CHEMPLAST SANMAR LIMITED
It gives me great pleasure to extend a warm welcome to you this morning.
With your permission, I will take the report of the Board of Directors and
the attached accounts for the year ended 31st March 1996 as read.
MACRO ECONOMIC OVERVIEW
The macro-economic developments in recent times reflect robust growth in
real GDP, and a perceptible reduction in the rate of inflation. Overall
economic growth during 1995-96 accelerated to.7%, despite slow agricultural
growth. While industrial production grew by 12.4%, surprisingly, despite a
normal monsoon, agricultural production growth was only 0.9% and is a cause
for concern. After two consecutive years of double digit increases,
inflation has dropped from a high of 12.5% in January 1995 to a low of 4.2%
in June 1996. The Indian economy today reflects fundamental strength with
sustained export growth, substantial reduction in the current account
deficit as a proportion of GDP, and spectacular growth in foreign direct
investment since 1991-92. But the year 1995-96 also witnessed slower
monetary growth accompanied by a deceleration in growth of bank credit for
the commercial sector, largely due to a huge increase in net RBI credit to
the Central Government. This situation has led to banks leading at interest
rates in the range of 17% to 20%, despite a drop in inflation below 5%.
Such high real interest rates could hamper the growth of production. The
recent reduction in the CRR by one percentage point announced by the RBI
has eased the situation a little bit. The pace of reforms in banking and
capital markets has been maintained with the autonomous regulators - RBI
and SEBI, ushering in significant policy changes. In spite of strong export
growth at 21% in dollar terms in 1995-96, the balance of payment came under
some pressure due to consistent import growth, high debt service
commitments and a decline of inflows from external sources. However, due to
the RBI's unrelenting efforts, the foreign exchange market stabilised at
around Rs.35 per Dollar in June 1996.
May 1996 saw tumultuous events when the multi-party alliance, "United
Front" formed the Government at the Centre. The first budget of the new
Government aims at continuation of reforms and achieving sustained
industrial growth. The effort is to contain the revenue deficit at 5% of
the GDP. At the same time, there is a conscious effort to present a `human
face' for the reforms, with significant emphasis on development of the
social and infrastructure sectors. The Government's initiative in
encouraging foreign direct investment by streamlining FIPB procedures and
also the relaxed guidelines for issue of GDRs and external commercial
borrowings should result in increased inflow of funds from abroad.
In retrospect, the events of recent times have sown the seeds for
transforming the Indian economy into a globally competitive strong economy.
YOUR COMPANY'S PERFORMANCE
The year 1995-96 was yet another year of excellent results with an all-time
high in Sales and Profits. Turnover at Rs. 474 crores was higher by 27%
over the previous year. The Profit after tax at Rs. 68 crores recorded an
increase of 106%. The Earnings per share has also gone up substantially by
60% to Rs. 33.79 per share despite increase in the Equity capital from Rs.
17.50 crores to Rs. 21.11 crores. The Board of Directors have recommended a
dividend of 40% on the enhanced capital, besides issue of bonus shares in
the ratio of two shares for every three held. The record performance was
possible due to not only improved realisations but also consistent
reduction in input costs by judicious timing of purchase of imported
feedstocks. The company could also source molasses at lower prices. There
was an all-round improvement in production efficiencies. As informed
earlier, the increased capacities in PVC and Chloromethanes will be in
The first full year of operation of the Shipping Division turned out to be
profitable. During the current year, the company is acquiring two Product
Carriers, taking the company's fleet to a total of seven.
Despite the recent increase in the administered prices of petroleum
products and reduction in import duties announced in the Union Budget for
the year 1996-97, the performance of the company for the current year 1996-
97 is expected to be good.
The Thermoplastic Polyurethane division of the company has been spun off
into a joint venture with Bayer AG of Germany. This venture with Bayer's
technology and marketing support should do very well. The company has also
entered into a joint venture with Cabot Corporation, Boston, USA for
manufacture of fumed silica on the basis of a technology developed in-
house. This venture, being set up at Mettur Dam, is expected to have good
prospects in the rapidly growing domestic market.
In line with the recommendations of McKinsey & Co., the first stage of
diversification into shipping has been profitably completed. The company
has identified the textiles industry for the second phase of
diversification, keeping in mind the prospects for international business
and India's competitiveness in this sector. The company is entering into a
techno-commercial alliance with a world major for this project which is
being set up near Madras.
With the diversified operations in chemicals and shipping, and the addition
of textiles, the firm foundations of the company are being further
strengthened to enhance shareholder value.
I am sure all of you will join me in recording my sincere appreciation of
the support and continuous co-operation by the employees, company's
bankers, financial institutions and agencies of the Government, both at the
Centre and in Tamil Nadu.
Place : Madras
Dated : 7th August, 1996