Shree Pushkar Chemicals & Fertilizers Ltd Management Discussions

In 2024-25, GDP growth is forecasted at 7%, up from 6.7% as previously projected by the Asian Development Bank (ADB). For the current fiscal year, ADB expects a 7.2% growth. Increased GST collection, strong e-way bill generation, and rising e-toll collection underscore economic resilience. The Reserve Bank of India (RBI) projects 7% real GDP growth for FY 2025, driven by robust rabi harvesting, manufacturing profitability, and resilient services. Despite geopolitical tensions and supply chain disruptions, lower input prices and moderated food inflation are anticipated to boost output growth and exports. The Indian economy demonstrated strong quarterly growth in 2023-24, with overall GDP growth estimated around 6.9%-7%

1. Industry structure and developments:

A. Chemical Dyestuff Industry:

India is the 6^th largest producer of chemicals in the world and 3^rd in Asia, contributing 7% to Indias GDP. The industry is expected to reach US$ 304 billion by 2025, driven by rising demand in end-user segments for specialty chemicals and petrochemicals. Specialty chemicals account for 20% of the global chemicals industrys US$ 4 trillion market, with Indias market expected to increase at a CAGR of 12% to US$ 64 billion by 2025, driven by demand growth in export and end-user industries. The global specialty chemicals market size was estimated at US$ 870 billion in 2023 and is projected to reach US$ 1,244 billion by 2032, expanding at a CAGR of 4% from 2023 to 2032. The bio-based and green specialty chemicals market is thriving due to the increasing demand for sustainable options. Key industries such as pharmaceuticals, personal care, and construction drive this growth, leveraging these chemicals unique properties and environmental benefits.

The major users of dyes in India are textiles, paper, plastics, printing ink, and foodstuffs. The textiles sector alone consumes around 80% of the total production due to high global demand for polyester and cotton. The future growth of the dye sector depends on the performance of end-user industries like paints, textiles, printing inks, paper, plastics, and foodstuffs. Changing customer preferences and infrastructure expansion in various regions create new market opportunities for the dye industry

Reactive Dyes Market Size was valued at USD 4.48 Billion in 2023. The Reactive Dyes industry is projected to grow from USD 4.90 Billion in 2024 to USD 9.13 Billion by 2032, exhibiting a compound annual growth rate (CAGR) of 8.09% during the forecast period (2024 - 2032). Increased adoption across the textile industry owing to exceptional features is the key market driver enhancing market growth.

Countries such as China, India, and Germany exhibit significant growth potential in the global chemical sector. Currently, India contributes about 16%-18% of global dyestuff exports and is a leading player in dye manufacturing. From April, 2023 to December, 2023, Indias dye exports (Dyes and Dye Intermediates) totalled US$ 1.69 billion. During the fiscal year April, 2023 - March, 2024, these exports increased to US$ 2.32 billion. Indias dye exports include agrochemicals at US$ 4.19 billion, dyes at US$ 2.15 billion, and other dye intermediates at US$ 170.85 million.

The reactive dyes markets growth is attributed to the shift towards cellulosic fibers, widespread use in apparel and home textiles, regulatory compliance, and eco-friendly properties. Globalization of textile manufacturing and advancements in dye chemistry have also contributed to this growth. Future trends include digital printing technologies, innovations in dyeing technologies, a focus on cold water dyeing processes, customization, specialty reactive dyes, and expansion in the apparel and fashion industry.

B. Fertilizer Industry:

Fertilizers play a crucial role in Indias agriculture, given the countrys reliance on farming for food security and economic growth. India is the second-largest consumer and third-largest producer of fertilizers globally. In 2023, India achieved self-reliance in fertilizer production, reducing import dependency through investments of Rs. 400 billion in new units. Currently, Indian fertilizer production stands at 42-45 million tonnes, with imports at 18 million tonnes.

The fertilizer scenario in FY23-24 was influenced by government interventions, market dynamics, technological advancements, and sustainability initiatives. The government introduced the PM Pranam Scheme to reduce chemical fertilizer use and promote integrated nutrient management. This scheme provides grants to states for adopting alternative fertilizers and rewarding stakeholders involved in fertilizer reduction and awareness.

Single Super Phosphate (SSP) remains a critical fertilizer, supplying essential nutrients like phosphorous, sulfur, and calcium. SSP also acts as a carrier for other nutrients such as magnesium, boron, and zinc. In FY 2023-24, SSP production was 44.44 lakh MT, compared to 56.46 lakh MT in the previous year. SSP helps to reduce import dependence, contributing to stabilizing international prices of key raw materials.

2. Opportunities and Threats:

A. Opportunities:

The dye sector stands to benefit from robust growth in end-user industries such as textiles, paints, printing inks, paper, plastics, and foodstuffs. The continued expansion of the construction industry, increased automotive production, and rising demand from the plastics and coatings sectors are key drivers. The growing utilization of digital printing technologies is driving demand for specialized dyes and pigments that offer high color vibrancy and durability. This trend is expected to open new avenues for market growth.

Market expansion in emerging economies, particularly in the Asia-Pacific region, presents further growth opportunities. Countries like India, Bangladesh, and Vietnam are experiencing significant growth in textile and plastic production due to favorable manufacturing conditions, availability of raw materials, and low-cost skilled labor. This shift is anticipated to boost the demand for dyes and pigments in these regions.

The push towards self-reliance in fertilizer production (Atma Nirbharta) is set to enhance domestic capacity, reducing import dependency and bolstering supply. Investment in new units and infrastructure supports this growth. Improving crop yields, given limited land, water, and labor, will rely more on advanced agricultural inputs and balanced farming practices. There is significant room for growth in crop protection consumption in India compared to global benchmarks.

Supportive policies from central and state governments aimed at increasing farmers incomes can boost the consumption of agricultural inputs. Strengthening farm infrastructure with better irrigation, storage, and mechanization can also enhance crop acreage and input use. Improved digital connectivity in rural areas offers opportunities to expand farmer reach and develop e-commerce platforms, facilitating better access to agricultural products and services.

B. Threats:

The dye industry faces several threats, primarily due to regulatory and environmental challenges. Strict environmental regulations in developed regions such as North America and Europe are impacting production processes and increasing compliance costs. These regulations necessitate significant investments in cleaner technologies and processes, which could strain financial resources.

The vagaries of monsoon present a significant challenge for the fertilizer industry and the entire farming community. Limited availability of key raw materials like rock phosphate from indigenous sources compels the industry to rely on overseas suppliers, whose demands can be unpredictable during times of crisis. Volatility in raw material prices, heavily influenced by geopolitical factors and supply chain disruptions, poses a risk to stable production costs and profit margins.

Additionally, inadequate power supply and underdeveloped infrastructure in key manufacturing regions can hinder production efficiency and increase operational costs, challenging the industrys ability to compete globally. This is particularly pressing as duty differentials decline and the value of the rupee appreciates, further squeezing margins.

3. Segment-wise or Product-wise Performance:

The standalone vertical wise quantitative Sales for the FY2023-24 vis-a-vis that of FY 2022-23 is as under:

4. Outlook:

A. Chemicals Business:

The global agrochemicals market faced a challenging year in 2023, with growth being hampered by unfavorable weather conditions in some regions and decreased agrochemical prices. However, several positive factors mitigated these challenges. Europe saw a recovery, Brazils robust agricultural sector and economy helped prevent significant price drops, and improved weather in the Western US, along with increased pest pressure in key markets such as China, India, and Brazil, provided some support. Looking ahead, the global agrochemicals market is expected to remain subdued in 2024. The full impact of declining agrochemical prices will be felt in Central and South America, while the Asia Pacific region continues to contend with the ongoing El-Nino weather conditions. Additionally, the market may be affected by projections for reduced planting areas of critical crops in regions such as France, Argentina, Brazil, the US, and Australia.

B. Fertilizers Business:

Fertilizers play a crucial role in agricultural development, and India is making strides in both areas. Despite demonstrating consistent growth since 2014, the fertilizer industry currently faces several challenges. Adverse weather conditions, heavy reliance on imported raw materials, and government subsidies are key concerns. The industry is hopeful that a favorable monsoon will lift morale and boost sales. The 2023-24 period for the Indian fertilizer sector was marked by a mix of government inventories, a weak monsoon, market dynamics, and various sustainability initiatives aimed at supporting the agricultural sector. Looking forward, the industry remains optimistic about overcoming these challenges and continuing its growth trajectory.

5. Risks and concerns:

The industry continues to face significant challenges this year. The unpredictability of monsoon patterns remains a concern, affecting agricultural outputs and, consequently, the demand for fertilizers. Volatility in the global market for raw materials persists, driven by geopolitical tensions and economic disruptions, which have led to fluctuating prices and supply chain uncertainties.

Fertilizer consumption remains highly seasonal, concentrated in the Kharif and Rabi periods, creating imbalances in demand and supply throughout the year. There is still a notable lack of awareness among farmers regarding the benefits of Single Super Phosphate (SSP), which impacts its adoption rates. Logistics challenges, including rising costs and availability issues, continue to exert pressure on the industry, along with the increased working capital requirements necessary to manage these dynamics.

The Nutrient-Based Subsidy (NBS) scheme provided by the government often does not fully align with actual input costs, which can hinder profitability for companies. Additionally, the tightening of stringent pollution control norms in India necessitates greater economies of scale and larger capital investments, posing significant challenges, particularly for units operating in the unorganized sector.

6. Internal control systems and their adequacy

The Company ensures the orderly and efficient conduct of its business, including adherence to the Companys policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013. The Statutory Auditors while conducting the statutory audit, review and evaluate the internal controls and their observations are discussed with the Audit Committee of the Board. Other statutory requirements especially, in respect of pharmaceutical business are also vigorously followed in order to have better internal controls over the affairs of the Company.

7. Discussion on financial performance with respect to operational performance on consolidated basis during the Last 5 Years

Viewing the operational performance over the years, the Company has till last year been maintaining steady progress over the years in terms of sales and profits. However, the Company has still been maintaining its operational efficiency as can be observed from the cost of raw material to sales and the profitability margins such as EBIDTA margin and PAT margin.

Our continued efforts on improvement in the process yields, better cost control measures, and better inventory management, helped in reducing the raw material cost from 67% in FY2019 to 64% during FY 2024. Going ahead, as the capacity utilization increases, operating leverage will play and have a positive impact on the overall profitability of the Company.

8. Material developments in Human Resources / Industrial Relations front, including number of people employed

The ability to attract, onboard, develop and engage the right kind of talent is crucial to an organizations long term success.

Company strongly believes in continuously taking steps towards talent management, leadership development, employee engagement. Employees are the backbone of good organization and to motivate them to achieve greater heights, the Company undertook various HR initiatives towards their development, enhancement and retention. The Company considers its highly motivated and well-maintained team as its most valuable asset. As on 31^st March, 2024, the Company has employed 492 employees at various locations in India.

Amidst all the pressures and demands of the growing business, Industrial Relations continued to be reasonably cordial.

9. Details of significant changes in key financial ratios (i.e. change of 25% or more as compared to the immediately previous financial year):

CAUTIONARY STATEMENT: Some of the statements in the report may be forward looking and are stated as required by applicable laws & regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook. The Companys Performance is dependent on several external factors such as performance of monsoons, government policy, fluctuation of prices of raw material and finished products and also their availability, which could adversely affect the operations of the Company.