"The decline in our performance was the cost that the Company was required to payto stay in business in an increasingly environment-sensitive world."
Mrs. Paru Jaykrishna, Chairperson and Managing Director, holds out the optimism thatthe downtrend in the Companys 2012-13 performance is expected to be fleeting
Q: How would you appraise the performance of the Company during the year under review?
A: The Company reported a significant 54% decline in its profit after tax during theyear under review. In some ways, this was not entirely expected for reasons that one willexplain. As we see it at our Company, the decline in our performance was the cost that theCompany was required to pay to stay in business in an increasingly environment-sensitiveworld and now that this cost has indeed been paid, the Company is expected to do muchbetter over the foreseeable future.
Q: What were the specific reasons for the decline in the Companys performance in2012-13?
A: Over the 12 months leading towards the close of 2012-13, the Company invested 329.70crore in capital expenditure, of which a sizeable 313.93 crore was deployed in environmenttreatment assets and infrastructure. The usual capex in capacity over the years had beenproductive, enabling the Company to generate an increase in throughput that translatedinto enhanced revenues and profits. However, the sizeable investment inenvironment-protecting assets did not generate any increase in revenues (though this isexpected to generate repeat and growing business over the foreseeable future), whichreduced the Companys cushion against probable cost increases or price declines. Theresult is that when raw material costs increased in 2012-13, the Company could notamortise its fixed costs across a larger production spread and the result was a relativelymore severe impact on the bottomline.
Q: Shareholders are likely to ask whether this sizeable investment was at allnecessary?
A: The latter investment was necessary from a number of perspectives: pollution controlnorms are tightening faster than ever with Gujarat, the state that accounts for nearly 65%of all of Indias chemical businesses (where the Companys operations arelocated) leading the way. The Gujarat Pollution Control Board is a taskmaster regardingthis point and the result is that over the last year, a number of operating industrieshave actually been shut down for reasons of environmental non-compliance.
Even as the Company had always been a responsible investor in effluent-managementassets, it selected to make a sizeable one-time investment that would graduate itseffluents management assets to internationally benchmarked standards. In this regard, theCompany emerged as a proactive investor reinforcing the confidence of its prominentdownstream customers that the Company conforms to a progressive global order; besides,this rigid environment is likely to force a number of non-complying manufacturers out ofbusiness, which could result in an attractive business-strengthening opportunity forenvironment-friendly manufacturers.
Q: Shareholders are likely to feel that returns from environment management assetscould be long-drawn.
A: At Asahi Songwon, we had always reckoned that our sizeable investments in pollutionmitigation assets would generate a return when those not complying would be compelled toshut down and the resulting demand-supply gap would strengthen realisations and benefitthe first-movers. I am pleased to report that this is happening faster than we hadanticipated; during the first quarter of the current financial year, the Company has beensuccessful in effecting its first round of price increases the first such increasein quarters that promises to generate a higher business payback than what weencountered in 2012-13, vindicating our decision to invest in pollution-mitigatingequipment. I might add here that even as we have completed our sizeable capex cycle, thereare a number of companies either contemplating or just entering into their capex cycle,which puts us at least two years ahead of them in capitalising on the market upturn andreporting an attractive payback.
Q: In what other ways did the Company strengthen its business during the year underreview?
A: During a year when our revenues plateaued and our bottomline declined, it would havebeen reasonable to believe that most of our financial indicators weakened as well.Interestingly, this was not the case; except for the fact that our raw material costsincreased and profits declined, we continued to protect the quality of our business. Forinstance, we reported a lower interest outflow by 10% to 33.84 crore during the year underreview which was achieved through robust terms of trade on the one hand and 36.47 croredebt repayment, on the other. So the message that we wish to send out to our shareholdersis that even as the Companys Profit and Loss account weakened temporarily, theCompany continued to strengthen its Balance Sheet.
Q: How is the global sectoral space evolving and how does the Company expect tostrengthen its place in it?
A: Over the last number of years, even as China emerged as the global leader in the Azodyes segment, India gradually emerged as the global hub for Pthalo pigments on account ofa growing access to international technologies, superior technical professionals andstronger respect for environmental compliances. Asahi Songwons, specialisation inthe pthalo space, helped it carve out a global share of 7%. Rather than be merely contentwith a linear increase in the share for Pthalo dyes, the Company selected to extend itsproduct basket from Green and Beta to Alpha Blue with the objective to carveout a larger share of the customers wallet.
Q: A more pertinent question. How is the Company placed following the weakening of therupee in the first quarter of the current financial year?
A: The Company is expected to benefit to the extent of the value-addition (export valueless import cost) following the weakening of the Indian currency. Besides, one must takethis opportunity to communicate to the shareholders that our conservatism in selecting tomobilise all our debt in rupees will not increase our repayment liability.
The Company is a net foreign exchange earner so the weakening of the Indian rupee willhave a positive impact on earnings. A major portion of the Companys debt is also inIndian rupees so will not have any impact on debt repayment.
Q: What can the Companys shareholders expect during the current financial year?
A: At Asahi Songwon, we expect to grow our volumes by 15% over the previous year, whichwe expect should translate into an attractive increase in margins and profits, returningthe Company to its erstwhile state of profitability.