Fiscal 2015-16 saw your Company’s strategic metamorphosis into a new Vikas Ecotech. This transformation was essential to reinforce our position as a science-led specialty chemicals manufacturer that gives the highest importance to environmental and safety issues. During the year, your company has not only experienced rapid growth, but has achieved it in a responsible and sustainable manner.
We are committed to demonstrating that it is possible to manufacture high-quality specialty chemical solutions that are environmentally friendly and safe to use. At the same time, we remain true to our fundamentals: a distinctive strategy to provide quick turnaround for custom-made polymer solutions to address customer challenges, high value and profitable product differentiation and commitment to research and innovation. During the year under review, we have succeeded under difficult conditions and our performance has exceeded the goals that we had set for ourselves.
Positive headwinds amid global turmoil
The last year continued to be choppy for global markets with oil and commodity prices falling to new lows. While the US and European economies have registered low or negative growth, developing, emerging and frontier economies have also performed erratically. According to IMF, global growth in 2015 is estimated at 3.1 percent and is projected at 3.4 percent for 2016 and 3.6 percent in 2017. What should worry global businesses is the divergence in growth rates between various regions due to local or country specific factors.
Geopolitical uncertainties like the British referendum, the economic sanctions imposed against various countries, and the expansionary monetary policies adopted by central banks in developed countries have made business dealings uncertain across the world. However, developing and emerging economies today account for 70% of global growth. This trend is expected to continue, although in a muted manner. The rebalancing of the chinese economy from investment-led growth towards consumption and services is causing great economic upheaval around the world. The two other BRIc economies of Brazil and Russia continue to display recessionary trends and economic distress. This leaves India as the only major economy that is expected to exhibit substantial economic growth.
India is a star among emerging economies
The Indian economy has been successful in insulating itself from the global recession and economic shocks during the last year. A robust monetary policy to rein in inflation, a newfound political will to hasten policy-based decision making and the central bank’s ability to discipline the banking system have combined to strengthen the fundamentals of the Indian economy. complementing these measures are initiatives like ‘Make in India, ‘Skill India’ and ‘Digital India’ that will help the Indian economy and its workforce become better equipped to cater to global demand.
With global manufacturing shifting to the East, the Indian specialty chemical industry is experiencing a ‘force multiplier’ effect. Our nation is fast emerging as a global specialty chemicals manufacturing hub - the market size is projected to become $33.2 billion by 2019. As the per capita consumption of chemicals in India is much lower than the global average, the great Indian consumption story is waiting to be written in the specialty chemicals segment. With key end-user industries such as agriculture, automobiles, medical devices and packaging expected to see robust growth, domestic demand will grow further. In a market that largely comprises unorganized players, large-scale manufacturers like your Company are at a distinct advantage.
Moreover, it is expected that there will be a significant growth in demand as India gains a competitive advantage over China. Since the last year, the chinese economy has been undergoing a rebalancing process and is fast losing its status as the high-end manufacturer to the world. Global companies, especially those who offer science-led solutions require qualified yet affordable human resources. This factor will lead to a shift in manufacturing activities to India and your company stands to benefit.
Implementing a growth strategy for market leadership
During the past year, Vikas Ecotech’s performance has been exemplary in an environment where slow growth is being defined as the new normal. While I will mention the financial performance figures later, let me share with you the overall strategy that has helped and will continue to achieve profitable and sustainable growth for your Company.
Our first strategy that has worked well is our ability to work closely with customer R&D teams to develop specialty chemical solutions much ahead of the competition. Today, our customers while developing new products or strengthening the current ones intimate our team of the need gap requirements. Our ability to understand the clients’ needs and come up with scientific solutions in a fast and effective manner has resulted in customer stickiness and our ability to command premium prices.
The above strategy has helped us identify ‘premium customers’ who value our R&D and science-led solutions focus. Going ahead, we will work with a select set of customers both in India and abroad to solve their end customer needs in a more focused manner. During the year we have consciously moved away from customers looking at only a low cost-led solution from us. Subsequently, we looked at higher revenue from each customer account through tighter partnerships and associating with them through their entire product development journey.
Our second strategy has been to sharpen our R&D focus to develop a robust pipeline of sustainable and environmentally friendly specialty chemical solutions and products. Globally and in India, we see definite regulatory and voluntary action towards phasing out of harmful additives like lead and other toxic materials. Today, one of our products, Organotin, a popular lead-free alternative additive, is seeing significant traction both in domestic and export markets, especially among
PVC pipes manufacturers. We are the only Indian company that has the scientific know-how to offer this solution. This advantage is helping us match global quality standards for our customers across the world while simultaneously giving us the ability to offer value driven prices.
With Organotin stabilizer being US FDA approved, our product in the same category - Tinmate has an immense growth opportunity. Your company is fast gaining credence and recognition as a global supplier to the safety-critical healthcare industry and medical devices and components industries. With new capacity enhancements, innovative product formulations and a focus on premium value-added products, we are forging ahead to becoming a leader in the non-toxic alternatives market.
One of the high growth products in Polymer Additives is flame-retardant material that finds applications in the engineering and construction sectors among others. With the Bureau of Indian Standards setting mandatory requirements for the use of flame-retardants in various industries to promote fire safety, our product, V-ECOFLAMEX, will see increased demand and contribute to the safety efforts of our customers.
Your Company has maintained an R&D focus on using recycled plastic and oil as raw material to create products that have equal efficacy and strength as those produced by competition from virgin raw materials. This R&D breakthrough is a first by an Indian company and we see two key benefits; one, we are helping the environment by reducing landfills of waste plastic. Second, our raw material costs are significantly lower while our end product selling price is almost equal to the competition’s product. This strategy has helped up improve our margins significantly while benefiting the customers through a strategic price advantage.
Our third strategy is ensuring geographic and revenue de-risking for the company. Today, global and country-based volatility is the biggest macro challenge for any business that has international operations and ambitions. Our export focus is helping ensure that we have a healthy revenue mix from both domestic and international customers. During the year, we have achieved 48.5% of our sales from global customers. Over the next 36 months, we expect to generate an equal amount of revenue from domestic sales and exports. Today, our specialty chemicals are supplied to markets in the EU and USA where they meet the strictest standards of quality and environmental regulations.
In India, we are focusing on penetrating the Western and Southern markets with our new plant coming up at Dahej in Gujarat. The state-of-the-art plant and innovation centre will start initial operations in the next fiscal year and contribute to a 200% increase in capacity. This will help us service our local customers in a shorter time and also enable us to shorten the timelines for exports. With our market domination in North India continuing, we hope to create a pan-India marketing and distribution network in the next few years.
Within the country, we have focused our sales efforts in three key markets of North, West and South India. We export to over 30 countries divided into 5 clusters (EU, USA, MENA, South East Asia and African countries). Thus, with over eight clear market clusters (domestic and exports) and over 33 micro markets, we have ‘ring fenced’ our revenues from a sudden fall in demand in any one region due to macroeconomic factors.
Profitable growth through science-led applications
The performance of the current year clearly shows that we have delivered profitable growth. This is due to our increasing focus on an R&D-led specialty chemical product and solutions focus. With an experienced team of scientists and increased spending on R&D, our margins have improved significantly.
Your company delivered a 45% revenue growth of INR 97 crore and achieved total revenues of INR 312 crore for the year ending March 31, 2016. Net profit stood at INR 25.53 crore, an increase of 575% on a Y-o-Y basis.
During the year we have concentrated on operational efficiencies and derived the maximum production from our manufacturing assets. Our strategy of sweating our assets is helping us increase production without a corresponding increase in capex while driving down per-unit production costs. Our human resource policy has ensured that our safety and health standards match global levels and that all our manufacturing plants meet environment, health and safety norms.
We have invested in zero-pollution manufacturing equipment and started a practice of using recycled materials to make advanced new formulations. We have also installed facilities to convert waste cooking oil into specialty additives. Recently, pollution control norms have been tightened in India. This is another area where your Company has an edge over the unorganized sector. Vikas Ecotech is fully equipped to meet the stringent rules pertaining to the operations of our manufacturing plants. As a strategy, we have been investing in green practices over the last few years and we stand better placed to reap the benefits of the newly introduced government policies.
A future driven by intellect, innovation and invention
Today we live in a world that sees change on a regular basis due to rapid advances in technology and science. New products and processes disrupt the status quo and threaten incumbents. In India, we are witnessing a surge of entrepreneurial activity that promises to lead to the growth of improved business models like e-commerce and the digitalization of various industries. It is highly likely that your company will also have to face these challenges and we assure you that we are fully prepared to do so.
At Vikas Ecotech, we are committed to harnessing our collective intellect for innovation and continuous invention in specialty sciences. With support and encouragement of all our stakeholders, we pledge to persevere in our efforts to manufacture products that contribute to a safer and greener tomorrow.
With best wishes,