AVON ORGANICS LIMITED
ANNUAL REPORT 2004-2005
CHAIRMAN'S REPORT
Dear Shareholders,
It gives me immense pleasure in welcoming you all to the 12th Annual
General Meeting of your Company.
ECONOMIC AND INDUSTRY SCENARIO
India's macroeconomic performance in 2004-05 was very good with the real
GDP growing at 6.9 percent over the previous year. The Rs.205 Billion
Indian Pharmaceutical Market witnessed a 6.4% value growth for the year
ending December, 2004. Much of this growth was driven by the contribution
of new products launched in the last 24 months. The Indian Chemical
Industry is multi-faceted and plays a vital role in the economic
development of our country. The Industry is highly heterogeneous,
encompassing many sectors like Organic Chemicals, Inorganic Chemicals,
Specialty Chemicals, Fine Chemicals, Agro Chemicals, Bio-Chemicals,
Pigments & Dyes. The Chemical industry in India is well established and has
recorded a steady growth in the overall Indian Industrial scenario. The
chemical and allied industries have been amongst the faster growing
segments of the Indian Industry.
PERFORMANCE & OPERATIONS OF THE COMPANY
The year 2004-05 was extremely challenging from a business perspective.
While operational income rose to Rs.89.10 crores (Rs.84.24 crores in the
previous year) and export sales increased by 22.7 percent to Rs.34.81
crores, the company incurred a net loss of Rs.1.08 crores as against a
profit of Rs.3.04 crores in the previous year. It was a year in which the
operating profit margins were squeezed from both sides - sharp increase in
the prices of key raw materials (acetic acid and molasses) and a decline in
the selling prices of ephedrine derivatives. We undertook several cost
control measures for reducing the cost of finance and other overheads to
reduce the adverse impact on the overall profitability.
Acetic acid prices have been on an uptrend due to poor sugar cane crop and
increasing price of petroleum products. The Company partly passed on the
increased cost of inputs to customers by increasing the selling prices of
its diketene derivatives. To reduce the raw material costs, 25% of acetic
acid requirements of the company are now being met from the company's
acetic acid recovery plant, wherein dilute acetic acid is being used as
input that is available locally at cheaper rates.
Prices of molasses, one of the major raw materials for biotech division,
have also gone up abnormally due to fall in sugar cane production. The rise
in molasses price is expected to be temporary and is now in a declining
trend. The company has increased the storage capacity of molasses from 2000
tons to 6000 tons, which will meet six months production requirements of
the unit. Economies of large scale resulting from increase in capacity at
Biotech plant will help the company to counter the decrease in selling
price.
Despite such adverse circumstances, the company has continued to make
investments that will consolidate your company's competitive position in
the market. The capacity at the Biotech division in Sholapur was increased
and facilities to manufacture new high value added products were added at
the Diketene Division in Sadasivpet with a total capital outlay of Rs.7.26
crores.
BUSINESS OUTLOOK
The increase in capacity in the Biotech Division and the addition of new
high value added products in the Diketene Division are expected to increase
the Company's turnover by around 30% during 2005-06 with a significant
improvement in bottomline.
FUTURE PLANS
Our aim is to achieve a sales turnover of Rs.500 crores over the next five
years. And I am happy to inform that your company has drawn up plans to
make Avon a Rs.225 crore company over the next two years.
Diketene offers immense business opportunities as the overall business
environment improves. Your company has developed several high value added
derivative products and has also identified opportunities in backward and
forward integration to increase profitability. The Company also plans to
modernize its diketene plant to achieve savings in fuel costs and improve
yields. A 1 MW power plant is also planned to reduce power costs.
The capex requirement for these plans is estimated to be around Rs.18
crores. The company is exploring various options for raising funds to meet
this investment plan.
The Biotech division has also identified new products that have high
potential for growth and profitability. Manufacturing processes for these
products are under development at the lab and pilot scale.
CORPORATE GOVERNANCE
Your company's management is committed to best practices in corporate
governance and envisages the attainment of high levels of transparency,
accountability and equity, in all facets of its activities and operations.
CONCLUSION
While concluding, I would like to thank you all for your ongoing valuable
support to the company. I would also like to express my gratitude to all
the stakeholders, including employees, suppliers, bankers and customers,
who have all played an important role in the performance of Avon Organics
Ltd.
Source: Business Line
Date : 3rd October, 2005