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Second Quarter Financial Statements and Dividend Announcement

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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 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.

Quarter to Quarter:- Analysis

Breakdown of Revenue by Product

Group revenue by product increased by 3.8 %, from Rs. 4651.58 million in Q2 FY 2018 to Rs. 4826.54 million in Q2 FY 2019 this is on account of increase in sales of Pigment, Basic Chemicals and Trading.

Breakdown of Domestic Sales by Product

Domestic Sales

Group revenue derived from Domestic sales decreased by 11.9% from Rs. 2360.66 million in Q2 FY 2018 to Rs. 2080.55 million in Q2 FY 2019. Domestic sales of Pigment division decreased mainly of CPC Blue, Agrochemicals decreased mainly of MPB, Chlorpyriphos Cypermethrin, Profenophos and Bifenthrine and Basic Chemicals decreased due to lower volume of sales quantity.

Breakdown of Exports Sales by Product

Export Sales

Group revenue derived from Export sales increased by 19.9 % i.e. from Rs. 2290.92 million in Q2 FY 2018 to Rs. 2745.99 million in Q2 FY 2019. Export sales of Pigment division increased mainly of PG7 and Alpha Blue due to repeat orders and Agrochemicals increased due to increase in sales prices of Cypermethrin, Peremethrin and Bifenthrine.

Gross profit - Group

Breakdown of Gross Profit by Division

Overall, gross profit of the Group increased marginally by Rs. 3.57 million (or 0.3%) from Rs 1320.35 million in Q2 FY 2018 to Rs 1323.92 million in Q2 FY 2019. While, the gross profit margin decreased from 28.4% in Q2 FY 2018 to 27.4% in Q2 FY 2019.

GP Percentage of Pigment

The gross profit percentage of Pigment Division increased marginally by 2.0% while GP margin decreased from 19.8% in Q2 FY 2018 to 19.0% in Q2 FY 2019.

GP Percentage of Agrochemicals

The amount of gross profit percentage of Agrochemical Division increased by 7.8% and GP margin increased from 26.9% in Q2 FY 2018 to 30.0% in Q2 FY 2019 due to in sales prices of Cypermethrin, Permethrin and Bifenthrin.

GP Percentage of Basic Chemicals

The amount of gross profit of Basic Chemicals Division decreased by 7.7%, while GP margin of Basic Chemicals Division decreased from 42.0% in Q2 FY 2018 to 37.0% in Q2 FY 2019 due to decrease in sales quantity and ECU.

Other Operating Income

Other operating income of the Group consists mainly of new incentive Scheme MEIS introduced by the government.

Other operating income of Q2 FY 2019 increased by Rs. 3.73 million to Rs.117.53 million in Q2 FY 2019 due to higher export resulting increase in export incentive.

Distribution, Administrative and Other Operating Expenses

Distributions costs of Group decreased by 49.1% to Rs 186.29 million in Q2 FY 2019. This is due to decrease in Quantity rebate to Customers.

Administrative costs of the Group increased by 74.5 % to Rs 260.75 million in Q2 FY 2019 mainly due to increase in Provision of Directors Performance Bonus.

Other operating expenses decreased by Rs 46.19 million in Q2 FY 2018 mainly due to foreign exchange fluctuations.

Finance costs

Finance costs of Q2 FY 2019 increased by Rs 25.81 million (or 25.7%) mainly due to increase in utilization of working capital facilities.

Income from Investments :-

During the quarter there was no Income from investments.

Taxation

Income tax expenses increased by Rs.62.71 million i.e. from Rs. 245.80 million in Q2 FY 2018 to Rs. 308.51million in Q2 FY 2019. This is due to increase in deferred tax expenses.

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 Subsidiary of the company manufacturing Caustic Chlorine (BasicChemical).
  3. P T Meghmani Indonesia is a 100% wholly owned subsidiary of the Company set up for the trading purpose.
  4. Meghmani Overseas FZE, Sharjah 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 of the above Subsidiaries are listed on any of the Stock Exchanges

Other Comprehensive income.

Other comprehensive income (OCI) is defined as ‘items comprising of income and expense (including reclassification adjustments) that are not recognized in profit or loss.

Half year to Half year:- Analysis

Breakdown of Revenue by Product

Division wise Domestic Sales

Division wise Export Sales

Break down of Revenue By Product

Group revenue increased by Rs.702.93 million (i.e. by 8.0%) from Rs. 8791.72 million for H1 FY 2018 to Rs. 9494.65 million for H1 FY 2019 on account of increase in sales of Basic Chemicals and Trading.

Domestic sales

Group revenue from domestic sales increased by Rs. 178.68 million (i.e. by 4.2%) from Rs. 4237.63 million in H1 FY 2018 to Rs. 4416.31 million in H1 FY 2019. Domestic sales of Agrochemicals decreased mainly of MPB, Chlorpyriphos Cypermethrin, Profenophos and Bifenthrine and Basic Chemicals increased due to increase in ECU.

Export sales

Group revenue from Export sales increased by Rs. 524.25 million (i.e. by 11.5%) from Rs. 4554.09 million in H1 FY 2018 to Rs. 5078.34 million in H1 FY 2019 Export sales of Pigment division increased mainly of PG7 and Alpha Blue due to repeat orders and Agrochemicals increased due to increase in sales prices of Agro Formulation, Peremethrin and Bifenthrine.

Gross Profit

Breakdown of Gross Profit by Division

Group Gross Profit of the Group for H1 FY 2018 increased by Rs. 458.17 million (i.e. 19.5%) from Rs. 2347.57 million H1 FY 2018 to Rs. 2805.74 million H1 FY 2019 and the gross profit margin increased from 26.7% in H1 FY 2018 to 29.6% in H1 FY 2019.

Other Operating Income

Other operating income of the Group consists mainly of new incentive Scheme MEIS introduced by the government. Other Operating Income of the Group increased by 35.7% to Rs. 200.80 million in H1 FY 2019 due to increase in export incentive.

Distribution, Administrative and Other Operating Expenses

Distribution expenses of the Group decreased by Rs. 207.24 million in H1 FY 2019 mainly due to decrease in Quantity rebate to Customers.

Administrative expenses of the Group increased by Rs.288.38 million in H1 FY 2019 mainly due to increase in Provision of Directors Performance Bonus and Legal and Professional Fees etc.

Other operating of the Group expenses decreased by Rs. 113.83 million in H1 FY 2019 the main driver is foreign exchange fluctuations.

Finance costs

Finance costs of the Group increased by Rs. 30.26 million (or 14.4 %) in H1 FY 2019. This is mainly due to increase in utilization of working capital facilities.

Balance sheet – Group & Company

Trade receivables

Trade receivables of Group increased by Rs.402.10 million from Rs. 3745.02 million in FY 2018 to Rs. 4147.12 million in H1 FY 2019 due to increase in sales.

Trade receivables at Company level increased by Rs. 527.40 million from Rs. 3028.37 million in FY 2018 to Rs. 3555.77 million in H1 FY 2019 due to increase in sales.

Other receivables & Prepayments

Other receivables & prepayments at Group level decreased by Rs. 222.17 million to Rs. 1512.33 million (or -12.8%) in H1 FY 2019 mainly due to GST Refund Received.

Other receivables & prepayments at Company level decreased by Rs. 352.55 million to Rs. 877.06 million (or -28.8%) on account of decreased mainly due to GST Refund Received.

Inventories

Inventories at group level increased by Rs. 1066.54 million from Rs.2677.39 million in FY 2018 to Rs. 3743.93 million in H1 FY 2019 This is due to increase in finished goods and raw materials.

Inventories at Company level increased by Rs.932.05 million from Rs. 2326.53 million in FY 2018 to Rs. 3258.58 million in H1 FY 2019. This is due to increase in finished goods and raw materials.

Property, plant and equipment

Fixed assets at H1 FY 2019 at Group level increased by Rs. 760.19 million mainly due to basic chemical expansion.

Fixed assets at H1 FY 2019 at Company level increased by Rs.118.07 million due to installation of wind mill for Vatva unit.

Bank Borrowings and Long Term Loan

Bank borrowings at H1 FY 2019 at Group (current and non-current) increased by Rs.2532.64 million due to increase in working capital.

Bank borrowings at H1 FY 2019 at Company level (current and non-current) increased by Rs. 2030.84 million due increase in working capital.

Trade payables and other payables

Trade payables at H1 FY 2019 at Group level increased by Rs. 809.55 million and at Company level increased by Rs. 779.34 million respectively.

Other payables at H1 FY 2019 at Group level decreased by Rs. 20.70 million and at Company level increased by Rs. 58.44 million respectively.

Cash flow statement

During the six month period, the Group has generated positive net cash flow of Rs. 1659.97 million in H1 FY 2019 from operating activities.

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 coatingspaints 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 report 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 time required for 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 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.

1) 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 opportunities 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. New product development and innovation at competitive prices are anticipated to drive the agrochemicals industry.

2) 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 fertilizer consumption (~144 kg/ha) is much higher than the global average (~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 play a critical role in ensuring food and nutrition security of the nation. With estimated 355 MMTPA (million 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.)

3) 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.

The erratic monsoon season might have impact on the sales and profitability of Agrochemicals in 2Q FY 2019