Vinati Organics Ltd Management Discussions.

Global Economy Overview

Following a collapse in FY20 caused by the Covid-19 pandemic, global economic output is still expected to remain below pre-pandemic projections.

The International Monetary Fund (IMF) predicts the world economy will expand 6% this year2, an update to the forecast made in January 2021 projecting a 5.5% global growth.3

Source: International Monetary Fund Indian Economy Overview
The global recovery has been incomplete and unequal and recovery paths have also been different across countries as well across sectors. There is a lot of uncertainty over how prolonged the health crisis will be as access to vaccines remains very uneven, both across advanced and emerging economies.3 The US is forecasted to be on a stronger path of recovery than before the pandemic on the back of distribution of Covid-19 vaccines and a vast stimulus package but other advanced economies are not far behind in the medium term.1 Europes two largest economies – Germany and France, both saw unexpected declines in industrial production in February 2021, suggesting that coronavirus restrictions are increasingly affecting parts of the economy that have proved resilient so far.2 The expected recovery in 2021 and beyond will depend heavily on the how the countries tackle the pandemic, which will in turn be influenced by the possibility of widespread effective vaccinationError! Bookmark not defined.. India has emerged as a leading economy in the world and its GDP has grown at an average rate of about 7% in the last two decades, despite major recessions and economic slowdowns. Similar to the global economy, the impact of the Covid-19 pandemic on the Indian economy has been severe.4 The contraction of GDP by 7.3% in FY2020-21 is much smaller than originally forecasted. India has been successful in showing signs of recovery and entered the New Year with cautious optimism. Agriculture being one of the least impacted by lockdown measure has continued to remain resilient and robust.

An anticipated recovery in global demand will also help buoy the export sector through 2021. Also, the deeper than expected downturn in 2020 explains in part the stronger recovery now projected for 2021.6 Indias growth is estimated to surpass the major economies of the world in the near term. The presence of a strong domestic market coupled with a large working population, a stable political environment, positive outlook towards reducing emissions and focus on innovation make India a promising destination for manufacturing sector.5

Global Chemicals Industry

The Global Chemical Industry is undergoing a phase of structural transformation where economic and geopolitical trends, new technologies and changing consumer demands are challenging companies bottom line and future profitability.7 There has been a decline in the growth rate of the demand for chemical products due to accelerating deglobalisation and potential regulation to curb climate change. While chemicals will remain a global industry, with China as its biggest single market, the potential decoupling of China may create challenges for global companies. U.S. and European companies have faced pressure from institutional investors and significant lenders to re-base supply chains away from Chinese operations, closer to their core markets. Downstream Industries are seeking alternative manufacturing locations to serve their Japanese, Korean and ASEAN customers. This process is predicted to accelerate as more companies begin to seek lower cost locations than China for some time.8

Chemical companies are looking to increasingly leverage remote and digital sales channels to promote a contactless environment.9 The Covid-19 pandemic resulted in development of solutions which brought forth the power of digital platform through remote working and operation of plant control systems.


Global Chemical production (excluding pharmaceuticals) is expected to grow by 4.4% (2020: -0.4%) in 2021, which is above average for the years prior to the Covid-19 pandemic. This growth will be seen predominantly in emerging markets (2021: +5.4%; 2020 +1.8%). In advanced economies, a growth rate of 2.5% (2020: -4.2%) is anticipated, which is above average for pre-crisis years. The level of production from 2019 will thus already be surpassed in 2021 in emerging markets. Overall production in advanced economies will presumably still be considerably lower.10

Covid-19 Impact:

The Chemicals Industry has been significantly impacted by the Covid-19 outbreak leading to decline in revenues of the major chemicals companies in the world.11 The dual effects of Covid-19 related economic downturn and the oil price collapse reverberated across the chemicals as well as several other industries. The advent of Covid-19 has weakened the automotive and construction sectors (along with many other sectors) and disrupted existing supply chains.12 While keeping their employees safe, management teams have spent significant time and effort to maintain supply chains, procuring necessary raw materials and dealing with a host of new regulations and practical difficulties. The Covid-19 crisis has accelerated some developments (such as digitization, flexible work arrangements, and geopolitical tensions); however, the overall strategic context in which the chemical industry operates and the fundamental trends remain unchanged.Error! Bookmark not defined.10

Indian Chemicals Industry

The Indian Chemical Industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers.15 Indias chemical industry was estimated to be worth USD 178 billion in FY20. In terms of demand, the industry has grown at approximately 1.3 times the countrys average GDP growth in the last five years and shows a strong linkage with its GDP.13 The Indian chemical sector has a network of 200 national laboratories and 1,300 research & development (R&D) centres which provide a strong base to become a hub for innovation.14


• Indias chemical industry, the 6th largest producer of chemicals in the world,15 forecasted to reach USD 300 billion by FY 2025 and potentially to contribute to Indias vision of being a USD 5 trillion economy.16

• India ranks 9th in export and 6th in import of chemicals (excluding Pharmaceuticals products) globally.15

• Export of chemicals and chemical products grew at a CAGR of 7.2% between FY16 and FY20 and demand of chemical products is expected to grow at approximately 9% per annum during 2020-25.15

• The Indian chemical industry employs more than 2 million people.15

EBITDA % of Indian Chemical Companies

Most chemical companies benefited from stable and lower feedstock prices, even as the prices of final products increased during 2HFY21, supporting margins. Indias push for self-sufficiency coupled with efforts towards supply chain diversification away from China is enabling large capital expenditure.17 large fines imposed on other non-compliant actors. The state also worked on getting its industries to adhere to strict emission standards using eco-friendly technology. This resulted in chemical companies taking a big hit on both revenue and profit levels. However, this presents Indian chemical companies with an opening to take advantage of the weakened Chinese chemicals industry and fill the ongoing vacuum caused by the slowdown in supply from China.18


• Indian Chemical industry stands at cusp of taking majority of the worlds market share, with several legal and pollution issues in China. Most Indian companies are largely compliant with emission norms after having spent significantly on eco-friendly technology. But all this spending made their products less competitive (price-wise) against Chinese products since last decade. Now with the sudden shift in supply dynamics, Indian chemical companies are turning around the corner, witnessing higher capacity utilisation levels, improvement in economies of scale and improving margins.18 By capturing sizeable share of global market away from China, Indian Chemical Industry will potentially double in size by encouraging investment through incentives and ease of doing business.19

• Focus on Research & Development can help India become a global hub in speciality chemicals. With the proper innovative spirit and birth of new creative products, there is a tremendous opportunity for India to prosper in the chemical industry space.

• Production Linked Incentives (PLI) is a good measure to motivate the industry and quickly put up investments and start commercial sales. For Make in India, to be successful, base industries like chemicals need to be incentivised. With government support on fast tracked PLI schemes, the chemicals industry can witness significant growth in the near short-term. Also, the upgradation of the PCPIRs (Petroleum, Chemicals and Petrochemicals Investment Region) can potentially facilitate better planning and incentivize investment in the regions.

• Global companies are speeding up sustainability for the chemical industry and Indian chemical companies are also understanding the need to align themselves with this goal. It presents an opportunity to the Indian Industry to adopt global best practises, with support through regulations as well as incentives.19


• The Indian Chemical Industry is forecasted to reach USD 300 billion in the next five years. For reaching this summit, the Indian chemical industry requires a focus to accelerate its production, increase its attention and budget on R&D, financial support from the government, faster environment clearances from the ministry and collaboration with foreign counterparts.20

• The chemical sector is expected to grow at 1.2x-1.3x of the GDP multiplier in FY22. Chemical producers are forecasted to generate strong cash flows from operations, given the volume uptick across end-user industries, higher realisations and stable feedstock prices.17

• Union Minister of Chemicals & Fertilizers has informed that and investments of RS 8 lac crore is anticipated in the Indian Chemicals and Petrochemicals industry (ICPI) by 2025. Also, the government has launched 12 PLI schemes for different sectors which will directly or indirectly benefit the chemicals sector.22 India has huge potential to emerge as the global manufacturing hub, and the government plans to provide world class infrastructure and logistics to make this possible.14

Covid-19 Impact:

Government imposed regulations and ordered lockdown to prevent spread of the Covid-19 virus. Shut down for essential items was lifted within 2 days but majority of labour migrated to native places resulting in labour shortage and low plant utilization levels.

Covid-19 has severely affected the Indian chemical Industry and disrupted supply chains and the demand for chemicals. Consequently, it is expected to show a downturn in FY21 while still adapting to the shock expected in Indias GDP. It has led to previously unseen large-scale disruptions. The GDP is expected to contract by 9% in FY21 owing to the Covid-19 pandemic, followed by a bounce-back with over 10% in FY22, surpassing major economies in the world.23

Specialty Chemicals Industry Overview

Specialty Chemicals are distinct chemical products finding application across several downstream industries. Built on the foundation of research and development, their application is limited, unlike commodity chemicals, which finds multiple use.24 Specialty chemicals can be single chemical entities or formulations whose composition sharply influences the performance and processing of the customers product . This gives specialty chemicals an edge, both in terms of customer loyalty and product differentiation. Most specialty chemical formulations are patent protected and not easy to replicate, which gives them better pricing and higher yields. In addition, specialty chemicals have potential to generate higher revenues and margins compared to the commodity businesses.18

Indian Specialty Chemicals Industry

Indias specialty chemicals market is expected to grow to USD 64 billion by 2025 and is the fastest growing specialty chemicals market in the world.26 Specialty chemicals account for a major share of more than 50% of chemical exports, dominated by agrochemicals, dyes and pigments.13 Specialty chemicals constitute for 22% of the total chemicals and petrochemicals market in India. Demand for specialty chemicals is expected to register 12% CAGR in 2019-2022. Specialty chemicals are seeking at import substitutions while exploring export opportunities to accelerate their business.28

The Indian Specialty chemical sector, which had witnessed healthy revenue growth in the past few years aided by growth in domestic demand as well as increasing exports, was adversely impacted in the first quarter of 2020-21 due to the Covid-19 induced lockdowns and disruptions. There was recovery in Q2 FY2021 in the specialty chemical sector driven by improvement in demand from segments like pharma, FMCG, agro-chemicals, personal care and food segments & improved export demand for specialty chemicals.27

Key Growth Drivers

• 100% FDI under the automatic route in the chemical sector, except for hazardous chemicals. Domestic and overseas companies investing in Greenfield or brownfield projects.28

• Higher disposable incomes have resulted in increased demand for ability to purchase chemical based products from the market. Along with the accelerated development of digital solutions in the last year due to the Covid-19 pandemic, procurement via online shopping has made such products way more accessible. Also, there is growing shift towards environment-friendly products which has been a major factor for changes in the industry.28

• Rise in domestic demand: by 2030, India is likely to have approximately 80% of the households in the middle income group. The growing middle class and increasing urbanisation is driving demand for personal care, agrochemicals, food, paints & coatings resulting into higher consumption of chemicals per capita.

Business Overview

Vinati Organics Limited (VOL) is a leading manufacturer of specialty chemicals and organic intermediaries with a increasing market presence spanning across 35 countries in the world. With more than three decades of experience in the industry, the Company has evolved from being a single product manufacturer to an integrated player, offering solutions to some of the largest industrial and chemical companies across US, Europe and Asia. With two state-of-the-art manufacturing units in Maharashtra, the Company is the worlds largest manufacturer of Isobutyl Benzene (IBB) and 2-Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and Indias largest manufacturer IsoButylene (IB) and Butyl Phenols.

Core Strengths

Research – Insights and expertise into complex chemistry and continued focus on research & development.

Market Leadership – The Company is a market leader in the industry segments it operates and enjoys global leadership in IBB and ATBS and domestic leadership in Butyl Phenols, IB and HPMTBE.

Product Portfolio – The product portfolio consists of niche products assuring integration and synergy in operating facilities.

Strong Collaborations – The Company has well-founded technical partnerships with renowned global and national players.

Synergies– The Company lays great emphasis on synergies which has augmented its quest for global leadership and helps to retain its competitive advantage.

Human Resources

The employees of the company are an integral part to companys business operations. The company has supported the employees at all times and are determined to provide a safe place and healthy work environment. Training, upgrading skills and developing a stellar workplace attitude are key focus areas for the development of the employees. The employees at VOL are driven by purpose and are fully empowered to excel in an evolving and dynamic business environment. It has been the continuous endeavour of the Companys Human Resources function to attract the right talent, develop the right capabilities and skills, and continuously encourage them by providing the right culture and work environment. We have one of lowest attrition rates in the industry. The company continues to attract and retain those who are qualified and experienced, who possess the competence and ability to _ourish into the leaders of tomorrow.

Risk Management

Given the nature of the Companys business and changing market dynamics, it is exposed to various risks during its daily course of operations. Some of the key risks and mitigation strategies adopted by the company is illustrated below:

1. Economic Uncertainty: The prolong demand & supply disruption due to the pandemic significantly affected the growth prospects of the Indian and global economy. The recent second wave of COVID-19 has further dampened the growth potential. This might have an adverse impact on the Companys operations.

Mitigation: The Company constantly monitors changes in the macroeconomic environment and assesses its potential impact on the companys operations. It enables the Company to quickly respond to changing market trends and safeguard its operations against uncertainty. Further, the COVID-19 outbreak has led to a temporary slowdown and the Company is proactively dealing with the situation, following safety protocols in all its manufacturing facilities to ensure smooth operations even during the countrywide lockdown. It also relies on a robust business continuity plan to enable long-term business sustainability.

2. Competition: The Company faces competition from domestic as well as international players. The Companys inability to deliver new and innovative solutions and keep up with dynamic changes in the market may lead to loss of revenues. Further, competition may also result in pricing pressure leading to an impact on its margins and profitability.

Mitigation: Over the years, Vinati has established a firm foothold in key markets and has built a strong and healthy relationship with customers. It also significantly invests towards research and development of new, improved and innovative products, aligned to changing customer needs. This has enabled the Company to further strengthen its brand reputation, giving it a competitive edge over its peers.

3. Quality: The Companys inability to abide by stringent standards of quality might adversely impact operations, leading to monetary and intangible losses.

Mitigation: Vinati has established a dedicated quality assurance department comprising of experienced and qualified executives to ensure adherence to strict quality standards. The Companys products undergo stringent quality checks and it is a ISO 9001:2015, ISO 14001:2015 and ISO 45001: 2018 certified Company, validating its position as a reliable business entity. Further, its customers can also carry out EHS audits at the Companys premises.

4. Environment: With an alarming rate of climate change and unprecedented levels of pollution, it is vital for organizations to reduce the impact of their operations on the environment. Given the nature of the companys business, it is pivotal for the Company to introduce eco-friendly products that have a minimal impact on the ecosystem.

Mitigation: The Companys R&D team constantly works towards the development of eco-friendly products for its customers across the globe. Further, it also invests in technologies to deliver unique solutions with an endeavor to promote ‘green chemistry. The Companys plants are ISO 14001 certified for its strict adherence to Environmental Management System standards.

5. Retention and acquisition of skilled employees: To ensure smooth operations and long-term sustainability, it is vital to have a dedicated and committed team in place. Unable to retain or acquire competent and experienced employees may hamper the Companys ability to pursue its growth strategies effectively.

Mitigation: The Companys HR team constantly strives to hire talented employees and aims to retain existing people with attractive opportunities for professional growth. It also organizes various training and development initiatives to upskill employees and prepares them for challenging circumstances.

Financial Review

During the year, the Total Income reduced by 9%, and the EBITDA and PAT decreased by 18% and 19% respectively. (Rs in Lacs)

Particular 2020-21 2019-20 YoY Change
(in %)
Total Income 98,011 1,07,386 -9%
EBITDA 37,838 45,893 -18%
PAT 26,934 33,382 -19%
Net Worth 1,54,341 1,27,941 21%
Key Ratios
(Rs in Lacs)
Particular 2020-21 2019-20
Total Debt Equity Ratio (X) 0.00 0.00
Current Ratio (X) 6.17 7.22
Interest Coverage Ratio (X) 3,773.53 439.30
Receivables Turnover Ratio (X) 3.98 4.62
Inventory Turnover Ratio (X) 5.36 6.43
Operating Profit Margin (%) 34% 40%
Net Profit Margin (%) 27% 31%
Net Worth (H Lacs) 154,341 127,941


In FY21, due to the pandemic and the overall global slowdown, ATBS sale was impacted but we are seeing strong uptake across geographies and across applications for ATBS in FY22. Butyl Phenols which was introduced in FY21, is expected to grow in double digits . IBB, IB derivatives and the rest other products will continue to be on the growth path in FY22.


Certain statements in the MDA section concerning future prospects may be forward-looking statements which involve a number of underlying identified / non identified risks and uncertainties that could cause actual results to differ materially. In addition to the foregoing changes in the macro-environment, global pandemic like COVID-19 may pose an unforeseen, unprecedented, unascertainable and constantly evolving risk(s), inter-alia, to the Company and the environment in which it operates. The results of these assumptions made, relying on available internal and external information, are the basis for determining certain facts and figures stated in the report. Since the factors underlying these assumptions are subject to change over time, the estimates on which they are based, are also subject to change accordingly. These forward-looking statements represent only the Companys current intentions, beliefs or expectations, and any forward-looking statement speaks only as of the date on which it was made. The Company assumes no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise.