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Full year Financial Statement And Dividend Announcement for the Year Ended 31 March 2018

Financials Archive

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Income Statement

Balance Sheet

Review of Performance

The principal activities of the Group are (i) manufacturing of Pigments, Agrochemicals and Basic Chemicals (Caustic Chlorine and Caustic Potash) (ii) trading of Pigments and its intermediates (iii) trading of Agrochemicals, Technical, Intermediates products and Small Packing.

Review of results for the year ended on 31 March, 2018

Revenue - Group

Group revenue for FY 2018 increased by 29.0% from Rs. 14035.90 million in FY 2017 to Rs.18101.40 million in FY 2018.

Breakdown of Revenue by Product

Breakdown of Exports Sales by Product

Breakdown of Domestic Sales by Product

Reasons for Increase / (Decrease) in Export Sales

  1. Export sales of Pigment Division increased by 29.1% due to increase in sales quantity of Alpha Blue and Beta Blue.
  2. Export sales of Agrochemical Division increased by 42.5% due to increase in sales quantity of Zeta Cypermethrin, Permethrin, Chlorpyriphos and 2 4 Dichlorophenoxy.
  3. Export sales of Basic Chemicals increased by 25.0% due to increase in export quantity.

Reasons for Increase / (Decrease) in Domestic Sales

  1. Domestic sales of Pigment Division decreased by - 32.9% higher export order resulted decrease in domestic sales.
  2. Domestic sales of Agrochemical Division increased by 13.9% due to higher quantity Sales of formulation.
  3. Domestic sales of Basic Chemical Division increased by 64.8% due to higher quantity sales and increase in ECU (Price) during the year.

Revenue - Company

Company revenue for FY 2018 increased by Rs. 1795.50 million i.e.by 17.5% from Rs. 10253.16 million in FY 2017 to Rs. 12048.66 millioll in FY 2018.

BREAKDOWN OF REVENUE BY PRODUCT

Breakdown of Exports Sales by Product

Breakdown of Domestic Sales by Product

Reasons for Increase / (Decrease) in Sales

  1. Export sales of Pigment Division increased by 29.2% due to increase in sales quantity of Alpha Blue and Beta Blue.
  2. Export sales of Agrochemical Division increased by 43.1% due to increase in sales quantity of Zeta Cypermethrin, Permethrin, Chlorpyriphos and 24 Dichlorophenoxy.
  3. Export sales of Trading Division decreased by 77.4% due to less export orders.

Reasons for Increase / (Decrease) in Domestic Sales

  1. Domestic Sales of Pigment Division decreased by 32.9% because of higher export order converted decrease in domestic sales.
  2. Domestic Sales of Agrochemical Division increased by 13.9% due to increase in sale quantity of 2,4D and Cypermethrin.
  3. Domestic Sales of Trading Division decreased by 95.1% mainly due to less quantity sales.

Gross profit - Group

The gross profit increased by 84.2% from to Rs. 2903.33 million in FY 2017 to Rs. 5349.13 million in FY 2018. The gross profit margin increased from 20.7% in FY 2017 to 29.6% in FY 2018.

Breakdown of Gross Profit by Division

Reasons for Increase / (Decrease) in GP Margin

GP of Pigment

The gross profit of Pigment Division increased by 6.4% due to higher quantity sales of Alpha Blue and Beta Blue. While GP margin decreased marginally from 19.9% in FY 2017 to 19.3% in FY 2018 due to pressure on sales prices Beta Blue and increase in raw material cost of CPC blue and Alpha blue.

GP of Agrochemical

The gross profit of Agrochemical Division increased by 91.8%. because of better realization of sales pdces. The GP margin increased from 16.2% in FY 2017 to 23.6% in FY 2018 due to increase in Sales Quantity of Zeta Cypermethrin, Permethrin, Chlorpyriphos and 2 4 Dichlorophenoxy.

GP of Basic Chemicals

The gross profit of Caustic Chlorine Division increased by 150.8%. This is due to increase in Production and Sales quantity. The GP margin increased from 30.4% in FY 2017 to 46.9% in FY 2018 due to increase in ECU.

Gross profit - Company

The gross profit at Company level increased by 42.9% from Rs. 1745.37 million in FY 2017 to Rs. 2494.43 million in FY 2018. The gross profit margin increased from 17.0% in FY 2017 to 20.7% in FY 2018. The main contributories for increase in gross profits is Agrochemical Division.

BREAKDOWN OF GROSS PROFIT BY DIVISION

Reasons for increase / (decrease) in GP margin

GP margin of Pigment

The amount of gross profit of Pigment Division increased by 6.4% due to higher quantity sales of Alpha Blue and Beta Blue. The GP margin decreased marginally from 18.6% in FY 2017 to 17.9% in FY 2018 due to pressure on sales prices Beta Blue and increase in raw material cost ofCPC blue and Alpha blue.

GP of Agrochemical

The amount of gross profit of Agrochemical Division increased by 91.8%. because of better realization on sales prices. The GP margin increased from 16.2 % in FY 2017 to 23.5% in FY 2018 due to increase in Sales Quantity of Zeta Cypermethrin, Permethrin, Chlorpyriphos and 2 4 Dichlorophenoxy.

COST OF SALES :-

The Cost of Sales at Group level increased by 14.5% and at Company level increased by 12.3% mainly due to increase in raw material prices.

OTHER OPERATING INCOME – GROUP & COMPANY

Other operating income of the Group and the Company which consists mainly of export benefits such as Focus Product Market Incentive Scheme, duty drawback, etc. has increased by Rs. 61.42 million and Rs. 58.25 million in FY 2017 respectively mainly due to increase in export.

DISTRIBUTION, ADMINISTRATIVE AND OTHER OPERATING EXPENSES - GROUP & COMPANY

Distribution expenses

Distribution expenses of Group increased by Rs. 529.37 million, i.e. by 63.7% and the Company increased by Rs. 169.35 million i.e. by 23.3%. This is in proportion to increase in sales during the year. Distribution Expenses increased mainly due to export clearing and forwarding, transportation, packing Consumption, loading unloading charges at depot and quantity rebate to customers at etc.

Administrative expenses – Group & Company

Administrative expenses of Group increased by Rs. 411.50 million i.e. by 143.6% and at Company level increased by Rs. 211.40 million i.e. by 92.0%. This is mainly due to increase in insurance premium, legal & professional fees, donation and director remuneration to Working Director.

Other Operating Expenses

Other operating expenses decreased mainly on account of favourable foreign currency exchange adjustment. The fluctuations in the exchange rate of the Indian Rupee against the US dollar and mark to market on derivatives are main contributory. Other operating expenses reflect income in current and previous financial year.

Finance costs

Finance costs of the Group during FY 2018 decreased by Rs. 97.55 million, i.e. by 19.1% at Company level decreased by R 42.83 million i.e. by 11.7% the reason being reduction in rate of interest and repayment of Term Loan.

Income from investments

During the year Group and Company level income from investment is Rs. 0.15 million and Rs. Nil.

Taxation

Income tax of the Group increased by Rs.482.35 million in FY 2018 and at the Company level increased by Rs. 205.57 million in FY 2017 due to increase in profit.

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 Finechem Limited (MFL) is a company formed to set up Rs. 555 Crore Caustic Chlorine project. Meghmani Organics Limited holds 57% of the Equity.
  3. P T Meghmani Indonesia is a 100% wholly owned subsidiary of the Company set up for the trading purpose.
  4. Megbmani Overseas FZE, Shaljah is a 100% wholly owned subsidiary of the Company. The Company is in the trading business.
  5. Meghmani Agrochemicals Private Limited is a 100% wholly owned subsidiary of the Company.

SGX Rule 716

As per Rule 716, we declare that no one ortlte above Snbsidiaries or Associates is listed on any of the Stock Exchanges.

Other Comprehensive income.

Other comprehensive income (OCI) is defined as comprising 'items of income and expense (including reclassification adjustments) that are not recognised in profit or loss. Other comprehensive income at group level increased by Rs.51.17 million and at Company Level increased by Rs. 29.67 million.

BALANCE SHEET

Trade receivables

Group Trade Receivables increased by Rs. 435.91 million, i.e. by 13.2% and at the Company level by Rs. 50.70 million i.e. by 1.7%. The receivables turnover ratio decreased from 86 days as at 31 March 2017 to 76 days as at 31 March 2018.

Inventories

The Group Inventories for FY 2018 increased by Rs. 260.59 million and at the Company level by Rs. 236.16 million. The Finished Goods and Raw material Inventories increased.

Property, Plant and Equipments

Property, Plant and Equipment at Group level increased by Rs. 1010.60 million and at Company level increased by Rs. 727.34 million in FY 2018 respectively.

Bank Borrowings and Long Term Loan

Bank borrowings (current and non current liabilities) in FY 2018 at Group level decreased by Rs 778.32 million This is mainly due to repayment of term loan while at the Company level it decreased by Rs.282.52 million mainly due to decrease in working capital loan.

Trade payables

Trade Payables of Group increased by Rs.333.53 million in FY 2018 while that of Company level by Rs. 164.47 million. This indicates increase in payable for material domestic and foreign.

Other payables

The Other Payables of Group increased by Rs 317.83 million in FY 2017 while that of Company increased by Rs. 40.80 million..

Cash flow statement

During the year, the Group generated positive cash flows of Rs. 3032.21 million while Company generated Rs. 1242.98 million from operating activities.

FINANCIAL ANALYSIS – GROUP LEVEL

Commentary

1) INDUSTRY STRUCTURE: –

Pigments:-

Pigments are classified as either organic or inorganic. Organic pigments include azo pigments, which contain a nitrogen group; they account for most of the organic red, orange, and yellow pigments. Copper phthalocyanines provide brilliant, strong blues and greens that are unusually colourfast for organic colours. Traditionally organic pigments are popular in plastics, synthetic fibres and as surface coatings-paints and inks. In recent years, the organic pigments are used for hi-tech applications that include photo-reprographics, opto-electronic displays and optical data storage.

Organic Pigments Market Dynamics :-

Major factors driving growth of the organic pigments market include their increasing use in plastic, paint, coatings and textile industries. Manufacture of organic pigments with good light fastness property is gaining traction among global manufacturers. Besides, developing countries such as China & India are shifting towards becoming the center of global organic pigments market, both from the demand and supply side. Organic pigments are expected to substitute inorganic pigments for some specific applications over the coming years.

Organic Pigments Market: Segmentation :-

Global organic pigments market is segmented on the basis of source of production and application.

  • On the basis of production source, global organic pigments market is categorized into natural and synthetic segments.
  • On the basis of application, global organic pigments market is segmented into· paints and coatings, plastics, printing inks, textiles, cosmetics, food, chemical, and others.

Overview of the global organic pigments market ,-

Organic pigments have peculiarly unique properties that ensure hues that other kinds of pigments fail to produce. They provide metallic finishes and elastic properties. Organic pigments are highly preferred in specialized applications in the original equipment manufacturers (OEMs), refinished, and high-end automobile industries. Organic pigments are also being used to improve aesthetics and the functional values in both paints and plastics segments. These pigments are used in paints that can protect against harsh weather, dampness, corrosion, fungi, and other destructive influences on the building. Moreover, some of them are also used as a plasticizer dampened powders that allow functional advantages such as light reflection, heat reflection, opacity, and gas and vapour barrier. With paints and coatings with low VOC content gaining prominence, the market for organic pigments is expected to witness massive growth during the forecast period.

Overview of the Asia pacific :-

In terms of geography, Asia Pacific (APAC) is the largest and dominating region in the global market due to the presence of several manufacturers who offer pigments at lower costs in comparison with other regions. APAC is anticipated to lead the market in terms of consumption over the next four years due to increase in infrastructural activities that require paints and coatings with functional benefits. Moreover, the sustainability factor of organic pigments is expected to drive the overall market globally throughout the predicted period.

Market Forecast:-

Based on in-depth research, TMR projects the global pigments market to exhibit a moderate CAGR of 3.8% between 2015 and 2023. If the projection holds true, the global pigments market will reach US$31.98 bn by 2023, from a valuation of US$22.86 bn in 2014. Volume-wise the market is expected to repmt a CAGR of 2.9% during the forecast period (Source: - Transparency Market Research)

The main factors that are contributing to the growth in the industry are increase in demand for high performance pigments (HPP), growth in end-user industries and increasing preference for environmentally-friendly products.

Asia Pacific Region To Remain Fastest Growing

The report confirmed that the Asia Pacific region is anticipated to witness highest regional gains at over 5% CAGR. Pigment market growth in Asia Pacific is primarily driven by the automotive and construction industries, as well as increasing manufacturing and infrastructure development (specifically in China and India). 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.)

THREAT:-

The volatility of Rupee versus Dollar is a major concern. Another major concern is in acceptance of the product by overseas customer, sometimes it takes considerable period. Sometimes proposals do not get converted in to order.

Unstable prices, various environmental regUlations and limited availability of raw materials are some of the factors expected to impede the growth of global organic pigments market. Manufacture of organic pigments with good light fastness property is gaining traction among global manufacturers. Besides, developing countries such as China & India are shifting towards becoming the center of global organic pigments market, both from the demand and supply side. Regulatory environment, labor laws and wages in Asia Pacific are expected to remain major factors impacting this global market shift (Source :Future Market insight).

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 regulatorslndia's agrochemical induslty can be divided into producers of technical agrochemicals - the bulk actives - and formulators who compound actives in forms that enable use.

GLOBAL AGROCHEMICALS MARKET:-

The global agrochemicals market is estimated to reach USD 265.04 Billion by 2022 at a CAGR of 4.51%. Factors like growing demand for food and consumer awareness, changing agrochemicals usage patterns, advantages of fertilizers and pesticides in crop production, increasing horticulture industries are the drivers for the market. Development in technology to boost farm production with increasing government investments in agriculture to increase crop yields provides huge oppottunities to this market.

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.

Presently, the cost of innovation and registration of an active ingredient is higher. 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 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.

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 agrochemicals industry.

INDIAN MARKET:-

Insecticides are largest sub-segment of agrochemicals with 60% market share whereas herbicides with 16% market share are the fastest growing segment in India. Other segments are rodenticides/ nematocides with 15% and 4%, respectively.

India is fourth largest producer of agrochemicals worldwide, after United States, Japan and China. Indian Agrochemical industry is valued at USD 4.76 billion in FY15 and is estimated to grow at a CAGR of 12% to reach USD 8.38 billion by FY19.

On the other hand, domestic market will grow at -8% CAGR to reach USD 3.57 billion by FY19. Indian Agrochemical consumption is one of the lowest in the world (0.6kg/ha). Compared to agrochemical usage, India's feltilizer consumption (-144 kg/ha) is much higher than the global avemge (-122 kg/ha). This reflects a large potential for agrochemical usage in India.

Indian population is expected to be 1.4 billion by 2020. The increasing population, coupled with growing income will generate increased demand for food grains and non-food grain crops. Therefore, Indian agriculture has to achieve and maintain a consistent and higher growth rate of 4 per cent per annum. The sector is also driven by huge opportunity for contract manufacturing and research for Indian players due to large availability of technically skilled labour.

Agrochemicals playa critical role in ensuring food and nutrition security of the nation. With estimated 355 MMTPA (miillion metric tonne per annum) food grain requirement by 2030 from current 253 MMTPA, efficient usage of crop protection products and solutions for Indian agriculture are the need of the hour. In order to realise the true potential, industry, government and regulatory bodies need to work in tandem and embrace digital technologies to further improve farmer connect," (Source :- National Conference on Agrochemicals 2016 in New Delhi)

Challenges:-

The industry is expected to face certain challenges such as regulatory standards to reduce toxicity, high inventory, low profit margins, and patent expirations.

Low farm output is a major challenge faced by most farmers across India. The chief reasons for the poor yield are fragmented land holdings, inadequate use of technology and modern methods of farming, poor soil health, and lack of access to irrigation facilities.

Increase in investment in the field of research and development of agrochemicals which in turn will spur the exports increasing competitiveness in the global scenario.

Development and registration of a pesticide active ingredient is one of the biggest components of cost for a pesticide company.

The demand is also seasonal. Low literacy rate translates into low efficiency and low agriculture productivity. Low awareness amongst farmers regarding agrochemical products and its usage.

Outlook for FY 2019

The Group and Company revenue of Pigment and Agrochemical Segment for FY 2018 has increased due to higher production. We expect to see the improvements in revenue in Agrochemical Products as Market Dynamics are changing rapidly. While in Pigment the pressure on pricing prevailed throughout FY 2018.

While Net Profit after tax at Group and Company level has increased in FY 2018. This is due to increase in production, higher quantity sale and better price/ ECU in Agrochemicals and Basic Chemicals.

The Group Profitability may be affected due to unpredictable market trends, rupee/dollar exchange rate and crude oil prices Fluctuation in ECU prices of Caustic Chlorine and the erratic monsoon season in 1Q FY 2019.