Global Economy
The global economy witnessed a muted FY23
with the economy growth at 3.4% and FY24 is estimated to see a slower growth estimated at
~ 2.8%. Soaring global energy and food prices, the resurgence of Covid caseloads in few
countries, the fallout of recessionary trends in various markets & end-user industries
have led to slower-than-expected economic growth resulting in stringent monetary policies
by many central banks.
The near-term outlook for global economies
remains unclear. However, the note of optimism stems from the opening up of Chinas
economy and the cooling down of energy prices. It is expected the slowdown in global
economic growth will bottom out in 2023 but will start picking up in 2024. Advanced
economies, compared to emerging markets, are expected to experience a more significant
growth slowdown, from 2.7% in 2022 to 1.3% in 2023. According to the IMF, global GDP
growth will recover to 3.1% in 2024, driven by domestic factors such as robust private
consumption and investments. The US Federal Reserves shift towards a less aggressive
monetary policy will likely set the tone for the coming year. However, the geopolitical
conflict in eastern Europe and its impact on global tensions remain a significant risk.
[Source: IMF Report 2022-23].
Surpassing global slowdown, the Indian
economy grew by 7.2% during the fiscal year 2022-23, outpacing the Governments projection
of 7.0% GDP growth. This growth was driven by strong domestic macroeconomic fundamentals,
increased exports, reduced oil prices, higher capital investments, and a decrease in
import-intensive consumption demand.
The Indian economy has demonstrated
extraordinary resilience despite facing several challenges such as rising inflation and
supply shocks caused by geopolitical crises and continues to recover. Strong growth is
anticipated because of strong investment activity bolstered by the Governments capex push
coupled with an upswing in manufacturing activity, robust consumption trends, etc. India
has managed to uphold its status as the worlds fastest-growing economy. With an ambitious
target of becoming a $5 trillion economy by 2025 and more than doubling annual exports to
$2 trillion by 2030, aided by the rise in services and electronics exports, India has
announced several initiatives to achieve these goals and sustain its growth momentum. The
Governments proactive measures and policies are expected to contribute to a healthy GDP
growth rate in FY24, forecasted at 6.3%. [Source: National Statistical Office (NSO); IMF]
Outlook
India, being one of the worlds largest
economies, has played an important role in global economic growth, adding about $1.3
trillion to global demand over the last decade. The Indian economy has emerged stronger
and fared better than many major global economies, because of its growth-oriented policy
reforms and effective regulatory measures. Many policy initiatives such as the Production
Linked Incentive (PLI), de-leveraging of private sector, increased spending on
infrastructure, and various other Government policies have propelled the Indian economy to
its new heights.
Union Budget FY 2023-24 provisions
The Union Budget FY24 aimed at enhancing
the nations positioning and accordingly set an increased capital expenditure outlay of
Rs. 10 Lac crore, a 33% increase over FY23. The governments focus on capital expenditure,
strong manufacturing capacity utilization, double-digit credit growth, and moderation in
commodity prices are likely to further enhance manufacturing and investment push.
Governments introduction of measures to support economic growth including the National
Infrastructure Pipeline (NIP) and the Production-Linked Incentive (PLI) schemes etc. will
provide a fillip to key industries like manufacturing, infrastructure and healthcare.
Industry Overview
Indian Chemical Industry
The Indian chemical industry has emerged as
a formidable global player, claiming 6th position worldwide and 3rd
spot in Asia. The industry recorded a volume of US$ 232 billion in 2022, and is expected
to reach US$ 304 billion by 2025, registering a CAGR of 9.3%. Currently, Indias chemical
exports have reached the 14th position, while imports stand strong at the 8th
rank. The cumulative FDI equity inflow in the chemical industry (excluding fertilizers)
was US$ 20.96 billion from April 2000 to December 2022. This constituted 3.35% of the
total FDI inflow across sectors.
The recent Union Budget for 2023 sets the
stage for growth, stability, and inclusive development, with an array of policies aimed at
igniting robust demand for a diverse range of chemicals. The budget allocation for the
Department of Chemicals and Petrochemicals stood at Rs. 173.45 crore (US$ 20.93 million).
The Government is also considering
launching a production-linked incentive (PLI) scheme in the chemical sector to boost
domestic manufacturing and exports. The industry continues to explore opportunities to
obfuscate itself from supply chain disruptions in China and trade conflicts among the US,
Europe, and China. Additionally, anti-pollution measures in China have created specific
segments of opportunities for the industry.
To bolster growth, the government has
implemented the Petroleum, Chemicals, and Petrochemicals Investment Regions (PCPIR)
policy. This ambitious plan aims to attract an impressive investment of Rs. 20 lakh crore
(US $276.46 billion) by 2035, establishing dedicated integrated manufacturing hubs.
Providing special incentives through PCPIRs and Special Economic Zones (SEZs) to encourage
downstream units will further boost production and overall industry growth.
Industry, today, is at the cusp of becoming
a dominant global industry. No doubt, its future looks very promising. With a stable and
favourable policy regime from the government and with the industrys aggressive focus on
EHS and R&D, India will grow to become a safe, sustainable, and vibrant global
chemical manufacturing hub. [Source; IBEF, AMAI]
Global and Indian Caustic Soda Industry
FY23 witnessed robust growth in the
industry, bolstered by strong demand and stable international prices up till October 2022.
However, from November 2022, the prices declined due to the easing of global supply chain
conditions, destocking of overstocking done in Europe earlier in anticipation of high
energy prices and recession in European Union economies. Among the prominent segments
within the inorganic chemicals sector, Chlor-Alkali played a pivotal role as a fundamental
building block for the overall chemicals industry. Its applications span a wide range of
sectors
including textiles, alumina, organics,
inorganics, pesticides, soap & detergents, dyes, paper & pulp, water treatment,
chemical & petrochemical processing, and power & steel.
Indian Caustic Soda, with an annual
capacity of approximately 5.04 million metric tonnes, accounts for approximately 5-6% of
the global capacity. It is projected to grow in tandem with the countrys GDP. Initial
estimates indicate that the industry produced around 4.13 million metric tonnes of Caustic
Soda, reflecting an 8% increase compared to the previous year. In terms of international
trade, Caustic Soda continued its trend of surpassing imports with exports reaching
458,000 metric tonnes, while imports stood at 139,000 metric tonnes. Notably, exports
witnessed an increase while imports remained lower.
The geopolitical conflict in eastern Europe
had an impact on the global economy; however, the governments interventions and balanced
approach mitigated its effects on our economy. The higher GDP growth of over 7.0% for FY23
and the strong indicators of the Indian economy are indicative of sustained growth
momentum.
For the Alkali industry, FY24 is expected
to begin with signs of declining international prices and high imports on our west coast.
However, the expectation of overall strong economic growth could provide some respite to
our industry. [Source: IBEF; AMAI]
Business Overview
Primo Chemicals Limited, formerly known as
Punjab Alkalies & Chemicals Ltd (PACL), is a prominent company in the chemical
industry. The company specializes in the production of caustic soda and related chemicals.
Primo Chemicals Limiteds strong market presence, commitment to sustainability, focus on
quality, and expansion plans position the company for continued growth in the chemical
industry. With its expertise and dedication to meeting customer needs, Primo Chemicals
Limited aims to deliver superior value and contribute to the industrys development
in the years to come.
Performance Review
Primo Chemicals Limited delivered a robust
performance in FY23, achieving significant growth in revenues and profitability surpassing
all previous records. Despite the considerable increase in Salt prices, the Company
experienced positive trends in key performance indicators.
In FY23, the company recorded a Revenue
from Operations of Rs. 7,074 million, marking a substantial increase of 56% from Rs. 4,541
million in FY22. The EBITDA showed remarkable growth, more than doubling to Rs. 2,185
million compared to Rs. 1,018 million in FY22. Similarly, the Net Profit also moved to Rs.
1,374 million from Rs. 592 million in FY22 resulting an increase of 132%. These financial
achievements reflect the companys effective cost management and revenue growth
strategies.
The Cash Flow from Operations stood at Rs.
1,496 million, indicating the companys ability to generate positive cash flows from its
core business operations.
Furthermore, the ECU realization increased
by 26.2% on a year-on-year basis. The Caustic Soda Lye rate per metric ton (PMT) also
showed growth, with a 32.3% increase on a year-on-year basis.
Overall, Primo Chemicals Limiteds
consolidated performance in FY23 demonstrates its strong financial achievements and its
ability to achieve substantial growth, enhance profitability, and optimize its operations.
The companys focus on cost management, efficient production utilization, and favorable
market conditions contributed to its strong financial performance.
Growth Strategy and Outlook for Primo
Chemicals Limited
Primo Chemicals Limited has outlined a
robust growth strategy to capitalize on market opportunities and drive sustainable
expansion in the chemical industry in line with the Companys aims to enhance
its competitive edge, diversify its
customers portfolio, expand its market reach and capture a larger customer base.
Primo has been strategically pursuing its
forward integration plan of implementation of Aluminum Chloride project and acquisition of
100% stake in Flow Tech Chemicals Pvt. Ltd. Primo has successfully commissioned the
commercial production of Stable Bleaching Powder to further enhance the companys product
diversification and strengthens its position in the market. Primo Chemicals Limited
continues to explore opportunities for forward integration to secure its supply chain,
improve operational efficiencies, strengthen its downstream portfolio, and to add more
value-added products in its product portfolio.
Primos ongoing expansion plans, including
the 35 MW Coal and Biomass based Thermal Power Plant and Caustic Flaker unit, are
developing as planned and it is anticipated that these projects will have a positive
impact on the companys revenue and profitability in FY 2023-24.
Primo remains committed to operational
excellence by continually improving its manufacturing processes, optimizing resource
utilization, and implementing cost-effective measures. Primo Chemicals Limited aims to
enhance productivity, reduce costs, and improve overall operational efficiencies to drive
profitability and competitiveness.
Overall, Primo Chemicals Limited has a
positive growth outlook, driven by its strategic initiatives, market expansion, product
portfolio enhancement, and operational excellence. By capitalizing on these factors, the
company aims to achieve sustainable growth, increase market share, and deliver long-term
value to its stakeholders.
Marketing
Primo has implemented various marketing
initiatives to strengthen its brand presence in the market, expand its customer base, and
drive growth in the chemical industry. The company has invested in developing a cohesive
brand identity, including a visually appealing logo, tagline, and brand messaging. Primo
has aimed to enhance brand awareness and create a positive perception among customers and
stakeholders. Primo recognizes the importance of nurturing strong relationships with its
existing customers. By understanding customer needs and providing tailored solutions, the
company aims to enhance customer satisfaction, loyalty, and long-term partnerships.
Advantages & Opportunities
Primo has locational advantages of
availability of uninterrupted Power supply - a major input, perennial source of water,
skilled labour and close proximity to road/rail and the presence of several end-user Units
in industries like paper, fertilizers, soaps and detergents, etc. in its Natural Marketing
Zone as its Caustic Soda Plants are located in its Plant Complex at Naya Nangal, District
Ropar, Punjab in close vicinity of a State Highway and around 12 Kms from the Bhakra Left
Bank Power Generating Station and about 2.5 Kms. from Sutlej River.
The Company is supplying Chlorine Gas
through pipeline to one of its Promoter Group Chlorinated Paraffin Wax (CPW) Plant
situated within its Complex and Hydrogen Gas through pipeline to one Hydrogen Compressing
& Bottling Unit situated near PCL Complex. Primo is also utilising Hydrogen as a fuel,
which result in a considerable improvement of utilisation of its by-product Hydrogen Gas.
This results in regular supply of Chlorine & Hydrogen besides saving on transportation
cost.
Chlor-Alkali business is seeing
opportunities in capacity expansion to meet the medium-term demand growth as well as in
downstream products that will help Chlorine evacuation and other value- added downstream
products.
With a growing focus on sustainability and
environmental regulations, there is a rising demand for sustainable and eco-friendly
chemicals. Primo Chemicals Limited can seize this opportunity by investing in research and
development to develop and offer sustainable chemical solutions that align with market
trends and customer preferences.
Primo Chemicals Limited can explore
opportunities to expand its presence in international markets. By targeting emerging
markets or regions with high demand for chemicals, the company can tap into new customer
segments and diversify its revenue streams.
By diversifying its product portfolio and
focusing on value-added products, the Companys endeavor is to capture higher margins and
differentiate itself from competitors. Identifying customer needs and developing
specialized chemical solutions, can lead to increased market share and profitability.
Threats, Risks & Concerns
The expansion of installed capacities by
other domestic players in the caustic industry poses a competitive threat. Increased
supply of Caustic and Chlorine in the market can lead to pricing pressures and intensified
competition for market share besides intense competition from Global players.
The chemical industry is subject to
stringent regulatory standards and environmental regulations. Noncompliance with these
regulations can lead to fines, penalties, and reputational damage. Additionally,
increasing environmental concerns and the need for sustainable practices require chemical
companies to make substantial investment in pollution control measures and adopt cleaner
technologies, which can add to operational costs. Being a producer of chemicals with
hazardous properties, safety is a major concern. Primo must adhere to stringent safety
protocols and invest in measures to mitigate any potential risks to workers, the
environment, and surrounding communities.
In addition to the above, Primo is exposed
to the risk of increasing input costs such power tariffs, raw materials, transportation,
and other essential resources. Escalating prices of these inputs can squeeze profit
margins and affect the overall cost- effectiveness of the companys operations.
The Indian chemical industry faces intense
competition from global players. Global companies often have established market presence,
advanced technologies, and economies of scale, which can make it challenging for Indian
companies to compete on price and quality. Protectionist measures, trade barriers, and
fluctuations in foreign exchange rates can also impact the competitiveness of Indian
chemical manufacturers in the global market.
Geopolitical tensions, trade disputes, and
changes in government policies can introduce uncertainties and impact the global supply
chains of the chemical industry. Trade barriers, tariffs, and protectionist measures can
limit market access and create challenges for Indian chemical companies operating in
international markets.
Risk Management
Risks refer to potential threats or
negative occurrences that can lead to damage, loss, liability, or other adverse
consequences. Risk management involves the identification, assessment, and prioritization
of risks, followed by the application of resources to mitigate/minimize, monitor, and
control the probability and impact of such events. The Company has in place an adequate
Risk Assessment and Minimization System. Major risks for the Company are a) Cost of Power:
Being a power-intensive industry, minimizing power cost is crucial to maintaining
profitability, b) Production of Hazardous Chemicals, which presents inherent risks: The
Company must adhere to strict safety protocols and industry regulations to mitigate the
potential risks associated with these operations, c) Locational Disadvantage: Being far
from its major raw material i.e. Industrial Salt which involves transportation costs and
supply chain complexities, posing challenges to the Companys operations and cost
efficiency, d) Import of Caustic at Cheaper Rates: poses a competitive threat to the
Company. Cheaper imports may affect the Companys pricing, market share, and overall
profitability, e) Increasing regulatory enactments have brought in the need for
additional compliances. With various
statutes and regulations, non-compliance may not only lead to monetary penalties but also
have an impact on the reputation of the organization and the goodwill it enjoys. The risk
is mitigated through regular monitoring and review of changes in the regulatory framework
to ensure compliance with all the applicable statutes and regulations. Other Risk includes
Operation Risk including Cyber risk, Financial Risk, Sustainability Risk, Recession Risk,
Digitalisation Risk, Talent Retention Risk, etc.
To address these risks, the Company focuses
on proactive risk management strategies, such as optimizing power consumption, maintaining
rigorous safety measures, exploring alternative sourcing options for raw materials and
enhancing operational efficiencies. By continuously monitoring and mitigating these risks,
the Company aims to safeguard its business and maximize opportunities for growth.
Internal Control Systems
The Company has in-place appropriate
internal control systems in line with its size and business operations and these are
strengthened through internal audits being conducted by independent auditors. The findings
of the internal audit are reviewed by both the management team and the Audit Committee of
the Board of Directors. In addition to the internal audits, the adequacy and effectiveness
of the internal control systems are also assessed by the Companys statutory auditors.
This comprehensive approach ensures that the internal control systems are adequate,
reliable, and aligned with industry best practices, thus enabling the Company to
effectively manage risks, safeguard assets, and maintain the integrity of its financial
reporting processes.
Place: Chandigarh Date: 14th
August, 2023
Human Resources
Primo Chemicals Limited attaches great
value to its human resources and places great emphasis on upgrading and enhancing their
skills and capabilities. The Company considers training and development as one of the key
area for its personnel at all levels. Throughout the financial year under review, the
Company maintained cordial industrial relations. As of March 31, 2023, Primo Chemicals
Limited had a total of 385 permanent employees, including 40 employees on deputation,
contributing to the organizations success.
Cautionary Statement
The statements made in this Management
Discussion and Analysis Report regarding the Companys objectives, projections, estimates,
expectations, or predictions may be considered as "forward-looking statements"
in accordance with applicable laws or regulations. These statements are based on certain
assumptions and expectations regarding future events. However, actual results may differ
materially from those expressed or implied in these statements. Various factors could
affect the Companys operations, including economic conditions that impact global and
domestic demand and supply, fluctuations in prices of finished goods, availability and
costs of power and raw materials, restrictions and charges related to power wheeling,
changes in government regulations and tax regimes, economic developments in India, and
other factors such as litigation and industrial relations. The Company does not assume any
obligation to publicly amend, modify, or revise any forward-looking statements based on
subsequent developments, information, or events.
For and on behalf of the Board
Sd/-
(Sukhbir Singh Dahiya)
Chairman
DIN: 00169921
+91-9892691696
