MANAGEMENT DISCUSSION AND ANALYSIS 1. BUSINESS REVIEW: 1.1 Business segment- Agro Chemicals and other Chemicals a) Industry Structure and Development: Economic growth in the Country in the last few years has been debrssed, mainly due to higher inflation and debrssed domestic demand. However, from this year, the business sentiment has started to improve so also we expect better growth rate. The commitment of the government for better fiscal management and working on macro economic situation has brought positivity in the industrial sentiments. Encouraged by the greater economic stability, institutions like IMF and the World Bank have brsented the optimistic growth outlook for India for the year 2015 and beyond. However, subdued demand conditions particularly in Europe and Japan, recent slowdown in China and below normal agricultural growth are the few challenges which may somewhat restrict the growth prospects of the Company. As per the estimates, agro and agro chemical sector is expected to witness good growth in the year 2015. The focus of the Indian government is to achieve higher contribution from agriculture sector to India's GDP growth. The west has started shifting production capacities in the agro chemical segment to developing countries like China and India, this too should bode well for India and the Company. b) Opportunities and threats: Agro Chemicals: It is important to note that many molecules of agro chemicals are likely to go off Patent in the next few years throwing the market open for generic players. This provides ample opportunities for India and us to capitalize. Our available production capacity will therefore provide opportunity to increase exports. However, there will be a lot of competition in terms of technology, quality and effectiveness. Your Company is in the manufacturing of various herbicides and fungicides of technical grade in bulk in addition to other chemicals. These are the fastest growing segment and have huge export potential. Having sold its Formulation business (as it requires enormous working capital and has low margins because of competition) the Company has consciously decided to strengthen and concentrate on the technical manufacturing business. This business segment is strong and with the rich experience the Company has in this line for many years it expects to profit significantly from the focus. Other Chemicals: The Company continues to strengthen its manufacturing activity of chemicals where it has the specialization and control in niche markets. The plan for the future is to promote more such chemicals and work on intermediate chemicals required for backward and forward integration of our existing range. c) Correction of business As explained in the last annual report, the Company has sold/ disposed off its non-core businesses and assets to focus on agrochemicals and channelize the funds to the profitable areas. These steps have also helped the Company in reducing its operational expenses and comply with the conditions stipulated in the Corporate Debt Restructuring Scheme. Future prospects: Your Company has a specialized and versatile product portfolio of agrochemicals and industrial chemicals. In view of the growth potential of this Sector, the Management of the Company continues to be positive about the business in future. The Management, with its zeal and sincerity, has managed to establish good business relations with various renowned multi-national Companies for ensuring continuous markets for its products. d) Risks and concern: Erratic climatic conditions, need for advanced technology and wide fluctuation in the foreign exchange rates are the key concerns for the Company. The Management is fully acquainted with all these risks and concerns and address them as and when required. 1.2 Business Segment- Pharma a) Industry Structure and Development: Despite economic brssures in healthcare markets and the wider global economy, the resilience shown by the pharmaceutical industry looks set to carry on through 2015. A recent report from Thomson Reuters indicates that global pharmaceutical sales topped $1 trillion last year, following the high-water mark of $980 billion recorded the year before, and this trend is expected to continue. Your Company entered into the Pharma business in 2003 after acquisition of erstwhile Alpha Drug India Limited (ADIL), now merged with the Company. However, our product line is restricted to only few bulk drugs, drug intermediates and specialty chemicals at brsent. b) Opportunities and threats: India has achieved an eminent global position in the Pharma sector. It is the third largest in terms of volume and thirteen largest in terms of value The investment in the sector, particularly in the area of R&D, Quality control, plant and product registration is enormous. Due to low investment and non-availability of adequate working capital, introduction and manufacture of new pharma products could not be geared up as yet. The Management of the Company is aware of the above requirements but constrained for the time being. In the circumstances, this division is running below its potential and virtually depends upon the toll manufacturing for other Companies. c) Performance and Outlook: As stated above, the growth was slow mainly due to lack of working capital. The Company is engaged in job work where the requirement of working capital is less. This will continue to be our focus till working capital position improves. Since the manufacturing facility has ISO 9001:2000 and ISO 14001: 2004 (which add value and confidence to companies seeking to manufacture) we expect to find additional job work and better utilization of our facilities. d) Risks and concern: Pricing brssures, generics competition, margin erosion, supply chain issues and regulatory constraints are the key risks and concerns for this sector. The Management is fully acquainted with all these risks alongwith non-availability of working capital. Therefore, these risks and concerns are addressed on case to case basis. 2. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY: The Company has adequate internal control system commensurate with its size and complexity. The Company has an independent Internal Auditor who regularly checks the stocks of raw material, semi-finished goods, finished goods, etc. The consumption of raw material is regularly monitored alongwith the set norms with respect to discrepancy of increased raw material consumption. The Company has the systems to record variation and method to correct the discrepancy. The financial statements are brpared in conformity with the established Accounting Standards and Principles. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control system and suggests improvements for strengthening them. The Company has the Risk Assessment Policy of each segment of business and the concerned Heads of Department are responsible to monitor the risks and take effective measures to mitigate them. 3. SUBSIDIARIES /ACQUISITION/JOINT VENTURE: The Company has three subsidiaries, namely, (i) STS Chemicals (UK) Ltd. ; (ii) Sintesis Quimica, Argentina, S.A.I.C and (iii) SD AgChem (Europe) NV. During the year under review, SD Agchem (Europe) N.V., a wholly owned subsidiary of the Company in Belgium disposed off its 20% shareholding in Source Dynamics LLC to Yongnong Biosciences Co. Ltd., China to reduce part of its long term liability. 4. HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS: The Industrial relations in all divisions of the Company are cordial and harmonious. The employee strength of the Company as on 31st March, 2015 was 818. The Company encourages the employees to upgrade their knowledge and skills for the better future and growth. The training session on various working parameters are regularly conducted. 5. FINANCIAL PERFORMANCE AND ANALYSIS: As already stated and approved by the shareholders of the Company, Agro Formulation Division has been sold during the year. The Tarapur unit of Industrial Chemicals Division has been given on lease to UPL. After disposing off and leasing the above businesses the revenue from operations (net) of the Company during the year under review on a standalone basis were Rs. 409.71 crores with a profit of Rs. 3.56 crores against revenue from operations (net)of Rs. 416.86 crores with a profit of Rs. 1.18 crores in the brvious year. On consolidated basis, the revenue from operations (net)stood at Rs. 564.90 crores with a net profit of Rs. 14.20 crores in the current period under review against revenue from operations (net)of Rs. 514.42 crores with a profit of Rs. 96 lacs in the brvious year. 6. CAUTIONARY STATEMENT: Statements in "Management Discussion and Analysis" describing the Company's objectives, projections, estimates, expectations or brdictions are forward looking statements within the meaning of applicable security laws or regulations. These statements are based on certain assumptions and expectations of future events. The actual results might differ materially from those exbrssed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, finished goods prices, raw materials cost and availability, foreign exchange market movements, changes in Governmental regulations and tax structure, economic and political developments within India and the countries with which the Company has business. Therefore, the Company assumes no responsibility in respect of forward looking statements herein which may undergo change in future on the basis of subsequent developments, information or events. |