Sikko Industries Management Discussions

The discussion hereunder covers Companys performance and its business outlook for the future. This outlook is based on assessment of the current business environment and Government policies. The change in future economic and other developments are likely to cause variation in this outlook.


Global economy continues to gradually recover from the pandemic and Russias invasion of Ukraine. According to International Monetary Fund (IMF), Economic activity in the first quarter of the year proved resilient, despite the challenging environment, amid surprisingly strong labor markets. Energy and food prices have come down sharply from their war-induced peaks, allowing global inflation pressures to ease faster than expected. And financial instability following the March banking turmoil remains contained thanks to forceful action by the US and Swiss authorities. According to IMF, growth will slow from last years 3.5 percent to 3 percent this year and next, a 0.2 percentage points upgrade for 2023 from our April projections. Global inflation is projected to decline from 8.7 percent last year to 6.8 percent this year, a 0.2 percentage point downward revision, and 5.2 percent in 2024.

The longer than expected conflict between Ukraine and Russia, which started in February 2022, is expected to weaken the economic recovery, apart from creating one of the largest humanitarian tragedies. The recent resolution of the US debt ceiling standoff and, earlier this year, strong action by authorities to contain turbulence in US and Swiss banking reduced the immediate risks of financial sector turmoil. This moderated adverse risks to the outlook. However, the balance of risks to global growth remains tilted to the downside. Inflation could remain high and even rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events, triggering more restrictive monetary policy. This conflict has also pushed up the price of crude oil and commodities, disrupted the supply of agri-inputs and food, and aggravated the inflationary environment across the world. Food security has become a priority for national governments worldwide which is leading to higher demand for quality agriinputs.


After contracting by 7.3% in a Covid impacted year of FY 2020-21, Indian economy quickly recovered lost ground and is projected to expand by 8.7% in FY 2021-22, as per the latest advance estimates released by Central Statistical Office (CSO). As per consensus forecasts, GDP growth in FY 2022-23 is expected to be in the range of 7.0% - 8.2%. The growth is expected to be driven primarily by infrastructure capex spending as reflected in Central Governments budgetary allocations.

Indias large domestic economy coupled with the governments enormous public spending, both in the form of planned outlays and direct benefit transfers, led to liquidity infusion into the economy, and helped the country consistently grow. Indias inflation trajectory is expected to be significantly impacted by extreme weather conditions like heat waves and the potential for an El Nino year, volatility in international commodity prices and the possibility of a pass-through of input costs to output prices.

The capital expenditure for FY 2022-23 stands at 2.9% of GDP, indicating the Governments commitment to investing in the countrys growth. Moreover, the Government has announced an even larger allocation of 10 lakh crore for the next fiscal year, which demonstrates their longterm vision for the economy. Of this amount, a considerable sum of 1.78 lakh crore has been earmarked for the Ministry of Chemicals and Fertilisers, reflecting the Governments emphasis on promoting the chemical and agriculture sectors. Overall, these budgetary allocations signal the Governments determination to accelerate economic growth and create a more prosperous and resilient India. (Source: Budget 2023, RBI, Economic Survey 22-23, Ministry of Finance)


Indias economy recovered quickly from the pandemic and further growth is expected to be supported by solid domestic demand and increase in capital investments. The International Monetary Fund (IMF) and Reserve Bank of India (RBI) estimate real GDP growth of 6.8% in 2022-23 and 6.1% in 2023-24. The agriculture sector has been growing at an average annual rate of 4.6% over the past six years, and the industrial sector is estimated to grow at 4.5% in FY 2022-23. The services sector saw quick recovery in FY 2021-22, growing 8.4% Y-o-Y, and continued to grow in FY 2022-23.

RBIs enterprise surveys point to some softening of input cost and output price pressures in manufacturing. Considering these factors, and assuming an average crude oil price (Indian basket) of US$ 95 per barrel, inflation is projected at 6.5% in FY 2022-23, with Q4 at 5.7%. On the assumption of a normal monsoon, CPI inflation is projected at 5.3% for FY 2023-24, with Q1 at 5.0%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%, and the risks evenly balanced.

Indian government has accelerated its reforms initiatives like Production Linked Incentives (PLI) schemes and increased infrastructure spending to support the industry. This will provide resilient demand in economy and its ripple effect on other aspects of the economy, such as employment and productivity, will bring India back on track in its medium- to long-term economic objective.


The Indian chemical industry is the 6th largest producer of agrochemicals in the world globally and 3rd in Asia. India is the 4th largest producer of agrochemicals globally. India ranks 14th in chemical products exports and 8th in imports. The Indian chemical industry stood at US$ 232 billion in 2022, and is expected to reach US$ 304 billion by 2025, registering a CAGR of 9.3%. The cumulative FDI equity inflow in the chemical industry (excluding fertilisers) was US$ 20.96 billion from April 2000 to December 2022. This constituted 3.35% of the total FDI inflow across sectors. The Indian industry has two major advantages - relatively low manufacturing costs and the ability and expertise in efficient handling of toxic and hazardous products and processes.

Availability of technically trained manpower, seasonal domestic demand and production capacities for generics built to cater to overseas markets are the other reasons for strong exports. India has been attracting multinationals due to good domestic growth opportunities. Domestic segment has been witnessing a steady increase in market acceptance of new generation molecules.

The Indian chemical industry has numerous opportunities, considering the supply chain disruption in China and the trade conflict among the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments. The dedicated integrated manufacturing hubs under Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy is expected to attract an investment of 20 lakh crore (US$ 276.46 billion) by 2035. Additionally, special incentives through PCPIRs or SEZs (Special Economic Zones) to encourage downstream units will enhance production and further boost the industry growth. (Source: Union Budget 2023, IBEF, Ministry of Commerce, Expert Market Research)


The key factors of driving the agrochemical industry are:

? With the growing population there is an increase in the need to fulfil the demand for food sufficiency and food security. This continues to drive the growth of agrochemicals industry.

? With fewer arable acres per capita, agrochemicals are becoming more important in maximizing farmer yields; arable land is projected to shrink from half an acre per person now to less than one-third of an acre per person by 2050.

? Plant diseases and pests have become more common as a result of changing environmental conditions. Also, climate fluctuations have a substantial impact on crop productivity


Established in 2000, Sikko Industries Limited ("SIL" or the Company) is a leading Agrochemical Company in India. The Companys strength lies in manufacturing formulations. The Company has two manufacturing unit i.e. Fertilizer and Pesticide unit is located at the outskirts of the Ahmedabad city on Sanand Highway and thus enjoys the good connectivity with different parts of the states, which makes the movements of the raw-material as well as our products easy and comfortable. Thus, it helps in procurement of raw material and dispatch of our products to the various clients. We have well equipped research and Development facility to improve quality of the products and to produce high performance growth promoters, pesticides and fertilizer. Company has in house sound R&D Department backed by technical expertise of our Managing Director Mr. Jayantibhai Kumbhani which helps the company to enhance our product range. We offer special and exclusive range of agrochemicals including organic pesticides, organic fertilizers and others. Such diverse product mix helps us to cater the diverse customer segments and to various sectors of Industry. The product mix helps us to sustain the growth level. Over the years we have developed various products which is used by farmer in agriculture. All products that dispatch from the factory premises are inspected by the packing and dispatch department. Further, quality check is done at every stage of manufacturing to ensure the adherence to desired specifications. Since, our Company is dedicated towards quality of products, processes and inputs; we get repetitive orders from our buyers, as we are capable of meeting their quality standards, which enables them to maintain their brand image in the market.



o Government initiative to promote agriculture industry will help our industry to grow o Continues development in R&D work resulting into yielding of new product

o Abundant water, electricity and subsidies to farmer by government will help the agriculture industry to grow


o Change in Government policies

o New entrants in the market and intense competition by existing players o Technology may become obsolete due to Innovation in Technology

o The generic threat of economic slowdown exits, which may subdue the domestic demand for the products o Fluctuations in Raw Material prices o Unfavourable weather conditions


A well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process is in place. The objective of the mechanism is to minimize the impact of risks identified and taking advance actions to mitigate it. The mechanism works on the principles of probability of occurrence and impact, if triggered. A detailed exercise is being carried out to identify, evaluate, monitor and manage both business and non-business risks.


The Companys operation predominantly comprises of only one segment. In view of the same, separate segmental information is not required to be disclosed as per the requirement of Indian Accounting Standard 108 Operating Segment.


During the year under review, the Company has earned total income of ^ 4,992.51 Lakhs as against the total income of ^ 5,124.34 Lakhs of previous year which states 2.57% decrease in the total income as compared to previous year. The profit before tax in the financial year 2022-23 stood at ^ 405.30 Lakhs as compared to profit of ^ 261.01 Lakhs for last year and net profit after tax stood at ^ 289.25 Lakhs as compared to profit of ^ 187.70 Lakhs for the previous year which state 55.28% increase in profit of the Company.


The Company has a proper and adequate system of Internal Controls to commensurate with the size and nature of its operations to ensure that all assets are safeguarded against unauthorized use or disposal, safeguarding true and fair reporting and compliance with all applicable regulatory laws and company policies. Internal Audit Reports are reviewed by the Audit Committee of the Board.


The Company believes that human resource is the most important assets of the organization. It is not shown in the corporate balance sheet, but influences appreciably the growth, progress, profits and the shareholders values. During the year your company continued its efforts aimed at improving the HR policies and processes to enhance its performance. The vision and mission of the company is to create culture and value system and behavioral skills to insure achievement of its short- and long-term objectives. As on March 31, 2022, the Company had total 32 full time employees. The industrial relations have remained harmonious throughout the year.


Details of key financial ratios of the Company, changes therein as compared to previous financial year along with explanations for those ratios where change is 25% or more are as under:

Key Ratios Units F.Y. 2022-23 F.Y. 2021-22 % of Change in Ratio Explanations
Debtors Turnover Times 2.26 8.68 (74%) Due to Due to High Receivables outstanding at end of the year
Inventory Turnover Times 4.47 9.40 (52%) Due to high Freight & Forwarding Exp due current market condition
Interest Coverage Ratio Times 14.70 7.22 104% Due to increase in the cost of borrowing
Current Ratio Times 2.01 2.23 (10%) Due to more increased in current liabilities
Debt Equity Ratio Times 0.36 0.08 368% Due to Company has taken additional Debts during the year
Operating Profit Margin 0/% 0.07 0.04 83% Due to increase in the Profit Margin of the Company
Net Profit Margin 0/% 0.06 0.04 58% Due to decrease in the production cost
Return on Net Worth 0/% 0.12 0.09 37% Due to increase in the production cost


Statement made in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations may be "Forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the markets in which the company operates changes in the government regulations, tax laws & other statutes and other incidental factors.