
in 2022 and is projected to reach USD 364.8 billion by 2028, growing at a cagr 5.0% from
2023 to 2028. Specialty chemicals is a whole ecosystem consisting of multiple chemicals
within the category.
The evolutionary nature of the Specialty Chemicals business has meant
that the traditionally dominant regions of North America, Europe and Japan have made way
for fast growth in emerging Asian, South America and Middle Eastern & African
economies. Asia-Pacific, in fact, is estimated as the largest, also the fastest growing,
global market for Specialty Chemicals.
This growth can be attributed to rapid industrialization, improved
standards of living in several developing regions, discernible shift in the global
chemical industrys center of gravity towards the Middle East due to the abundant
availability of cheap petrochemical feed stocks and Asian markets offering cheap labor
coupled with fast economic growth.
Specialty chemicals are synthetic products used as intermediates to
manufacture various products ranging from pharmaceuticals to flavors and essences, and
from agro chemicals to detergents. Unlike other chemical products, the specialty chemical
segment has greater flexibility, small production volume and vast product categories.
Specialty chemicals are high-value added chemicals used to manufacture
a wide range of products, including pharmaceuticals, fine chemicals, additives, advanced
polymers, adhesives, sealants, paints, pigments and coatings.
The demand from end-user industries has improved the growth prospects
of several specialty chemicals segments in Asia. Currently, the Indian specialty chemicals
industry is still at a nascent stage and is expected to grow rapidly over next couple of
years as it moves toward higher-quality products and applications, in both industrial and
consumer segments.
The demand for environment friendly solutions and stringent emission
control legislations has opened up new frontiers especially for the specialty chemical
industry. The greater emphasis on energy efficiency and curbing greenhouse emissions has
also contributed to demand for specialty chemical products, such as photovoltaic solar
cells, electrode materials, insulating materials and chemicals.
The Indian chemical sector accounts for 13-14% of total exports and
8-9% of total imports of India. In terms of volume of production, it is the
twelfth-largest in the world and the third-largest in Asia. Currently, the per capita
consumption of products of the Indian chemical industry is one-tenth of the world average,
which reflects the huge potential for further growth. The Indian advantage lies in the
manufacturing of basic chemicals that are also known as commodity chemicals that account
for about 57% of the total domestic chemical sector.
Specialty Chemicals Market Ecosystem
Prominent companies in this market include well-established,
financially stable manufacturers of specialty chemicals. These companies have been in
business for a while and have broad range of products, cutting-edge technologies, and
robust international sales and marketing networks. Prominent companies in this market
include BASF SE (Germany), DOW Inc. (US), Nouryon (The Netherlands), LANXESS AG (Germany),
Evonik Industries AG (Germany), Huntsman Corporation(US), Coverstro AG (Germany), Clariant
AG (Switzerland), Solvay S.A.(Belgium), and Arkema(France).
KEY MARKET TRENDS
Specialty Chemical Companies Take to Adopting Digital Platforms
Specialty Chemicals Sector Earmarks Funds for COVID-19 Stimulus
Packages Specialty Chemicals Assisting FMCG Companies in Being Sustainable Specialty
Chemicals Market Shaped by Environmental Legislations and Efficiency
Digital Lab Notebook Software Helps Specialty Chemical Producers in
Staying Competitive Smart Coatings Now a "Smart" Option Specialty Chemicals a
Key Component of the Automotive Industry
Opportunities
The Company uses Natural Raw Materials like Hirda, Tamarind Testa etc.
in the manufacturing process. The residue of these raw materials is further used as FUEL
for Boiler, thus reducing the consumption of Furnace Oil. Also today the company is
Asias largest manufacturer and exporter of natural based vegetable tannin extracts
and Eco-friendly leather chemicals.
Threats
The market for our product is positive. Over the years the company
became a leading supplier of natural tannin materials and Eco-friendly leather chemicals
of Indian origin to the international leather industry. Today the company has developed,
established and maintained an untarnished track record of consistently meeting
international quality standards.
Risks and Concerns
The Company has endeavored to optimize the use of energy resources and
taken adequate steps to avoid wastage and use latest technology and equipment, wherever
feasible, to reduce energy consumption.
Human Resource
Performance measurement is a fundamental principle of the management.
The measurement of performance is important because it identifies current performance gaps
between current and desired performance and provides indication of progress towards
closing the gaps. The Human Resource Department has carefully selected key performance
indicators and has taken necessary steps to improve performance of our workforce. Internal
Control System
Internal Control Systems And Procedures
The Company has in place internal control systems and procedures
commensurate with the size and nature of its operations. Internal control processes, which
consists of implementing and adopting appropriate management systems, are followed. These
are aimed at giving the Audit Committee, reasonable assurance on the reliability of
financial reporting, statutory and regulatory compliances, effectiveness and efficiency of
the Companys operations. The internal control systems are reviewed periodically and
revised to keep in tune with the challenging business environment. Internal audit focuses
on control systems, optimum utilization of resources, prevention of frauds, adequacy of
information system, security and control and compliance with risk management systems.
Cautionary Statement
Statements in the Management Discussion and Analysis describing the
Company objectives, projections, estimates, expectations may be "forward- looking
statements" within the meaning of applicable securities laws and regulations. Actual
results could differ materially from those expressed or implied. Important factors that
could make a difference to the Companys operations include climatic conditions, economic
conditions affecting demand/ supply and price conditions in the domestic and overseas
markets in which the Company operates, changes in the Government regulations, tax laws and
other statutes and other incidental factors.
Key Financial Ratios
The same has been given under notes to financial statements and forms
part of the Annual Report.
For and On behalf of the Board of Directors of Polson Limited
| Place: Mumbai |
|
Date: August 14, 2023 |
Sd/- |
|
Sushila Kapadia |
|
Director |
|
DIN: 02105539 |
+91-9892691696
