Letter to the shareholders
Although we live in times of promising partnerships, technological breakthroughs and contemporary living, they are also punctuated by trade disputes, climate change and inequalities. To espouse the three pillars of sustainability -economic, environmental and social - in pertinent ways, we have with us the exemplary legacy of our visionary Founder, Mr Kasturbhai Lalbhai; it inspires us to conduct business imbibing and fostering eternal Values and qualities - integrity, perseverance, larger purpose, humility and attention to details - which gives us inner strength, direction and balance to perform in a constantly evolving world.
A year ago, economic activity was accelerating; 12 months later, much has changed. World economy at US$ 84 tn grew at 3.6% in 2018, slowerthan 3.7% in 2017. Indian economy at US$ 2.7 tn grew at 7.1% in 2018, higher than 6.7% in 2017 - it ranked number 7 after the USA, China, Japan, Germany, the UK and France. The world economy is projected to grow slower at 3.3% in 2019 with improved prospects for the second half. Indian economy, with structural reforms, is expected to grow at 7.2% in 2019-20. Across economies, the imperatives are to enhance efficiencies, incorporate innovations and reinforce inclusiveness - they remain valid also for India and in its own way for our Company.
The two relevant industries, namely, world Chemical industry and Pharmaceutical industry at US$ 4.6 tn and US$ 1.1 tn grew by 7% and 6% respectively and together ranked number 3 in the world economy. Indian Chemical industry at US$ 142 bn and Indian Pharmaceutical industry at US$ 33 bn grew by 13% and 8% respectively. Everything we do and everyone we come across throughout our lifetime is touched by chemistry. With the 27 industries served by our Company expanding, its own growth will correspond to our aspirations, energy, strength in science and technology and Values - our Company is well placed, and we are as enthusiastic as ever about its businesses.
In 2018-19, our Company further improved its performance - it realised standalone sales of Rs. 3,845 cr, against Rs. 3,052 cr, EBITDA margin of 20% against 17%, profit before tax of Rs. 652 cr against Rs. 397 cr and RoCE of 32% against 22% in 2017-18 - consequently, earning per share increased to Rs. 145 against Rs. 91. The Board has recommended a higher dividend (the highest so far) of 150% - the pay-out is 12.5%. I look forward to your unanimous approval - our Company is implementing nine projects with an investment of Rs. 412 cr and also making an investment of Rs. 57 cr in its subsidiary and joint venture entities - the more these investments are funded through internal accruals, the better.
Of the total rise in sales of 26% in 2018-19, only 3% came from growth in volume mainly because a few of the manufacturing assets did not run to their potential despite market demand. Our Company is expected to generate, on a standalone basis, additional sales of Rs. 846 cr from nine new projects under implementation (at full capacity). Two of these projects are related to environment protection - in about 15 months from now, two of the four sites of our Company at Atul are expected to become zero liquid discharge (ZLD). Ankleshwar site is already ZLD since 2012. The subsidiary and joint venture (JV) entities are also making separate investments to make their plants ZLD.
Operating subsidiary companies did well - Atul Bioscience crossed sales of Rs. 100 cr for the first time and acquired a manufacturing facility in Ambernath, Maharashtra; DPD is implementing an expansion project and will increase its capacity in 2019-20; Amal has steadily improved its profit. Rudolf Atul Chemicals, JV with Rudolf, is expanding its footprints across India. In 2018-19, these companies, together, achieved sales of Rs. 243 cr and profit before tax of Rs. 42 cr. Atul Rajasthan Date Palms, JV with the Government of Rajasthan, is stabilising its production facility. Anaven, JV with Nouryon, is expected to start production in early 2020-21 -the project is running behind schedule.
Atul Foundation continues to reaffirm the ultimate purpose of a responsible company and helps us determine if we are remaining true to our legacy. During 2018-19, the Foundation and entities under it took up initiatives in the areas of national priorities, namely, conservation, education, empowerment, health, infrastructure and relief. Kalyani School, Atul Vidyalaya and Atul Vidyamandir are considered amongst the best centers of learning and Atul Adhyapika, Household Toilets and Tribal Development are some very good initiatives. In its small way, the Foundation collaborated | supported other organisations in Gujarat, Kerala, Maharashtra and Rajasthan.
Dr Satguru Baijal and Mr Hasmukh Shah decided to step down as Non-executive Directors after 35 and 27 years respectively. Their consistent and significant contribution brought depth and breadth in the deliberations which took place in the Board and its Committee meetings; they were also a source of immense strength and learning for me - On behalf of the Board and myself, I wish to thank them for their professional role with a personal touch. My colleagues and I are grateful to the Non-executive Directors who enrich the Management with their critical analysis, deep involvement and constructive approach.
The direction our Company is taking (beyond the above projects) largely puts three demands on us. The first is to improve processes by simplifying and documenting and seek excellence by questioning status-quo, innovating and being thorough. The second is to realise faster growth, powered by detailed understanding of the marketplace and workplace -without the first in place, the second is unsustainable. We are committed to growing the two relatively new, very small retail businesses with the conviction that they will help us create value in the long-term; we have yet to generate profit, but it will come with discipline, iteration and perseverance -the path to success is anything, but straight.
The third is our people; we can and will do a lot more work in this area to translate our plans in to actions. Recruiting and retaining T-shaped managers who have the appetite to go in to both depth and width of knowledge, improving processes and programs for our team members which must come from heart as much from head and developing leadership at different levels are some of the key initiatives. Our Company is fortunate to have a group of committed, hardworking and spirited people who find energy in the many tasks, trials and opportunities that lie ahead, and it is my privilege to be a part of such a group.
I thank our customers, particularly for their never static expectations. Though there is no one expedient solution to meet the ever rising expectations, high standards deployed at all levels of detail inside an organisation can be an important part of it, and we are striving to see this happen. The ability to provide quality products and service is in itself a reason enough to build a culture of high standards, but there are other benefits: for example, people are drawn to high standards which helps in recruiting and retaining. Our customers are thus helping us to consistently evolve, develop and create. I am sure that on a longer time scale, interests of customers and shareholders are largely aligned.
2019-20 marks the 125th birth anniversary year of Mr Kasturbhai Lalbhai. The first office of our Company consisted only a chair and table under a Kadamb tree, literally and figuratively conveying to nurture and expand emerging businesses and promote a culture that embraces inclusive growth - the best tribute we can pay to our legendary Founder is to grow consistently and responsibly. Although our Company has come some distance since it started, there is much more ahead of us than behind us, and I have every hope that our most exciting journeys are still awaiting. I pray to God to give us the courage and strength to toil so that we can go as far as our dreams.
(Sunil Siddharth Lalbhai)
Chairman and Managing Director