Tanfac Industries Ltd Management Discussions.


( Rs in Crores)

Particulars Financial Year Financial Year
2019 - 20 2018 – 19
Sales 164.80 221.71
Other Income (including operating income) 1.16 0.94
Operating Expenditure 138.86 169.96
Profit before Depreciation, Finance Cost and Taxation (PBDIT) 27.10 52.69
Finance Cost 0.84 3.04
Depreciation/Impairment/Amortisation 4.64 8.02
Profit before Tax (PBT) 21.62 41.63
Current Tax / Deferred Tax 4.65 5.66
Profit after Tax (PAT) 16.97 35.97
Other Comprehensive Income / (Loss) 0.31 0.10
Total Comprehensive Income 17.28 36.07


After strong growth in 2017 & first half of 2018, Global Economy slowed down in second half of 2018 to 3.2%. It further shrank to 2.9% compared to 3.6% during 2018. Chief contributors for the slow down in growth are: increase in trade tensions and tariff hikes between China and United States, slowdown of manufacturing sector, global financial crisis leading to decline in business confidence, Brexit and higher policy uncertainties across many economies. As a result of these, global trade grew only by 0.9% compared to greater than 3% during earlier years. Global lockdowns due to COVID-19 Pandemic across the world is expected to significantly impact the growth during 2020. Emerging markets and low income nations across Latin America and most of Asian regions face high risk due to weaker systems and higher population density. (source: World Economic Outlook, Mar-Apr19 - imf.org).


Indian economy faced reduction in consumer spend and resulting in decline in GDP growth during 2019. Compared to 6.2% in 2018-19, GDP rate for 2019-20 is estimated at 4.1%, manufacturing growth rate declining to 2%, a 15 year low. Slow down in economy rate and spurt in inflation resulted in sharp depreciation of Indian Rupee. Retail inflation climbed to 7% in 2019. At the fag end of the financial year 2019-20, nationwide lockdown due to COVID-19 affected Supply Chain, particularly freight traffic and consumer spending affecting growth and sentiment despite large stimulus announced by the Government of India.

Principal developments during the year are the Corporate Tax relief announced by the Governemnt of India, slashing the rate to 22% from 25% bringing Indias tax rate closer to global average, banking reforms like announcement of merger of public sector banks, stimulus packages to kickstart the economy post lockdown due to COVID-19 and continued emphasis on ‘Make-in India initiative. As part of encouraging new startups under ‘Make-in India initiative, Government of India announced new tax rate of 15% for new domestic manufacturing companies. (source: IMFs Economic Survey)


Chemical companies across the world face the formidable challenge of delivering profitable growth in a hypercompetitive low growth world. According to Excellence in Chemical Logistics report, supply chain is an opportunity to deliver significant value. Added to this, due to recent serious accidents in some chemical industries, there has been increased emphasis on strengthening safety and sustainability across chemical manufacturing facilities.

The recent chemical logistics survey report showed chemical executives anticipating disruptive change on the horizon. They recognise the need for supply chain transformation, Mergers and Acquisitions (M&A) and driving sustainable growth are top business concerns whereas, in the supply chain, visibility, sustainability and transparency are the top priorities. (source: manufacturingchemist.com & PWC Research publication) Global Fluorochemical market increased to 4 million tonnes in 2019 (US$ 25 billion). Asia Pacific accounted for the largest share of the global market. The growing industrialisation in emerging economies like China, India and South East Asian countries is likely to increase demand for refrigerants. The global Fluorochemicals market is pegged to grow at a CAGR of 4.2% to 5 million tonnes and USD 35 billion by 2025. The rapidly growing demand of air-conditioning and refrigeration systems in the domestic and industrial sectors is expected to drive the growth for fluorochemicals. Global commercial refrigeration market may exceed to USD 65 billion by 2024. Growth in departmental stores, hypermarkets, supermarkets has led to rise in need for proper storage facilities of perishable food products which is likely to contribute toward market growth. However, attribution of fluorochemicals to the degradation of ozone layer in some countries is expected to restrict the growth and also result in increasing compliance cost impacting industry profitability and price trend of fluorochemicals. (sources: globalnewswire, GM insights and Business Wire, Ken Research) China is one of the largest Fluorine producing and consuming countries in the world. The environmental protection drive started during 2016 had further intensified during 2019 and Fluorspar prices reached new highs during the year. China further deepened regulatory investigations to enhance production safety and significantly reduce environment pollution. (sources: 100ppi. com; Business Wire, Ken Research) In India the market growth is driven by downstream sectors like Automobile, Air Conditioning, Refrigeration, Construction Cold Storage and Pharma / Life Science segments. Life Science segment has emerged one of the key drivers over the years. India is expected to become 4th largest chemical producer in the world by 2030, benefitting from rising export opportunities, stability of prices, faster end user industry growth and low penetration of specialty chemicals. (source: economic times, economist)


During the year under review, the Company had registered good performance despite the absence of the tail winds that helped the Company to register its all-time high performance both in terms of Revenue and Profitability during the last year. The Companys sales performance had decreased by 26% due to reduction in sale & price of Sulphuric Acid. This was partially compensated by higher sales realization in HF Acid due to continuous focus on niche / value added segments and also successfully passing through the increase in raw material price.

Though profitability had significantly reduced compared to previous year due to absence of the benefits from the spurt in Sulphuric Acid prices during last year following sudden change in market dynamics and demand-supply gap, the Company was able to post good result due to optimization of process and product / customer mix. The ongoing initiatives taken by the company during the last few years have resulted in significant improvement in the operational performance of the company:

• Recalibrated business strategy by diversifying to niche product & segments.

• Continuous focus on downstream Specialty Fluories / VAPs. Strongly positioned in a niche segment of DHF as a prime mover. Continuous focus on downstream Specialty Fluorides / VAPs.

• Continuous focus on process optimization and cost reduction.

• Man power optimization.

• Alternate global sourcing of Fluorspar to reduce dependency on China.

• Long term tie up with a key refinery for supply of Molten Sulphur with a win-win deal.

• Negotiation with key raw material suppliers for reduction in prices compared to international price.

• Thrust on Working Capital and Cash Management. Judicious use of cash flow from operations to reduce debt.


The Company operates in a single segment i.e., Fluoro-chemicals in India and all other activities revolve around the same. Hence, segment-wise or product-wise performance is not applicable.


Sales Turnover was lower by 26%, at 164.80 crores, against 221.71 crores in the previous year.

Export turnover was lower by 31% at 13.94 crores against 20.15 crores in the previous year.


Profit before Depreciation, Finance Cost and Taxation had decreased by 49% at 27.10 Crores during the year, compared to 52.69 Crores in the corresponding period of the previous year. The significant reduction in profitability was due to absence of tail winds that had benefitted the Company during the previous year. However, various measures taken by the company as explained above has resulted in the continuous improvement in the operational margins.


Depreciation during the year was 4.64 Crores as against 8.02 Crores (including impairment provision of 3.24 Crores) in the previous year.


Finance cost, including forex cover charges on foreign exchange borrowings was reduced to 0.84 Crores from 3.04 Crores in the previous year due to continued focus on working capital management, repayment of debts by using operating cash flows generated, reduction in interest rate and other finance cost optimization. The company has achieved debt free status during the financial year.

The Company does not accept any fixed deposits from the public falling under Section 73 of the Companies Act, 2013 ("the Act") and the Companies (Acceptance of Deposits) Rules, 2014.


On the back of improved operating performances during the last few years and stronger Balance Sheet, ICRA and Acuite Ratings have reaffirmed the credit rating of ICRA BBB+ (Stable) and ACUITE BBB+ (Stable) for Long Term and ICRA A2 and ACUITE A2 for Short Term respectively.


In line with increased profitability, the Company has accounted for tax provision of 5.60 crores (previous year Nil, net of MAT Credit Entitelement of 7.22 crores). During the year the Company has reversed Deferred Tax provision of 0.95 crores (previous year provision of 5.66 crores).


Other Comprehensive Income / (Expenses) was 0.31 crores during the year against 0.10 crores during previous year. Please refer to the Notes to the Financial Statement for further details.


Total comprehensive Income for the year was lower at 17.28 crores during the year against 36.07 crores during previous year.


With the help of good performances during the year, the Companys Other Equity had increased to 55.22 crores from 38.05 crores at the end of previous financial year. Please refer to the Statement of Equity and Notes to the Financial Statement for further details.


Cash from operations was lower compared to previous year due to reduction in profitability.


Total borrowings have reduced further by 5.83 crores to 0.40 crores from 6.23 crores in previous year. Company had judiciously used its operational cash flow generated to reduce the debt.


The Company has constituted a Risk Management Committee consisting of senior employees. The company defined the roles and responsibilities of the committee and laid down the procedure to assess the risk and minimization procedures. The risk management includes identifying types of risks and its assessment, risk handling and monitoring and reporting.

The details of risk management process, assessment and identification and mitigation action plan prepared in line with The Companies Act, 2013, were reviewed by the Audit Committee and the Board of Directors of the Company on a quarterly basis.

The Internal control systems of the Company comprising of policies and procedures adopted to ensure the orderly and efficient conduct of its business, including adherence to the Companys Policies, the safeguarding of its assets, the accuracy and completeness of the accounting records and the timely preparation of reliable financial information.


(a) Your Companys most significant exposure relates to the US Dollar, since the prices of key raw materials - Fluorspar and Sulphur are impacted by the movement of US Dollar. Fluorspar is imported. High dependence on China for Fluorspar which is promoting export of more value-added products puts pressure on the availability and margins Mitigation: The Company has expanded vendor base of Chinese origin. The company has also developed sources from other geographies and expanded relationship to reduce dependency on Chinese origin. The company is continuously exploring other options.

(b) Volatility in HF Demand for conventional application and downward trend in end users segment.

Mitigation: Focus on specialty grade HF and specialty Fluorides. Retain existing customers through competitive pricing. Expand market of HF in Asia Pacific markets and increase export volumes.

(c) Drop in Sulphuric Acid price and volatility in Sulphur price Mitigation: Work on alternate downstream products. Reduce cost of production through process improvement.

STATUTORY COMPLIANCE RISK: Non-compliances under applicable acts, rules and regulations may cause operational risk to the Company.

Mitigation: The Company has made Standard Operating Procedure for compliance under various acts, rules and regulations to ensure zero non-compliance.

ECONOMIC RISK: Economic slowdown particularly due to COVID – 19 lockdown and disruption may affect the performance of the company resulting in downward trend in sales volume and growth.

Mitigation: The Company is continuously focussing on introducing value added products in line with market demand. Company also has made a comprehensive Business Continuity Plan (BCP) which focuses on cost and cash optimization. The BCP is being monitored continuously as the situation evolves.

ATTRITION RISK: Employee attrition may affect the day to day operations / performance of the Company.

Mitigation: To retain talent, the Company has instituted suitable reward mechanism and provide additional specialised training to its employees.

New ideas / kaizen given by its employees are well appreciated and given suitable rewards.


The prices of key of raw materials are influenced significantly by fluctuating global economic conditions, and this significantly impacts the Companys margins and cash flows.

Mitigation: The Company has a well-defined Hedging Policy and hedges its net foreign exchange risk adequately as per its hedging policy.


Excess credit facility to customers particularly aftermath of COVID-19 pandemic and higher inventory may affect the Companys overall performance.

Mitigation: By reviewing the credit policy and credit limits of customers, the credit limit facility is managed prudently. Inventory and advances are continuously monitored and maintained at the ideal level. Collections from customers are being monitored everyday by the senior management post lockdown.

Your Board of Directors is optimistic about the continued improvement in the operational performance of the company in the coming years.


Your Company endeavours continuously to increase export revenues by expanding its customer base in new countries. Your Company is optimistic of further improving the exports in the coming years.


Though there are challenges like increased competition and closure of business by some key customers, your Company is optimistic of maintaining its domestic market in 2020- 21.


The employees of your Company are the pillars of its success and growth. Your Company believes in creating an environment where individuals can achieve their goals, both professional and personal. Developing the competencies of our employees continues to be a strategic focus area for us. Your Company continues to make investments for training and developing its employees, emphasize enhancing the relevance and effectiveness of learning. Employees are proud to be part of your Company and are engaged to deliver high performance. Employees have also played voluntary role in community & social works. Your Companys Employee Engagement Score reflects high engagement and pride in being part of the organization. Your Companys employees take pride in actively participating in all the group level competitions organized by the Aditya Birla Group.

The Company continues to maintain a cordial and harmonious industrial relationship with its employees. Presently, the Company has 144 permanent employees as on 31st March, 2020.