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Third Quarter Financial Statements and Dividend Announcement

Financials Archive

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Income Statement

Balance Sheet

Review of Performance

Revenue - Group

The principal activities of the Group are (i) manufacturing of Pigments, Agrochemicals, Basic Chemicals (Caustic Chlorine) (ii) trading of Pigments and its intermediates (iii) trading of Agrochemicals, technical, intermediates products and small packing.

Quarter to Quarter:-

Breakdown of Revenue by Product

Breakdown of Domestic Sales by Product

Breakdown of Exports Sales by Product

Group revenue increased by 8.3% from Rs. 3074.30 million in Q3 FY 2016 to Rs. 3328.30 million in Q3 FY 2017. This is on account of increase in Sales of Pigments and Agro Chemicals.

Decrease in domestic sales

Group revenue from domestic sales decreased by 1.2% from Rs. 1473.18 million in Q3 FY 2016 to Rs. 1455.00 million in Q3 FY 2017. This is on account of decrease in Sales of Caustic Chlorine.

Increase in export sales

Group revenue derived from export sales increased by 17.0% from Rs. 1601.12 million in Q3 FY 2016 to Rs. 1873.30 million in Q3 FY 2017. This is on account of increase in Sales of Pigments and Agro Chemicals.

Gross profit Analvsis - Group - Quarter to Quarter:-

Breakdown of Gross Profit by Division

Overall, gross profit ofthe Group decreased by Rs. 4.21 million (or -0.6%) from to Rs 725.50 million in Q3 FY 2016 to Rs. 721.29 million in Q3 FY 2017. The gross profit percentage decreased from 23.6 % in Q3 FY 2016 to 21.7 % in Q3 FY 2017. The gross profit margin of Pigment decreased from 26.7%, to 22.1 %, mainly due to decrease in sales price of Alpha and Beta Blue and increase in Raw Material cost. while Agrochemical decreased marginally from 16.3% to 14.1% mainly due to lower realisation.

The gross profit margin of Caustic Chlorine decreased from 34.5%, to 32.7% due to decrease in ECU and decrease in utilization.

Other Operating Income

Other operating income of the Group consists mainly of export benefits such as duty entitlement passbook benefit (DEPB), Duty Draw Back, etc, which increased by Rs. 12.20 million to Rs. 58.23 million in Q3 FY 2017. The other income increased due to increase in export sales.

Distribution. Administrative and Other Operating Expenses

Distributions costs of the Group increased by 10.5 % to Rs 204.19 million in Q3 FY 2017, due to increase in sales and Packing Material Consumption.

Administrative costs of the Group increased by 24.2% to Rs 68.89 million in Q3 FY 2017, on account of increase in Rent Rate & Taxes, Swachh Bharat Cess and Krishi Kalyan Cess.

Other operating expenses decreased by Rs.30.52 million in Q3 FY 2017 mainly due to foreign exchange fluctuations.

Finance costs

Finance costs in Q3 FY 2017 decreased by Rs. 28.20 million (or 18.9%). as a result of repayment of term loan and decrease in interest rate of working capital loan.

Income from Investments :-

During the quarter Income from investments is Rs. Nil.

Taxation

Income tax increased by Rs. 75.63 million i.e. from Rs. 34.72 million in Q3 FY 2016 to Rs. 110.35 million in Q3 FY 2017, due to increase in Income tax expenses of Meghmani Organics Limited and Meghmani Finechem Limited.

Interest in Subsidiaries

  1. Meghmani Organics USA Inc., is a 100% wholly owned subsidiary of the Company. The Company is in the trading business.
  2. Meghmani Europe BVBA is a 100% wholly owned subsidiary of the Company. The Company is in the trading business.
  3. Meghmani Finechem Limited (MFL) is a Subsidiary company formed to set up Rs. 555 Crore Caustic Chlorine project. Meghmani Organics Limited holds 57% of the Equity.
  4. P T Meghmani Indonesia is a 100% wholly owned subsidiary of the Company set up for the trading purpose.
  5. Meghmani Overseas FZE, Sharjah is a 100% wholly owned subsidiary of the Company. The Company is in the trading business.

Group Revenue Analysis :- Nine Months to Nine Months:-

Breakdown of Revenue by Product

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Division wise Domestic Sales

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Division wise Export Sales

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Group revenue for 9 months FY 2017 increased by Rs. 719.58 million (by 7.3%) i.e. from Rs. 9806.48 million in 9 Months FY 2016 to Rs. 10526.06 million in 9 Months FY 2017 on account of increase in Pigments and Agro Chemicals.

Increase in domestic sales

Group revenue of domestic sales has increased by Rs.762.94 million (by 17.1%) i.e. from Rs 4457.02 million in 9 Months FY 2016 to Rs 5219.96 million in 9 Months FY 2017. This is due to increase in sales of Pigments and Agro Chemicals.

Decrease in export sales

Group revenue derived from export sales decreased by Rs. 43.36 million (-0.8%) from Rs. 5349.46 million in 9 Months FY 2016 to Rs. 5306.10 million in 9 Months FY 2017. This is due to decrease in sales of Agrochemicals and Trading activity.

Group Gross Profit Analysis :- Nine Months to Nine Months:-

Breakdown of Gross Profit by Division

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Group gross profit for 9 Months FY 2017 increased by Rs. 51.81 million (i.e. 2.4 %) from Rs 2131.26 million in 9 Months FY 2016 to Rs 2183.07 million in 9 Months FY 2017. The main Contributories are Pigments, Caustic Chlorine and Trading.

Other Operating Income

Other Operating Income of the Group which consists mainly of export benefits such as Duty Entitlement Passbook Benefit (DEPB), and duty drawback etc. has increased by 12.9% to Rs. 183.66 million in 9 Months FY 2017.

Distribution, Administrative and Other Operating Expenses

Distribution expenses of the Group for 9 Months FY 2017 increased by 3.4% i.e. by Rs. 20.16 million, due to increase in sales. and Packing Material Consumption.

Administrative expenses for 9 Months FY 2017 increased by Rs. 37.30 million from Rs. 179.65 million in 9 Months FY 2016 to Rs. 216.95 million in 9 Months FY 2017, due to increase in Rent Rate & Taxes, Travelling Expenses, Directors Remuneration, Swachh Bharat Cess and Krishi Kalyan Cess.

Other operating expenses of the Group for 9 Months FY 2016 decreased by Rs. 9.25 million mainly due to foreign currency exchange adjustment.

Finance costs

Finance costs of the Group for 9 Months FY 2016 decreased by Rs . .l28.01 million (or -24.5%). mainly due to repayment of term loan and decrease in interest rate of working capital loan.

Balance sheet

Trade receivables

Trade receivables of Group increased by Rs.419.42 million from Rs. 4051.82 million in FY 2016 to Rs. 4471.24 million in 9 Months FY 2017 due to increase in sales.

Trade receivables at Company level increased by Rs. 324.59 million from Rs. 3805.13 million in FY 2016 to Rs. 4129.72 million in 9 Months FY 2017.

Other receivables & Prepayments

During 9 Months period FY 2017, other receivables & prepayments at Group level increased by Rs. 393.19 million (or 40.3%), and Company level increased by Rs.414.06 million (or 52.3%) .This is due to increase in insurance claim receivable.

Inventories

The Inventories at Group level decreased by Rs. 547.28 million i.e. from Rs. 2446.99 million in at FY 2016 to Rs. 1899.71 million in at 9 Months FY 2017 and Inventories at Company level decreased by Rs. 441.71 million from Rs. 1900.18 million in at FY 2016 to Rs. 1458.47 million in at 9 Months FY 2017.

Property, plant and equipment

Fixed assets at 9 Months FY 2017 at Group level decreased by Rs. 272.32 million and at Company level decreased by Rs. 122.84 million respectively.

Bank Borrowings and Long Term Loan

Bank borrowings at 9 Months FY 2017 at Group and Company level decreased by Rs. 1001.73 million and Rs. 467.84 million respectively due to Payment of Term Loan Installment and decrease in working capital utilization.

Trade payables

Trade payables at 9 Months FY 2017 at Group and Company level increased by Rs.I06.37 million and Rs. 172.59 million respectively.

Other payable

Other payable at 9 Months FY 2016 at Group and Company level increased by Rs. 95.49 million and at Company level increased by Rs. 15.20 million respectively.

Cash flow statement

At 9 Months FY 2017 period, the Group has generated a positive net cash flow ofRs. 1552.74 million.

Financial Analysis

Commentary

1) INDUSTRY STRUCTURE: –

Organic Pigment business (coloured) is estimated to be close US $ 6 billion market, of which Phthlocyanine, Azo and High Performance Pigment are main areas. In case of Phthlocyanine pigments, market size is in the range of 20% i.e. about US $ 1 to 1.25 billion in size. In its latest study, Ceresana forecasts global revenues generated with pigments to increase to US$34.2 billion in 2020.

The global pigments (organic, Inorganic and Speciality) market revenues are expected to reach USD 14.7 billion in 2018, growing at a CAGR of 4.5% from 2013 to 2018. In ternlS of volumes. pigments demand is expected to reach 4.4 million tons by 2018.

Specialty pigments are expected to be the most promising product segment, and are estimated to grow at a CAGR of 4.7% from 2013 to 2018. Under growing regulatory pressure, specialty and organic pigments are being increasingly investigated for substitution potential over their inorganic counterparts .. (Source: - Transparency Market Research)

The paints & coatings industry continues to take away major share of the global pigments market accounting for 38.5% of the overall end user market.

This is mainly due to growth in this industry along with the preference of consumers towards unique optical effect colors in certain segments such as automobiles. The global paints and coatings end use market is projected to grow at a CAGR of 5.1 % during the forecast period.

The main consumer industries for pigments are printing inks, paints, plastics, rubber, etc., accounting for 70% of the end use.

Large proportion of the organic pigments produced is exported. The industry has grown at 10% p.a. between FY07 and FY12 with exports growth at 14.5% p.a. Exports are estimated to grow to $4.9 billion by 2017. (Source: - Transparency Market Research).

In its latest study, Ceresana forecasts global revenues generated with pigments to increase to US$34.2 billion in 2020. orne of the main factors that are contributing to the growth in the industry are increase in demand tor high performance pigments (HPP), growth in end-user industries and increasing preference tor environmentally-friendly products.

Paints and varnishes are the by far most important sales market for pigments worldwide. More than 43% of global demand originates in this segment. The processing of plastics reports the second largest market volume and accounts for 27% of pigment demand. Plastics will develop at the second highest growth rates in the future; only the segment printing inks will develop more dynamically, due to the growing market for printedpackaging. Ceresana expects the least dynamic development for the segment paper, as the completely revised 3rd edition explains.

The paints & coatings industry is recording significant growth due to growing infrastructure. According to the industry estimates, the global demand for paints & coating is anticipated to grow at a CAGR of 5.4% during the next five years. Printing ink is another application of the colorants market. The demand for printing ink is driven by various factors such as technological developments and increasing demand for digital inks.

2) ASIA PACIFIC REGION TO REMAIN FASTEST GROWING

Asia-Pacific region. organic pigment demand is expected to reach 316.2 thousand MT by 2018. at a high CAGR of 6.6% from 2013 to 2018. The Asia Pacific pigments market revenue is expected to reach market size of over USD 6.4 billion by 2018. The demand for organic pigments will increase in inks and coatings as these have an ability to provide intense and bright colors. China's consumption will increase as the government has made expansion of 10 industries such as automobile, iron & steel. shipbui Iding, textile, petrochemical, light that are all its imp0l1ant user. The key countries covered in Asia-Pacific Pigments Market are China, India and others

Eastern Europe, the Middle East and South America will see demand rise by more than 3% p.a. each as well and thus contribute to the positive development of the pigment industry. The rather saturated markets in Western Europe and North America will slowly return onto a growth path after they suffered losses in the past couple of years. (Source: Crersana.)

3) INDIAN MARKET

The Size of Indian Colorants industry is $ 3.4 billion in Fy 2011 with exports accounting for 68%. Pigment Consumption in India stood 700,000 tons in 2011 of which 115,000 tons was for color and special effect.

Out of total Pigment consumption 47% accounts for Ink, 24% Coatings, 10% textiles, 10% Plastics and 9% Others. 'Indian paint industry forecast to 2015', the pigment market is expected to witness CAGR growth of 15% during FY 2012-2015.

4) AGROCHEMICALS - INDUSTRY STRUCTURE:-

There are broadly 5 categories of crop protection products:

  1. Insecticides: Manage the pest population below the economic threshold level
  2. Fungicides: Prevent the economic damage due to fungal attack on crops
  3. Herbicides: Prevent! inhibit! destroy the growth of unwanted plants in a crop field
  4. Bio pesticides: These are derived from natural substances like plants, animals, bacteria & certain minerals. These are non-toxic & environmental friendly
  5. Plant growth regulatorsIndia's agrochemical industry can be divided into producers of technical agrochemicals - the bulk actives - and formulators who compound actives in forms that enable use.

In India, there are about 125 technical grade manufacturers (10 multinationals), 800 formulators, over 145,000 distributors. 60 technical grade pesticides are being manufactured indigenously.

Many technical producers are forward-integrated into formulations, unlike in the pharmaceutical industry where there are who make nothing but active pharmaceutical ingredients (APls).

5) GLOBAL AGROCHEMICALS MARKET:-

The global agrochemicals industry is expected to reach an estimated value of$261.9 billion by 2019. The major drivers of agrochemicals industry are increasing demand for food with rising population and consumer awareness associated with the benefits of fertilizers and pesticides in crop production.

Development in technology to boost farm production with increasing government investments in agriculture to increase crop yields provides huge opportunities to this market. Asia-Pacific dominates the global agrochemicals market, accounting for major share in overall market and expected to remain the largest market in the near future due to the increasing demand for food crops from its key countries such as China and India

Lucintel's research indicates that developing countries such as China and India are demanding higher volumes of nutritious food, which will increase demand for agrochemicals. Agrochemicals have significantly increased farm productivity in both developed and developing countries.

Growth in revenue is expected to be higher than volume, owing to the increasing cost of pesticides. Development and registration of a pesticide active ingredient is one of the biggest components of cost for a pesticide company.

Presently, the cost of innovation and registration of an active ingredient is about $200 million, which is a 25% increase from 2000. Companies spend extensively on the research and development of new chemicals and improving the performance of the existing ones.

The pressure, therefore, is for the agriculture industry to increase yields per acre, which can be achieved through increased usage of agrochemical products.

As the study indicates, a large untapped market, shrinking of arable land in recent years, increasing demand for food grain production, and increasing population are anticipated to drive the global agrochemicals industry. The industry is expected to face certain challenges such as regulatory standards to reduce toxicity, high inventory, low profit margins, and patent expirations.

The global market has been witnessing lot of technological advancements and developments over the past few years. The changing buyers' preferences, stringent environmental regulations, changing weather conditions, increased agricultural trade and improved farming practices are triggering the innovations and research efforts of the industry.

North America dominates the global herbicide market and has the largest market share in terms of volume and revenue. Europe is the second largest market for herbicides. North America and Europe are mature markets and are dominated by a few major players. To survive intense competition, companies in this region are focused on new product development.

The global agrochemicals industry experienced robust growth over the last five years but is expected to experience moderate CAGR of 5.4% over next five years (2012-2017) and reach approximately US $262 billion in 2017. New product development and innovation at competitive prices are anticipated to drive the agrochemica1s industry.

6) INDIAN MARKET:-

Indian crop protection industry is largely dominated by insecticides which form about 65% of share of the industry. Other segments like herbicides, fungicides and other (rodenticidesl nematocides) form 16%, 15% and 4%, respectively.

Indian agrochemical industry is expected to grow at 12-13 per cent per annum to reach $ 7.5 billion by FY'19. "Indian crop protection industry was estimated at $ 4.25 billion in FY14 of which 50 per cent was exports. The crop protection industry has experienced strong growth in the past and is expected to grow further at 12-13 per cent per annum to reach $ 7.5 billion by FY2018-19. (Source:- Business Standard).

Lower per hectare yield at 3 tonne/ha in India as compared to global average of 4 tonnelha highlights the need of agrochemicals for Indian agriculture. In order to realise true potential, industry, government and regulatory bodies need to work in tandem."

Tropical climatic conditions and high production of paddy, cotton, sugarcane and other cereals in India drive the consumption of insecticides. Availability of cheap labor for manual weed picking also contributed to low consumption of herbicides in India. However, the trend is expected to change in future as herbicides, now, are the fastest growing segment due to increasing farm labour wages in India.

The Companies in this sector should increase their investment in the field of research and development of agrochemicals which in tum will spur the exports increasing competitiveness in the global scenario.

The demand is also seasonal. India due to its inherent strength of low cost manufacturing and qualified low cost manpower is a net exporter of pesticides to countries such as USA and some European and African Countries.

India's global rank is fourth as a supplier of agrochemicals in the global market, after USA, Japan and China thereby indicating the significance of agrochemical industries in India.

However, the consumption of agrochemicals in India is surprisingly low (0.58 kg/hectare) as compared to USA where the consumption of agrochemicals is as high as 4.5 kg/hectare and Japan with an even higher consumption of 11 kg/hectare. Paddy (one of the chief crops of India) has the maximum pesticide consumption of 28% followed by cotton (20%) of the total agrochemicals consumption. (Source 3rd National Agrochemicals conclave 2013)

India has raised the level of its export competency with a consistent quality and supply record and possession of a vast unexplored market. Chemicals manufacturers have targeted product awareness campaigns at Indian farmers, as the country's affordability has increased with the cultivation of highvalue crops.

Availability of cheap labour and low processing costs offers opportunity for MNCs to setup their manufacturing hubs in India for their export markets. The sector is also driven by huge opportunity for contract manufacturing and research for Indian players due to large availability of technically skilled

Outlook for FY 2017

Raw Material Price

The volatility in foreign exchange market may impact on finished goods prices; as a result, our profitability is likely to be affected in Q4 FY 2017.

Market Price

The global markets for Pigment and Agrochemicals products are under pressure. The Caustic Chlorine prices are cyclical but have showed improvement.

Revenue & Profitability

The Group and Company revenue for Q3 FY 2017 has increased.

While Net Profit Before Tax at Group and Company level has increased in Q3 FY 2017.

The Group Profitability may be affected in Q4 FY 2017 due to unpredictable market trends, rupee/dollar exchange rate and crude oil prices fluctuation and ECU prices of Caustic Chlorine etc.