Economic and Industry Overview
Global Economy and Outlook
Global economic growth significantly slowed in 2022 due to various
factors including elevated commodity prices, energy supply concerns in Europe, fallout
from prolonged Russia-Ukraine conflict and slowdown in China due to strict lockdown
policies (which were relaxed in late 2022). Going forward, IMF expects Economic growth to
fall from 3.4% in CY2022 to 2.8% in CY2023 with a marginal rise to 3.0% in CY2024. Growth
is expected to be largely driven by Asian economies as developed countries continue to
witness prolonged growth slowdown impacted by crises on several fronts – very high
inflation, worsening financial conditions, continued disruption from Russia – Ukraine
conflict and declining confidence in the overall banking sector. Inflationary pressures
led to synchronous and rapid monetary policy tightening by Central Banks across the globe.
This coupled with slow growth and heavy indebtedness in corporate sector has raised fears
of recession in the major economies and is likely to weaken investments. Growth in global
trade also decelerated from H2 2022, mirroring slowdown in global industrial production
and is expected to further decline in 2023 due to weakening demand.
Indian Economy and Outlook
Despite significant triple shocks over the last 2 years, namely –
Covid-19 fallout, prolonged Russian-Ukraine conflict and monetary tightening by central
banks across the world economies, India maintained its position of the fastest growing
economy in the world for the last both years. Indias Gross Domestic Product (GDP) is
projected to expand by 7.2% in FY 2022-23 as per the latest estimates released by Central
Statistical Office (CSO). Relatively quicker recovery from pandemic and robust GDP growth
in FY 2022-23 was reinforced by buoyant private consumption and strong capital formation
bolstered by the governments continued capital expenditure push even during the
pandemic period. Governments continued policy thrust on capital expenditure through
infrastructure spending was visible in the Union budget for FY 2023-24 as well with
increased capital investment outlay by ~37% to Rs 10 lakh crore.
Agriculture and allied sectors have also contributed to economic
resilience growing at 4.0% year-on-year in FY 2022-23. The overall food-grain production
is estimated to have grown by 4.7% year-on-year reaching record levels in FY 2022-23, as
per third advance estimates. India is set for another record year of merchandise exports
having registered 6% year-on-year growth to reach an estimated $447.5 billion during FY
2022-23.
The sustained resilience of Indian economy amidst global uncertainties
is expected to continue in FY 2023-24 as well. As per consensus forecasts, Indias
GDP growth in FY 2023-24 is expected to be in the range of 6.0% - 6.5%. The primary growth
drivers include robust private consumption, Governments firm focus on infrastructure
spending and enhanced credit growth supported by deleveraged corporate balance sheets
coupled with improved asset quality of the banks. Strong infrastructure push under the
Gati Shakti (National Master Plan for Multimodal Connectivity) initiative and logistics
& industrial corridor development is expected to drive industrial competitiveness in
the long term and support future growth.
Agrochemical Industry and Implications for the Company
India is the 4th largest producer of agrochemicals in the
world, after the US, Japan and China and accounts for around 15% of the global
agrochemical market. Over the past few years, agrochemical industry has been expanding at
an accelerated pace owing to conducive macroeconomic environment.
In FY 2022-23, growth in Agrochemicals sector was largely driven by
higher prices while volumes remain muted in both domestic as well as export markets.
Indias exports of Agrochemicals in FY 2022-23 grew by 9.9% in value terms while
declined by 2.8% in volume terms as compared to same period last year (Source: Chemexcil).
Volume growth in domestic market was also impacted by high level of
channel inventories due to adverse climatic conditions, lower instances of pest
infestation, and sowing delays etc. While headline rainfall numbers indicated above
average monsoon in 2022, the season was marked by highly erratic spatial distribution,
extended withdrawal of monsoon and instances of flooding & crop damages. Southern and
Western parts of the country received excess rains while Eastern region witnessed rainfall
deficit for the entire season. The Kharif season for Agrochemical sector was impacted by
lower spraying opportunities due to crop damages, erratic rainfall and low pest
infestations while sowing in Rabi season got delayed on account of untimely and heavy
rainfall in October due to extended monsoon withdrawal. Consequently, channel inventories
in the domestic markets remained above normal levels impacting new product placements and
volume growth.
In the export markets as well, a number of active ingredients and
intermediaries witnessed drop in volumes during the year on account several factors such
as high inventories, de-stocking strategies, demand slowdown amid adverse climatic
conditions in important regions. Aggressive stocking before 2022 amid supply chain
uncertainties has likely resulted in higher than average inventories in some of the
regions globally. Key industry players resorted to inventory optimisation strategies with
sudden rise in interest rates and sharp price corrections of intermediates, which impacted
export volumes.
CRISIL expects industry to continue growing at 10-12% in FY 2023-24 as
well. The growth is expected to be largely driven by exports while domestic market will
grow at a slightly lower pace. The overall industry is expected to grow at a CAGR of 8-10%
by 2025. However, operating margins are expected to moderate in the near future on account
of high input costs.
KEY DRIVERS
• India ranks amongst the lowest in terms of application of crop
protection chemicals per hectare as compared to other advanced agriculture producing
nations. At the same time, India also has one of the lowest yields per hectare amongst its
global peers. Given the high focus on increasing the yield per hectare, limited arable
land and rising labour costs, there is a huge growth potential for crop protection
products in the country.
• In terms of exports, Indian agrochemical companies have been
witnessing sharp rise in demand for crop protection intermediates and active ingredients.
As per the CRISIL research, the uptick in demand is being driven by multiple tailwinds
such as ‘China plus one strategy adopted by global companies to reduce
dependency on Chinese markets. This along with growing operational and compliance costs in
China, import substitution and favourable currency are driving demand growth.
• Furthermore, Indian companies also benefit from R&D
expertise, skilled manpower and improving regulatory framework.
Your Company is one of the leading players in triazole fungicides and
is well placed to capitalize on opportunities arising in the domestic as well as the
international markets with well-established market credentials. The Company has 4
manufacturing facilities in Mahad, Maharashtra and has recently commissioned a
state-of-the-art Research and Development (R&D) Center which will further augment your
Companys R&D capabilities. Your Company is also expanding existing herbicide
facility, which was commissioned in FY 2021-22, to cater to growing Contract manufacturing
business. The Company has already built a strong reputation for its specialisation in
multi-step synthesis undertaking complex chemical reactions with a focus on developing
innovative manufacturing processes. Astecs strong progress made in backward
integration projects is also expected to aid in margin expansion. While demand for
triazole fungicides is expected to remain strong in both global as well as domestic
markets, your Company is also focused on diversifying its operations by increasing
proportion of contract manufacturing business.
Companys Financial and Operational Performance
In FY 2022-23, your Company recorded total income of Rs 64,122.63 Lakh
as compared to Rs 68,703.39 Lakh in FY 2021-22 and Profit after tax of Rs 2,559.39 Lakh in
FY 2022-23 as compared Rs 8,988.26 Lakh in FY 2021-22. Your Company, in line with the
long-term strategic ambitions, continued to focus on contract manufacturing (CDMO) segment
and achieved 1.9x growth in revenues from the segment as compared to the previous year.
Share of CDMO sales increased to 26% in FY 2022-23 from 13% in FY 2021-22. The capacity
utilisation of the herbicide facility, which was commissioned in FY 2021-22, further
increased supporting growth in CDMO sales.
Your Companys enterprise business, however, faced volume
headwinds in both exports as well as domestic markets. Unprecedented drop in volumes,
primarily in the second half of the year, for key enterprise products was attributed to
high inventories with customers and in the channel as well. At the same time, market
prices of some of the triazole fungicides corrected sharply in the second half from last
years high base leading to reduced realisations in FY 2022-23. As a result, your
Company reported decline in revenues and margins in FY 2022-23 as compared to last year.
Geographically, export sales declined by 2.6% year-on-year while
domestic sales fell by 14.0% year-on-year due to lower volumes of key enterprise products.
Proportion of exports in total sales increased to 61% in FY 2022-23 from 58% in the
previous year. Domestic share was at 39% of total sales in FY 2022-23.
Gross margin stood at 36.1% in FY 2022-23 as compared to 42.8% in FY
2021-22. EBITDA margin declined to 13.9% in FY 2022-23 from 23.9% in the previous year.
Reduced realisations of key enterprise products and high cost inventories led to lower
margins in FY 2022-23 as compared to the previous year. Higher salience in revenues and
relatively stable profitability of CDMO business supported overall margin profile in an
otherwise challenging year.
In April23, your Company also inaugurated a state-of-the-art
Research & Development Center, named "Adi Godrej Center for Chemical Research and
Development" in Rabale, Maharashtra. The facility, equipped with synthesis lab,
formulation lab as well as sophisticated safety infrastructure, will enable your company
to expand offerings in CDMO space. The R&D Center will further aid your Company in
improving product development, providing access to advanced equipment and facilities,
fostering collaboration, and driving innovation. With improved capability to reduce the
time-to-market for innovative solutions and provide end-to-end solutions supported by
advanced labs and analytical instruments, the R&D Center will also make your company a
partner of choice for innovator companies across the globe. Astecs substantial
investment in a future-ready R&D Center reflects its unwavering commitment towards
long-term value creation despite challenges in the short run.
In the next financial year, Astec LifeSciences will continue to focus
on scaling up R&D projects, diversification into other molecules as well as
chemistries and expanding its customer base for contract manufacturing business. During
the year, your Company also initiated expansion of herbicides plant at existing Mahad
facility. With steadfast focus on R&D, business diversification and future-ready
investments, your Company remains committed to maximising shareholder value in the medium
to long-term.
Godrej Agrovet Limited, the Holding Company increased its shareholding
in your company to 1,26,99,054 Equity Shares, i.e., 64.8% as on 31st March,
2023 from 1,24,04,016 Equity Shares or 63.3% as on 31st March, 2022.
Key Financial Highlights
Particulars (in Rs Lakh) |
FY 2022-23 |
FY 2021-22 |
| Total Income |
64,122.63 |
68,703.39 |
| Earnings Before Exceptional Items, Interest,
Tax, Depreciation and |
8.931.40 |
16,453.98 |
| Amortization |
|
|
| Profit Before Tax |
3,494.73 |
12,112,58 |
| Profit After Tax |
2,559.40 |
8,988.26 |
| Total Comprehensive Income |
2,537.58 |
8,987.54 |
Key Financial Ratios
The key financial ratios for Consolidated financials are as per the
below table:
Particulars |
FY 2022-23 |
FY 2021-22 |
| Debtors Turnover Ratio |
2.75 |
2.92 |
| Inventory Turnover |
1.67 |
2 .64 |
| Interest Coverage Ratio |
3.89 |
14.72 |
| Current Ratio |
0.95 |
1.05 |
| Debt Equity Ratio |
0.81 |
0.70 |
| Operating Margin (%) |
12.14% |
22.77% |
| Net Profit Margin (%) |
4.07% |
13.29% |
| Return on Net worth (%) |
6.27% |
25.47% |
The Inventory Turnover ratio has decreased in FY 2022-23 due to sharp
fall in demand of few products in the second half.
The Interest coverage ratio, Return on Net Worth, and Net profit ratio
for FY 2022-23 are lower than the previous financial year due to sharp decline in profit
for the year due to challenging market conditions as mentioned above.
The formulae used for computation of key financial ratios are as
follows:
| Debtors Turnover Ratio |
Net Sales / Average Trade Receivable |
| Inventory Turnover Ratio |
Cost of Goods sold / Average Inventory |
| Interest Coverage Ratio |
Profit Before Interest and Taxes / Finance
Costs |
| Current Ratio |
Current Assets / Current Liabilities |
| Debt Equity Ratio |
Total Debt / Shareholders Equity |
| Operating Profit Margin (%) |
Profit Before Interest and Taxes / Net Sales |
| Net Profit Margin (%) |
Profit After Tax / Net Sales |
| Return on Net worth (%) |
Profit After Tax / Average of Total Equity |
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