Intergrated Annual Report 2023-24
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Home Letter to the shareholders

Letter to the
shareholders

Dear Shareholders,

Even though our Company put up a sub-optimal performance in 2023-24 -

  • standalone sales at ₹ 4,301 cr decreased by 14% from the hitherto highest of ₹ 5,002 cr achieved in 2022-23,
  • standalone PBT at ₹ 510 cr decreased from ₹ 730 cr in 2022-23 and from ₹ 828 cr, the highest achieved in 2020-21,
  • consolidated PBT at ₹ 451 cr was lower mainly because of loss of ₹ 32 cr incurred in Atul Products, a 100% subsidiary,
  • consolidated PBT was also lower due to 50% impact of loss of ₹ 51 cr in Anaven, 50-50 joint venture (JV) with Nouryon and
  • consolidated RoCE at 12% came down from 20% in 2022-23 and from 36%, the highest achieved in 2019-20

- I am confident that the above numbers and percentages will change for the better.

In the midst of this slowdown in sales, I wish to share some of the positive developments:

  • There was a growth in volume both at standalone level and consolidated level.
  • Gross working capital tie-up decreased both at standalone and consolidated levels.
  • Manufacturing related problems in two businesses which adversely impacted PBT have been overcome.
  • Phosgene downstream products plant that was destroyed by fire in 2022-23, was rebuilt and commissioned.
  • Crop Protection retail (CPR) generated PBT after eight years. CPR launched Sindica, a patented formulation.
  • Polymers retail generated PBT after two years. The business introduced 10 new products.
  • Atul Products that commissioned the facility to manufacture caustic chlorine stabilised its operations in June 2024.
  • Atul Bioscience that incurred a loss in 2022-23 became PBT positive.
  • Rudolf Atul Chemicals, 50-50 JV with Rudolf Group, achieved its highest sales and PBT.
  • Amal that incurred a consolidated loss (after starting a new plant in its 100% subsidiary) in 2022-23 became PBT positive.

Our defining goals are to enhance the financial and non-financial performance of our Company. In the short-term, we will like to

  • realise sales of ₹ 800 cr from the investment of ₹ 600 cr in 10 projects made between 2021-22 and 2023-24,
  • realise sales of ₹ 840 cr from the investment of ₹ 200 cr in a project starting in the 2nd quarter (Q) of 2024-25,
  • enhance combined sales of the subsidiary, JV and associate entities to their current potential of ₹ 1,100 cr,
  • open hospital of Valsad Institute of Medical Sciences, a 50-50 JV with local medical practitioners, in the 3rd Q of 2024-25.

It will take some time for the projects to reach high capacity utilisation.

In addition, team Atul is working to institutionalise new ways of working across other functions. For example, the team in

  • Commercial function has implemented five applications (iSourcing, iSupplier, Transport, Vehicle, Warehouse),
  • Finance function has implemented Oracle Single Instance across all entities,
  • HR function has articulated five world-class processes related to recruitment and learning and development,
  • Research function has commissioned two pilot plants and a process engineering laboratory and
  • Manufacturing and other functions have commenced a more structured approach to document the progress on ESG.

The external environment continues to be uncertain, but certain trends short-term and long-term are clear.

  • The two wars (Russia - Ukraine and Israel - Palestine) are having an adverse impact on input prices and freight cost.
  • Many countries are levying anti-dumping duties on certain chemicals to protect local manufacturers. Where local demand is higher than local supply, such an action may only result in higher prices for the user industries.
  • Shortage of hard currency in some countries of Africa and South America is impacting smooth business transactions.
  • Chemical industry (US$ 6.1 t) and pharmaceutical industry (US$ 1.6 t) together are 7% of the world GDP (US$ 105 t).
  • The share of India in world chemical industry and world pharmaceutical industry is just 3% and 6% respectively.
  • ESG is becoming more relevant than ever before; solar and wind are becoming key sources of electricity.

Our internal continuing mandates remain the same so as to face the ever-changing external environment:

  • Achieve excellence in technology and manufacturing reflected through world-class, sustainable manufacturing.
  • Pervade technology (digitalisation) in every function (not just manufacturing).
  • Engage with consumers to understand their needs and emerging trends.
  • Remain lean on fixed cost and conserve cash while evolving the future (measure performance by free cash flow).

new team members - from campus to corporate

What has changed? A lot and very little. On the one hand, a lot has changed in the larger world around us; daily life has changed drastically. On the other, very little has changed. Teamwork, for example, remains just the same ever since people started working together. Even so, teamwork can remain elusive and requires people with the courage to sit down with one another and accept the dissent and discomfort that is necessary to improve and innovate. This is the endeavour at Atul - to have and develop team members who understand and believe that teamwork is amongst the ultimate competitive advantages both because it is so powerful and so rare (and therefore nurture and promote it).

The financial position* of our Company even in these tumultuous times is strong; we are working to make it stronger:

  • Our Company is debt-free; it has cash surplus of ₹ 269 cr (net of debt of its subsidiary and JV entities).
  • Osia Infrastructure, a 100% subsidiary and Rudolf Atul Chemicals are debt-free.
  • Atul Products has taken an external debt of ₹ 158 cr. Its debt equity ratio is 0.2.
  • Atul Bioscience is expected to bring down its debt of ₹ 55 cr to ₹ 45 cr in 2024-25. Its debt equity is 0.8.
  • DPD has a debt of £ 0.5 m and is expected to become debt-free in 2024-25. Its debt equity is 0.1.
  • Atul Rajasthan Date Palms, 74-26 JV with the Government of Rajasthan, has a debt of 13 cr.
  • Consolidated Amal, a 50% associate, has a debt of ₹ 19 cr; its debt equity is 0.3.

A strong financial position will allow each entity to energetically seize emerging opportunities and implement new projects.

Once we have streamlined the investment made in the last three fiscals, we will expand further by

  • growing in selected downstream and upstream products, related products and new businesses,
  • executing opportunities to acquire one more manufacturing | production base and
  • investing further in the two retail businesses in India and beyond.

In its own small way, Atul Foundation (AF) exemplified that a business must give back to the society more than it takes from it.

  • 33,000 square feet Atul Foundation Healthcare Center was opened on June 26, 2023.
  • After putting up a state-of-the-art waste management facility for Atul village, AF took up the same for 45 nearby villages.
  • Atul Adhyapikas are now going to anganwadis (pre-primary) beyond their earlier mandate to teach at primary level.
  • The schools run by AF continued to deliver. One of the students of AV was in the first 1% of India in Class 12 exam.
  • Performance of the two PPPs and the four ITIs managed by AF is considered excellent.

Our Company Board is changing, and it is time to say thank you and welcome to the Independent Directors (IDs).

  • Rajendra Shah, Bansi Mehta, Susim Datta and Srinivasa Rangan retired after 41, 31, 21 and 13 years. My colleagues and I thank them for their astute guidance, insightful questioning and consistent contribution.
  • Rangaswamy Iyer, Sharadchandra Abhyankar, Sujal Shah and Praveen Kadle were appointed as IDs.
    We welcome the newly appointed Directors and look forward to their valuable inputs.

The Board will recommend additional Independent Directors in the course of 2024-25.

An understanding of the past shapes our existence, grounds our ideals and widens our vision. So we remind ourselves of

  • the legacy of eternal and universal Values: integrity, perseverance and trusteeship and
  • the attributes: bias for action, continuous improvements and learning agility

left behind by the legendary Founder of our Company, Kasturbhai Lalbhai.

These Values and attributes will guide us on how we will work in the present to build our Company for the years ahead. We are confident that we will realise the evolving potential of our Company in the long-term interest of all its stakeholders. And your trust as a shareholder in team Atul that it can make this happen is one of its biggest responsibilities to fulfil.

Sincerely,

Sunil Siddharth Lalbhai
Chairman and Managing Director

*as on June 30, 2024