Chemplast Sanmar Ltd Management Discussions

Global Economy

Global economic growth remained stable at 3.2% in CY2023 and is expected to be sustained in CY2024 and CY2025, representing an upgrade from previous projections. Major factors contributing to this flat growth are restrictive monetary policies, withdrawal of fiscal support, and low underlying productivity growth, among others. Despite these challenges, the global economy has shown resilience, with economic activity demonstrating steady growth and inflation returning to target levels.

Inflation persistence remains a significant concern. While inflation has shown signs of decline, the pace of achieving the desired targets remains a challenge. This could potentially delay the expected rate cuts among major

developed market economies, further complicating the economic landscape. Regional variances in growth patterns are also notable. For instance, the UK is forecasted to grow by 0.7% in 2024 and 1.2% in 2025, showcasing relatively stronger performance compared to the Eurozone and Germany, both of which experienced GDP declines in the fourth quarter of 2023.

Notably, the US and other major emerging markets showed stronger activity than expected, contributing positively to the global economic landscape. Central banks have implemented significant interest rate hikes to restore price stability, supporting the steady growth of the global economy. The forecast also highlights that global headline inflation is expected to decrease from an average of 6.8% in 2023 to 5.9% in 2024 and further to 4.5% in 2025.

Outlook

The outlook for global trade is relatively stable, with the ratio of total world trade to GDP expected to average around 57% over the next five years, broadly in line with the post- global financial crisis period. Risks to the global economic landscape have diminished compared to previous years, with a more balanced distribution of possible outcomes around the baseline projection for global growth. While risks are broadly balanced, there is a slight downside tilt in the near term, with potential challenges such as new price spikes from geopolitical tensions and persistent core inflation impacting interest rate expectations and asset prices. On the upside, fiscal policies could become more expansionary, inflation might decrease faster than expected, and advancements in artificial intelligence and structural reforms could enhance productivity.

(Source: International Monetary Fund, World Economic Outlook Projections, April 2024)

Indian Economy

The Indian economy, as per provisional estimates, is expected to have grown at a robust pace, with GDP growth expected to have come in at 7.6% in the fiscal year 2023-24, driven by ongoing economic reforms, favourable demographics, and resilient domestic demand. The Governments focus on infrastructure development, with an allocation of USD 122 Billion for infrastructure projects in the Interim Union Budget for 2024-25, coupled with manufacturing incentives and digital transformation initiatives, is expected to boost investment and create employment opportunities.

According to the International Monetary Fund, Indias GDP growth is estimated to be around 6.8% in 2023-24, making it one of the fastest-growing major economies in the world. This growth is supported by a rebound in private consumption, which accounts for nearly 60% of the countrys GDP The agriculture sector is anticipated to perform well, supported by favourable monsoon rains for 2024-25, with a forecast of 106% of the long-period average rainfall and increased adoption of modern farming techniques.

Inflation, which peaked at around 7.8% in 2022, is estimated to have moderated in 2023-24 to around 5.4% (Reserve Bank of India estimates). The Reserve Bank of India may keep interest rates unchanged to prioritise bringing inflation down to 4% target. Economists now believe the central bank would prefer to monitor the progress of the monsoon before considering any shift towards a softer monetary policy.

The Governments ongoing efforts to improve the ease of doing business, promote skill development, and enhance digital infrastructure are likely to support economic growth and attract foreign investments. With a focus on sustainable and inclusive growth, the Indian economy has emerged as a resilient and dynamic force in the global economic landscape in 2023-24.

Outlook

The Indian economy is poised for continued growth in 2024, building on the strong performance seen in the previous year. According to the World Economic Outlook report from April 2024, Indias GDP growth is expected to remain strong at 6.8% in 2024-25 and 6.5% in 2025-26 due to continuing strength in domestic demand and a rising working age population. One of the key positives for the Indian economy is the robust activity seen in 2023, which exceeded expectations. The general elections in India are also expected to significantly influence the economy, driving policy shifts that can impact sectors such as agriculture, infrastructure, healthcare, and renewable energy. Additionally, it is expected that the trajectory of innovation and entrepreneurship will continue to be positively impacted through initiatives like Start-Up India and Atal Innovation Mission. The United States, and large emerging markets, including India, displayed stronger-than-anticipated economic performance. This resilience is a testament to Indias ability to navigate global challenges. However, the outlook is not without challenges. The Eurozone and Germany faced declines in GDP in the fourth quarter of 2023, and the global economic slowdown could pose risks to Indias external sector. Additionally, the sustainability of Indias investment growth hinges on strengthening private consumption and private capital expenditure, which have remained subdued.

(Source: Press Information Bureau, Reserve Bank of India, International Monetary Fund)

Company Overview

Chemplast Sanmar Limited (referred to as CSL or Chemplast or the Company) stands at the forefront of Indias speciality chemicals manufacturing sector, specialising in Speciality Paste PVC resin and custom manufacturing of starting materials and intermediates for

pharmaceutical, agrochemical and fine chemicals sectors. Notably, the Company holds the distinction of being Indias largest producer of Speciality Paste PVC resin. Additionally, it ranks as the fourth-largest manufacturer of Caustic Soda and the foremost producer of Hydrogen Peroxide in South India. With a rich history, CSL is also a pioneer in the production of chloromethanes and refrigerant gases in India.

The Companys wholly owned subsidiary, Chemplast Cuddalore Vinyls Limited (the subsidiary or CCVL) is the second-largest producer of Suspension PVC resin in India, with a leading presence in South India and contributes significantly to the Companys portfolio. Both CSL and CCVL have earned the prestigious Responsible Care certification, showcasing their adherence to the highest operational standards.

CSL focusses on sustainability and safety by maintaining certifications such as ISO 9001:2015 for quality management systems and ISO 45001:2018 for Occupational Health and Safety Management Systems. Specifically, CSLs coastal plant at Karaikal and CCVLs coastal plant at Cuddalore utilise desalination units to source water solely from the sea, avoiding groundwater extraction. Additionally, CSL implements zero liquid discharge across all manufacturing facilities, ensuring no treated effluent is released into either land or a water body. Since 2010-2011, CSL has voluntarily conducted yearly sustainability audits for its manufacturing facilities. The Company has also brought out annual Sustainability Reports for over fifteen years, prepared in accordance with international GRI standards and assured by a Big Four audit firm. The Companys plants have also received the prestigious Five Star award from the British Safety Council, and some of the plants have also received the Sword of Honour award, given to the creme-de-la- creme of the Five Star awardees.

Human Resources

Recognising its employees as invaluable assets, the Company prioritises investments in their development to drive value for all stakeholders. With ongoing expansion and project executions, CSL places great importance on its recruitment activity, consistently attracting skilled professionals across diverse levels. The Companys management is dedicated to fostering a supportive work culture, implementing numerous employee engagement initiatives to empower individuals to thrive in their roles.

Furthermore, the Company is committed to nurturing a diverse workforce, offering comprehensive training and development programmes to enhance employee skills and knowledge. As of March 31, 2024, the Company employed

a total of 1,374 permanent staff members, underscoring its commitment to workforce development and excellence.

Speciality Chemicals Speciality Paste PVC Resin

Poly Vinyl Chloride (PVC) resin is produced by polymerising Vinyl Chloride Monomer (VCM). Homo polymers of PVC resins are categorised into two main types:

(a) Suspension resin

(b) Speciality Paste resin (also known as emulsion or dispersion or micro-Suspension resin)

Speciality Paste PVC resin is utilised in manufacturing flexible goods such as artificial leather, gloves, tarpaulins, conveyor belts, and coated fabrics, and holds a niche status compared to Suspension PVC resin.

In 2023-24, India imported nearly 82 kt of PVC Paste resin, a marginal drop from the nearly 86 kt imported in

2022- 23. The Company commissioned a new 41 ktpa plant at Cuddalore, Tamil Nadu, to add to its already existing capacity of 66 ktpa at Mettur. This new investment will further bolster the Companys numero uno position in India for this product, helping it reach a market share of over 65% and reduce the countrys dependence on imports.

2023- 24 Review

The Indian Speciality Paste PVC resin market witnessed a slight disruption with the introduction of mandatory BIS standards for footwear, as manufacturers struggled to come to terms with the new regulations. Demand stood at about 160 kt.

Despite a decent demand, margins were under pressure right through the year, as international suppliers, bogged down by declining demand in most major global markets like China, the US & Europe, started dumping material into India, forcing the Company to undertake several price corrections. To address this challenge, the Indian PVC industry has approached the Government for appropriate trade remedial measures.

Overall, the recovery in the Indian PVC business is expected to be gradual in the short-term, as the industry navigates the global economic conditions and takes steps to address the import challenges.

Outlook

The upcoming fiscal year of 2024-25 is poised to witness good demand growth for Speciality Paste PVC resin, driven by growing automobile sales & increasing middle-class spends on artificial leather products. With the commercialisation of the new plant, the Company is in a sweet spot to take advantage of this growing market.

The Government of India has also come out with a Quality Control Order (QCO) for manufacture & sale of PVC resin, including PVC Paste resin. This order is expected to come in to force from August 26, 2024 (180 days from date of publication). The Company has already got its Mettur facility registered in line with this QCO and efforts are on to get the Cuddalore facility also registered. The QCO will act as a deterrent to imports of sub-standard & low-quality Speciality Paste PVC resin, thereby offering a level playing field to domestic producers.

Custom Manufactured Chemicals

Custom manufacturing entails the production of unique, non-commercially available molecules tailored exclusively for a specific company. These molecules are manufactured conforming to specific properties and processes. Custom manufacturing is preferred by pharmaceuticals and agrochemical manufacturers. Established products, whether patented or generic, often require the expertise of chemical companies to produce essential molecules like active ingredients, active pharmaceutical ingredients, intermediates and advanced intermediates. In such cases, the owners or manufacturers of such established products collaborate with outsourcing firms and leverage the specialised capabilities of such firms to meet their own production needs. The major reasons for opting for custom manufacturing are:

• Non-availability of assets at the customers end to handle multi-step synthesis;

• Alternatives for manufacturing of specific molecules in the regions with low cost of production.

2023-24 Review

The global agrochemicals industry witnessed significant challenges during the year, including slowing global demand and crop-related issues due to erratic monsoons affecting the whole agrochemicals sector, and the dumping of Chinese chemicals in the market which led to reduced price realisations. Channel inventories also built up. All of this resulted in a significant drop in prices for many generics, ranging from 20-40%.

Despite these headwinds, the Custom Manufactured Chemicals Division has resolutely focused on building capabilities and capacities for the expected demand growth in the years to come. This division achieved notable milestones during the year, including successfully commissioning the first phase of the expansion project as per plan and securing four Letters of Intent (LoIs), three of which are for advanced intermediates and one for an active ingredient. Commercial supplies of molecules under the first two LOIs have also commenced which highlights the divisions capability to deliver on its commitments. The second phase of expansion is on track for completion in 2024-25.

Primarily skewed towards the agrochemical business, the division also caters to the pharma and performance chemicals sectors, showcasing a diversified portfolio. The workforce composition, comprising of chemical and mechanical engineers along with chemists, underscores the divisions technical expertise and capabilities. Many of the chemists hold advanced degrees. The division is further strengthening the work force in anticipation of completing expansion projects and ramping up production.

Furthermore, the divisions collaboration with a global agrochemical innovator for an active ingredient signifies its strong partnership and industry recognition. The Companys emphasis on protecting intellectual property and expertise in developing and scaling up complex chemistry has been instrumental in securing projects and partnerships. Moreover, the inquiries from potential customers of the Custom Manufactured Chemicals Division remained robust, despite global cues of weakness in the agrochemical sector.

Outlook

India has long been a preferred location for global agrochemicals, pharmaceuticals and biopharma companies to outsource their services. Indian contract development and manufacturing organisations, with their strong technical expertise and regulatory-compliant facilities, have been capable partners to these global innovators.

Despite the recent headwinds, the demand for custom manufacturing in the agrochemical sector is expected to grow as new pesticides, herbicides, and fungicides gain traction. Indias market share in the overall global agrochemicals market is likely to expand from the current 25%-30% to around 50% by 2027. This gives enough head room and ample growth opportunities to the existing players. The key drivers for the expansion in the market share include various factors like the energy crisis in Europe, increasing EU regulatory constraints, decreasing trust on Chinese supply chain reliability and growing confidence in Indian players ability to work with complex chemistries. Indias players have gained a cost advantage over their counterparts in China in the speciality chemicals industry, which further enhances its position as a favourable manufacturing destination. The evolving regulatory

landscape in China has prompted global firms to diversify their supply risks, presenting export opportunities for Indian manufacturers. Additionally, very few countries other than India have the requisite scale, technology, raw materials and government support to capture this opportunity.

The custom manufacturing industry, in particular, is characterised by significant entry barriers, including high Environmental, Health and Safety compliance standards, ongoing process innovation and optimisation, extended customer validation and approvals process, high-quality standards and stringent specifications. Further, the end customers are usually required to register their suppliers with regulatory bodies as a source of intermediate products or active ingredients, which leads to high switching costs. Besides, CSL leverages on its chemistry process research and manufacturing capabilities to focus on providing custom-made intermediates for molecules that are in the early stages of their life cycles. This gives the Company an opportunity to be among the initial suppliers for such products to the innovators.

Value-added Chemicals Chloromethanes

Chloromethanes finds application in industries such as pharmaceuticals, refrigerant gas, and agrochemicals. This is a family of four products comprising of Methyl Chloride, Methylene Di Chloride (MDC), Chloroform, and Carbon Tetrachloride (CTC). The pharmaceutical sector predominantly drives the demand for MDC, primarily as a solvent in the manufacture of bulk drugs. MDC also finds applications in the foam blowing segment, aerosols, and adhesive formulations. Additionally, it serves as a crucial raw material for HFC-32, increasingly utilised as a refrigerant in air conditioning systems. CTC functions as a vital feedstock in the production of agrochemical intermediates. Chloroform plays a pivotal role in the production of tetrafluoroethylene, a key component used in manufacturing polymers like PTFE. Moreover, chloroform is extensively employed in the production of refrigerant gas, R22 and in the adhesive segment.

2023-24 Review

The chloromethanes market is experiencing growth with a positive outlook, especially driven by the pharmaceutical sectors significant consumption of MDC and increased production of HFC-32. However, CTC consumption was heavily constrained with restricted export demand for synthetic pyrethroids.

Outlook

India, with a low public healthcare expenditure, presents substantial growth potential. The Indian chloromethanes market is projected to reach USD 265 Million by CY 2027, clocking in a CAGR of 6% from CY 2022 to CY 2027. Growth in Pharma, the increasing penetration of HFC-32 and capacity expansions in the Hydrofluoro Olefins (HFO) space will drive demand for Chloromethanes for the near future. However, the overcapacity situation in the country is likely to persist for another couple of years, keeping prices under pressure.

Caustic Soda Production and Usage Caustic Soda

Caustic Soda and Chlorine are co-produced through the electrolysis of brine, with hydrogen generated as a by- product. Caustic Soda, also known as sodium hydroxide, is a crucial basic alkali used in various industries. Key sectors that utilise Caustic Soda and Chlorine include Alumina, textiles, chemicals, paper, PVC, water treatment, soap and detergent production, and the production of chlorinated paraffin wax. The Company operates manufacturing facilities for Caustic Soda in Mettur and Karaikal, with a combined capacity of 119 kt per annum.

2023-24 Review

The Caustic Soda industry continued to grow in 2023-24, with an estimated demand of 4.3mn mt. However, with a total installed capacity in excess of 6 mn mtpa, the industry faced a huge excess capacity, putting tremendous pressure on prices. For the fourth successive year, exports exceeded imports, with exports increasing to 476 kt - (Y-o-Y increase of 4%).

Outlook

Indias Caustic Soda market is expected to grow significantly, driven by the expansion plans of various alumina refineries. However, an increase in supply is also expected, with the installed capacity slated to reach 7.7 mn mtpa over the two years, likely resulting in a surplus. This surplus situation is likely to persist, leading to continued price pressure.

Hydrogen Peroxide

Hydrogen Peroxide serves as an organic bleaching agent in both the pulp & paper sector and the textile sector, apart from being used in the de-inking process in recycled paper production. Additionally, its applications extend to the electronics, food and beverage, and healthcare industries. In tandem with Peroxyacetic Acid, Hydrogen Peroxide plays a pivotal role in the production of peroxide-based disinfectants. Its versatility further encompasses various municipal and industrial applications. CSL stands as the largest manufacturer of hydrogen peroxide in South India, boasting an installed capacity of 34 kt per annum (50% basis).

2023-24 Review

The global Hydrogen Peroxide market size reached USD 3.3 Billion in 2023. Looking forward, IMARC Group expects the market to reach USD 4.5 Billion by 2032, an estimated growth rate (CAGR) of 3.5%.

In India, the textile industry faced headwinds during the year, buffeted by rising yarn prices and slowing export orders from Europe. Here again, the excess supply situation kept prices under check but in a narrow band. The Companys production of Hydrogen Peroxide stood at 23,203 mtpa while the sale was 23,134 mtpa during the year.

Outlook

The expansion of the paper and pulp industry is set to fuel the demand for Hydrogen Peroxide. Simultaneously, the long-term growth trajectory of the textile market will be propelled by factors such as population growth, increasing income levels, the rise of organised retail, and the surge in e-commerce activities. Moreover, the ongoing efforts to enhance hygiene standards presents a burgeoning opportunity for Hydrogen Peroxide, given its efficacy in combating bacteria, viruses, and fungi, thus opening up new avenues in a developing market segment. However, the current excess supply situation is expected to keep the prices under pressure for the near term.

Chemplast Cuddalore Vinyls Limited Suspension PVC

Suspension PVC, a versatile polymer, is utilised in both rigid and flexible applications. The rigid applications of this polymer include pipes, profiles, and roofing sheets, while its flexible applications comprise hoses, tubing, wires and cables, calendared sheets, and films. The global demand for Suspension PVC has been majorly driven by the construction sector and overall economic growth. In recent years, there has been a surge in consumption in Asian economies like China, India, Vietnam, and Indonesia. China leads in consumption, representing over 40% of global usage, with India emerging as a significant market. Other regions with notable consumption include North America, Western Europe, and the Middle East and Africa.

2023-24 Review

The global Suspension PVC Resins market size is expected to reach USD 62 mn mt by 2029, growing at a CAGR of

2% from 2023 to 2029. The market is mainly driven by the construction & water conveyancing sectors, with automotive, medical and other applications bringing up the rear.

On PVC Suspension resin, Indian demand reached 4 mn mt in 2023-24, a Y-o-Y growth of 7%. For much of the year, the industry had to face depressed margins as international suppliers, affected by far lower than normal demand in China, the US & Europe, started dumping material in India. In fact, for most exporting countries, India was the top destination as India continued to be the largest importer in the world.

The expanding demands from furniture, automobile, textile and consumer electronics industries are propelling the Suspension PVC resin market. The industry trend of PVC Resin is positive and growing, as the demand for PVC products is increasing in various end-use industries, such as construction, automotive, electrical, and medical. The major drivers for the market growth are the rising urbanisation, the increasing infrastructure development and the growing demand for lightweight and durable materials. The demand within the construction and water supply sectors is anticipated to maintain its robustness in the fiscal year 2024-25. The Governments emphasis on ISI marked pipes has reduced filler usage and consequently boosts PVC consumption. India was Chinas top export destination for Suspension PVC during 2023-24, with around 860 kt of Suspension PVC coming into India from China. This was a third of all the Suspension PVC imports into India during 2023-24.

Outlook

In the Suspension PVC space, strong demand growth is expected to sustain in India. The increased emphasis on bringing more land under irrigation, and focused projects like Jal Jeevan Mission, Smart City Mission, Pradhan Mantri Krishi Sinchayee Yojana, and the Amrut 2.0 Scheme bode very well for PVC demand. The revival of the construction sector and the increased penetration of uPVC windows in this sector give a further fillip to PVC demand. The margins are expected to improve in the medium-term and sustain over the long term on account of the global imbalance with demand growth expected to exceed supply growth.

Financial Performance

Summary of the financial performance is presented below:

Particulars	Standalone		Consolidated
	2023-24	2022-23	2023-24	2022-23
Sales and other income	1,697.29	2,222.42	4,003.45	5,020.97
Profit before interest, depreciation and taxes	(16.74)	331.53	106.31	548.03
Profit/(Loss) before tax and exceptional items	(156.17)	216.49	(225.57)	252.01
Exceptional Items	0	(49.80)	0	(80.50)
Profit/(Loss) before tax	(156.17)	166.69	(225.57)	171.51
Tax expenses	52.30	(21.12)	67.14	(19.16)
Profit/(Loss) after tax	(103.87)	145.57	(158.43)	152.35

Financial Performance - Standalone

On a standalone basis, the revenue from operations and other income decreased to 1,697.29 Crores for 2023-24 from 2,222.42 Crores in 2022-23. Loss before tax and exceptional items was 156.17 Crores against profit of 216.49 Crores in 2022-23. The Companys revenue dropped by 23.6% when compared to 2022- 23. The finance cost has increased to 32.70 Crores due to interest on project loan. The loss after tax and exceptional items for 2023-24 was 103.87 Crores, as against profit of 145.57 Crores in 2022-23.

Financial Performance - Consolidated

On a consolidated basis, the revenue from operations and other income stood at 4,003.45 Crores for 2023-24 against 5,020.97 Crores in 2022-23. The decline in sales was only due to a drop in prices. The loss before tax and exceptional items for 2023-24 was 225.57 Crores against profit of 252.01 Crores in 2022-23. The loss after tax for 2023-24was 158.43 Crores, as against profit of 152.35 Crores in 2022-23. The Company slipped into losses due to the impact of price and margin erosion on account of dumping of products into India (for Suspension PVC and Speciality Paste PVC) while Caustic Soda and Chloromethanes prices were affected by over-capacity in India.

Risk and Mitigation

Risk Category	Risk Description	Mitigation Strategy
Environmental Risk	The Companys operations have a broad environmental impact, going beyond chemical disposal. Factors like energy consumption and waste generation significantly contribute to its overall environmental footprint.	The Company is reducing its environmental impact through the zero-liquid discharge and desalination plants. The Companys environmental strategy also involves investing in advanced pollution control technologies, adopting sustainable practices, and complying with environmental regulations. This proactive approach demonstrates the Companys commitment to responsible and eco-friendly operations.
Health & Safety Risk	Exposure to hazardous materials, such as chemicals, poses a significant risk to both employees and the surrounding community, potentially leading to serious health problems.	The Company prioritises the safety and well-being of its employees and the community. It enforces strict safety protocols and provides regular safety training. The Company conducts regular health assessments and provides personal protective equipment (PPE) to employees to protect them from workplace hazards. Safety audits and ongoing training demonstrate its commitment to a safe work environment. The Company also undergoes stringent safety audits by reputable organisations like the British Safety Council, with its plants at Mettur and Cuddalore being awarded the Five Star rating and Sword of Honor.
Supply Chain Risk	Due to its business nature, the Company heavily relies on its supply chain for raw material sourcing, research and development, and product distribution and delivery. Disruptions to the supply chain, whether from natural disasters or geopolitical tensions, could affect the availability and cost of critical inputs.	The Company has shown resilience in managing its supply chain by maintaining strong relationships with suppliers and ensuring visibility and traceability despite challenges. The Company diversified its sources, monitored and evaluated performance, collaborated with industry players, and invested in technology to ensure the seamless functioning of its supply chain.
Financial Risk	The Company has demonstrated resilience in managing its supply chain by maintaining strong relationships with suppliers, ensuring visibility and traceability despite challenges. The Company diversified its sources, monitored and evaluated performance, collaborated with industry players, and invested in technology for a seamless supply chain.	The Company employs hedging strategies, prudent financial management, and revenue stream diversification. It expands into other global regions and products while leveraging a strong network. The Company maintains regular communication with stakeholders, suppliers, and clients to stay updated on market trends and changing demands, enabling it to stay ahead.
Regulatory Risk	The Company operating in a highly regulated industry, acknowledges the potential consequences of non- compliance with regulations and standards, which could result in fines, legal penalties, and reputational damage.	The Company has reliable compliance management systems, including monitoring and auditing procedures, to ensure continued adherence to regulatory requirements. The Company stays up to date with modifications to regulations and adapts procedures accordingly to minimise regulatory risk, protecting its financial performance and reputation.

Risk Assessment And Management

The Company has established a robust Risk Management System, in compliance with Regulation 21 of the SEBI LODR. A dedicated Risk Management Committee oversees this system, with details outlined in the Corporate Governance Report. The Companys Risk Management Policy, available

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on its official website, covers various risks, including _ strategic, financial, and regulatory. Mitigation plans are rigorously reviewed and implemented to minimise adverse effects on operations and reputation. This commitment underscores the Companys dedication to driving sustainable growth and delivering value to stakeholders.

Risk Segmentation

Risks have been categorised into the following groups:

1. Strategic risks: Stemming from macroeconomic factors and external conditions that could significantly impact strategic business decisions, future goals, and financial performance.

2. Financial risks: Arising from uncertainties in the financial market or deficiencies in financial reporting.

3. Compliance risks: Associated with regulatory non- compliance.

4. Operational risks: Resulting from insufficient resources, inadequate processes, failures thereof, or insufficient skills or personnel.

Risk Categorisation

All classified risks are organised into the following groups, based on an assessment of their likelihood of occurrence and impact:

I. Priority risks

II. Key risks

III. Managed risks

IV. Low risks

Mitigation plans have been developed for each risk category and are regularly reviewed, including monitoring the implementation status of these plans. Periodic assessments of ERM are conducted to identify any new risks arising from significant changes in the business model, external environment, and governmental regulations, among others.

Internal Control Systems

The Company maintains robust internal controls, systems, and checks tailored to its business operations. Financial oversight is ensured through budget monitoring and standard operating procedures. Internal audit activities for fiscal year 2023-24 were conducted by R.G.N. Price & Co., Chartered Accountants, covering all operational areas. Observations are presented to the Audit Committee with proposed corrective actions. Internal Auditors continually assess control effectiveness and compliance, prompting management to implement corrective measures promptly.

Key Financial Ratios

Significant changes in key financial ratios, along with detailed explanations, are provided below if the change is 25% or more compared to the immediately previous year.

Analytical Ratios	Numerator	Denominator	March 31, 2024	March 31, 2023	% Variance	Remarks
Trade Receivables Turnover Ratio	Net Sales	Avg. Trade Receivable	7.55	10.07	(25.02%)	Lower sales value in 2023- 24 resulted in lower trade receivable turnover ratio.
Interest Coverage Ratio	EBIT	Interest & Lease Payment	(3.27)	6.35	(151.50%)	The Company incurred loss before interest and tax in 2023-24 resulting in negative interest coverage ratio.
Current Ratio	Current Assets	Current Liabilities	1.15	1.68	(31.55%)	Reduction in trade receivable coupled with reduction in cash & cash equivalents as of March 31, 2024, resulted in lower current assets and consequently a lower current ratio.
Debt-Equity Ratio	Total Debt	Stakeholders Equity	0.17	0.06	183.33%	The Company has taken additional debt during the current year for project financing. Accordingly, Debt- equity ratio has increased.
Net Profit Margin	Net Profit after Taxes	Revenue from Operations	(6.27%)	6.63%	(194.57%)	The Company incurred loss after Tax in 2023-24 resulting in negative net profit ratio.
Return on Net Worth	Net Profit after Taxes	Net Worth	(2.7%)	3.69%	(173.17%)	The Company incurred loss after Tax in 2023-24 resulting in negative Return on Net Worth.

Cautionary Statement

Certain statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations, or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ from those expressed or implied. Important factors that could make a difference to the Companys operations include raw material availability and prices, cyclical demand and pricing in the Companys principal markets, fluctuation in forex rates, changes in Government regulations, tax regimes, economic developments within India and the countries in which business is conducted, and other incidental factors.