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Hikal Ltd.

BSE: 524735 Sector: Health care
NSE: HIKAL ISIN Code: INE475B01022
BSE 00:00 | 18 Jun 455.55 -10.00
(-2.15%)
OPEN

465.55

HIGH

475.20

LOW

440.55

NSE 00:00 | 18 Jun 455.65 -9.50
(-2.04%)
OPEN

469.30

HIGH

476.30

LOW

441.05

OPEN 465.55
PREVIOUS CLOSE 465.55
VOLUME 135023
52-Week high 520.50
52-Week low 112.00
P/E 42.18
Mkt Cap.(Rs cr) 5,617
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 465.55
CLOSE 465.55
VOLUME 135023
52-Week high 520.50
52-Week low 112.00
P/E 42.18
Mkt Cap.(Rs cr) 5,617
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Hikal Ltd. (HIKAL) - Chairman Speech

Company chairman speech

Dear Shareholders

2019-20 was poised to be a year of consolidation for Hikal however it turned out to bequite challenging. The year was marred by several headwinds in the form of unforeseenenvironmental challenges customer destocking along with the Covid-19 outbreak whichfurther accelerated the challenging scenario.

Hikal recorded a total turnover of Rs. 15073 million as compared to Rs. 15896 millionin FY 2019-20 a decrease of 5.2%. We faced unanticipated operational interruptions at ourMahad and Taloja facilities due to curtailment of water supply and severe flooding at thefacilities respectively.

We also had a planned shutdown for capacity expansion at our Bengaluru plant. As aresult our adjusted net profit stood at Rs. 946 million declining by 8% compared to thelast year.

On a positive note we continued with our efforts of building operational efficiencies.

The crop protection division witnessed a sales de-growth from Rs. 6505 million in FY2018-19 to Rs. 6204 million in FY 2019-20 a decline of 4.63%. The reasons for thisperformance are largely attributable to inventory correction by several clients waterlogging at the facility in Mahad water supply issues at Taloja facility along with thedemand disruption near the end of the year on account of the Covid-19 pandemic.

In addition the disruption of raw material supply owing to the environmental concernsin China also had a domino effect on the supply chain resulting in delays of supplies.The long-term prospects for the business are positive. We are confident of turning aroundthis performance based on our new product pipeline and significant traction from alliedbusinesses.

The pharmaceutical division witnessed a sales de-growth from Rs. 9391 million in FY2018-19 to Rs. 8869 million in FY 2019-20 a decline of 5.56%. The reason for thisperformance is largely attributable to de-stocking at the customers end which resulted inlower volumes during the year. A planned annual shutdown was taken at the multipurposeplant at Bengaluru to increase the manufacturing capacities to cater to increased demandof our existing products. The unit became fully operational by the end of the thirdquarter. The destocking exercise has normalised and we expect to see upward demand in thenext financial year.

Our total EBITDA saw a decline of only about 8% despite lower sales and full operatingcosts. However we maintained healthy operating margins above 18% for the year. This was aresult of replacing several lower margin products with the high margin molecules and anefficiency improvement drive which further added to these margins. We further strengthenedour Balance Sheet by reducing our debt equity ratio to 0.71 times in FY 2019-20 as against0.83 times in FY 2018-19. The Return on Capital Employed (ROCE) dropped to 13% in FY2019-20 from 15.3% in FY 2018-19 on account of lower operating profits reported thisyear. We continued to reduce our overall borrowing costs and have a comfortable liquidityposition to meet all the financial commitments. We received a reaffirmation on our creditrating which stands at ‘A' which is a reflection of our strengthening financialposition.

In the last week of March 2020 our operations came to a complete halt with theimplementation of the nationwide lockdown due to the Covid-19 pandemic. However being apart of the essential services industry and after taking measures to ensure the health andsafety of our employees we safely initiated the start of our operations from 5thApril onwards. There were multiple initial hiccups due to restrictions on movement ofmanpower and materials which gradually improved in a phased wise manner. We ensured thehealth and well-being of our people and communities through adequate safety arrangementswhile adhering to safety protocols laid down by the Government. We also engaged directlywith NGOs and various Government agencies to support them in this crisis.

Despite a challenging year the Board has proposed an aggregate dividend of 60% for theshareholders (10% final and 50% interim). We continued the same dividend pay-out ascompared to the previous year based on our future growth plans.

At the core of our operations is the constant endeavour to apply cutting-edge Researchand Technology (R&T) to meet the complexities of our customers' products andexpectations. Our R&T sets us apart and gives us a strong competitive edge. We areconsistently innovating through our efforts and have successfully filed several newproducts and patents over the past few years.

We are focused on developing cost effective efficient and sustainable processes with aconstant eye on reducing the environmental impact of the products. Our new technologiesbring in efficient manufacturing processes which give our customers a distinct advantageboth in terms of price quality and sustainable supply.

Hikal's strategy focuses on sustainable growth and profitability and we are investingin opportunities where we see growth. We have the environmental and regulatory compliancesin place for all our sites. In order to meet the growing demand of our customers wecontinued to invest towards increasing our capacities and developing new technologies andcapabilities.

We are in the midst of a significant capital expenditure program. However due toCovid-19 the expansion plans have been delayed by several months. We have completed thescheduled expansion in our multipurpose Bengaluru facility and are expecting to completethe next phase of expansion within the next 12-15 months.

Our strength lies in the relentless pursuit of operational and commercial excellenceacross all the functions of the organisation. We have developed a flexible business model;our passion for quality and the drive to become more efficient has helped us provideseamless integrated and sustainable solutions to customers.

In line with our commitment to the Government's "Make in India" and morerecently the "Atmanirbhar Bharat" initiative we continue our efforts to de-riskour supply chain and make ourselves more self-reliant. This also ensures the quality andsecurity of supply to our customers. At Hikal we have undertaken proactive initiativesover the past two years to create a structured supply chain de-risking programme for mostof our products. The primary objective is to ensure a secured supply of all Key StartingMaterials (KSMs) from India with alternative suppliers in China and Europe. Besides weare also exploring strategic manufacturing partners in India to support Hikal in all theKSMs. We are also ensuring strong adherence to the Environmental Health and Safety (EHS)and quality parameters.

Hikal continues to work on new products and innovative processes in response to theconsistently growing demand in both our divisions. The impact of the pandemic is likely tobe positive on all the Indian companies as several countries have now started reducingtheir dependency on China and exploring alternative geographies. We have already startedgetting enquiries from several of our customers from Europe the US and Japan. With strongcustomer relationships healthy product pipeline strong balance sheet along withincreasing capacities we are confident of a sustainable growth in the coming years.

Our people are our core assets. We have seen the commitment resilience and integrityof our people during the Covid-19 pandemic. We provide a stimulating and safe environmentto support and help our employees build on their competencies. We have been certified as a‘Great Place to Work' and ranked 84th among the ‘100 Indian BestCompanies to Work for' in 2019. We have also been conferred with the ‘Best EmployerBrand Award' at the Asia Pacific HRM Congress.

Our belief in bringing social transformation continues to bolster our commitmenttowards enhancing the quality of life for the communities where we operate. In recognitionof all the CSR efforts Hikal was conferred with the 'Best CSR Impact Initiative' Award atthe Zee Business National CSR Leadership Congress & Awards during the year. Hikal'skey CSR projects also featured in Grant Thornton Social Impact Report 2019. In the pastfew months we have made significant contributions to Covid-19 programmes.

I am optimistic FY 2020-21 will bring us back on the path of growth and increasedprofitability.

This is a core part of our strategy which is to create long term sustainable value forall our stakeholders.

I would like to express my gratitude and appreciation to our employees clientsbankers shareholders and to all our partners for their continued commitment confidenceand support.

Stay Safe

Jai Hiremath

Chairman and Managing Director