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MANAGEMENT DISCUSSION AND ANALYSIS
Global Economy
The global economy remains on track for a gradual recovery, after being affected by the
Covid-19 pandemic. While advanced economies are expected to have a pronounced slowdown in
growth, the resilience shown by Asia is a positive sign for global trade and logistics.
With the supply chain disruptions subsequently easing and the inflationary trends in
energy subsiding through the second half of 2022-23, it is expected to create a better
equilibrium between demand and supply. This will have an overall positive impact on the
global economy in the years to come.
Inflation has proven to be stickier than expected, with core inflation still peaking in
many countries. Global inflation is set to decrease, although more slowly than initially
anticipated, from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 2024. This is aided by the fact
that most of the central banks are implementing a massive and synchronised tightening of
monetary policy, with the objective of slowing down the inflation to move back towards its
targets. In addition, strong labour markets in most advanced economies suggest
stronger-than-expected aggregate demand that may require monetary policy to tighten
further or to stay tighter for longer than anticipated.
The rising interest rates globally were expected to spiral the world into a tip of
recession but the global economy has shown tremendous resilience to avoid that scenario.
Though, it meant that practically every country had to deal with weaker currencies, not
necessarily boosting the exports. Quality and consistency has been the priorities of
global trade in the post-Covid-19 pandemic era.
Global Economic Growth (% Change)
According to the International Monetary Fund (IMF), global growth was estimated to slow
down from 3.4% in 2022 to 2.8% in 2023. While the global economic outlook for advanced
economies is expected to experience a significant decline in growth reducing from 2.7% in
2022 to 1.3% in 2023, the developing economies are expected to maintain their pace of
robust growth. The sluggish economic forecast of advanced economies can be attributed to a
higher base of GDP, the tight policy stances taken to combat inflation and the increasing
fragmentation in geoeconomics. For emerging markets and developing economies, the economic
prospects are generally stronger than those of advanced economies, although the growth
prospects vary significantly across different regions. The average growth rate is expected
to be 3.9% in 2023, with a projected increase to 4.2% in 2024.
Outlook
It is positive to see that energy prices have cooled with Brent crude trending at less
than USD 100 a barrel. The inflation seems to have peaked and the trajectory of growth is
expected to improve steadily. There is a widespread expectation of decrease in medium-term
growth estimates due to the high- base effect. The natural convergence of previously
fast-growing economies and advancing developing economies is expected to bridge the gap
and bring economies closer to each other.
(Source: World Economic Outlook, April 2023: A Rocky Recovery (imf.org)
Indian economy
Indias consistent demonstration of growth and resilience has made it a powerhouse of
an economy with a place of its own in the world post-Covid-19 pandemic. India has risen
from the tenth to the fifth-largest economy in the world over the past decade. This
economic success is largely attributed to key reforms including liberalisation, investment
in infrastructure and improved access to finance for small and medium-sized enterprises.
Despite challenges posed by the global environment, India has been the fastest-growing
major economy for the past three years.
The Indian economy has demonstrated complete recovery in 2021-22, ahead of many other
nations, positioning it to return to its pre-Covid-19 pandemic growth trajectory in
2022-23. Despite the challenges posed by inflation, India has demonstrated resilience.
Economists worldwide project that India will be the fastest-growing major economy with a
growth rate of 6.9% in 2022-23, a testament to the strength of the Indian economy. Indias
overall export in 2022-23 rose by 14% standing at USD 775.87 Bn and almost USD 100 Bn more
than last year on an absolute basis. This has resulted in higher production activity and
capacity utilisation across various sectors.
Outlook
The Economic Survey released by the Central Government, projects a baseline GDP growth
for India in 2023-24. Indias growth prospects have an upside due to several factors. The
recent surge of post-Covid-19 pandemic in certain developing economies has not caused
significant health or economic disruptions in the rest of the world, resulting in the
continued normalisation of supply chains. A stable domestic inflation rate below 6%,
coupled with improved investor sentiment is expected to stimulate private sector
investments and domestic consumption.
Industry Overview
Indian Chemical Industry Overview
Indias chemical industry demand has impressed the world in the past decade, making it
a global outperformed As a result, India is expected to play a more dominant role in both
consumption and manufacturing in the global arena. With changing geopolitical scenarios,
many countries have shifted their focus to domestic self-sufficiency and localised supply
chains. India has a strong starting point in terms of manufacturing competitiveness when
compared to other major global chemical clusters, which could position India as the
preferred destination for the procurement of chemicals.
The thriving chemical industry is expected to grow at 1112% during 2021-27 and 7-10%
during 2027-40 tripling its global market share by 2040 creating an additional USD 700 Bn
market value, over and above the current contribution of USD 170-180 Bn as of 2021.
Indias impressive standing in the global chemical industry serves as a testament to its
strong fundamentals. Currently, it ranks 12th in the world for chemical exports
and 5th for chemical imports.
Source - India: The next chemicals manufacturing hub by McKinsey & Company, March
2023
Indias exports of chemicals was USD 36.6 Bn in 2020, whereas its imports stood at USD
53.1 Bn in 2020.
The countrys share in the world exports and imports of chemicals hovered at 2.4% and
3.4%, respectively, in 2020.
Source - Care Edge Research: India-Inorganic Chemical Industry, March 2023
Global Chemical Industry Overview
The global chemicals sales recorded USD 4,307 Bn in 2021 from USD 3,739 Bn in 2020 ,
with a CAGR of 4.1% and is estimated to grow by 5% to 6% through 2027. This growth will be
largely driven by developing markets like the Asia-Pacific region (APAC), which are likely
to achieve a higher CAGR of around 7%-8%. In comparison, the growth in more matured
markets, such as the US and Europe is expected to be around 2%-4%.
Sales from 10 countries accounted for a significant share of 86.6%, representing USD
3,434 Bn of sales during 2021. Sales from rest of the world contributed to 13.4% of the
Total sales in CY21. China stands out as the world leader in chemical sales, with a
commanding 40.2% share of the market, amounting to a staggering USD 1,850 Bn.
It is followed by Europe (comprising 27 nations), the US, Japan, and South Korea.
India, on the other hand, secured the sixth position with a notable contribution of USD
111 Bn, accounting for 2.4% of the global chemical sales.
Indian Speciality Chemical Industry Overview
The Indian specialty chemicals industry has experienced remarkable growth in the recent
past. This expansion can be attributed to the increased demand from many end- user
sectors, favourable Government policies, a growing domestic customer base, and
premiumisation in consumer lifestyles, among other factors.
In terms of trade, speciality chemicals hold substantial weight, accounting for over
50% of chemical exports from India. Moreover, it is one of the fastest-growing segments in
the countrys manufacturing sector.
Indian Speciality Chemicals Industry Size (usd Bn)
indian inorganic Chemical industry Overview
Inorganic chemicals are the third-largest segment of the chemical industry in India.
According to the Department of Chemicals and Petrochemicals, this segment constituted
about 8.7% of the Total chemicals output during FY21. In FY22, the situation improved as
the production of inorganic chemicals on an aggregate basis grew to 340,000 metric tonnes
during the four months (April-July) of FY22. It further increased by 4.4% during
April-July of FY23 to 355,000 metric tonnes, primarily due to low-base effect and a
pick-up in demand of inorganic chemicals.
Outlook
India is emerging as a preferred manufacturing destination for global businesses due to
its strategic location, strong manufacturing capabilities, effective process engineering
expertise, and highly skilled workforce. Indias chemical manufacturing capabilities are
diverse. It is thriving with a focus on producing high-value-added products, such as
speciality chemicals, that caters to specific applications, including pharmaceuticals,
clean energy and personal care products. India has already established itself as a major
producer and exporter of various niche speciality chemicals.
The Indian chemical industry has experienced steady growth over the past decade, and
there exists a strong potential for future growth. Within the chemical industry, the
consumption and imports of inorganic chemicals have registered a CAGR of 12.5% and 4.1%,
respectively, over the five-year period between 2016-17 and 2020-21. The demand for
inorganic chemicals is expected to sustain its healthy upward momentum in the coming
years. This is backed by low per capita consumption, rising demand for speciality
chemicals, and expected growth in downstream sectors like paints, pigments, coatings,
pharmaceuticals, textiles, personal care, clean energy along with the growth in
diversified manufacturing base. In addition to this, several factors, such as growing
population and urbanisation are fuelling the growth. Furthermore, the improvement in
disposable income, which has increased at a CAGR of 10.7% in the last 10 years, is also
expected to aid the growth momentum in India.
India is emerging as a manufacturing hub for high-value goods, as well as a
consumer-driven economy in the years to come. The chemical industry is likely to benefit
from improvements in the investment climate, speedy approval of projects, and proposed
reform measures that would translate into higher industrial activity to meet the rising
demand for a more urban and performance-driven generation.
Opportunities
Rise in the Demand of Speciality Chemicalsin Different End-user industries
The speciality chemicals market is experiencing rapid growth due to increased demand
from existing and emerging end-user sectors. These include textiles, construction, clean
energy, personal care, home care, automobiles and consumer durables. The rise in per
capita income has driven the development of premium consumption categories. Additionally,
increased urbanisation has led to demand for products that make consumers life easier.
Moreover, Government initiatives, such as smart cities and several infrastructure projects
are expected to boost demand for construction sector.
An increased Government funding in rural markets has also resulted in greater demand
for consumer and industrial products that require performance additives.
Competitive Electricity Cost
India fares well in terms of electricity costs for industrial
usagecomparedtohighelectricity costsof6-11% as a percentage of sales, in other major
economies, with an average cost of USD 0.07/kWh in March 2022. Most developed countries
have a higher average electricity cost, ranging from USD 0.17-0.44/kWh, while Chinas cost
is marginally higher, the Middle East countries have access to significantly lower
electricity costs, ranging from USD 0.005-0.05/kWh.
Indias electricity Cost for Industrial users Fares Well Due to High Coal Usage
(USD/kWh, Mar22)
H A
Competitive Advantage of indian Companies
Over thepastfewyears,India has takenthe opportunity to increase its share of global
chemical exports. It is evident from the fact that speciality chemical producers in the
country have witnessed increased demand from end-user sectors across the world, accounting
for 20.25% of the entire chemical industry. In addition, Indian companies have reported
good returns on capital employed since FY 2017. Furthermore, the relatively lower hourly
wages in India as compared to China have positioned Indian companies to produce speciality
chemicals at a lower cost. This cost advantage has enabled them to export their products
to the two largest international markets - the US and the European Union. Labour Costs
Benefit from Manufacturing in India (per hour USD)
Government initiatives
The Government has taken several initiatives, such as Production Linked Incentives
(PLI) Scheme, Aatmanirbhar Bharat, Petroleum, Chemicals, and Petrochemicals Investment
Regions (PCPIRs), and National Logistics Policy, to boost domestic production.
PCPiR Scheme
The Government aims to redraft PCPIR guidelines, which may raise investments and
provide the basic raw materials for the chemical industry in India.
Operational
On consolidated basis, Total income for FY 2022-23 grew by 31% to Rs.1,40,620.57 Lakhs
compared to Rs. 1,07,475.93 Lakhs in previous year. PAT is Rs.13,656.64 Lakhs, registering
a growth of 68% over the previous years PAT of Rs. 8,139.28 Lakhs. On standalone basis,
Total income for FY 2022-23 grew by 35% to Rs.1,23,736.21 Lakhs compared to Rs. 91,328.66
Lakhs, generated previous year. PAT stands at Rs. 12,934.47 Lakhs, an increase of 98% over
the previous years PAT of Rs. 6,523.90 Lakhs.
Risk Management
Vishnu Chemicals diligently evaluates risks on a routine basis, and proactively devises
novel strategies to navigate shifting market conditions. The Company believes in nipping
risks in the bud to ensure the seamless continuation of operations. The Audit Committee
and Management work hand-in-hand to identify and mitigate potential risks. Below are some
of the Companys risks and their corresponding mitigation methods.
Risk |
Impact |
Mitigation |
Sluggish Financial Climate |
A deceleration in the Indian economy has the potential to adversely
impact the organisations revenue, leading to a decline in its profitability. |
Vishnu Chemicals offers its diverse range of products to both domestic
and international markets, thereby reducing its market risk and expanding its global
reach. |
Supply Chain Disruption |
The chemical industry faces a significant challenge in the form of
global price volatility for raw materials. A shortage of raw materials or sudden price
fluctuations can impede the manufacturing process and potentially harm the financial
performance of the industry. |
With its prominent position in the industry, Vishnu Chemicals takes
proactive measures to ensure that it is not affected by raw material shortages. The
Company maintains adequate inventory of essential raw materials to alleviate any potential
risks. This enables seamless operations of Vishnu Chemicals, both domestically and
internationally, ensuring uninterrupted production of high-quality chemicals. |
Green Responsibility |
Vishnu Chemicals environmental impact is a direct result of the
industry it operates in. Chemical accidents pose a threat to the environment, health and
safety of society, and the viability of businesses. Chemical companies are responsible for
not only complying with environmental standards but also for adding value to society. |
Vishnu Chemicals complies with all environmental rules and regulations
laid by the Government. Individual facilities have robust safety procedures and practices
in place to counteract this threat. Furthermore, in accordance with rules, the Company
handles risky materials in a safe manner. It has also made significant expenditures on
environmentally friendly projects that will help the Company to improve its sustainability
aspect consistently. |
Competitive Landscape |
The chemical industry is marked by intense competition among its
numerous players. Failing to swiftly seize opportunities can negatively impact Vishnu
Chemicals profitability. |
Vishnu Chemicals continuously explores the dynamic landscape of the
chemical industry. The Company prioritises agility and proactive measures to stay ahead of
the curve in this fiercely competitive landscape. It is quick to seize new opportunities
and augment its portfolio with innovative products. |
Internal Financial Control
The internal financial control systems of Vishnu Chemicals are commensurate with its
size and the nature of its operations. These have been designed to provide reasonable
assurance regarding several aspects.
These include recording and providing reliable financial and operational information,
complying with applicable accounting standards and relevant statutes, safeguarding assets
from unauthorised use, executing transactions with proper authorisation, and ensuring
compliance with corporate policies. The Company has a well-defined delegation of authority
with specified limits for approval of expenditures, both capital and revenue. It uses an
established ERP system to record day-to-day transactions for accounting and financial
reporting. The Audit Committee had deliberations with the Management team to consider the
internal financial control systems. Additionally, the Committee consulted with both the
internal and statutory auditors and sought their views on the effectiveness of these
systems. The objective was to ensure that the systems in place were operating optimally.
The Audit Committee confirmed the sufficiency and efficiency of the internal financial
control system as established and kept the Board of Directors informed about its findings.
However, Vishnu Chemicals recognises that no matter how robust the internal control
framework is, it has inherent limitations. Accordingly, the Company conducts periodical
audits and reviews to ensure that such systems are updated at regular intervals.
Human Resources
Vishnu Chemicals places high value on its human capital, which it regards as its most
critical asset, and ensures that its employees are treated with respect and dignity at all
times. The Companys has successfully ingrained a balance mix of experience and youth in
its team, which allows a holistic approach to varied situations. Enriching employee
knowledge is a fundamental value of the Company, and to fulfil the same, the Company has
prioritised the training and development of its human capital. In addition, it organises
team-building exercises through sports & recreation, while encouraging work-life
balance, which leads to improved productivity and longevity. The enhancement of the
Companys human resources skill sets has led to better execution, communication, and
best-in-class customer service for its global clientele.
Outlook
The outlook of Vishnu Chemicals appears positive and is driven by a combination of
micro and macro factors.
The Companys market share is expanding due to its multi-site capabilities,
manufacturing focus, procurement strategies and balanced approach to improve its
profitability. The Company is setting the bar high with its remarkable achievement of
crossing ^ 100 Cr of PAT in 2022-23. In recognition of its outstanding performance, Vishnu
Chemicals has been honoured with the esteemed ‘Company of the Year award at the Dare
to Dream Awards, 2022. Vishnu Chemicals has experienced a tremendously successful year,
marked by impressive output, sound financial health, and recognition, both at the national
and global level, for its chemical expertise. With a strong market position, diverse
product range, extensive end-user industries, and a dynamic distribution network with top-
tier clients, Vishnu Chemicals is well positioned to deliver profitable growth in the
future.
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