It is with immense pleasure that I share your Company''s exemplary
performance in the tough and challenging environment that prevailed
through the financial year 2011-12. It was a year in which
circumstances tested the mettle of businesses around the world.
However, despite the turbulence in the operating environment, we are
glad to report growth and also delighted to have made significant
progress on key strategic initiatives.
The fiscal under review threw up many challenges, some of which carried
forward from the previous year while others arose from recent
developments. The continued sluggishness in the developed economies
kept global businesses on their toes. To further aggravate the
situation was the intensification of the Eurozone debt crisis, the
after-effects of the tsunami in Japan and political events in the
Middle East. These developments combined to result in softening of
demand for end-user industries, coupled with continued pressure on
commodity prices, notably crude and heightened volatility in foreign
In India, we kicked off FY12 on an optimistic note, but were forced to
soon downgrade our outlook as persistent inflation, policy inaction and
shocks from the macro environment resulted in moderation of the growth
rate. Stubborn inflation and firmer input prices impacted corporate
profitability as well as household budgets. All this led to lower than
expected GDP growth. Worse still, the fiscal deficit exceeded targets
in FY11, annual budget, resulting in sustained pressure on liquidity
and interest rates. However, with the FY12 budget seeking to address
some of these challenges, the scenario, going forward, is once again
beginning to look positive.
While, admittedly, it is easy to focus on circumstances and succumb to
the prevailing pressures, let us not forget that when the playing field
is level for all companies, the strength of an organisation lies in
making the most of the operating environment.
I am pleased to state that your Company, on the back of its experience
and expertise, succeeded in capitalising on the opportunities that
prevailed even in the negative environment to report steady growth in
turnover of 18%, from Rs 661.08 crores last year to Rs 776.91 crores in
the current fiscal.
What makes this achievement truly remarkable is that it encompassed all
our business segments, with each of them performing strongly. Revenue
growth was driven by higher volumes with some improvements in
realisations. Inorganic intermediates, Organic intermediates, as well
as Fine & Speciality chemicals, all lived up to our expectations and we
are glad to have performed well across each segment of our business.
One of our key strengths is our diversified customer base, to which we
are continually adding. The end-user industries that we supply to, are
diversified across dyes, pigments, agro-chemicals, pharmaceuticals,
paper, explosives, textiles, rubber chemical intermediates, chemicals
for refineries and cosmetics, to name a few. This provides us with a
natural hedge as a slowdown in any one of these industries is
compensated by improved demand in another.
Exports also proved a great driver for growth during the year and
revenues from exports stood at approximately 44% of total revenues,
registering growth of 24% from Rs 282 crores last year to Rs 350 crores
in the current fiscal.
The positive performance on the exports front came amidst concerns of a
slowdown in exports, given that a large proportion of exports are to
European countries. However, since a significant part of our exports
are to countries such as Germany and Switzerland, which were not so
severely impacted by the economic turmoil in Europe, we were able to
keep our performance on this count well on track.
Further, our customers are large multinational companies with a global
presence and well established businesses. The growth in exports was
also attributable to our prudent foreign exchange hedging policies,
wherein we were able to take advantage of the depreciating rupee, which
aided better realisations.
Apart from Europe, we supply products to markets in China & U.S.
Exports to China this year stood at Rs 35 crores, while to the U.S. it
scaled to Rs 63 crores. We have recently entered both these markets and
operations are currently at a nascent stage. There is scope to
increase revenues from both these markets and our strategy is to
establish a significant presence in these new major two export markets.
In operational terms, a key highlight of our performance during the
year was the development in our fuel additives business, where we could
successfully achieve a turnover closer to the Rs 100 crore mark. With
oil prices increasing at a rapid rate, demand for Fuel Additives is
also increasing. Fuel Additives help Refineries maximize fuel
efficiency and reduce emissions, and improves the overall quality of
different types of fuels like gasoline, diesel, Aviation Turbine Fuel
and lubricants and are thus in high demand. One of such Fuel Additive
is Cetane Booster, which is used for Diesel is also witnessing strong
demand. Other Fuel Additives such as Anti-Oxidants are being introduced
by the Company in the near future.
I believe this to be truly a landmark for your Company as it is a
testament to our strong in-house R&D capabilities. Going forward, we
are focussed on more such initiatives and I must stress that your
Company believes in innovation as a key component of its business
strategy and spends almost 1% of its revenue on R&D each year.
Unfortunately, even though our performance on revenue growth and
business expansion has been noteworthy, there has been a moderation in
margins. This is attributed to the increase in input prices across
various categories. Due to higher prices of crude oil and natural gas,
inputs derived from these commodities also firmed up. The earthquake
and tsunami in Japan resulted in a disruption in the supply of caustic
lye, which also put pressure on input prices. However, the good news is
that the prices of inputs have peaked out and the time lag in passing
on higher costs to customers is behind us; so we definitely expect an
improved performance going forward.
Another notable event that I would like to touch upon is the progress
made on our expansion plans. Apart from the debottlenecking activities
undertaken earlier, which resulted in higher volumes on the existing
manufacturing base, we are focussed on expanding our capacities.
Our greenfield expansion in Dahej and brownfield expansion at Nandesari
are progressing as planned. Our greenfield expansion in Dahej is a
forward integration to manufacture OBA. With the completion of this
greenfield project at Dahej, we will complete the vertical integration
from Toluene to Optical Brightening Agent - OBA (Toluene ->PNT -> DASDA
-> OBA). This feat places us amongst the very few fully integrated
player in the world with such a capability.
Optical Brightening Agents (OBA) enjoys good demand across industries
like Paper, Detergents, Textiles, Coating applications in Printing and
Photographic Paper. Through this expansion, we are poised to move to
the next league - from mere chemical manufacturing to enter the other
high-end customised chemical solutions business.
We are the dominant manufacturer of Sodium Nitrite. Since last two
years, our plants are operating at almost 100% capacity. Through the
brownfield expansion, we will enhance our production capacity by at
least 50%. The new production will cater mainly to high price export
Your Company is also embarking on a new business segment that is of
heat storage related Solar Salts. Through this, we will manufacture
sodium and potassium nitrate of advanced quality, matching the needs of
the Solar Industry. The demands for such solar salts would be
project-based particularly where solar companies are targeting peak
power supply. With the increasing oil prices, support to solar-based
power may not come only from the green angle or wild solar energy, but
will continue to be supported as a best non-conventional energy source.
The increasing oil prices make such solar-based projects more
economically viable and seek less government support. These factors
make us confident of a bright future for Deepak''s Salts for solar
Your Company has always adhered to the most stringent of environmental
standards and believes in contributing to the community as well. It is
our small initiatives of reaching out to the community that make such a
big difference to our approach, which is focussed not only on financial
gains but also on social enhancement and growth.
Clearly, your Company is on an excellent growth trajectory and I must
thank our employees for the hard work put in by them, as well as our
stakeholders for their extended support that made it possible.
Vice Chairman & Managing Director