20 Microns Ltd Management Discussions

Global economic growth

The International Monetary Fund (IMF) has reported that the global economy began the year 2024 on a stable footing, with a growth rate of 3.1%. It is projected to further increase to 3.2% in 2025, surpassing the previous forecast. This growth is anticipated to be primarily driven by the unexpected resilience of the US economy, several large emerging markets, and developing economies, along with fiscal support in China.

Despite these positive indicators, potential challenges may arise due to factors such as restrictive monetary policies, the withdrawal of fiscal support, and low underlying productivity growth. It will be crucial for policymakers to carefully navigate these obstacles to ensure sustained economic growth in the coming years.

Global economy growth

For advanced economies, growth is projected to decline slightly from 1.6% in 2023 to 1.5% in 2024 before rising to 1.8% in 2025. An upward revision of 0.1% point for 2024 reflects stronger-than-expected US growth, partly offset by weaker-than-expected growth in the euro area. Growth in the euro area is projected to recover from its low rate of an estimated 0.5% in 2023, which reflected relatively high exposure to the war in Ukraine, to 0.9% in 2024 and 1.7% in 2025. Stronger household consumption as the effects of the shock to energy prices subside and inflation falls, supporting real income growth, is expected to drive the recovery.

In emerging market and developing economies, growth is expected to remain at 4.1% in 2024 and to rise to 4.2% in 2025. Growth in China is projected at 4.6% in 2024 and 4.1% in 2025, backed by stronger-than-expected growth in 2023 and increased government spending on capacity building against natural disasters. Growth in India is projected to remain strong at 6.5% in both 2024 and 2025, reflecting resilience in domestic demand.

According to IMF, global headline inflation is expected to fall to 5.8% in 2024 and 4.4% in 2025, but still it would be above pre-pandemic (2017–19) levels of about 3.5%. Advanced economies are expected to see faster disinflation, with inflation falling by 2.0% points in 2024 to 2.6%. For emerging market and developing economies inflation is expected to decline by just 0.3% point to 8.1%.

Global trade growth is projected to grow at 3.3% in 2024 and 3.6% in 2025, below its historical average growth rate of 4.9%. Rising trade distortions and geoeconomic fragmentation are expected to continue to weigh on the level of global trade. However, growing government and private spending, real disposable income gains supporting consumption amid still-tight – though easing – labour markets and households drawing down on their accumulated pandemic-era savings may help in trade growth.

Outlook

The global economy has shown signs of improvement compared to a year ago, with the risk of a global recession diminishing, largely due to the strength of the U.S. economy. However, global growth is expected to slow down further this year due to tight monetary policy, restrictive financial conditions, and sluggish global trade and investment. While labor market conditions have improved, unit labor cost growth remains higher than desired for medium-term inflation goals.

In the U.S., GDP growth is forecasted to be supported by robust household spending and a strong labor market. In the Euro area, GDP growth is projected to be 0.6% in 2024 and 1.3% in 2025, with credit conditions expected to be tight in the short term before improving as real incomes rise. Chinas growth is anticipated to slow to 4.7% in 2024 and 4.2% in 2025, despite additional policy stimulus, due to subdued consumer demand, high debt levels, and a weak property market.

Overall, while there are positive developments in the global economy, challenges remain that could impact growth in the near future.

Potential risks include an increase in escalating geopolitical tensions, financial strain, ongoing inflation, trade disruptions, and climate-related disasters. It is imperative for global cooperation to address these challenges by providing debt relief, promoting trade integration, combating climate change, and addressing food insecurity.

Emerging market and developing economies (EMDEs), particularly commodity exporters, are facing challenges related to fiscal policy pro-cyclicality and volatility. Effective macroeconomic and structural policies, along with strong institutions, are essential for boosting investment and enhancing long-term prospects across all EMDEs.

The medium-term outlook for many developing economies has dimmed due to slowing growth in major economies, sluggish global trade, and the most stringent financial conditions in decades. Global trade growth in 2024 is projected to be only half of the average seen in the decade prior to the pandemic. Additionally, borrowing costs for developing economies, especially those with poor credit ratings, are expected to remain high as global interest rates remain at four-decade highs in inflation-adjusted terms.

Indian economy overview

One of the fastest growing economies in the world, the Indian economy is anticipated to experience a consistent growth of 6.7% annually from 2024 to 2031, as per the latest report by CRISIL. This projection slightly surpasses the pre-pandemic average of 6.6%. CRISIL attributes this growth trend to capital, highlighting the governments investment-driven approach during a period when the private sector hesitated to make substantial investments. The governments notable increase in capital expenditure, supporting infrastructure projects and offering interest-free loans to states, is identified as a pivotal factor.

Expected to grow by 7.3% in the current financial year (FY24), according to the first advance estimate released by the National Statistical Office, reflects both global and domestic optimism in the countrys economy on the back of robust manufacturing activity and infrastructure spending. Indias inflation level stood at 5.7%, primarily driven by fluctuating vegetable prices and food grain inflation. Indias economy grew at its fastest pace in one-and-half years in the final three months of 2023, led by strong manufacturing and construction activity. Additionally, the Governments emphasis on monitoring the Middle East conflicts impact on energy and logistics costs helped the Indian economy remain resilient throughout the 2023 despite the challenging global environment. The Indian economy soared ahead in the December quarter (the third quarter of FY24) with a surprise growth of 8.4%, belying fears of tempering as the manufacturing, electricity and construction sectors put up a robust show.

This strong growth of GDP was mainly propelled by large government expenditure on the demand side. There was approximately 31% YoY increase in Central Government capital expenditure (CapEx) and 43% increase in State Government CapEx during April–November 2023. On the supply side, mining, manufacturing, construction and certain services helped the economy sustain growth momentum. Mining sector benefitted from policy reforms, increased domestic and global demand and rising prices which led to robust production of several minerals including coal, natural gas and iron ore. The strong growth in manufacturing was driven mainly by the easing of global commodity prices across energy, metal, and food categories, which boosted profitability of manufacturing firms. Construction sector gained from higher government CapEx and an increase in demand for office spaces and housing, especially in urban areas. Additionally, financial, real estate and professional services are expected to witness robust growth, likely due to buoyant bank credit growth, strong demand for real estate, especially in urban areas and growth in professional services, especially global capability centres in India.

Indian MSME sector

The Indian Micro, small and medium-sized enterprises (MSMEs) is one of the pillars the Indian economy as it is one of the primary drivers of economic development, innovation, and employment in India. MSMEs sector is characterized by minimal investment, increased job opportunities, operational flexibility, reduction in regional disparities and import substitution. In India, more than 95% units are engaged in the MSME sector and contribute to approx. 30% of India GDP, 45% of manufacturing output, 40% of the countrys total export and creates around 11.10 crore jobs.

The introduction of micro, small, and medium enterprise (MSME) financing in India has served as a catalyst for the expansion of the MSME sector. This growth has been further supported by the emergence of neo-banks and digital payment channels. The digitalization of MSMEs has brought about numerous benefits, including access to a larger client base, reduced reliance on staff, increased production efficiency during economic downturns, streamlined transactions between buyers and sellers, and more.

The Government of India has been actively promoting initiatives to bolster the growth of MSMEs in the country, leading to a significant shift from offline to online business operations within the sector. MSMEs are increasingly leveraging technology to enhance their processes, improve efficiency, and deliver prompt services to their customers and clients. This transition underscores the sectors commitment to embracing digital advancements and adapting to the evolving business landscape.

Key Budget takeaways for the Indian MSME Sector

Credit Guarantee for MSMEs: A significant initiative aimed at supporting first-generation entrepreneurs in their pursuit of self-employment. The scheme encourages entrepreneurs by providing credit guarantee funding for third-party guarantee-free and collateral-free loans. A part of the Credit Guarantee scheme, the government revamped the Credit guarantee trust for the small micro-enterprises scheme with a required infusion of 9,000 crore, effective April 1, 2023.

Increased allocation for MSME sector: The budget allocation for the MSME for FY2021-22 was more than doubled to 15,700 crore from 7,000 crore in 2019-20. In the Union Budget 2023-24, the allocation was further enhanced to 22,138 crores.

Changes in presumptive taxation rules: The government has raised turnover limits for presumptive taxation, increasing it from 2 crore to 3 crore for micro units and from 50 lakh to 75 lakh for certain professionals this fiscal year. However, those opting for presumptive taxation must ensure cash receipts dont exceed 5% of total receipts. Also, under this system, individuals and businesses are relieved from maintaining account books or undergoing audits.

Reduced cost of financing for MSMEs: With the new credit guarantee programme, the government plans to reduce the cost of financing for MSMEs by 1% and enable them to obtain an additional 2 lakh crore in collateral-free credit guarantees. Further, another programme called Raising and Accelerating MSME Performance (RAMP) with an outlay of 6,000 crore was also announced as part of the budget.

Subordinated Debt for MSMEs: Under this scheme, the government announced subordinate debt for MSMEs in the tune of 20,000 crore ($3 trillion) Automatic loans without collateral for businesses, particularly MSMEs MSME Fund of Funds equity infusion of 50,000 crore MSMEs are now being registered using "Udyam Registration" for the convenience of doing business There are no international bids for purchases under 200 crores.

Vishwas-I voluntary initiative: During the MSME Budget 2023, the FM also stated that MSME suppliers who were unable to fulfil contracts during the Coronavirus pandemic will get 95% of their forfeited amount back from the government and the government undertakings with which they were working. The FM announced this relief measure under the Vivad Se Vishwas-I voluntary initiative, which was launched in 2020 to resolve pending direct tax disputes. This move will benefit MSMEs who do not have access to institutional financing.

Contractual dispute settlement (Vivad Se Vishwas-II): Under the Vivad se Vishwas II scheme, all commercial disputes involving the government or government undertakings will be settled through a "voluntary settlement scheme," containing standardized terms. The settlements will be graded according to the pendency of the dispute.

Enhancing last-mile connectivity: About 100 transport infrastructure projects have been identified in the Union Budget, that will help sectors like coal, fertilizer, food grain, steel and shipping. These projects, amounting to 75,000 crore, will be funded in part by private players to the tune of 15,000 crore.

Ensuring infra boost for Tier-I and Tier-II cities: The government has earmarked 10,000 crore for the creation of the Urban Infrastructure Development Fund (UIDF), which will empower small cities to set up the infrastructure necessary for maintaining adequate sanitation and hygiene. The government aims to make these cities more sustainable and cleaner through this move.

Outlook

The latest report released by the Indian Finance Ministry indicates a promising economic growth outlook for India in the fiscal year 2025. Strong growth and robust fundamentals are contributing to this positive forecast. Factors such as a healthy rabi harvest, sustained manufacturing profitability, resilience in the services sector, and an expected improvement in household consumption and private capex cycle are expected to drive economic activity in the upcoming financial year.

The Indian economy has demonstrated resilience over the past three years, with high growth rates attributed to strong private consumption. Investment in the economy is on the rise, with public capex encouraging private investment. This has led to the establishment of new plants and the acquisition of machinery to meet increasing capacity utilization. According to the Reserve Bank of India, Indias GDP is expected to grow by more than 7% in FY25 also.

Despite these positive trends, there are some challenges on the horizon. Geopolitical tensions, supply chain disruptions, higher logistics costs, volatility in international financial markets, and geoeconomic fragmentation are concerns that the government will need to address.

Overall, the economic outlook for India in FY25 is optimistic, with strong growth prospects supported by various factors. It will be important for policymakers to navigate potential challenges effectively to ensure continued economic growth and stability.

Indian paint and coating industry

After experiencing two years of consistent growth, the Indian paint and coating industry is expected to see a minor dip in growth in FY24, with projected expansion of 9 – 10% during the fiscal year. This moderation in growth is expected to be partially offset by improvements in operating margins, which are anticipated to increase by 100 to 200 basis points. These improvements can be attributed to the decrease in prices of critical raw materials and price increases implemented by key industry players during the fiscal year under review.

Estimated to be valued at 630 billion (nearly US$8 billion) at the end of the FY23, the Indian paint industry exhibits an oligopolistic structure, with the top five players dominating approximately 90% of the organized market. Factors such as a growing population, positive demographics, increasing urbanization, rising disposable income, and the governments focus on infrastructure development have directly and indirectly contributed to the increased demand for paint and coatings products in India, thereby driving growth in the industry.

In terms of consumption, decorative paints hold a majority share, contributing to about 70% of the market, while industrial paints account for the remaining 30%. Demand dynamics are largely shaped by the real estate sector, which commands approximately 70% of the total market demand. The remaining demand emanates from diverse sectors including automotive, oil and gas, aerospace, and marine, among others.

Over the years, the paint industry market size in India has grown into a dynamic and rapidly expanding landscape. Thus, the India paints and coatings market size is estimated to be valued at USD 9.56 billion by the end of 2024, and is expected to reach USD 15.00 billion by 2029, growing at a CAGR of 9.38% over the five years.

Key trends observed in the Indian paint industry

Softening raw material prices expected to help in margin expansion in FY24

The cost of raw materials makes up 50-60% of total sales in the paint manufacturing industry. Key raw materials include titanium dioxide, phthalic anhydride, solvents, pigments, resins, and other derivatives of crude oil. Prices of these key raw materials have remained high in fiscal years 2022 and 2023 due to disruptions in the supply chain caused by the pandemic and the Russia-Ukraine war, which in turn affected crude oil prices. However, in the first half of FY24 with a decrease in crude oil prices, the prices of key raw materials witnessed a decline. As a result, with the paint prices remaining stable, the industry is projected to see an increase in profit margins in fiscal year 2024, ranging from 100 to 200 basis points.

Growing competition with new entrants entering the market

In recent years, new entrants like Grasim Industries, Pidilite, and the JSW Group have entered the paint industry, challenging established players. Despite their strong financial backing, its expected to take them five to seven years to establish a significant market presence. Success in this industry hinges on distribution and advertising spending. The top five players have extensive dealer networks nationwide, requiring significant time and investment for newcomers to match. Thereby, resulting in enhanced competition.

Demand from key end-user industries to support growth

About 70% of paint usage stems from the real estate sector, projected to experience robust demand in FY24 and the years ahead due to the completion of major projects and increased government investment in affordable housing and infrastructure. The industry expects a 10% rise in residential property sales across the top fifteen cities in CY2024. Demand for decorative paints is increasing due to more repainting and home sales. While new construction typically accounts for 20% of decorative paint demand, the remaining 80% from repainting is also growing due to demographic growth, more rental properties, and higher consumer incomes. Moreover, homeowners are repainting more frequently. Industrial paints constitute the remaining 30% of paint demand, driven by sectors like automotive, oil and gas, aerospace, marine, and electronics. The automotive industry, in particular, is set for significant growth in FY24 and beyond, influencing industrial paint demand.

Rising capacity expansion plans by the key players

The capacity of the top five players is pegged at around 4.22 Mn KL per annum as of the end of FY23. The industry has a planned capex of 20,000-22,000 crore over the next three to four years with 10,000 crore planned by Grasim Industries and 8,750 crore by Asian Paints. This is expected to increase the overall capacity by 20% in turn increasing the competitive intensity and restricting the margins for top players over the long term.

Key factors to drive the growth of the Indian paint industry

1. Architectural coatings are used for commercial purposes, such as office buildings, warehouses, retail convenience stores, shopping malls, and residential buildings. Demand from the architectural segment is expected to be robust in 2024, with an expectation of significant project completion and increased government spending on affordable housing and infrastructure.

2. Demand from repainting, which accounts for a significant share in the total decorative paint demand, has been gradually picking up in India due to factors such as a growing population, an increase in rental homes and growth in the income levels of consumers.

3. Value added and premium products in the Indian architectural segment are growing at a very healthy rate as builders, contractors and architects are becoming more aware of the benefits of using value-added paints and coatings to improve the aesthetic and functional benefits of the construction.

4. India has been experiencing rapid urbanization and infrastructure development, which has led to a surge in construction projects. Thus, this has directly increased the demand for architectural paints used in buildings and structures.

5. The residential sector in the country is on an increasing trend, with government support and initiatives that are further boosting the demand. For instance, the Ministry of Housing and Urban Development (MoHUA) allocated the funds of 76,549.46 crore in the 2022-23 budget for the construction of houses and the creation of funds in order to complete the halted projects.

6. Furthermore, according to Business Today, the government has allocated 80,671 crore for initiatives, such as the Pradhan Mantri Awas Yojana (PMAY) program, which is intended to provide affordable homes to many people. Also, the government offers subsidies for interest on housing loans if the citizens wish to build or buy their first house.

7. According to the Economic Times, in July - September 2023, compared with a year earlier, the construction sector grew by 13.3%, up from 7.9% in the previous quarter and its best performance in five quarters.

8. Home sales in Indias seven most prominent cities, including Mumbai, New Delhi, and Bangalore, increased by 36% in the July-September quarter in 2023 from the previous year to more than 112,000 units, with an 8-18% increase in prices, according to data released by the Economic Times.

9. Also, the country is expanding its commercial sector, which has a positive impact on the architectural emulsion coatings market.

10. Over the past decade, Indias automotive production has steadily risen, making it a crucial market for domestic automotive paint and coating manufacturers. The consistent double-digit growth in the Indian automotive industry has propelled the automotive coating sector to new heights. Furthermore, India is anticipated to play a significant role in the global automotive industry in the medium and long term.

Outlook

The Indian paint industry is experiencing a transformative shift as consumer preferences evolve from traditional whitewashing to premium quality emulsions and enamels. This transition is fostering a stable foundation for the industrys expansion. Concurrently, a fiercely competitive landscape is emerging, with companies deploying diverse strategies to capture a larger slice of the burgeoning demand. Additionally, the upward trajectory of the middle classs disposable income, combined with increased investments in education, the urbanization wave, the rural markets development, and the introduction of innovative products like eco-friendly, odorless, and resilient paints against dust and water, are pivotal factors fueling the Indian paint markets robust growth.

Analysts anticipate robust demand from the real estate sector in FY25 due to expectations of substantial project completions and increased government expenditure on affordable housing and infrastructure. The recent government announcement to construct two crore affordable houses over the next five years under the PM Awas Yojana (Grameen), in addition to the three crore houses already under implementation, is expected to sustain the momentum in demand for the Indian paint industry while also encouraging new players to invest in the sector.

Indian Plastics Industry

Since its inception in 1957, the Indian plastics industry has witnessed significant growth and expansion. Today, it stands as a prominent sector within the nations economy, comprising over 30,000 companies and employing more than 4 million people. India also ranks among the worlds top exporters of plastic products. These exports include a diverse range of raw materials, laminates, electronic equipment, medical devices, and consumer goods, reaching more than 150 countries, with a firm presence in Europe, Africa, and Asia.

With the potential to emerge as the global plastics supplier, the Indian plastics industry is expected to more than triple to reach 10 lakh crore by 2027-28 with import substation offering a huge growth opportunity to the industry and with plastics consumption rising at 16% per year, according to the All-India Plastics Manufacturers Association (AIPMA). Considering a rising middle class with low per capita consumption of plastics. This high progress rate is expected to continue, as the per capita consumption of plastics will certainly increase. According to the Government of India, India is the third largest consumer of plastic after USA and China, where almost an average Indian consumes 13 kg annually versus 27 kg globally. Valued at around USD 43.68 billion at the end of 2023, the Indian plastics industry has a growing export presence and has more than 2,000 exporters and exports plastic products to more than 200 countries. India manufactures various products such as plastics and linoleum, houseware products, cordage, fishnets, floor coverings, medical items, packaging items, plastic films, pipes, raw materials, etc. While the country majorly exports plastic raw materials, films, sheets, woven sacks, fabrics, and tarpaulin.

Government initiatives

The Plastic Export Promotion Council (PLEXCONCIL) has aimed to boost the countrys plastic exports to US$ 25 billion by 2027. The establishment of several plastic parks across the nation in stages is expected to enhance the countrys plastic manufacturing capacities. Through the plastic park initiatives, the Government of India offers financial assistance of up to 50% of the project expenses or a maximum of 40 crore (US$ 5 million) per project.

Initiatives by the government such as "Digital India," "Make in India," and "Skill India" are set to provide a significant boost to Indias plastic industry. For example, within the "Digital India" campaign, the governments goal is to diminish the reliance on imported goods, a move that will benefit domestic plastic component manufacturers.

The government also launched a program for building Centres of Excellence (CoEs) to develop the existing petrochemical technology and promote the research environment pertaining to the sector in the country. This will aid in promoting and developing new applications of polymers and plastics in the country. Additionally, about 23 Central Institute of Plastics Engineering & Technology (CIPET) have been approved to accelerate financial and technological collaboration for promoting skills in the chemicals and petrochemicals sector.

Outlook

The Indian plastics industry is poised for significant growth in the coming years, driven by several critical factors. The increasing popularity of bioplastics and the preference for engineering plastics over traditional variants are expected to act as major growth catalysts. Furthermore, the sector will receive a boost from the expanding plastic manufacturing landscape and rising demand from pivotal end-user industries, such as automotive, electrical & electronics, and consumer goods.

Additionally, the industry benefits from a thriving ecosystem of ancillary sectors, including machinery, technology, exporters, importers, recyclers, and more, all of which play integral roles across the value chain.

With import substitution estimated at 37,500 crores and a plethora of emerging opportunities, the prospects extend far beyond mere growth figures. This scenario not only promises substantial potential for employment generation but also opens doors to greater entrepreneurship opportunities.

Indian chemicals industry

The Indian chemical industry holds a significant stature globally, consistently ranking as the worlds sixth-largest producer and Asias fourth-largest chemical producer. It accounts for approximately 2.6% of the global chemical industry, with projections indicating a growth rate of 9.3%, potentially reaching a valuation of US$ 304 billion by the year 2025 and expected to reach US$ 1 trillion mark by FY 2040. Encompassing a broad array of segments including basic chemicals, specialty chemicals, textiles, paper, paints, soaps, agrochemicals, pharmaceuticals, and petrochemicals, the Indian chemical industry is witnessing substantial expansion. This growth is propelled by increasing domestic consumption, export prospects, and supportive government policies, such as the ‘Make in India initiative.

Amidst the China-plus-one strategy, which aims to establish alternative manufacturing hubs, India emerges as a significant beneficiary. Countries and corporations alike are actively diversifying and mitigating risks in their supply chains. Factors such as shifting geopolitics, trade conflicts, stringent environmental regulations, and rising labor costs in China contribute to this trend. Additionally, the chemical manufacturing sector is poised to play a pivotal role in Indias journey towards becoming the worlds third-largest economy. It aligns with the governments vision of an ‘Aatmanirbhar Bharat and supports the ambitious goal of achieving a $30 trillion economy by 2047.

Key government initiatives to boost Indias chemical sector

Increased budget allocation: In the Union Budget 2023-24, the central government allocated US$20.93 million to the Department of Chemicals and Petrochemicals. This allocation underscores the governments commitment to support and further develop the chemical sector.

PCPIR (Petroleum, Chemicals and Petrochemical Investment Regions) Policy 2020-35: The PCPIR Policy 2020-2035 aims for substantial investments in all PCPIRs across the country. By 2035, a total investment of US$ 284 billion is anticipated. These initiatives are expected to create employment opportunities for

The chemical industry can be segmented into four main categories based on functionality and application: (a) Pharmaceuticals, (b) Agrochemicals, c) Industrial Chemicals (which encompasses solvents, lubricants, and catalysts), and (d) Specialty Chemicals (comprising specialized products such as specialty polymers, coatings, and electronic chemicals). Of these, the Specialty Chemicals segment is poised for the most rapid growth, with expectations to reach a market value of around $50 billion by 2025. Indias chemical sector is remarkably diverse, spanning over 80,000 products and providing employment to more than two million individuals. approximately 33.83 lakh people, with around 3.50 lakh people already employed in direct and indirect PCPIR-related activities as of 2020.

Chemical Promotion and Development Scheme (CPDS): The CPDS aims to foster growth in the chemical and petrochemical industry by disseminating knowledge through studies, surveys, data banks, and promotional materials. Its key components include creating knowledge products, sharing information, and recognizing excellence in research and innovation. Additionally, the Indian government has established research entities, schemes, and councils to enhance skilled manpower, boost manufacturing competitiveness, and support the development of petrochemical technology and polymer applications. Initiatives like the Centre of Excellence (CoE) and funding for the Central Institute of Plastic Engineering and Technology (CIPET) contribute to this endeavor.

E-Vehicle Ecosystem Boost: The government seeks to enhance the electric vehicle (e-vehicle) ecosystem by bolstering manufacturing and charging infrastructure. A key emphasis is on promoting wider adoption of e-buses in public transport networks, facilitated by a payment security mechanism. This effort is anticipated to have a favorable effect on specialty chemicals, including those used in construction and battery manufacturing for EV components.

Green Growth Initiatives: The budget introduces a new scheme for bio-manufacturing and bio-foundry to promote green growth. This initiative focuses on producing environmentally friendly alternatives like biodegradable polymers, bio-plastics, bio-pharmaceuticals, and Bio-Agri-inputs. It represents a crucial move towards sustainable practices by embracing regenerative principles in manufacturing.

Towards ‘Net-Zero Commitment: The budget aligns with the commitment to achieve ‘net-zero emissions by 2070. It introduces several measures, including viability gap funding for offshore wind energy, coal gasification and liquefaction capacity expansion, and mandatory blending of compressed biogas (CBG) in natural gas for transport and domestic use.

Product Linked Incentive (PLI) scheme for chemicals: The demand for chemicals in India has surged and is expected to persist for the next two decades. To boost domestic manufacturing, the government could introduce a Production Linked Incentive (PLI) scheme for the chemical industry. Despite having the potential to be a global manufacturing hub, the Indian Chemical industry is still awaiting the eagerly anticipated production-linked incentive program, which was absent in the recent budget.

Key government initiatives to kick-start journey towards net-zero

Increasing FDI to bring in international expertise in India: The chemicals sector permits 100% FDI via the automatic route, with minimal exceptions. FDI in chemicals surged by 91% in FY 2023, driven by heightened global investment. This influx facilitates the adoption of advanced technologies and sustainable methods, promoting eco-friendly manufacturing. Consequently, it bolsters sectoral efficiency while supporting Indias environmental objectives, advancing towards a greener tomorrow.

Focus on skill development: The Indian government is actively promoting skill training, technology, academia, and research to enhance the chemicals sector. This is exemplified by the establishment of Centers of Excellence (COEs) under the National Policy on Petrochemicals and the Chemicals Promotion Development Scheme (CPDS).

Boosting the production of non-hazardous chemicals and curbing imports of substandard products: To support local manufacturers, the Indian government deregulated non-hazardous chemical production and imposed anti-dumping duties on inferior imports. These measures aim to boost domestic producers, leading to greater scale and profitability in the industry.

Initiatives in the pipeline: The proposed reform involves a significant overhaul of the 2007 Petroleum, Chemicals & Petrochemical Investment Regions (PCPIRs) policy, which aimed to create integrated chemical complexes and shared infrastructure. This policy is awaiting a comprehensive review. Furthermore, the government is promoting the establishment of plastic park clusters and chemical manufacturing units in designated areas, including SEZ/NIMZ and regions like Northeast, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand, to boost the chemical sectors growth. Additionally, the Centre is working on a Production Linked Incentive (PLI) scheme for the chemical sector, focusing on agrochemical intermediates, pharmaceutical intermediates, dyes, and multi-use chemicals, to improve manufacturers cost competitiveness.

Demand drivers

• Increased disposable income, a growing urban population, and rising demand from rural markets.

• A shift in production and consumption towards Asian and Southeast Asian countries, driving demand for chemicals and petrochemicals.

• Consumer preferences favoring healthier lifestyles and eco-friendly products.

• The Production Linked Incentives scheme for Advanced Cell Chemistry Batteries under the Atmanirbhar Bharat Abhiyaan.

• The skilled and low-cost labour, world-class engineering and strong R&D set-up is expected to propel the growth of the Indian chemicals industries.

• The dedicated integrated manufacturing hubs under PCPIR policy is expected to attract an investment of 20 lakh crores (US$ 276.46 billion) by 2035.

Outlook

Disruptions in Chinas supply chain have sparked numerous opportunities within Indias chemical manufacturing industry. These emerging prospects align with Indias ambition to cater to evolving global needs and position itself as a frontrunner in the international chemical market. Anchored by the Petroleum, Chemicals, and Petrochemical Investment Region (PCPIR) policy, India targets an investment inflow of $284 billion (20 lakh crores) by 2035, strategically clustering investments to propel the chemical sector forward significantly. Moreover, Chinas anti-pollution measures are expected to further bolster Indian chemical manufacturers.

Indias chemical industry holds a promising outlook, offering a plethora of growth opportunities and the potential for global leadership. Favorable growth projections and key metrics point towards Indias trajectory to become the foremost chemical manufacturing hub over the next two decades. With mounting domestic demand and expanded export avenues, chemical and petrochemical companies are poised to play pivotal roles in this transformative journey. The leadership of Indias prominent petroleum and chemical industry players, along with the support of the central government, will be instrumental in shaping the nations advancement in this sector.

Indian speciality chemicals industry

The Indian specialty chemicals industry has expanded exponentially in recent years. Speciality chemicals are a new area mostly used for industry purposes and also have applications in the agrochemical and food industries. Distinguished by their specialized attributes and performance advantages tailored for specific applications, these chemicals often command a higher price point compared to commodity chemicals.

The Indian specialty chemicals sector looks at a period of fast-paced growth driven by several market forces. India is emerging as a preferred manufacturing hub for specialty chemicals for domestic and export markets. Specialty chemicals constitute approximately 20% of the total chemicals market in India by value and it is projected to reach USD 64 billion by 2025. Manufacturers of specialty chemicals can target segments such as agrochemicals, pharmaceuticals, textiles, and polymers, among others. India is on the path to doubling its specialty chemicals market share in 5 years, as China has been losing its cost-competitiveness and dominance in the market due to increased environmental costs and reduced government sops.

The rise of Indias specialty chemicals market owes much to the nations robust process engineering capabilities, cost-effective manufacturing prowess, and abundant skilled workforce. Moreover, strategic government initiatives like the Petroleum, Chemicals, and Petrochemicals Investment Region (PCPIR) policy and production-linked incentives (PLI) schemes have bolstered manufacturers confidence in investing domestically. India, currently holding a modest 3.6% share in the global specialty chemicals industry, is on the brink of significant growth. With a projected CAGR of 11% until FY26, India is positioning itself for a substantial leap forward.

As environmental regulations tighten and labor costs escalate elsewhere, manufacturers seek diversification. Indias favorable ecosystem positions it as a compelling alternative for global players, propelling rapid growth in the Indian specialty chemicals market. Construction chemicals, flavours and fragrances and dyes and pigments can drive the growth of the domestic specialty chemicals industry.

The Indian specialty chemicals industry is experiencing rapid growth, but companies must remain agile to adapt to changing macroeconomic and industry dynamics. Sustainable and transformative growth requires customer-centric strategies, resilient supply chains, and investments in R&D and digitalization. Reducing the carbon footprint and seeking government support are crucial. While population growth and rising income drive the industry, innovation, decarbonization, and workforce development are essential for a quantum leap.

Company overview

20 Microns Limited is one of Indias leading and fastest-growing micronized industrial minerals and speciality chemical manufacturing company with over three decades of enriching industry experience. Leveraging extensive industry expertise and in-depth domain knowledge, the Company manufactures and supplies a wide range of micronized minerals, white minerals and specialty chemicals to both local and international markets.

Our specialized micronized mineral products and speciality chemicals find applications in various industries such as paints, powder coating, plastics and polymers, rubber, paper, adhesives and sealants industry, among others. Backed by eight mines (five captive and two leased), nine state-of-the-art manufacturing facilities and two R&D centres, 20MLs commitment to product quality enables it to export its product to Asia, Europe and the Latin America, alongside its domestic sales in India.

With a successful record of innovation and pioneering new products and processes, we have a leading presence in the product segments such as Calcined & Hydrous Kaolins, Coated & Uncoated Calcium Carbonates, Talcs, Barytes and Quartz among others. Our competitive edge is further enhanced by the diversity of our product portfolio moving towards high-value-added specialty chemicals.

India ceramics Industry

The Indian ceramic tiles market is projected to grow substantially, estimated at USD 6.14 billion in 2024 and anticipated to reach USD 9.23 billion by 2029, reflecting a CAGR of 8.49% during the forecast period (2024-2029). Despite steady growth in recent years, the sector faced significant challenges during the COVID-19 pandemic, with Indias GDP plummeting and the economy contracting by 7.3% in the April-June quarter of 2021. The national lockdown in March 2020 prompted approximately 10 million migrant workers to return to their native regions, leading to a labor shortage and hindering timely project completion for ceramic tile manufacturers. However, as the lockdown measures eased, the ceramic tile industry emerged from the crisis resiliently, and post-COVID, demand for ceramic tiles in India is expected to surge.

India stands as one of the fastest-growing markets for ceramic tiles globally, propelled by factors such as the burgeoning real estate sector and supportive government policies stimulating growth in housing.

Furthermore, increasing disposable income and a growing aspiration for aesthetically pleasing living and working spaces are driving demand for ceramic tiles. Emerging trends like touchless and hygiene-focused bath ware products and germ-resistant tiles are gaining traction and are expected to witness increased demand in the forecast period. Government initiatives like ‘Pradhan Mantri Awas Yojana and ‘Smart Cities are poised to further boost the real estate market in India.

The Real Estate (Regulation and Development) Act (RERA) has brought transparency and process efficiency to the real estate sector, with significant implications for the ceramic industry. Remodeling activities are anticipated to surge during the forecast period, driving demand in the residential segment of the Indian ceramic tiles market. Consumers are increasingly investing in enhancing the aesthetic appeal of their walls and floors, a trend expected to significantly boost product demand in the residential market in the years to come.

20 Micron Limited boasts a diverse product portfolio that spans three main categories: industrial minerals, specialty chemicals, and plant growth stimulators and construction chemicals. Within this portfolio, our value-added industrial minerals and functional additives in the specialty range have experienced substantial growth over the years. Today, we proudly stand as one of Indias fastest-growing Industrial Minerals & Additives companies, offering a stable and expanding range of innovative products. Looking ahead, 20 Microns Limited aims to concentrate on the specialty chemical and value-added segment, gradually enhancing its capabilities. Our focus remains on achieving stability in the bottom line while expanding profit margins. With a track record of successful innovation and the development of new products and processes, our company is committed to establishing a robust presence in the specialty chemical, value-added product, and mineral-based fertilizer business sectors. Looking ahead, 20 Microns Limited aims to concentrate on the specialty chemical and value-added segment, gradually enhancing its capabilities. Our focus remains on achieving stability in the bottom line while expanding profit margins. With a track record of successful innovation and the development

Business segment review

Segment I

Paints and Coatings

One of the Companys core focus sectors, the paints and coatings segment, significantly contributes to the overall revenue mix. As a leading supplier of industrial minerals across various particle sizes (from coarser to fine and ultra-fine), the Company holds a prominent position. Today, we proudly serve as a Level 1 supplier of micronized industrial minerals to major paint and coating manufacturing companies. Additionally, we introduced a couple of new products during the year to strengthen our presence in this segment.

Core products

Engineered Kaolin : Calcium Carbonate : Talc : Mica : Silica : Opacifiers : Matting Agent : Rheological Modifiers : Colored Quartz : Wax Emulsions

Industries served

Paint : Ink : Pigments

Revenue ( in crores) of new products and processes, our company is committed to establishing a robust presence in the specialty chemical, value-added product, and mineral-based fertilizer business sectors. Our competitive edge is further bolstered by the diversity of our product portfolio, which increasingly emphasizes high-value-added specialty chemicals.

Manufacturing and operational capacity

The company excels in manufacturing high-quality industrial minerals and specialty chemicals across nine integrated production sites located across different states. These facilities are strategically designed to cater to a diverse range of requirements and industries.

With a history of over thirty years, the Company specializes in various industrial minerals and speciality chemicals such as talcs, barytes, bentonite, calcined kaolin, calcium carbonate, dolomite, opacifiers, wax and wax additives, rheological additives and flame retardant, among others. This broad expertise within the organization enables forms the cornerstone of our offerings and enables us to deliver exceptional quality and cater to diverse industry needs.

Segment II

Polymers : Paper & Rubber

As the second most important sector after the paint and coatings industry, it significantly contributes to the overall revenue mix. In FY23, the Company further solidified its market position in India within this segment. The growth strategy was fuelled by the introduction of innovative and value-added products, expansion into new geographies, and an increase in the base of OEM clients.

Core products

Calcium Carbonates : Talc : Silica : Dessicants : Flame Retardants

: White Pigment Opacifiers : Mica : Wax & Wax Additives : Engineered Kaolins

Industries served

Polymers : Rubber : Cosmetics : Paper

Revenue ( in crores)

Segment III Allied Division

20 Micron Limiteds third-largest division within its revenue mix, catering to various industries such as ceramics, adhesive and sealants, agrochemicals, construction chemicals, oil & gas, foundry, and other verticals. The divisions key strategy revolves around consistently offering new products to enhance our customers competitiveness in terms of quality. Additionally, we aim to provide competitive alternatives to global mineral players.

Our focus lies in manufacturing innovative products for the ceramics and refractory industry at our dedicated ceramics application center. Weve successfully completed commercial trials for multi-functional mineral products designed for selective ceramics sub-applications. Furthermore, weve recently launched a new range of products in the market, receiving positive feedback from our customers. With dedicated blending platforms established for various grades, we anticipate higher sales volumes in this segment in the foreseeable future.

Core products

Calcium Carbonates : Talcs : Barytes : Hydrous Kaolins : Ball Clays : Silica : Organoclays : Rheological Thickeners

Industries served

Ceramics : Agrochemicals : Oil & Gas : Construction Chemicals : Adhesives & Sealants

Revenue ( in crores) fiercely contested market is attributed to our top-notch products, renowned for their quality and applicability. Through our innovative product line, we safeguard the integrity of concrete, mortar, plaster, and other architectural elements used in constructing building foundations. Whether its day or night, were the specialists available to meet all your construction needs.

Key function of construction chemicals

Construction chemicals are nothing but chemical compounds that play a crucial role in strengthening building structures. Its primary use is to speed up the workflow in the formations of various construction sites that may be underdeveloped or already developed. Furthermore, they are blended up with various structure materials to enhance productivity, add strength, durability, boost functionality and act as a protective shield for the other materials

Core products

Cracksil : Tigersil : Nanosil : Metakrete : Micronsil 30C Plus : Micronsil 30C

Key application industry

Real estate : Housing industry

Revenue ( in crores)

Segment IV

Construction Chemicals

One of our rapidly growing subsidiaries, the construction chemical segment, has experienced decent growth over the years. Today, we proudly stand as one of Indias new-age and innovative construction chemical companies, boasting a stable and expanding portfolio.The divisions key strategy revolves around periodically introducing new products to position ourselves as solution providers. Our competitive strength in a

Segment V Minfert

MINFERT, one of our fastest-growing business segments, is a pioneering agricultural firm specializing in the production of bio-stimulants and bio-pesticides. Our mineral-based products are designed to promote sustainable and eco-friendly farming practices, enhancing crop health, improving yield, and protecting the environment. Our innovative array of high-quality organic products has gained traction among the farming community. At MINFERT, we are equipped with a state-of-the-art research center and technical expertise in the fields of farming, life science, and chemistry. We offer a range of mineral-based fertilizers, insecticides, and soil conditioners to help farmers achieve better yield and higher-quality crops.

Key USP of our MINFERT products

Embracing the potential of organic farming to nurture a healthy and harmonious ecosystem, our team of experts is dedicated to creating and producing bio-stimulants, bio-pesticides, and plant growth stimulators. These innovative solutions offer a more natural approach to agriculture, plant growth, and crop protection by harnessing the inherent properties of plants and minerals. By eliminating harmful synthetic chemicals, our goal is to enhance soil fertility, preserve biodiversity, and promote long-term sustainability.

Core products

Tio Tiko : Nipho : Blk : Gbr : Humicrons : Tiger-Booster : Reskue : Thrips Kranti : Stilk

Key application industry

Agriculture

Revenue ( in crores)

Financial review

Revenue from operation achieved during FY2024 was 672.45 crores, as against 597.80 crores in the previous year, registering 12.49% year-on-year growth. Profit before tax (PBT) was recorded at 69.74 crores against 48.64 crores during the previous year. Profit after tax (PAT) for the year stood at 50.15 crores against 36.15 crores in the previous year. For FY2024, EBITDA grew by 24.91% YoY to 85.76 crores in FY2024, compared to 68.65 crores in FY2023. EBITDA margin for FY2024 stood at 12.75%, improved by 127 bps on a YoY basis. Various cost control measures coupled with better market dynamics led to higher growth in EBITDA.

Revenue contribution from the domestic market stood at 86% while 14% came in from exports. The Company witnessed robust demand from key end-user industries. Domestic Revenues for FY24 stood at 581.42 crores, compared to 511.51 crores in FY23. Revenue contribution from exports stood at 91.03 crores, up by 5.48% compared to 86.30 crores in the previous financial year. The Company was swift to target key export geographies that were on the path of quick post-pandemic recovery. Steady revival in economic activity, combined with cost excellence initiatives undertaken by the Company, helped increase market share in the domestic markets.

Region-wise revenue share

Total borrowings of 20ML as of March 31, 2024 stood at 96.04 crores vis-?-vis 80.95 crores as on March 31, 2023. Vide Net Debt stood at 56.97 crores vis-?-vis 63.11 crores as on March 31, 2023. 20ML reduce its interest cost by 16.51% during the year from 15.00 crores in FY23 to 12.52 crores in FY24.

Financial performance summary

	FY24	FY23	% Change
Revenue from Operation	672.45	597.80	12.49%
Other Income	8.10	6.61
EBIDTA	85.76	68.65	24.91%
Depreciation	11.59	11.63	[0.37%]
EBIT	74.17	57.02	30.08%
Finance cost	12.52	15.00	[16.51%]
Profit before Tax and Exceptional Item (PBT)	69.74	48.64	43.39%
Exceptional Items	1.56	-
Profit after Tax (PAT)	50.15	36.15	38.73%

 

Summary of Balance Sheet			Key ratios
	FY24	FY23		FY24	FY23
Equity and liabilities			EBITDA Margin	12.75%	11.48%
Equity share capital	17.64	17.64	EBIT Margin	11.03%	9.54%
Other equity	305.63	251.95	Profit Before Tax Margin	10.37%	8.14%
Non-current liabilities	40.58	43.61	Profit After Tax Margin	7.46%	6.05%
Current liabilities	160.87	147.16	Inventory turnover ratio (times)	8.46	7.55
Total	524.73	460.37	Debt Service Coverage Ratio (times)	11.07	4.20
Assets			Current ratio	1.67	1.46
Non-current assets	54.26	49.08	Debt-Equity ratio	0.30	0.30
Fixed assets	203.36	197.29	Adjusted Net debt-to-equity ratio	0.18	0.23
Current assets	267.11	214.00	Return on Equity (RoE)	16.92%	14.37%
Total	524.73	460.37	Return of Capital Employed (RoCE)	19.30%	16.97%

Risk management

A thorough risk-management framework allows us to pre-emptively monitor risks emanating from the internal and external environment. As a result, we have been able to consistently create value for all our stakeholders, despite industry cycles and economic headwinds.

Our risk mitigation plan

The Board takes the following steps as a part of its risk management and mitigation plan:

• Defines the roles and responsibilities of the Risk Management Committee

• Participates in major decisions affecting the organisations risk profile

• Integrates risk-management reporting with the Boards overall reporting framework

The Company functions under a well-defined organization structure. Flow of information is well defined to avoid any conflict or communication gap between two or more departments. Second-level positions are created in each department to continue the work without any interruption in case of nonavailability of functional heads. Proper policies are followed in relation to maintenance of inventories of raw materials, consumables, key spares and tools to ensure their availability for planned production programmes. Effective steps are being taken to reduce the cost of production on a continuing basis, taking various changing scenarios in the market.

Information Technology

Your Company recognizes the critical role of a robust IT infrastructure, both in scale and technology, as the cornerstone of stable IT systems and superior support. Boasting state-of-the-art IT systems, it possesses a comprehensive IT framework essential for managing service administration and delivery. The Companys IT setup is instrumental in generating a variety of business intelligence reports for production management, electronic procurement, paperless transactions, budgeting, forecasting, and cash flow analysis, supporting 20ML. It adheres to international benchmarks in information automation, performance metrics, remote working capabilities, and managerial excellence. The technical team is tasked with system programming and providing user support for technological advancements.

Internal control system and adequacy

The Company has in place strong internal control procedures commensurate with its size and operations. The Company believes that safeguarding of assets and business efficiency can be prolonged by exercising adequate internal controls and standardizing operational processes. The internal control and risk management system is structured and applied in accordance with the principles and criteria established in the corporate governance code of the organisation. It is an integral part of the general organizational structure of the Company and Group and involves a range of personnel who act in a coordinated manner while executing their respective responsibilities. The Board of Directors offers its guidance and strategic supervision to the Executive Directors and management, monitoring and support committees.

Human resource

The Companys seasoned leadership and deep industry expertise furnish it with a distinct edge as it continues to broaden its reach in current markets and venture into new territories. 20ML steadfastly invests in its ‘Human Capital. By integrating skilled professional management and essential staff, 20ML is fortified to operate autonomously. The company remains committed to fostering a culture of meritocracy, integrity, and adherence to legal and compliance standards. It has introduced numerous governance policies to empower employees to voice concerns without fear of retaliation or bias. The Companys Code of Conduct includes pertinent regulations aimed at preventing sexual harassment and features a whistleblower policy for the prompt reporting and resolution of issues.

The collective growth and unity of the team are the groups core strengths. Training and skill enhancement are pivotal for the personal and organizational development of the workforce. The Company conducts regular training and development programs, inspiring its employees to realize their utmost potential. Additionally, we prioritize a transparent communication hierarchy to facilitate clear dialogue between employees and management. These efforts are instrumental in attracting and retaining elite talent within the industry, contributing to the Companys reputation for having dedicated and content human resources. The Company has effectively put into practice significant HR strategies and people management techniques. As of 31^st March 2024, 20ML proudly employs over 384 individuals.

Health and safety measures

The well-being of our staff is of paramount importance. Leadership in our factories spearheads our commitment to health, safety, and environmental (HSE) standards, conducting frequent audits to bolster our workforces health and safety. With their guidance, weve implemented numerous initiatives to enhance our personnels safety. Additionally, we have formed teams dedicated to quickly identifying and addressing safety issues at each manufacturing location. Our Company enforces a comprehensive set of health and safety guidelines that all employees across every site must rigorously follow.

In light of the pandemic, we intensified our focus on these protocols. Beyond adhering to governmental regulations, weve instituted regular sanitization processes and enforced proper social distancing measures. Proactive steps, including routine employee health checks and controlled access via oximeter and thermal screenings, were promptly put in place. Moreover, we initiated wellness programs for our employees and their families, aimed at fostering resilience, adapting to change, and improving overall well-being during these trying times.

Cautionary statement

The statements made in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws & regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand-supply and price conditions in the domestic & overseas markets in which the Company operates, changes in the government regulations, tax laws & other statutes & other incidental factors.