A REPORT

ON

WORKING CAPITAL FINANCING OF

TRIFLOXYSTROBIN (TFS)

By
Pooja Dilip Thube
18BSP0791

HIKAL LTD.

Interim report submitted in partial fulfilment of the

requirements of PGPM program of
IBS Mumbai

Submitted to:-
Company guide : Mr. Kuldeep Jain
Faculty guide : Prof. Arijit Bhattacharya

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 INTRODUCTION

This report is prepared on the basis of one & half month practice experience at Hikal Ltd.
This study is aimed at providing me with invaluable practical knowledge in consideration of my
academic knowledge so far.

This report contains basic overview of the crop protection sector , company overview and
the abstract of work in this one and half month of SIP.

OVERVIEW OF INDIAN CROP PROTECTION INDUSTRY

Crop protection is the science and practice of

managing plant diseases, weeds and other pests (both vertebrate
and invertebrate) that damage agricultural crops and forestry.
Agricultural crops include field crops (maize, wheat, rice, etc.),
vegetable crops (potatoes, cabbages, etc.) and fruits. The crops
in field are exposed to many factor. The crop plants may be
damaged by insects, birds, rodents, bacteria, etc. Crop
protection encompasses:

 Pesticide-based approaches such as herbicides, insecticides and fungicides

 Biological pest control approaches such as cover crops, trap crops and beetle banks
 Barrier-based approaches such as agro textiles and bird netting
 Animal psychology-based approaches such as bird scares
 Biotechnology-based approaches such as plant breeding and genetic modification.

Why do Indian farmers need Crop Protection products?

Crop protection products are designed to protect crops from insects, diseases and weeds. They do
so by controlling pests that infect, consume or damage crops. Uncontrolled pests significantly
reduce the quantity and quality of food production. It is estimated that annual crop losses could
double without the use of crop protection products. Food crops must compete with 30,000 species
of weeds, 3,000 species of nematodes and 10,000 species of plant-eating insects. We know that

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despite the use of modern crop protection products 20-40% of potential food production is still lost
every year to pests. These losses can occur while the crop is growing in the field, when it is in
storage and in the home. In short, an adequate, reliable food supply cannot be guaranteed without
the use of crop protection products.
While a study released by industry body Assocham and Yes Bank in February 2014 pest and
disease infestation resulted in crop losses worth Rs 50,000 crore annually in India. The pesticides
market will witness robust growth in the vegetables, fruits, and nuts segment. Synthetic pesticides
have been extensively used in the country for alleviating the estimated 45% gross loss of crops due
to infestation of pests and diseases.

Market Overview

India is one of the important developing

countries in Asia Pacific. Indian Economy is
primarily depends on Agriculture and about
75% population depends on agriculture.

Modern agriculture depends on the four main

factors viz: water, fertilizers, seed and
pesticides. Pesticides are the integral part of
modern agriculture.

The global market for crop protection

chemicals was worth USD 48 billion in 2018
and is expected to reach USD 57.70 billion
by 2024, registering a CAGR of 3.1% during the forecast period (2019 - 2024).

The global crop protection chemical industry has been transforming over the years, with robust
growth, coupled with changing crop mix trends and environmental regulations. Growing population,
the decline in arable land, and food security are the primary focus areas for all countries and these
factors are driving the demand for higher agricultural output, thus augmenting the growth of the
pesticide industry, globally.

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 In addition to the increasing population resulting in growing demand for food, there are efforts to
reinforce crop production, increase soil potency, bring potency in land use, and high-quality yield are
anticipated to drive the agrochemical market at an exponential growth rate. Increasing awareness
regarding the agrochemicals because of government policies and rules towards the expansion of
agrochemicals has raised the bar for quality, which, in turn, will upsurge the market growth of
agrochemicals globally.

Challenges for agrochemical sector

There are certain factors that work in the opposite direction and result in hampering the growth of
the industry if not considered and taken care of.
Transformation is a major challenge due to dynamism in global and domestic market. Transformation
however, should be coupled with growth.
Entry of competitors is another challenge. New product patents, price control, quality management
etc. are some important challenges.

Leading players in India:

 Bayer Crop Science Ltd.
 PI Industries Ltd.
 Rallis India Ltd (TATA)
 Meghmani Organics Ltd (Meghmani)
 Insecticides India Ltd.
 Excel Crop Care Ltd.
 Dhanuka Agritech Ltd.
 Hikal ltd.

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 COMPANY PROFILE

Hikal offers solutions across the life sciences value chain. It provide world-class active
ingredients, intermediates and R&D services to global pharmaceuticals, animal health, biotech,
crop protection and specialty chemicals companies.

Hikal is First Indian Company to be member of Rx - 360, a global pharmaceutical supply chain
consortium for upholding world class quality standards

The company is largest supplier of Gabapentin an API for neuropathic use and is market
leader in the product.

Established in 1988, Hikal is the partner of choice for:

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  Pharmaceuticals
Active pharmaceutical ingredients (APIs), custom manufacturing, intermediates and advanced
intermediates.

 Crop Protection
Active ingredients, advanced intermediates, intermediates.

 Research & Technology

Process development, new product development, contract and custom development.

Hikal branches:

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Motto
Just the right chemistry

Mission
To create value through superior, chemical products and operate as a responsible company.

Building trust and respect of our customers, shareholders and employees using science, technology
and sustainable processes in harmony with the environment.

Vision
To be the leading global fine chemical company to the Pharmaceutical, Crop Protection and
Specialty Chemical Industries.

Achievements and reward of Hikal:

 The Company also received the prestigious 5 star Safety Award from British Safety
Council UK for high standards maintained at the Taloja Site.

 Received many awards from globally recognized bodies like USFDA for word-class
infrastructure and technology usage.

 ICC award for excellence in human resource management in chemical industry.

 National best employer brand 2018

 ET NOW CSR Leadership award for best CSR activities

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 SWOT analysis

1. Annual sales revenue from Pharma and from Agrochemicals

shows strong market position
2. Strong R&D division with ability to scale-up operations.
strength 3. International presence in countries like Japan and USA.

4. Received many awards from globally recognized bodies like

USFDA for word-class infrastructure and technology usage.

1. Brand awareness is limited as compared to international and

domestic leading players
Weakness
2. Mainly domestic sale, with international sale fluctuating per year
due to trade regulations

1. Japan is a fast-growing economy with vast technological

expertise and tapping this market is extremely crucial for Hikal’s
Opportunities survival in the international sphere.
2. ASEAN countries like Singapore, Thailand and Indonesia can be
future markets for agrochemicals and pharma.
3. More brand awareness would help in brand recall and more brand
trust.

1. Competitors are big players in the pharma sphere and market is

very fragmented.
2. Very less expansion attempts make for a difficult future with
share prices soaring above extraordinary.
Threats
3. Trade regulations and exchange rate mechanisms between
countries is affecting export.

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 Competitors

 Jubilant Life Sciences

 GVK BIO
 Piramal enterprises ltd.
 Bayer Crop Science Ltd.
 Bharat Rasayan Ltd.
 Dhanuka Agritech Ltd.
 Piramal industries

Hikal crop protection:

Crop protection - focus is to diversify offerings, partner with new clients, and introduce several
new products which are under development in R&D that will grow the revenue & increase
profitability in near future.

The crop protection division is focused on contract development and manufacturing for global
multinational companies. Hikal has good supplier relations with Syngenta (Thaibendazole), Bayer
(fenamidone) and BASF (INITIUM).
Hikal’s crop protection division achieved substantial growth of 29.3% in FY 17-18. The year was
ended with revenues of Rs.5473 million as compared to Rs.4233 million in previous year.

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Hikal partners with global innovator companies in:

 Custom synthesis: They undertake custom synthesis of key intermediates and active
substances for global innovator clients. We have rich experience in synthesizing diverse
classes of molecules in a cost-effective manner.

 Custom manufacturing of intermediates and active ingredients from grams to tons:

Hikal has rich experience in custom development and manufacturing. Their long-term
relationships with global innovator crop protection companies reflect our focus on quality,
service delivery, and respect for intellectual property. Their team of scientists, chemical
engineers, and project managers meet your unique requirements.

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 ABSTRACT OF SUMMER INTERNSHIP SO FAR

On the date of joining I was given basic introduction about the company and some general
rules and regulations of the company.

Next I was introduced with the finance department and the first week of SIP was to get
familiar with the work environment and culture. After that I was assigned a project on working
capital management by my mentor Mr. Kuldeep Jain.

The company is planning to launch a new fungicide product called Trifloxystrobin. For
which I have to analyze and forecast the financial stability so that company will get to know the
viability of the product. Purpose of the study as follows:

 The main purpose of my study is to render a better understanding of the concept

“Working Capital Management”.
 To understand the planning and management of working capital at Hikal Ltd.
 To measure the financial soundness of the company by analyzing various ratios.
 To suggest ways for better management and control of working capital at the
concern.
 To develop the different sources of finance.
 Analyzing the project profitability based on various ratios and statements.

After assigning the project work around two to three weeks were given to me to study the
provided study material. After that I shortlisted the basis on which I am going to analyze the
product’s viability and currently working on the financials for the analysis.

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 Trifloxystrobin (TFS)

Trifloxystrobin is an agricultural fungicide for control of diseases such as mildew and scab
in orchards and vineyards. It is harmless to predators of mites and suitable for use in IPM programs.

Trifloxystrobin is not considered to be a risk to birds, mammals, and honey bees, because of
its low toxicity. There is no presumed risk for either terrestrial or aquatic plants. Trifloxystrobin has
been classified as being highly toxic to fish and aquatic invertebrates; however, because of relatively
low exposure concentrations in water, the risk to fish and invertebrates is low. There is a possibility
of some effects to estuarine invertebrates, but the exposure is uncertain and this risk is lower than the
risk from registered alternatives.

Trifloxystrobin works by interfering with respiration in plant pathogenic fungi. It is safe to crops
and shows no cross-resistance to fungicides from other chemical classes. The product has a
greening effect on cereals that leads to increased yields.

TFS Growth Drivers:

Rising population leading to increase in food production which encourages the farmers to adopt
optimum type fungicide for protection of crop in order to maximize the production and to minimize
the risk related to crop infections. This is anticipated to expand the growth of global fungicide active
ingredients market over the forecast period. Apart from this, robust demand for fungicides in major
applications such as vegetable and fruit crops and in ornamental and turf grass is also likely to foster
the growth of worldwide fungicide active ingredients market from 2016-2026.

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 TFS Regional Outlook :

Geographically, the Global Fungicide Active Ingredients industry can be divided by major regions
which include North America, Latin America, Western and Eastern Europe, Asia-Pacific region,
Japan, Middle East and Africa. Rising population along with increasing the education level in
developing countries is anticipated to bolster the growth of Asia Pacific fungicide active ingredients
market over the forecast period.

Raw material suppliers:

Major raw material suppliers for Trifloxystrobin are from China.

BASIS OF ANALYSIS:

The profitability and viability of the product is going to be analysed based on : i) IRR

ii) Payback period iii) IRR iv) Payback period v) Payback profitability vi) Various ratios

Working Capital

Every business needs funds for two purposes for its establishment and to carry out day-to-
day operations. Long term funds are required to create production facilities
through purchase of fixed assets
such as plant and machinery, land building, furniture etc.investment in these assets represent that
part of firm’s capital, which is blocked on a permanent or fixed basis is called fixed capital.

Funds are also needed for short-term purposes of raw materials, payment of wages and
other day-to-day expenses etc. these funds are known as working capital

In an ordinary sense, working capital denotes the amount of funds needed for meeting day-
to-day operations of a concern.

The funds invested in current assets are termed as working capital. It is the fund that is needed to
run the day-to-day operations. It circulates in the business like the blood circulates in a living body.

The needs for working capital are as given below:

i. Adequate working capital is needed to maintain a regular supply of raw materials, which in turn
facilitates smoother running of production process.

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ii. Working capital ensures the regular and timely payment of wages and salaries, thereby
improving the morale and efficiency of employees.

iii. Working capital is needed for the efficient use of fixed assets.

iv. In order to enhance goodwill a healthy level of working capital is needed. It is necessary to build
a good reputation and to make payments to creditors in time.

v. Working capital helps avoid the possibility of under-capitalization.

vi. It is needed to pick up stock of raw materials even during economic depression.

vii. Adequate working capital ensures regular supply of raw materials.

a) Internal sources: -
i) Provision for tax
ii) Depreciation funds
iii) Outstanding expanses
Short- term
sources b) External sources: -
i) Normal trade credit
ii) Bills payable
Sources of iii) Overdraft
Working iv) Public deposit
Capital v) Advance from customers

a) Issue of shares
b) Issue of debentures
Long –Term c) Long –term loans
Sources
d) Retained earning
e) Sale of any old asset

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 Internal Rate of Return

The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of
potential investments. The internal rate of return is a discount rate that makes the net present
value (NPV) of all cash flows from a particular project equal to zero.

Once the internal rate of return is determined, it is typically compared to a company’s hurdle rate or
cost of capital. If the IRR is greater than or equal to the cost of capital, the company would accept
the project as a good investment.

If IRR > WACC then the project is profitable.

If IRR > k = accept

If IR < k = reject

Payback Period

As the name suggests, this method refers to the period in which the proposal will generate cash to
recover the initial investment made. It purely emphasizes on the cash inflows, economic life of the
project and the investment made in the project, with no consideration to time value of money.

Through this method selection of a proposal is based on the earning capacity of the project. With
simple calculations, selection or rejection of the project can be done, with results that will help
gauge the risks involved. However, as the method is based on thumb rule, it does not consider the
importance of time value of money and so the relevant dimensions of profitability.

Payback period = cash outlay (investment) / annual cash inflow

Profitability Index (PI)

It is the ratio of the present value of future cash benefits, at the required rate of return to the initial
cash outflow of the investment. It may be gross or net, net being simply gross minus one. The
formula to calculate profitability index (PI) or benefit cost (BC) ratio is as follows.

PI = PV cash inflows/Initial cash outlay

All projects with PI > 1.0 is accepted.

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 Ratios

i. Current ratio :
Current ratio is the measure of liquidity. It indicates whether the business can pay debts
within one year out of the current assets.
Current Ratio = Current assets / Current liabilities

ii. Debt to equity ratio :

It is used to evaluate company’s financial leverage.
Debt equity ratio = total liabilities/ shareholder’s equity

SIP schedule :

Remaining one & half month of SIP will include-

i) Preparing required financial statements based on the data provided.

(Cost sheet, P&L statement, balance sheet, cash flow statement, working capital
statement etc.)
ii) Analysing and forecasting the profitability of the project for next 5 years based on
various ratios.

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 Note:
Since the work on the financials of the project is going on related statements can not be
included in this interim report.

REFERENCES

 https://www.hikal.com
 https://www.mordorintelligence.com
 https://www.investopedia.com/terms/i/irr.asp

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