MANAGEMENT DISCUSSION AND ANALYSIS Crop Protection Product groups: Herbicides, Insecticides, Fungicides, Others The products falling under these product groups are used by customers belonging to Crop Protection Chemicals and Agriculture industries. The product groups comprise about 20 products and 40 formulations. 2,4-D, Indoxacarb and Isoprothiolane are some of the key products. During 2015-16, sales increased by 22% from Rs. 342 cr to Rs. 418 cr. Sales in India decreased by 16% from Rs. 194 cr to Rs. 163 cr; bulk sales in India decreased by 14% from Rs. 73 cr to Rs. 63 cr whereas brand sales which are currently only in India decreased by 17% from Rs. 121 cr to Rs. 100 cr. Sales outside India increased by 72% from Rs. 148 cr to Rs. 255 cr and formed 61% of the total. Increase on account of volume was 34%. Sales increased mainly because of good demand for one of the key herbicides. The Company completed 3 projects and undertook 1 project for implementation. The size of world Crop Protection Chemicals industry is estimated at US$ 52 bn and is growing at about 4%. There are about 60 major companies which dominate the world marketplace. The size of world Agriculture industry is estimated at US$ 3.35 tn and is growing at about 3%. The main user industries, namely Crop Protection Chemicals and Agriculture, are growing well because of the need to feed a growing population under constraints of related resources. The Company will participate in this growth by i) building a strong sales and marketing organisation and broadening and deepening its brsence in other countries, particularly in Africa and South America, ii) promoting its brand sales, iii) improving its manufacturing and working capital efficiencies, iv) generating and adding capacities and v) introducing new products and formulations. Floods or famines may adversely affect the demand. Fluctuations in foreign exchange may impact sales realisations. Given that some of these chemicals can be toxic, it is essential to take due care in their manufacture and use. Registration costs are high in certain countries Pharmaceuticals Product groups: API intermediates, Active Pharmaceutical Ingredients, Others The products falling under these product groups are used by customers belonging to Pharmaceutical industry for various therapeutic categories, such as anti-debrssant, anti-diabetic, anti-infective, anti-retroviral and cardiovascular. The product groups comprise about 50 products. Carbonates, chloroformates, isocyanates and organic ureas are some of the key classes of products. During 2015-16, sales decreased by 1% from Rs. 334 cr to Rs. 330 cr. Sales in India decreased by 9% from Rs. 186 cr to Rs. 170 cr. Sales outside India increased by 8% from Rs. 148 cr to Rs. 160 cr and formed 48% of the total. Degrowth on account of volume was 1%. The Company successfully completed its second USFDA inspection for one of its products; it is in the process of expanding its API plant. Atul Bioscience Ltd (ABL), a 100% subsidiary company, focussed on production of advanced API intermediates, increased its sales by 17% from Rs. 47 cr to Rs. 55 cr, primarily because of volume; it undertook 1 project for implementation. The size of world Pharmaceutical industry is estimated at US$ 1.75 tn, of which the conventional pharmaceutical segment is US$ 1.2 tn and is growing at about 8%. Of this, the size of world API industry is estimated at US$ 150 bn and is growing at about 7%. There are about 20 major companies which dominate the world marketplace. The main user industry, namely, Pharmaceutical, is growing well because of increasing awareness about diseases and health. The Company along with ABL will participate in this growth by i) widening its market reach, ii) increasing its manufacturing efficiencies, iii) generating and adding capacities and iv) introducing new products. It will also form long-term strategic alliances with other companies. The prices of some products may come down in a short time. Fluctuations in foreign exchange may impact sales realisations. Product groups: Intermediates, Perfumery, Others The products falling under these product groups are mainly used by customers belonging to Fragrance and Personal Care industries. The product groups comprise about 27 products. p-Cresol, p-Anisic Aldehyde, Sodium Sulphate and Sodium Sulphite are some of the key products. During 2015-16, sales decreased by 10% from Rs. 522 cr to Rs. 469 cr. Sales in India decreased by 1% from Rs. 140 cr to Rs. 139 cr. Sales outside India decreased by 14% from Rs. 382 cr to Rs. 330 cr and formed 70% of the total. Growth on account of volume was 3%. The Company completed 1 project and undertook 1 project for implementation. World market of p-Cresol (a key product) is estimated at 63,000 mt and is growing at about 2%. Though earlier the product used to be manufactured in the UK and the USA, China and India are now the major suppliers of the product. The size of world Fragrance industry is estimated at US$ 11 bn and is growing at about 4% and the size of world Personal Care industry is estimated at US$ 400 bn of which personal care ingredient segment is US$ 20 bn and is growing at about 4%. The main user industries, namely, Fragrance and Personal Care, are growing well because of improving standard of living. The Company will participate in this growth by i) broadening its market reach, ii) increasing its manufacturing efficiencies, iii) generating and adding capacities and iv) introducing new products. The prices of key raw materials which are derived from crude oil fluctuate almost monthly whereas the customers in the user industries expect the prices of the finished products to remain firm for a quarter or even more; on such occasions, it is possible to get affected adversely. Fluctuations in foreign exchange may impact sales realisations. Bulk Chemicals and Intermediates Product groups: Bulk chemicals, Adhesion promoters, Others The products falling under these product groups are used mainly for internal consumption and by customers belonging to Cosmetic, Dyestuff and Tyre industries. The product groups comprise about 26 products. Resorcinol, Resorcinol Formaldehyde Resins, Sulphur Trioxide and Chlorosulphonic Acid are some of the key products. During 2015-16, (external) sales decreased by 12% from Rs. 100 cr to Rs. 88 cr. Sales in India increased by 4% from Rs. 55 cr to Rs. 57 cr. Sales outside India decreased by 31% from Rs. 45 cr to Rs. 31 cr and formed 35% of the total. Degrowth on account of volume was 11%. The Company completed 1 project. The size of world Chlor-alkali industry is estimated at US$ 70 bn and is growing at about 6%. World market for Resorcinol (a key product) is estimated at US$ 320 mn and is growing at about 3%. The size of world Tyre industry is estimated at US$ 220 bn and is growing at about 6.5%. The captive consumption of bulk chemicals is expected to grow as the Company expands manufacturing capacities of its various products. Tyre industry is expected to grow further because of increasing population on the one hand and improving standard of living on the other. The Company will participate in this growth by i) widening its market reach, ii) increasing its manufacturing efficiencies, iii) generating and adding capacities and iv) introducing downstream products. The demand and prices of bulk chemicals are cyclical in nature. Fluctuations in foreign exchange may impact sales realisations. Colors Product groups: Textile dyes, Pigments, Paper dyes, Inks, Textile chemicals, Others The products falling under these product groups are used by customers belonging to Textile, Paint and Coatings and Paper industries. The product groups comprise about 550 products. Green 1, P Red and Sulphur Black are some of the key products. During 2015-16, sales decreased by 23% from Rs. 515 cr to Rs. 398 cr. Sales in India decreased by 10% from Rs. 250 cr to Rs. 224 cr. Sales outside India decreased by 34% from Rs. 265 cr to Rs. 174 cr and formed 44% of the total. Degrowth on account of volume was 18%. The Company completed 4 projects and undertook 2 projects for implementation. Rudolf Atul Chemicals Ltd (RACL), a joint venture company formed in 201112, provides a complete range of textile chemicals in Indian market; increased its sales by 42% from Rs. 43 cr to Rs. 61 cr, primarily because of volume. The size of world Dyestuff industry is estimated at US$ 6 bn and is growing at about 3.5%. China is the largest manufacturer of dyes followed by India. World market for high performance pigments is estimated at US$ 4.3 bn and is growing at about 2.7%. The main user industries, namely, Paint and Coatings and Textile, will continue to grow because of increase in discretionary spending. The Company along with RACL will participate in this growth by i) broadening its market reach in new geographies, ii) increasing its manufacturing and working capital efficiencies and iii) introducing new dyes, pigments and products for non-textile applications. Fluctuations in foreign exchange and availability of raw materials may impact sales realisations. Treatment costs are expected to remain high given that the manufacture of dyes and pigments generates significant pollutants. Polymers Product groups: Epoxy Resins and Hardeners, Reactive Diluents, Sulphones, Rubber and Polyurethane based Adhesives, Others The products falling under these product groups are used by customers belonging to Aerospace, Automobile, Composites, Construction, Defence, Electrical and Electronics, Footwear, Paint and Coatings, Paper, Sports and Leisure and Wind Energy industries. The product groups comprise about 82 synthetic products and 290 formulations. B11, P62 and P101 are some of the key products. During 2015-16, sales increased by 1% from Rs. 697 cr to Rs. 704 cr. Sales in India decreased by 2% from Rs. 458 cr to Rs. 449 cr. Brand sales decreased by 7% from Rs. 95 cr to Rs. 88 cr. Sales outside India increased by 7% from Rs. 239 cr to Rs. 255 cr and formed 36% of the total. Growth on account of volume was 6%. Sales from new products were Rs. 39 cr. The Company completed 3 projects and undertook 2 projects for implementation. World market for Epoxy Resins and Hardeners is estimated at US$ 6.3 bn and is growing at about 2% and Indian market is estimated at US$ 250 mn and is growing at about 6%. There are about 7 major companies which dominate the world marketplace. World market for Sulphones (a hardener) is estimated at US$ 320 mn and is growing at about 4%. The user industries, Construction, Defence, Electrical and Electronics, Paint and Coatings and Wind Energy are growing well, particularly in India. The Company will participate in this growth by i) widening its market reach, ii) increasing its manufacturing and working capital efficiencies, iii) generating and adding new capacities of Epoxy Resins and Hardeners and iv) introducing new products and formulations. Cheaper imports of Epoxy Resins and Hardeners may keep the contribution margins under brssure. Since the two main raw materials, namely Bisphenol-A and Epichlorohydrin, are imported, fluctuations in foreign exchange may impact margins Internal Control Systems Internal Control Systems of the Company are commensurate with the nature of its business and size and complexity of its operations. These are routinely tested, certified and upgraded whenever required by the Statutory as well as the Internal Auditors covering all key areas of business. Significant audit observations and follow up actions and recommendations thereon are reported to the higher Management and Audit Committee for their review. The Company has an in-house Internal Audit department (which became ISO 9001:2008 certified in 2014) consisting of professionally qualified Managers. It is also working with reputed firms specialising in Internal Audit function. The combined efforts are helping to introduce best practices required to manage its growing business that now comprises, amongst others, subsidiary, joint venture and associate companies in India and abroad. Internal Audit is also carried out for Atul Foundation and entities overseen by it. During 2015-16, the Company further strengthened the systems of Internal Audit and risk assessment and mitigation and took several Key Initiatives. In specific, it i) conducted 96 process reviews, ii) introduced new integrated selective controls for monitoring inventories, iii) developed implemented 11 new Standard Operating Procedures (SOPs) and iv) completed 31 more SOPs under SOP standardization project for various functions. The Company also engaged one of the big Internal Audit firms to evaluate if the internal financial controls and systems are adequately structured to address the normal business operations of the Company and implemented their recommendations on internal control documentation. Human Resources The Company continued with its drive to institutionalise and upgrade its HR processes, to help build a more robust workforce capable of managing dynamic and growing business needs. In particular, it focused on improving its processes related to Integrated Development, Performance Management and Succession Planning. The process of identification and review of Key Initiatives has become stronger and is continuously upgraded. On an average 5.3 man days of training was imparted during 2015-16. The training need is identified based on self-assessment, L+1 assessment; 360 degree feedback and Individual Development Plan; in addition, there are certain standard in-house and external Atul Ltd Annual Report 2015-16 Management Development Programs (to enhance functional and behavioural competencies) which an employee is expected to go through, depending upon his (her) grade. The number of employees (as on March 31, 2016) increased marginally by 8 from 2,760 to 2,768. The increase in numbers in Marketing and Research and Development has been more than offset by the reduction in numbers in Manufacturing. The number of employees comprises those working in the Company and also in its non-manufacturing subsidiary and associate companies, but not those working in manufacturing subsidiary, joint venture or associate companies. Long-term settlement with all the Unions at Atul Complex was signed on the same day and the agreement was reached to further enhance people productivity. The settlement period was increased from 4.5 years to 5 years. Employee Relations at all locations remain cordial, and the endeavour is to completely eliminate the divide that sometimes separates the managers and the workmen and use the strengths of everyone to boost the performance of the Company. |