Global economy
Overview: The global economic growth was estimated at a slower 3.2% in 2022,
compared to 6% in 2021 (which was on a smaller base of 2020 on account of the pandemic
effect).
The relatively slow global growth of 2022 was marked by the Russian invasion of
Ukraine, unprecedented inflation, pandemic-induced slowdown in China, higher interest
rates, global liquidity squeeze and quantitative tightening by the US Federal Reserve.
The challenges of 2022 translated into moderated spending, disrupted trade and
increased energy costs. Global inflation was 8.7% in 2022, among the highest in decades.
US consumer prices increased about 6.5% in 2022, the highest in four decades. The Federal
Reserve raised its benchmark interest rate to its highest in 15 years. The result is that
the world ended in 2022 concerned that the following year would be slower. The global
equities, bonds, and crypto assets reported an aggregated value drawdown of US$26 trillion
from peak, equivalent to 26% of the global gross domestic product (GDP). In 2022, there
was a concurrently unique decline in bond and equity markets; 2022 was the only year when
the S&P 500 and 10-year US treasuries delivered negative returns of more than 10%.
developments, including Chinas Gross FDI inflows equity, reinvested earnings and other
capital ? declined 8.4% to $55.3 billion in April-December.
The decline was even sharper in the case of FDI inflows as equity: these fell 15% to
$36.75 billion between April and December 2022. Global trade expanded by 2.7% in 2022
(expected to slow to 1.7% in 2023). The S&P GSCI TR(Global benchmark for commodity
performance) fell from a peak of 4,319.55 in June 2022 to 3495.76 in December 2022. There
was a decline in crude oil, natural gas, coal, lithium, lumber, cobalt, nickel and urea
realisations. Brent crude oil dropped from a peak of aroundUS$120 per barrel in June 2022
toUS$80 per barrel at the end of the calendar year following the enhanced availability of
low-cost Russian oil.
Regional growth (%) |
2022 |
2021 |
| World output |
3.2 |
6.1 |
| Advanced economies |
2.5 |
5 |
| Emerging and developing |
3.8 |
6.3 |
| economies |
|
|
Performance of major economies
United States: Reported GDP growth of 2.1% compared to 5.9% in 2021 China: GDP growth
was 3% in 2022 compared to 8.1% in 2021 United Kingdom: GDP grew by 4.1% in 2022 compared
to 7.6% in 2021 Japan: GDP grew 1.7% in 2022 compared to 1.6% in 2021 Germany: GDP grew
1.8% compared to 2.6% in 2021 [Source: PWC report, EY report, IMF data, OECD data]
Outlook
The global economy is expected to grow 2.8% in 2023, influenced by the ongoing
Russia-Ukraine conflict. Concurrently, global inflation is projected to fall marginally to
7%. Despite these challenges, there are positive elements within the global economic
landscape. The largest economies like China, the US, the European Union, India, Japan, the
UK, and South Korea are not in a recession. Approximately 70% of the global economy
demonstrates resilience, with no major financial distress observed in large emerging
economies.
The energy shock in Europe did not result in a recession, and significant departure
from its strict zero-Covid policy and the resolution of the European energy crisis,
fostered optimism for an improved global trade performance. Despite high inflation, the US
economy demonstrated robust consumer demand in 2022. Driven by these positive factors,
global inflation is likely to be still relatively high at 4.9% in 2024. Interestingly,
even as the global economy is projected to grow less than 3% for the next five years,
India and China are projected to account for half the global growth (Source: IMF).
Indian economy
Overview: Even as the global conflict remained geographically distant from India,
ripples comprised increased oil import bills, inflation, cautious government and a
sluggish equity market. Indias economic growth is estimated at 6.8% in
FY 2022-23. India emerged as the second fastest-growing G20 economy in FY 2022-23.
India overtook UK to become the fifth-largest global economy. India surpassed China to
become the worlds most populous nation (Source: IMF,
World Bank)
Growth of the Indian economy
|
FY 20 |
FY 21 |
FY 22 |
FY23E |
| Real GDP growth(%) |
3.7 |
-6.6% |
8.7 |
6.8 |
Growth of the Indian economy quarter by quarter, FY 2022-23
|
Q1FY23 |
Q2FY23 |
Q3FY23 |
Q4FY23E |
| Real GDP growth(%) |
13.1 |
6.3 |
4.4 |
4.9 |
(Source: Budget FY24; Economy Projections, RBI
projections) |
According to the India Meteorological Department, the year 2022 delivered 8% higher
rainfall over the long-period average. Due to unseasonal rains, Indias wheat harvest was
expected to fall to around 102 million metric tons (MMT) in 2022-23 from 107 MMT in the
preceding year. Rice production at 132 million metric tons (MMT) was almost at par with
the previous year. Pulses acreage grew to 31 million hectares from 28 million hectares.
Due to a renewed focus, oilseeds area increased 7.31% from 102.36 lakh hectares in 2021-22
to 109.84 lakh hectares in 2022-23.
Till the end of Q3FY23, total gross non-performing assets (NPAs) of the banking system
fell to 4.5% from 6.5% a year ago. Gross NPA for FY23 was expected to be 4.2% and a
further drop is predicted to 3.8% in FY2023-24.
As Indias domestic demand remained steady amidst a global slowdown, import growth in
FY23 was estimated at
16.5% to $714 billion as against $613 billion in FY22. Indias merchandise exports were
up 6% to $447 billion in FY23.
Indias total exports (merchandise and services) in FY23 grew
14 percent to a record of $775 billion in FY23 and is expected to touch $900 billion in
FY24. Till Q3 FY23, Indias current account deficit, a crucial indicator of the countrys
balance of payments position, decreased to $18.2 billion, or 2.2% of
GDP. Indias fiscaldeficit was estimated in nominal terms at
~ Rs 17.55 lakh crore and 6.4% of GDP for the year ending March 31, 2023. (Source:
Ministry of Trade & Commerce)
Indias headline foreign direct investment (FDI) numbers rose from US$74.01 billion in
2021 to a record $84.8 billion in 2021-22, a 14% Y-o-Y increase, till Q3FY23. India
recorded a robust $36.75 billion of FDI. In 2022-23, the government was estimated to have
addressed 77% of its disinvestment target (Rs 50,000 crore against a target of Rs 65,000
crore).
Indias foreign exchange reserves, which had witnessed three consecutive years of
growth, experienced a decline of approximately $70 billion in 2022, primarily influenced
by rising inflation and interest rates. Starting from $606.47 billion on April 1, 2022,
reserves decreased to $578.44 billion by March 31, 2023. The Indian currency also weakened
during this period, with the exchange rate weakening from Rs. 75.91 to a US dollar to Rs.
82.34 by March 31, 2023, driven by a stronger dollar and increasing current account
deficit.
Despite these factors, India continued to attract investable capital.
The countrys retail inflation, measured by the consumer price index (CPI), eased to
5.66% in March 2023. Inflation data on the Wholesale Price Index, WPI (calculates the
overall price of goods before retail) eased to 1.3% during the period. In 2022, CPI hit
its highest of 7.79% in April; WPI reached its highest of 15.88% in May 2022. By the close
of the year under review, inflation had begun trending down and in April
2023 declined below 5%, its lowest in months.
Indias total industrial output for FY23, as measured by the
Index of Industrial Production or IIP, grew 5.1% year-on-year as against a growth of
11.4 percent in 2021-22.
India moved up in the Ease of Doing Business (EoDB) rankings from 100th in
2017 to 63rd in 2022. As of March 2023, Indias unemployment rate was 7.8
percent.
In 2022-23, total receipts (other than borrowings) were estimated at 6.5% higher than
the Budget estimates. Tax-GDP ratio was estimated to have improved by 11.1 percent Y-o-Y
in RE 2022-23.
The total gross collection for FY23 was Rs 18.10 lakh crore, an average of Rs 1.51 lakh
a month and up 22% from FY22,
Indias monthly goods and services tax (GST) collections hit the second highest ever in
March 2023 to Rs. 1.6 lakh crore. For 2022?23, the government collected Rs 16.61 lakh
crore in direct taxes, according to data from the Finance Ministry. This amount was 17.6
percent more than what was collected inthepreviousfiscal
Per capita income almost doubled in nine years to Rs 172,000 during the year under
review, a rise of 15.8 percent over the previous year. Indias GDP per capita was 2,320US$
(March 2023),closetothemagicfigureof $2500 when consumption spikes across countries.
Despite headline inflation, private consumption in India witnessed continued momentum and
was estimated to have grown 7.3 percent in 2022-23. Outlook: There are green shoots of
economic revival, marked by an increase in rural growth during the last quarter and
appreciable decline in consumer price index inflation to less than 5 percent in April
2023. India is expected to grow around 6-6.5 percent (as per various sources) in FY2024,
catalysed in no small measure by the governments 35% capital expenditure growth by the
government. The growth could also be driven by broad-based credit expansion, better
capacity utilisationandimprovingtradedeficit. Headline and core inflation could trend
down. Private sector investments could revive. What provides optimism is that even as the
global structural shifts are creating a wider berth for Indias exports, the country is
making its largest infrastructure investment. This unprecedented investment is expected to
translate into a robust building block that, going ahead, moderates logistics costs,
facilitates a quicker transfer of products and empowers the country to become increasingly
competitive. This can benefit Indias exports in general, benefiting several sectors. The
construction of national highways in 2022-23 was 10,993 kilometres; the Ministry of Road
Transport and Highways awarded highway contracts of
12,375 km in the last financial year (Source: IMF).
The global landscape favours India: Europe is moving towards a probable recession, the
US economy is slowing, Chinas GDP growth forecast of 4.4% is less than Indias GDP
estimate
6.8% and America and Europe are experiencing its highest inflation in 40 years.
Indias production-linked incentive appears to catalyse the downstream sectors.
Inflation is steady. India is at the cusp of making significant and other sectors and
emerging as a suitable industrial supplement to China. India is poised to outpace Germany
and Japan and emerge as the third-largest economy by the end of the decade. The outlook
for private business investment remains positive despite an increase in interest rates.
India is less exposed to Chinese economic weakness, with much less direct trade with China
than many Asian peers.
Broad-based credit growth, improving capacity utilisation, governments thrust on
capital spending and infrastructure should bolster investment activity. According to our
surveys, manufacturing, services and infrastructure sector firms are optimistic about the
business outlook. The downside risks are protracted geopolitical tensions, tightening
global financial conditions, and slowing external demand.
Specialty chemicals industry of India
The Indian specialty chemicals industry has experienced significant sector. Currently,
it accounts for 22 percent of Indias overall chemicals and petrochemicals market, with a
total value ofUS$32 billion. It is projected that by 2025, the industry will reach a
valuation ofUS$64 billion, representing a CAGR of 12.4 percent.
Among the various segments in the Indian manufacturing sector, the specialty chemicals
segment has demonstrated remarkable growth, emerging as one of the fastest-growing
segments. This expansion can be credited to multiple factors, including a surge in demand
from diverse end-user sectors, favorable government policies, a growing domestic customer
base and shifts in consumer lifestyles, among other influential factors.
In the global market, Indias specialty chemicals sector currently holds a market share
of approximately 4%, whereas
China dominates with a share of 26%. However, Indias specialty chemicals industry is
expected to experience rapid growth, surpassing the growth rates of China, Japan and the
rest of the world in terms of percentages. Projections indicate that by 2026, Indias
market share is predicted to increase from 4% to 6%, primarily driven by strong revenue
growth of 15-20% during FY2023. (Source: KPMG) The market size of chemicals and
petrochemicals sector in India is around $178 Bn in 2022 and expected to grow to $300 Bn
by 2025.
The agrochemicals market in India is presently valued at $5.5 billion, with a compound
annual growth rate (CAGR) of
8.3%. This market segment is projected to be a significant contributor to Indias
overall chemicals exports, accounting for nearly 40% by 2040.
The fertilizer market in India is poised to witness significant growth, with a CAGR of
4.7% between 2023 and 2028. This growth is expected to propel the market to a value
ofUS$1160.18 billion by 2028. The increasing demand for food production and the need for
improved agricultural processes are the key drivers behind this growth. The construction
chemical market of India is valued at US$
1,617.8 million in 2023 and is projected to grow at a CAGR of
13.1% to reach US$ 5,541.8 by 2023.
(Source: KPMG, futuremarketinsights.com)
Prospects in the specialty chemical industry
Increasing disposable income, median age of the population, urbanization and expanding
reach and demand in rural markets.
Transition in consumer preferences towards a more health-conscious lifestyle and
sustainable, eco-friendly products.
Potential to manufacture chemical products worth $111 billion by 2023 to cater to
domestic demand.
Growth drivers
Rising consumption: The consumer electronics and appliances market in India is
projected to reachUS$160.03 billion by 2027, exhibiting a robust CAGR of 12.78% during the
period of 2023-2027. The production of air conditioners and refrigerators is expected to
double during this period.
Research and Development: Specialty chemical companies are expanding their
production value chain through increased investments in research and development
(R&D). In addition, they are leveraging their R&D capabilities by offering
contract research and manufacturing services, which could potentially boost their margins.
Changing consumer preferences: India stands to benefit from the increasing
global demand for environmentally friendly products, as it is a prominent producer of
various chemicals used in such products.
Domestic availability: Indias specialty chemical companies, catering to the
growing demand for petrochemical intermediates, often rely on imports of such
intermediates due to the diversion of ethylene and propylene for their manufacturing
processes.
Young population: More than 50% of Indias current population is below the age
of 25 and over 65% below the age of 35. The median age of the country is 28.4 years, an
economically productive age compared to the global average of 30 years
Increased production: Potential to manufacture chemical products valued at $111
billion by 2023 to meet domestic demand
(Source: Mckinsey, Invest India)
Government initiatives
The Indian government acknowledges the chemical industry as a crucial driver of
economic growth and aims to raise the sectors contribution to approximately 25% of the
manufacturing sectors GDP by 2025.
Under the Union Budget 2023-24, the government allocated Rs. 173.45 crore (US$ 20.93
million) to the Department of Chemicals and Petrochemicals.
PLI schemes have been introduced to promote Bulk Drug Parks, with a budget of Rs. 1,629
crore (US$ 213.81 million).
The Government of India is considering launching a production linked incentive (PLI)
scheme in the chemical sector to boost domestic manufacturing and exports.
The Indian government has established a visionary plan for the chemicals and
petrochemicals sector, with a target set for 2034. This plan aims to capitalize on
opportunities to enhance domestic production, minimize imports, and attract investments in
the sector. As part of this vision, the government intends to implement a production-link
incentive system that offers output incentives of 10-20% for the agrochemical sector
100% FDI is allowed under the automatic route in the chemicals sector with few
exceptions that include hazardous chemicals. FDI inflows in the chemicals sector (other
than fertilisers) reached US$ 20.41 billion between April 2000-June 2022.
Under the new PCPIR Policy 2020-35, a combined investment of Rs. 10 lakh crore (US$ 142
billion) is targeted by 2025, Rs. 15 lakh crore (US$ 213 billion) by 2030 and Rs. 20 lakh
crore (US$ 284 billion) by 2035 in all PCPIRs across the country. The four PCPIRs are
expected to generate employment for ~33.83 lakh people.
(Source: IBEF)
Opportunities and threats
Opportunities
As urbanization in India continues, there is a growing surge in the demand for personal
care products, paints, packaged food, textiles, adhesives and construction chemicals.
The possibility of multinational companies shifting their operations from China to
India has the potential to serve as a substantial catalyst for the growth of Indias
chemicals sector.
The chemical industry in the country is anticipated to flourish due to increasing
demand for chemicals in the agricultural and pharmaceutical domains.
The Indian government has granted permission for 100 percent Foreign Direct Investment
(FDI) in the chemicals sector through the automatic route, with the exception of hazardous
chemicals.
Threats
The chemical industry is constantly evolving to meet the demands of end-users, posing
challenges for businesses in terms of customer retention.
The presence of lower-priced imports poses a threat to local manufacturers and impacts
domestic output.
The chemical industry is subject to stringent regulations and environmental standards
due to the hazardous nature of its production processes.
Company overview
With over thirty years of experience, Valiant (referred to as
‘the Company) has established itself as a prominent producer of specialty
chemicals in India. Leveraging extensive industry expertise and in-depth domain knowledge,
the Company manufactures and supplies specialty chemicals to both local and international
markets. Its specialized chemicals find applications in various industries such as
agrochemicals, pharmaceuticals, dyes and pigments. Valiant Organics
Limiteds commitment to product quality enables it to export to Asia, Europe and the
United States, alongside its domestic sales in India.
Manufacturing capacity
The company excels in manufacturing high-quality specialty chemicals across six
integrated production sites located in
Gujarat and Maharashtra. These facilities are strategically designed to cater to a
diverse range of processes, as outlined below:
Manufacturing facilities |
Process |
| Sarigam |
Chlorination |
| Tarapur |
Ammonolysis |
| Vapi |
Ammonolysis |
Jhagadia (Units 1 & 2) |
Hydrogenation, Hydrogenation with condensation, Methoxylation |
| Ahmedabad |
Sulphonation and Acetylation |
Revenue break-up Regional growth (%) |
FY 2022-23 |
FY 2021-22 |
| Domestic |
94% |
94% |
| Exports |
6% |
6% |
With a history of over thirty years, the Company is which comprises renowned companies
like Aarti Surfactants, Aarti Industries and Aarti Drugs. The organization specializes in
various chemical processes, including acetylation, hydrogenation, ammonolysis,
chlorination, methoxylation and several others. This broad expertise within the
organization enables it to deliver exceptional quality and cater to diverse chemical
requirements.
Our core product portfolio comprises a range of essential chemicals such as Para
Chlorophenol, Ortho Chlorophenol,
2, 4 Di Chlorophenol, Para Nitro Aniline, Ortho Anisidine, Para Anisidine, Para Amino
Phenol and more. These products form the cornerstone of our offerings and cater to diverse
industry requirements.
Our products have diverse applications across industries such as pharmaceuticals, dyes
and pigments and agrochemicals. The company focuses on niche markets as part of its
strategic approach. We export to Asia, Europe and the USA, in addition to serving the
entire Indian market. Our success is attributed to a highly skilled and experienced
workforce.
Financial performance
The Companys revenue from operations during FY2022- 23 stood at Rs. 91,161.80 lakhs
compared to Rs. 94,844.73 lakhs in FY 2021-22, registering a decrease of 3.88% y-o-y. The
EBITDA of Valiant Organics Limited stood at Rs. 13,291.22 lakhs in FY 2022-23 compared to
Rs. 17,059.79 lakhs in
FY 2021-22, a y-o-y decrease of 22.09%. Further, its profit after tax stood at Rs.
7557.99 lakhs in FY 2022-23 compared to Rs. 10,293.82 lakhs in FY 2021-22, a 26.58% y-o-y
decrease. Its debt-equity ratio stood at 0.32x in FY 2022-23 compared to 0.47x in FY
2021-22.
Indicative revenue break-up as per end-user
industry
2021-22 |
FY 2022-23 |
FY 2021-22 |
| Dyes and pigments |
41% |
29% |
| Pharmaceuticals |
31% |
17% |
| Agrochemicals |
25% |
40% |
| Speciality chemicals |
3% |
14% |
Key financial ratios
Particulars |
FY 2022-23 |
FY 2021-22 |
Y-o-Y change |
Explanations |
Current ratio |
1.05 |
1.25 |
-16.11% |
Current Assets decreased more than Current Liabilities. Current Assets
decreased on account of Trade Receivables & Cash & Equivalents while Current
Liabilities decreased on account of short term borrowings |
Net debt-to-equity |
0.32 |
0.47 |
-31.66% |
Borrowings decreased on account of repayments and dependency on short
term funding |
Particulars |
FY 2022-23 |
FY 2021-22 |
Y-o-Y change |
Explanations |
| Return on equity |
11.91% |
18.62% |
-36.05% |
Profits |
|
|
|
|
in dyes & pigments industry, price correction across products and
the fire incident; while Average Total Equity also increased compared to the previous year |
Net profit ratio |
8.29% |
10.85% |
-23.59% |
Profits decreased more than revenue with increases mainly in Employee
Expenses, Finance Cost, Depreciation and Other Expenses. |
Environment, social and Governance
The Company is committed to incorporating health, safety, environmental, social and
governance principles into its business operations. The Company recognizes the potential
for sustainable growth and value creation through ethical behavior and strong governance.
The Company prioritizes people-centricity by striving to align its environmental, health,
and safety practices with international standards. In terms of health and safety,
proactive measures are implemented to safeguard the wellbeing of employees and contractual
workers. The Company aims to create a positive environment for its workforce by focusing
on employee satisfaction, respect for human rights, talent management, skills development
and multiple engagement initiatives. Safety managers work proactively at all facilities to
ensure healthy and safe work environment.
The Company also actively participates in CSR projects that help the areas and
communities where it operates. Various social facets demonstrate our dedication to
employee/ worker welfare and community development.
The Company focuses on environmental sustainability by reducing hazardous waste,
conserving water, enhancing energy efficiency, and optimising natural resource use, which
in-turn reduces its carbon footprint. It has Zero Liquid
Discharge units at majority of its manufacturing facilities in order to reduce waste.
Furthermore, we have taken proactive steps through a captive renewable energy plant, which
will not only help in cost moderation but also contribute to reducing carbon footprint.
The Company believes that the best governance and disclosure practices can create a
strong foundation for sustainable growth and success. This is achieved by making
accountability and responsibility cornerstones of companys governance structure. The
company is governed by a thorough set of policies that have been put in place. It
maintains a robust governance system that makes sure the best interests of all
stakeholders are maintained by adhering to these policies.
Risk management
As a sector driven by knowledge-intensive operations, the Company faces the risk of
adverse impacts due to a lack of innovation. The Company also encounters risks associated
with the volatility of crude prices and foreign currency exchange rates on an annual
basis. Additionally, the dominant position of China in the chemical manufacturing sector
remains a persistent threat, increasing the risk of cheaper imports.
Internal control systems
The Company has implemented a robust internal control framework that encompasses
governance, compliance, audit, control and reporting aspects. These internal controls are
instrumental in ensuring adherence to regulatory requirements, preventing fraud,
safeguarding finances and ensuring the reliability of financial reporting. The Companys
internal audit team conducts regular audits of the internal control systems and
communicates their findings to the management. Prompt corrective and mitigating measures
are initiated by the management based on these findings to ensure the accuracy and
effectiveness of internal controls
Cautionary statement
The Management Discussion and Analysis contains statements describing the Companys
objectives, projections, estimates and expectations, which may be forward-looking in
nature. These statements are made within the meaning of applicable laws and regulations
and are based on informed judgements and estimates. There cannot be any guarantee of
previous performance continuity as future performance also involves risks and
uncertainties. These may include but are not limited to the general market, macroeconomics
interest rate movements, competitive pressures, technological and legislative developments
and other key factors that may affect the Companys business and financial performance.
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