To the Members
On behalf of the Board of Directors of your Company it gives me pleasure in presentingthe Twenty Eighth Annual Report together with the Audited Financial Statements for theyear ended 31st March 2017:
1. FINANCIAL RESULTS
| || ||(Rs. in lakhs) |
| ||2016-17 ||2015-16 |
|Revenue from Operations (Net) ||103747.53 ||95283.83 |
|Other Income ||281.43 ||356.74 |
|Total Revenue ||104028.96 ||95640.57 |
|Gross Profit ||16688.88 ||11692.54 |
|Finance Cost ||1804.56 ||2267.18 |
|Depreciation and Amortization expenses ||1718.70 ||1753.72 |
|Profit before Tax ||13165.62 ||7671.64 |
|Current Tax ||3102.51 ||1637.25 |
|MAT Credit ||(3957.22) ||- |
|Tax provision for earlier year ||- ||(2.07) |
|Deferred tax ||3864.22 ||- |
|Profit for the year ||10156.11 ||6036.46 |
|Balance brought forward from previous year ||22705.22 ||17910.04 |
|Profit available for appropriations ||32861.33 ||23946.50 |
Your Directors are pleased to recommend a dividend of Rs. 3/- per equity share of Rs.10/- each. The total outgo (including dividend distribution tax) for the current yearamounts to Rs. 1111.92 lakhs ( Rs. 741.28 lakhs).
3. OPERATIONAL REVIEW
The general economic conditions drive the demand for the Phthalic Anhydride (PA). PA isa downstream product of Orthoxylene (OX) a basic petrochemical. During the year theCompany witnessed a strong demand for Phthalic Anhydride (PA) which led to the prices ofPA firming up. The continued surge in the demand for PA resulted in the operating marginsincreasing substantially.
The plasticiser and Pigment industry grew at 7% and 8% respectively. The effect of thesame was reflected in the consumption of PA in the speciality chemicals segment. This ledto the increase in the spread between the prices for Orthoxylene and PA.
The Company procures its raw materials mainly from the domestic market which isgenerally available and the prices remain stable.
PA finds application in the production of Plasticizers Unsaturated Polyster ResinsAlkyd Resins & Polyols. It is used in a variety of application in both consumerdurables to non-consumer durables. The increasing use
of phthalate plasticizers in automotive manufacturing coupled with growing automotiveindustry drives the demand for PA which is further expected to continue. The improvedstability in the PA demand and prices will fuel the growth opportunities for the Companygiven its present operational capacity.
The total revenue increased marginally by 8.77% from Rs. 95640.57 lakhs during FY2015-16 to Rs. 104028.96 lakhs during FY 2016-17. The year has seen an unprecedentedgrowth in the profitability of the Company on the back of improved margins (spread) due toincrease in demand better recovery process increased operational efficiency andstringent cost control measures. This resulted in the EBIDTA increasing from Rs. 11692.55lakhs in FY 2015-16 to Rs. 16688.87 lakhs in FY 2016-17. These factors led to increase inprofit by 68.24% from Rs. 6036.46 lakhs during FY 2015-16 to Rs. 10155.58 lakhs in FY2016-17 an increase by 347 bps.
4. ACQUISITION OF MA BUSINESS
Your Company has acquired the Maleic Anhydride Business from Mysore Petro ChemicalsLimited situated at T-1 MIDC Industrial Area Taloja Dist. Raigad Maharashtra as agoing concern on Slump sale basis with effect from 1st April 2017 forconsideration of Rs. 74.48 crores (Rupees Seventy Four Crores Forty Eight Lakhs Only) asper valuation carried out by M/s. Haribhakti & Co LLP.
The product portfolio of the Company now comprises of Maleic Anhydride apart fromPhthalic Anhydride and Benzoic Acid.
The wash water which was erstwhile sold to MPCL shall now be used by the Company toproduce MA. The revenue from the MA business shall be consolidated with the Company witheffect from all financial reporting effective 1st April 2017.
5. MANAGEMENT DISCUSSION AND ANALYSIS
Global Economy Overview
The year 2016-17 witnessed a slow-paced economic growth. This growth was combined withseveral fast-paced events. There was a rise of populism in the global economy - mainlydriven by events like Brexit the US Presidential election and the recent referendum onreforms in Italy. With global economic recovery still remaining subdued the populardiscourse over relentless use of unconventional monetary policy support has started pavingway for a prudent fiscal policy role in countries like the US the UK and Japan.
According to the United Nations World Economic Situation and Prospects (WESP) 2017report developing countries continued to be the main drivers of global growth. Thesecountries accounted for about 60% of the world's gross product growth in 2016-18. East andSouth Asia remained the world's most dynamic regions benefiting from robust domesticdemand and supportive macro-economic policies.
Going ahead the global economy is projected to expand by 3.5% in 2017 and 3.6% in2018. This modest recovery will be more of an indication of economic stabilization than asignal of a robust and sustained revival of global demand.
GDP Forecasts (%)
|Region/Country ||2016 ||2017 ||2018 |
|World ||3.1 ||3.5 ||3.6 |
|Advanced economies ||1.7 ||2.0 ||2.0 |
|USA ||1.6 ||2.3 ||2.5 |
|Euro ||1.7 ||1.7 ||1.6 |
|Japan ||1.0 ||1.2 ||0.6 |
|UK ||1.8 ||2.0 ||1.5 |
|Emerging economies ||4.1 ||4.5 ||4.8 |
|China ||6.7 ||6.6 ||6.2 |
|India ||6.8 ||7.2 ||7.7 |
|Brazil ||-3.6 ||0.2 ||1.7 |
Indian Economy Overview
India has become the fastest-growing G-20 economy with an annual growth rate at around7%. Against this backdrop of robust macro-economic stability the year was marked by twomajor domestic policy developments: demonetisation of the two high-value currencies andthe passage of the Constitutional amendment. Together paving way for the implementation ofthe transformational Goods and Services Tax (GST).
While demonetisation promises the potential for long-term benefits in terms of keepinga check on corruption and tax evasion the GST will create a common Indian market andhence improve tax compliance and governance boosting investment and growth.
Going ahead the Indian economy is expected to maintain its growth rate above 7%. Itwill be largely driven by the positive measures taken by the Indian Government to promoteinfrastructure encourage domestic manufacturers and drive the industrial productivity tocreate job opportunities and build a positive investment environment.
The Company is amongst the leading manufacturers of Phthalic Anhydride (PA) globally.Its focus on the latest technology as well as adherence to the policy of stringentquality has made it one of the dominant petrochemical companies in India. The plant isstrategically located at MIDC Taloja in Raigad District of Maharashtra 50 Km fromJawaharlal Nehru Port Trust (JNPT). This allows the Company to cater to the end userindustries - largely located in the western region.
The Company further expanded its wings of opportunity by acquiring Maleic Anhydride(MA) business from Mysore Petro Chemicals Limited (MPCL). The acquisition will allowsynergic benefit as both the plants of IGPL and MPCL are at the same location. IGPL isamongst the leading manufacturers of the raw material (wash water) for MPCL. Thus IGPLcontinued to focus on expanding leadership by strengthening its overall market presence.
Industry structure and developments
The fortunes of the petrochemicals industry are closely linked to the movement of oilprices as it drives the prices of key raw materials. During 2016-17 the oil pricesincreased by 20% between August 2016 and February 2017. This was owing to the agreementbetween the Organization of the Petroleum Exporting Countries (OPEC) and other producersfor cutting oil production. Petrochemical markets were impacted during sharp pricefluctuations creating a cloud of uncertainty in upstream and downstream investments.
Phthalic Anhydride (PA)
PA is a downstream product of Orthxylene (OX) a basic petrochemical. It is used as anintermediate for the production of plasticizers unsaturated polyester resins alkydresins and polyols. Besides derivatives of phthalic anhydride are used in a broadspectrum of industries such as paints & coatings automotive electronics electricaland building & construction among others.
Asia Pacific region is a major Phthalic Anhydride producer followed by Europe andNorth America. Growth rate in Asia Pacific region for consumption of PA is estimated at4.5%. The Indian PA Market stands at approximately 350000 MTPA and is estimated to growat 6 -7% over the next few years.
PA is a chemical intermediate in the production of poly vinyl chloride (PVC) used formanufacturing a range of consumer care personal care and home care products like shoeswires & cables pipes & hoses boxes containers packaging films and medical andsurgical eguipment. Alkyd Resins are used to manufacture paints and coatings certaindyes insect repellents and urethane polyester polyols. Unsaturated Polyester Resin findits application in thermostat for manufacturing fiberglass- reinforced plastics forautomobile construction marine and transportation industries. CPC Pigments help in themanufacturing of inks photovoltaic cells and coatings. Driven by rapid changes in R&Dand scientific advances the end uses of PA are multiplying at a faster rate. Moreoverthe increasing infrastructural boost coupled with growth in consumerism will further drivedemand from the end-user industry.
Maleic Anhydride (MA)
The Indian Market Size for MA is ~ 45000 MTPA. Its raw material - En-Butane (a gasderivative) is not available in India. Hence 100% MA is imported. Around 50% of global MAoutput is used in the manufacture of unsaturated polyester resins (UPR). It also acts as aprecursor to compounds used for water treatment detergents insecticides and fungicides.It further finds its uses in Spandex (Elastics) Lubricating Oil Additives Food Industryand Personal Care Products.
Strong domestic demand driven by increasing purchasing power parity in the countryare the key drivers of the Indian petrochemical sector. India is expected to maintain thehealthy growth in the years to come.
IGPL is a perfect proxy to benefit out of the industrial opportunities. The Company hasan exciting outlook for the future with multiple advantages of strategic location lowestcost strong clientele and favorable government policies.
The Company understands the various ramifications of key business risks that may hamperits regular operations. As mitigation measures it has established a well-defined riskmanagement plan and an integrated risk-management policy in line with the overall visionof the Company.
Being a part of the petro-chemical industry the Company is directly exposed tounfavourable oil price movements impacting the price of their end product. However theCompany extracted better margins in spite of fluctuating oil prices during the year owingto its operational efficiencies. The Company further tends to derive benefits of theaveraging by virtue of its procurement spanning over a period of time. The Company'sassets are adequately insured against all perils.
Exchange Rate Risk
The majority of the requirement of the raw material i.e. Orthoxylene is sourced fromthe domestic market at a contracted rate. Substantial part of finished goods (PA) is soldin the domestic markets. The exports of PA outpace
the import of raw material giving the Company a natural hedge keeping the exchangerate fluctuation always under check. Necessary safeguards and forward covers areundertaken wherever warranted.
Interest Rate Risk
The Company has been regularly servicing its debts to prevent any unfavourablefluctuation in the interest rates. The borrowings of the Company consist of ExternalCommercial Borrowings (ECB) Rupee Term Loans (RTL) and Working Capital Loans (WCL) out ofwhich the rate of interest for ECB is fixed and that for RTL is floating. The interestrate for WCL are reviewed at regular intervals in terms of the conditions of the loans.
There are other concerns such as the pace of Infrastructure activity in the economyand the stability of the crude price globally. However with a very strong outlook for thekey end-user industries and progressive environment in the economy the demand ofpetrochemical products is expected to surge in the coming years.
Major challenges include competition from global players in terms of dumping theirproducts in India. There is an anti-dumping duty imposed by the government on TaiwanKorea Russia Japan & Israel. These anti-dumping measures ensure fair trade andprovide a level-playing field to the domestic industry. Also there is an import duty of7.5% levied on phthalic anhydride to protect the domestic industry.
PA being toxic in nature faces stringent regulations from the government. Handlingtransportation storage and manufacturing of raw materials and finished products is amajor challenge. The Company is in the business of PA manufacturing for over two decadesand have adopted world's best environment protection standards to ensure that its plantsand products meets all the applicable regulations laid down by the government.
Internal Control System & their Adequacy
The Company has adequate internal control systems that commensurate with its size andthe industry standards. The processes and systems are well-defined and well- documented inthe form of Standard Operating Processes. The Company strictly complies with all ruleslaws and statutes of the land. The business transactions are properly recorded and are intotal compliance and conformity with accounting principle and processes. The Company alsoregularly monitors all its expenses and ensures these are strictly within the allocatedbudgetary limits. The strict Code of Conduct lays down clear guidelines to be followed bythe Company employees and business associates in their day-to-day activities. There areregular internal audits conducted through an internal audit programme that check andcorrect any discrepancy or non-adherence or non-compliance with set and defined norms. Thesenior management executives of the Company supervise the internal audit programme
Material Development in HR
The Company believes that through its strong set of values and cohesive work-culturethe employees will be able to achieve their potential not only on the professional levelbut also in their personal lives. The Company plant has all safety features to ensure asafe and secure environment for its workers. Health of the employees is of paramountimportance to the Company. Regular workshops and trainings organised by the Company atall levels ensures its employees the best-in-class skills that are always upgraded andtaken good care of.
6. SHARE CAPITAL & FINANCE
6.1 Share Capital
The paid-up Equity Share Capital of the Company remained unchanged at Rs. 3079.81lakhs as at 31st March 2017. The shareholdings of the Promoters and PersonsActing in Concert with Promoters are 72.22 %.
The working capital facilities largely remained underutilized which meant that thedependence on external sources of funds to be at all time low. The Company continuouslymonitors its receivables inventories etc. The Company continues to service its debtsregularly.
6.3 Credit Rating
The Credit Ratings of the Company were upgraded to "IND A+" (long term) and"IND A1+" (short term) by India Ratings & Research.
During the year the Company has not accepted or invited any deposits from the Public.
6.5 Particulars of Loans Guarantees or Investments
Details of Loans Guarantees and Investments covered under the provisions of Section186 of the Companies Act 2013 are given in the notes to the Financial Statements.
7. TRANSFER TO RESERVES
The Company proposes to transfer an amount of Rs. 2000.00 lakhs to the GeneralReserves.
8. MATERIAL CHANGES
There were no material changes or commitments which occurred between the end of thefinancial year and the date of this Report affecting the financial statements of theCompany in respect of the reporting period.
9. CONTRIBUTION TO THE EXCHEQUER
The Company has contributed Rs. 17525.70 lakhs to the exchequer by way ofexcise duty central sales tax income tax customs duty etc.
10. SUBSIDIARIES/ASSOCIATES/JOINT VENTURES
During the year the Company formed a wholly owned subsidiary (WOS) i.e. IGPLInternational Limited with Jebel Ali Free Zone and the investment in IGPL (FZE) was dis-invested in favour of IPGL International Limited. As a result IGPL (FZE) became WOS ofIGPL International Limited and a step-down subsidiary of the Company.
The JV entered into between IGPL (FZE) and M/s Dubai Natural Gas Co. Ltd. for themanufacture of Maleic Anhydride is under implementation.
Pursuant to the provisions of Section 136 of the Companies Act 2013 the auditedaccounts of subsidiaries are placed on the website of the Company and not enclosed in theAnnual Report. A copy of the audited accounts shall be made available to the member uponrequest.
11. CONSOLIDATED FINANCIAL STATEMENTS
As required pursuant to the provisions of Section 129 of the Companies Act 2013 andthe SEBI (Listing Regulations and Disclosure Requirements) Regulations 2015 theconsolidated financial statements of the Company are prepared in accordance with theAccounting Standards AS21 issued by the Institute of Chartered Accountants of India on thebasis of the audited financial statements of the Company and its subsidiary.
A statement containing salient features of the financial statements of the subsidiariesin Form AOC-1 is attached to this Annual Report.
12. CORPORATE SOCIAL RESPONSIBILIY (CSR) INITIATIVES
During the year the Company spent only Rs. 26.01 lakhs. The Company hasinitiated some projects which are under implementation and the disbursement has been keptbehind for the implementation of the project by the agencies. The Report on CSR activitiesis annexed herewith as "Annexure A".
13. VIGIL MECHANISM POLICY
The Vigil Mechanism Policy established by the Board provides a channel for reportingthe genuine concerns about the actual or suspected unethical behavior fraud etc. TheAudit Committee reviews the functioning of the vigil mechanism and there was no complaintreceived. The details of the Vigil Mechanism has been elaborated in the CorporateGovernance Report and posted on the Company's website www.igpetro.com
14. DIRECTORS & KEY MANAGERIAL PERSONNEL
Upon the recommendation of the Nomination & Remuneration Committee and inaccordance with the provision of the Companies Act 2013 read with the Rules framedthereunder Shri J K Saboo was re-appointed as Executive Director of the Company for aperiod of 3 years with effect from 1st April 2017. The terms conditions andremuneration of his re-appointment is stated in the Notice. It is proposed to re-appointShri J K Saboo as Executive Director of your Company to hold office upto 31stMarch 2020.
The Company has received necessary declarations from all Independent Directors of theCompany as required under Section 149(7) of the Companies Act 2013 that they meet thecriteria of independence laid down in Section 149(6) of the Companies Act 2013.
Shri Nikunj Dhanuka retires by rotation and being eligible has offered himself forre-appointment.
There is no change in the Key Managerial Personnel.
During the year four meetings of the Board of Directors and Audit Committee were heldas more particularly disclosed in the attached Report on Corporate Governance. Theintervening gap between any two meetings was within the prescribed period.
As mandated under the Companies Act 2013 and the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 the annual performance evaluation of theDirectors individually vis-a-vis the Board and its committees have been carried out. Themanner of such evaluation has been disclosed in the Corporate Governance Report.
14.3 Remuneration Policy
The Board has on the recommendation of the Nomination & Remuneration Committeeframed a policy for selection and appointment of Directors and Senior Management personneland their remuneration. The Remuneration Policy forms part of the Corporate GovernanceReport.
15. DIRECTORS' RESPONSIBILITY STATEMENT
To the best of our knowledge and belief and according to the information andexplanation obtained by us in terms of Section 134(3)(c) of the Companies Act 2013 westate:
a. that in the preparation of the annual financial statements for the year ended 31stMarch 2017 all the applicable accounting standards have been followed and no materialdepartures have been made from the same;
b. that appropriate accounting policies have been selected and applied consistently andhave made judgments and estimates that are reasonable and prudent so as to give a trueand fair view of the state of affairs of the Company at the end of the financial yearended 31st March 2017 and of the profit of the Company for that year;
c. that proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing/detecting fraud and otherirregularities;
d. that the annual financial statements have been prepared on a going concern basis;
e. that proper internal financial controls were in place and that the financialcontrols were adequate and were operating effectively;
f. that systems to ensure compliance with the provisions of all applicable laws were inplace and were adequate and operating effectively.
16. RELATED PARTY TRANSACTIONS
All transactions entered into with related parties during the year were on arm's lengthbasis in the ordinary course of business and with the approval of the Audit CommitteeBoard of Directors and Members of the Company wherever required.
There were no material related party transactions i.e. those exceeding 10% of theannual consolidated turnover during the year. The related party transactions is hosted onthe website of the Company.
17. RAISING OF FUNDS
The members of the Company at an extra-ordinary general meeting held on 2ndJune 2017 have approved the raising of funds by way of long term borrowings/equity or acombination thereof to replace the existing debt working capital facilities fund thegrowth plan etc.
M/s Hariharan & Co. Chartered Accountants whose term of office was liable todetermination by rotation at the ensuing Annual General Meeting (AGM) have resigned videtheir letter dated 7th July 2017.
The Directors place on record their sincere appreciation and gratitude for theirdiligence and independence in the course of their audit during their stint with theCompany. M/s Uday & Co. Chartered Accountants (Firm Regn No. 004440S) were appointedas Joint Statutory Auditors of the Company with effect from 11th July 2017subject to the approval of the members to fill the casual vacancy. The Directors have alsorecommended their appointment as Joint Statutory Auditors for a term of five consecutiveyears from the conclusion of this AGM until the conclusion of the AGM to be held in theyear 2022.
The office of M/s ASA & Associates HR Chartered Accountants as Statutory Auditorsis subject to the ratification by the Members at the AGM.
The Board of Directors of the Company have appointed M/s Krishna S & AssociatesCost Accountants as the Cost Auditor to conduct an audit of the cost records of theCompany for the year 2017-18.
The remuneration payable to the Cost Auditor is required to be placed before theMembers in a general meeting for their ratification. Accordingly a resolution seekingMember's ratification for the remuneration payable to M/s. Krishna S & AssociatesCost Auditor is included in the Notice convening the Annual General Meeting.
Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies(Appointment and Remuneration of Managerial Personnel) Rules 2014 the Board of Directorshad appointed M/s Makarand M Joshi & Associates Practicing Company Secretaries(Membership No. 5533) to conduct the Secretarial Audit and their Report on the SecretarialAudit for the year 2016-17 is annexed herewith as "Annexure-B".
In respect of the observation made by the Secretarial Auditor the Company had filedcompounding application with the Reserve Bank of India and the same has been compounded.
19. LISTING OF SHARES
Your Company's shares are listed on BSE Limited under Scrip Code No. 500199 and theNational Stock Exchange Ltd. under the symbol "IGPL". The ISIN code is INE204A01010.
20. ISO 9001 : (2008) AND ISO 14001 (2004)
Your Company continued to be certified under ISO 9001:2008 for quality managementsystems and ISO 14001:2004 for environment management systems by Beaureu Veritas.
21. CORPORATE GOVERNANCE
The disclosures as required under Schedule V to the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 are attached with and forms part of thisreport.
22. PREVENTION OF SEXUAL HARASSMENT
The Company has adopted a policy on prevention and redressal of sexual harassment atwork place in accordance with the provisions of Sexual Harassment of Women at Work Place(Prevention Prohbition and Redressal) Act 2013. No complaints of sexual harassment werereceived during the year.
23. ENERGY CONSERVATION TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO
The information on conservation of energy technology absorption and foreign exchangeearnings and outgo stipulated under Section 134(3)(m) of the Companies Act
2013 read with Rule 8 of The Companies (Accounts) Rules
2014 is annexed herewith as "Annexure-C".
24. EXTRACT OF ANNUAL RETURN
An extract of the Annual return in Form MGT-9 is annexed herewith as"Annexure-D" to the Directors' Report.
25. PARTICULARS OF EMPLOYEES
During the year there are no employees who are in receipt of the remunerationexceeding the limit specified in Rule 5(2) of the Companies (Appointment and Remunerationof Managerial Personnel) Rules 2014.
The information relating to remuneration in respect of directors/employees of theCompany as required pursuant to Section 197(12) of the Companies Act 2013 read with Rule5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014will be provided to the members upon request.
Your Directors convey their sincere appreciation to the business partners for theirunstinted support and contribution and thank the customers members dealers employeesbankers and all stakeholders for their co-operation and confidence reposed in the Company.
|For and on behalf of the Board of Directors || |
| ||M M Dhanuka |
|Mumbai 24th July 2017 ||Chairman |