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First Quarter Financial Statements And Dividend Announcement

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.

Revenue - Group

Group revenue for Q1 FY 2019 increased by 12.8% from Rs. 4140.14 million in Q1 FY 2018 to Rs. 4668.11 million in Q1 FY 2019.

Breakdown of Revenue by Product

Breakdown of Domestic Sales by Product

Reasons for Increase / (Decrease) in Domestic Sales

  1. Domestic sales of Pigment Division decreased by 36.9% due to decrease in quantity sales of CPC Blue and Beta Blue.
  2. Domestic sales of Agrochemical Division increased marginally by 0.6%.
  3. Domestic sales of Basic Chemicals increased by 57.6 % mainly due to increase in ECU(Price).

Breakdown of Exports Sales by Product

Reasons for Increase / (Decrease) in Export Sales

  1. Export sales of Pigment Division increased by 11.0%. This was mainly due to increase in sales quantity of Beta Blue and Alpha Blue.
  2. EXPOli sales of Agrochemical Division increased marginally by 1.8%.

Gross profit - Group

Breakdown of Gross Profit by Division

Reasons for increase / (decrease) in GP margin

GP of Pigment

The amount of gross profit of Pigment Division decreased by 9.1 %, while GP margin of Pigment Division decreased from 18.0% in Q1 FY 2018 to 16.7 % in Q1 FY 2019 due to decrease in quantity sales of CPC Blue and Beta Blue.

GP of Agrochemical

The amount of gross profit of Agrochemical Division decreased marginally by 4.0% and GP margin decreased from 27.1 % in Q1 FY 2018 to 25.7% in Q1 FY 2019 due to decrease in sales quantity of CMAC, Zeta Cypermethrin, and Permethrin.

GP of Caustic Chlorine

The amount of gross profit of Caustic Chlorine Division increased by 136.0%, while GP margin of Caustic Chlorine Division increased from to 32.7 % in Q1 FY 2018 to 52.7 % in Q1 FY 2019 due to increase in ECU(Prices).

COST OF SALES :-

The Cost of Sales at Group level increased marginally by 2.4%.

OTHER OPERATING INCOME – GROUP & COMPANY

Other operating income of the Group which consists mainly of export benefits such as Focus Product Market Incentive Scheme, duty drawback, etc.

Other operating income increased by Rs. 15.50 million to Rs. 83.27 million in Q1 FY 2019 respectively mainly due to increase in export sales. The Government has introduced new export incentive scheme Merchandise Export Incentive Scheme (MEIS).

DISTRIBUTION, ADMINISTRATIVE AND OTHER OPERATING EXPENSES - GROUP

Distribution expenses

Distribution expenses of Group decreased by Rs. 27.59 million, i.e. by 10.5%. This is due to decrease in packing material consumption and transportation expenses.

Administrative expenses

Administrative expenses of Group increased by Rs. 177.03 million i.e. by 203.2% mainly due to increase in legal and professional fees, donation and directors remuneration.

Other Operating Expenses

Other operating expenses indicates income mainly on account of favorable foreign currency exchange adjustment. The fluctuations in the exchange rate of the Indian Rupee against the US dollar is main contributory. Other operating expenses reflect income in current and previous financial year. The expenses has been decreased by Rs. 67.64 million.

Finance costs

Finance costs of the Group increased by Rs. 4.45_million, i.e. by 4.1 % marginally due higher utilization of working capital.

Income from investments

During the year there is no change in Income from investments in Q1 FY 2019.

Taxation

Income tax at the Group level increased by Rs. 46.38 million in Q1 FY 2019. This is due to increase in profit of Meghmani Organics Limited and Meghmani Finechem Limited (MFL - Subsidiary).

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 57% Subsidiary of the company formed to set up Rs. 555 Crore Caustic Chlorine (BasicChemical) project.
  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 is listed on any of the Stock Exchanges.

Other Comprehensive income.

Other comprehensive income (OCI) is defined as comprtsmg 'items of income and expense (including reclassification adjustments) that are not recognized in profit or loss. Other comprehensive income at group level increased by Rs.2.63 million.

BALANCE SHEET

Trade receivables

Trade receivables of Group decreased by Rs.19.93 million from Rs. 3745.02 million in FY 2018 to Rs. 3725.09 million in Q1 FY 2019. Trade receivables at Company level increased by Rs. 154.05 million from Rs. 3028.37 million in FY 2018 to Rs.3182.42 million in Q1 FY 2019. Trade Receivables increased due to increase in sales.

Other receivables & Prepayments

During the first quarter, other receivables & prepayments at Group increased by Rs. 49.38 million (or 2.8%) and at Company level increased by Rs. 26.82 million (2.2 %) due to Power Expenses and GST Receivable.

Inventories

Inventories at group level increased by Rs. 635.99 million from Rs. 2677.39 million in FY 2018 to Rs. 3313.38 million in Q1 FY 2019 due to increase in Raw Material stock at Meghmani Finechem Limited (MFL - Subsidiary) While inventories at Company level increased by Rs. 382.58 million from Rs. 2326.53 million in FY 2018 to Rs. 2709.11 million in Q1 FY 2019 due to increase in finished goods stock and raw material stock.

Property, Plant and Equipments

Property, Plant and equipments at Group level increased by Rs.244.16 million. and at Company level increased by Rs.42.63 million.

Bank Borrowings and Long Term Loan

Bank borrowings at Group level (current and non current) increased by Rs. 1321.11 million and at Company level increased by Rs. 1999.08 million respectively.

Trade payables and Other payables

Trade payables at Group level increased by Rs. 643.02 million and at Company level increased by Rs. 428.61 million respectively due to increase in operational activity.

Other payables at Group level decreased by Rs. 92.11 million and at Company level increased by Rs. 28.86 million respectively.

Cash flow statement

During the period, the Group has generated positive net Cash Flow of Rs. 1030.95 million from operation.

Financial Analysis

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 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 in acceptance ofthe 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 playa 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 lQ FY 2019

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