Laxmi Organic Industries Ltd Management Discussions

Outlook

The Governments prudent capital expenditure, combined with structural reforms, stable domestic demand, and expanding private consumption and investments, is expected to drive sustained growth. India aims to become a US$ 5 Tn economy within the next three years and a US$ 7 Tn economy by 2030, positioning itself as the third- largest economy globally. This growth trajectory is further supported by broad-based credit expansion, improved capacity utilisation, and efforts to reduce trade deficit and inflation. Furthermore, significant infrastructure investment is expected to enhance competitiveness by reducing logistics costs and facilitating quicker product transfer, benefiting various sectors and boosting exports. However, potential risks such as commodity price surges from geopolitical tensions, supply disruptions, or persistent inflation in developed economies could lead to extended tight monetary conditions.

Global Chemical Market

In CY 2023, the global chemical industry grappled with sluggish demand, overcapacities in China and lower output, with chemical output growing less than 1% year-over-year in the first eight months. Factors like the recession in Europe, inflation in the US, and a smaller-than-expected rebound in Chinese demand, coupled with over-ordering in CY 2022 leading to high inventory levels, contributed to this challenge.

Despite fears of an economic downturn in the US fading, the underlying weakness in demand and overcapacity for some products persisted. Flowever, the energy transition drove chemical demand, with new government policies spurring investment in clean energy technologies like EVs, lithium- ion batteries, and solar panels. The industry supports over 75% of emissions reduction technologies needed for net- zero goals by 2050, with over 100 projects expected online in CY 2024.

Regional dynamics significantly impacted the landscape, with energy market volatility, evolving policies, and supply chain disruptions raising de-industrialisation concerns in Europe. The US and the Middle East benefited from relatively cheap domestic energy sources like natural gas, LPG, and oil, China continues to depend on coal as a key energy source and gas trade with Russia. Digitalisation and Al played a crucial role, with companies accelerating integration efforts and adopting Al technologies for optimization, innovation, and decision-making, despite digital investment drops in 2023. The circular economy gained momentum, with

increased investments in plastics recycling as brands aimed to use more recycled content. Advanced recycling technologies were scaled up, and lithium-ion battery recycling garnered attention, expected to grow from 2024 onwards. Bio-based feedstocks showed promise in displacing plastics, while still lacking economies of scale. Chemical companies around the globe are likely to enter the year with utmost caution, keeping their focus more on reducing overall costs and improving process efficiencies to offset the losses incurred during the past years.

Outlook for Chemical Production 2024 (Excluding Pharmaceuticals)

Outlook

The macro chemical industry outlook remains positive, driven by pharmaceutical innovation, sustainability trends, and revival of end-use sectors. However, shortterm challenges like economic uncertainties, overcapacities in China and supply chain issues persist. Companies will prioritise cost optimisation, digitalisation, and eco-friendly solutions to fuel growth. Strategic investments in R&D, collaborations, and operational efficiencies will be key to maintaining a competitive edge. Overall, the industrys adaptability and essentiality position it for steady expansion while navigating evolving market dynamics with an agile approach

Industry Overview

Pharmaceutical

The pharmaceutical chemicals market is driven by the increasing demand for advanced drugs and active pharmaceutical ingredients. The global pharmaceutical market was valued at US$ 1,559.53 Bn in CY 2023 and is projected to surpass US$ 2,832.66 Bn by CY 2033, expanding at a CAGR of 6.15% from CY 2024 to CY 2033.

Key growth factors include aging populations, rising healthcare expenditure, advancements in biotechnology and personalized medicine, and the increasing prevalence of chronic, and lifestyle diseases. The sector comprises multinational companies, biotechnology firms, generic drug manufacturers, and contract research organizations. Emerging applications of pharmaceutical chemicals offer lucrative opportunities for major players. The development of new drugs coupled with evolving markets is a major trend boosting the growth of the pharmaceutical chemicals market. Furthermore, increasing healthcare spending in emerging markets is influencing business strategies due to high profitability potential, leading to investments and launches of advanced products globally.

Dyes and Pigments

The global dyes and pigments market witnessed remarkable growth, primarily driven by its widespread use in key end- use industries such as textiles, construction, and plastics. The market is projected to expand at a 5% CAGR between CY 2023 and CY 2033. The textile industry is among the largest consumers of dyes and pigments, utilizing them for the production of clothing, home textiles, and other textile- based products. The construction industry also significantly contributes to the demand for dyes and pigments through their applications in architectural coatings, automotive coatings, and other industrial coatings. Additionally, the plastics industry is a significant end-user of pigments, employing them in the manufacturing of plastic products such as packaging, consumer goods, and industrial components. The dyes and pigments markets growth is expected to continue, fuelled by the increasing demand from these diverse end-use sectors.

Agrochemicals

The agrochemical industry plays a crucial role in ensuring food security by protecting crops from pests, diseases, and weeds. Approximately 25% of global crop yields are lost annually due to these threats, highlighting the importance of agrochemicals in enhancing crop productivity. The global agrochemical market is projected to experience substantial growth, expanding from US$ 243.55 Bn in 2023 to US $296.32 Bn by 2028, with a compound annual growth rate

(CAGR) of 4%. This growth can be attributed to the increasing awareness about the benefits of crop protection chemicals, which have not only led to increased usage of pest control products but have also raised awareness about the potential for more profitable opportunities with minimized crop losses. Furthermore, the global agrochemicals industry has witnessed a surge in patent filings and product registrations, contributing to the wider adoption of these products in agriculture, thereby driving market growth.

Flexible Packaging

The flexible packaging market is poised for substantial growth, with production volume expected to rise from 34.67 Mn tonnes in 2024 to 40.94 Mn tonnes by 2029, reflecting a CAGR of 3.38%. This growth is driven by increasing demand for convenient, lightweight, and sustainable packaging solutions across various sectors, particularly food and beverage, cosmetics, and healthcare. The growth of the flexible packaging adhesive market is closely tied to the demand from the medical, food, and cosmetic packaging sectors. The need for improved shelf life and product protection, facilitated by advancements in packaging technology, further fuels market expansion. Concurrently, the global industrial chemical packaging market is poised for positive growth, driven by the increasing demand for chemicals used in the food and pharmaceutical industries. The surge in demand for organic chemicals and various additives is propelling the sales of sustainable packaging solutions, as manufacturers and exporters seek high-quality industrial packaging for safe transit of their high-value goods.

Industrial Solutions

ndustrial chemicals are developed for use in industrial processing and production processes, as well as ingredients in consumer products. The Global Coatings, Adhesives and Sealants, and Elastomers (C.A.S.E.) Market is expected to grow from US$ 207.7 Bn in 2022 to US$ 277.76 Bn in 2030, with a CAGR of 3.7%. This growth is driven by the rapid expansion of building and construction activities, infrastructure development projects, and the transportation sectors demand for coatings, adhesives, sealants, and elastomers to prevent oxidation and corrosion. The Asia-Pacific region holds a significant share in the market due to its economic growth and surging production in industries like construction, textile, and automotive. Furthermore, partnerships between tire manufacturers and adhesive and sealant producers to develop sustainable sealants are expected to create lucrative opportunities for market growth.

Indian Chemical Market

With a 7% share in the countrys GDP and a diverse portfolio of over 80,000 commercial products, the Indian Chemicals industry is a cornerstone for both agricultural and industrial progress. It provides essential materials for downstream sectors such as pharmaceuticals, paints, textiles, and paper. Encompassing bulk chemicals, speciality chemicals, agrochemicals, petrochemicals, polymers, and fertilizers, Indias chemical sector holds a prominent global position.

The Indian chemical sector was valued at US$ 278.1 Bn in 2023-24 and is projected to experience substantial growth, reaching US$ 304 Bn by 2024-25 and a staggering US$ 1 Tn by 2040, fuelled by a growing demand from end-user industries such as construction, automotive, and consumer goods.

Chemical Industry

Basic Chemicals

ndias basic chemicals industry exhibits substantial growth potential, with efforts underway to reduce reliance on imported raw materials by exploring alternative feedstock options such as coal gasification, syngas, and pet coke.

This move is expected to facilitate capacity expansion among downstream chemical producers, particularly in petrochemicals, which have seen significant investment commitments of approximately US$ 100 Bn by 2030.

This expansion aims to address Indias petrochemical intermediate supply deficit, supporting the production of higher-value-added speciality chemicals necessary for end- user goods.

Speciality Chemicals

The speciality chemicals sub-sector stands out as one of the fastest-growing segments in the Indian manufacturing sector, experiencing remarkable expansion. The ongoing shift in global supply chains is driven by theChina+1 strategy, coupled with renewed domestic end-user demand. This growth is fuelled by favourable demand dynamics and expanding penetration opportunities, particularly evident in categories such as paints, textiles, adhesives, and personal and home care products. With domestic chemical consumption relatively low, there exists substantial scope for further development. The Indian speciality chemical export market is poised for significant growth, with its market share projected to rise to 6% by 2026 from 3-4% in fiscal 2021. This expansion is driven by increased access to export markets, while Chinas export market is impacted by environmental regulations, positioning India advantageously.

Agrochemicals and Fertilisers

The agrochemicals and fertilisers sector in India is currently grappling with immediate challenges arising from global conflicts and disruptions in the supply chain. Geopolitical tensions and trade route disturbances have led to a surge in fertiliser prices, posing significant obstacles for the industry. Indias dependence on imports from nations such as China further exacerbates these challenges. While the Governments One Nation One Fertiliser programme endeavours to enhance fertiliser guality and accessibility, it may strain manufacturers profit margins. Striking a balance between ensuring fertiliser affordability and addressing food security concerns necessitates careful policy navigation, nitiatives like subsidised fertilisers under theBharatbrand and the establishment of Kisan Samruddhi Kendras aim to alleviate these challenges over the long term.

Global Ethanol Market

The ethanol market, valued at US$ 94.6 Bn in 2023, is estimated to grow at a robust CAGR of 5.3% from 2024 to 2034, reaching US$ 166.6 Bn by the end of 2034. The markets growth is primarily driven by the increasing use of ethanol as a biofuel and the rising demand for alcoholic beverages. Ethanol, a colourless and flammable liguid, finds applications in multiple industries, including cosmetics, fuel, beverages, and industrial solvents. Ethanol is primarily made from various plant materials, collectively known as biomass, with sugary crops like wheat, corn, and sugarcane serving as excellent sources. The demand for biofuels like ethanol is being driven by government initiatives for environmental pollution control, as ethanol is considered a clean energy alternative and helps reduce air pollution by improving engine combustion.

Leading companies in the ethanol sector are investing in business expansion through various strategies, such as mergers and aeguisitions, partnerships, and new product launches. These companies are launching new products to enhance their product portfolios and meet consumer demands. Moreover, manufacturers are adopting sustainable production methods to reduce carbon emissions and meet sustainability standards.

Global Acetic Acid Market

The global acetic acid market size reached US$ 11.9 Bn in 2023. It is expected to reach US$ 19.5 Bn by 2032, exhibiting a growth rate (CAGR) of 5.5% during 2024-2032. Acetic Acid is utilized in the manufacturing of coatings, greases, polyesters, and sealants, which finds application in different industry verticals, such as electronics, automobiles, textiles, and packaging, is favoring the growth of the market. The increasing use of acetic acid as a feedstock in the production of various chemicals, including vinyl acetate, acetic anhydride, and acetate esters, in confluence with significant growth in the chemical industry, represents one of the major factors strengthening the market growth around the world.

Policy Support for Chemical Industry

The Union Government, with a clear vision of increasing the manufacturing sectors contribution to 25% of the GDP by 2025, plans to significantly enhance domestic production, reduce imports, and attract investments. To achieve this goal, the Government plans to introduce a production-linked i ncentive scheme for the chemical sector and foster an end-to- end manufacturing ecosystem through cluster growth. Some of the key initiatives towards the implementation of this vision include:

O Under the Interim Union Budget 2023-24, the Government allocated ? 173.45 Crores(US$ 20.93 Mn)to the Department of Chemicals and Petrochemicals.

O The Government has started various initiatives such as mandating BIS-like certification for imported chemicals to prevent dumping of cheap and substandard chemicals into the country.

O The chemicals sector permits 100%. Foreign Direct nvestment (FDI)undertheautomatic route, with exceptions for hazardous chemicals. Between April 2000 and June 2023, FDI inflows in the chemicals sector, excluding fertilisers, totalled US$ 21.48 Bn.

O The Department of Chemicals & Petrochemicals plans to introduce a Production Linked Incentive(PLI) scheme in the chemical & petrochemical sector.

O The dedicated integrated manufacturing hubs under the Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of 120 Tn (US$ 276.46 Bn) by 2035.

Growth Drivers

Large Headroom: Indias chemical consumption per capita stands at just 10% of the global average, signaling ample room for an increase in domestic consumption. Rapid urbanization and the expanding middle class are expected to further exacerbate the need for capacity expansion in the chemical sector.

Geographic Advantage: Indias extensive coastlines and waterways, facilitate trade and offer substantial import substitution opportunities. Additionally, Indias proximity to the Middle East, a major source of petrochemicals feedstock globally, provides it with significant economies of scale.

Rising Labour Costs: The escalation of labour costs presents a significant growth driver for the chemical industry. Rising labour expenses create opportunities for chemicals to substitute manual labour in various sectors.

For instance, in agriculture, where herbicide use is limited due to reliance on low-wage seasonal workers for manual weed removal, there is potential for increased adoption of herbicides as labour costs rise and awareness about agrochemicals grows among farmers.

Dominance in Generic Market: Indias leadership in generics, biosimilars, and vaccine production contributing over 50% of the global vaccine supply which, significantly boosts demand for chemicals across industries. For instance, in 2020, around US$ 4.1 Bn in agrochemicals went off-patent, allowing Indian generics producers to gain market share. This dynamic fosters growth and innovation in the chemical sector, presenting lucrative opportunities in specific niches.

Demand for Speciality Chemicals: Increased demand from end-user sectors like food processing, personal care, and home care is fuelling the growth of various segments within Indias speciality chemicals market.

Robust Policy Support: The Department of Chemicals and Petrochemicals aims to position India as a premier chemicals and petrochemicals manufacturing hub. As India steadily progresses towards achieving self-reliance in the chemical sector, supportive policies provide a robust tailwind forthis endeavour.

Technological Advancements: Implementation of digital technologies to optimise processes and the development of new materials, such as bio plastics, self-healing materials, and grapheme, have the potential to create new markets and applications.

Constraints

Infrastructure Gap: India faces a significant infrastructure deficit, reguiring substantial investments to bridge the gap, estimated at US$ 4.5 Tn over the next 25 years. This shortfall impacts the supply chain, hindering the delivery of affordable chemicals to end-user industries, particularly when distances between producers and consumers are vast.

Market Fragmentation: The speciality chemicals segment in India suffers from excessive fragmentation, limiting economies of scale and hindering competitiveness against larger regional players The lack of consolidation also hampers investment in research and development, crucial for entering higher value-added market niches.

Competitive Raw Material Availability: The industry suffers from fluctuations in raw material prices, such as recurrent supply cuts from the Organization of the Petroleum Exporting Countries (OPEC) of crude oil and thereby its derivatives for petrochemicals, which can significantly affect the profitability and operational efficiency of chemical manufacturers. Dependence on imports for key building blocks (viz. crude oil, natural gas, coal, LPG, etc.) remains an area to work upon.

Regional Competition and Free-Trade Agreements:

ntense competition from regional players, notably China, poses challenges for Indian chemical producers. Chinas protective measures and subsidies for its chemical industry, coupled with Indias free trade agreements with other countries, contribute to import surges, impacting domestic producers market share and competitiveness. For instance, ndias agreement with Japan led to increased imports of caustic soda, affecting alumina producers in East India.

Outlook

ndia has the potential to become the consumption and manufacturing engine of the global chemical industry. It is witnessing rapid economic growth, is home to a rising middle class, and reguires lower capital and operating expenses. However, numerous challenges still persist including limited domestic feedstock availability, delayed regulatory approvals, and scarcity of skilled R&D talent. These enablers and obstacles have influenced the spectrum of chemical subsegments falling in the consideration pool, in terms of both market attractiveness and cost- competitiveness. Global chemical companies interested in entering or expanding their presence in India should consider these factors in their investment decisions.

Company Overview

In 35 years of its history, Laxmi Organic Industries Limited (the Company), has carved a leading global position for itself, catering to diverse customer industries and markets with a comprehensive range of products. The range of the Companys products in the Essentials business unit has been growing at nominal capex while the Specialties business unit, backed by DSIR-certified R&D centres has seen a significant enhancement of the product portfolio. In 2023- 24, the Company embarked on its journey of Geared to Win, prioritising growing with customer needs while continuing to ensure customer satisfaction, ensuring safe operations, building on technology cost leadership and leveraging R&D. The cornerstones of the Companys Geared to Win Strategy encompass customer centricity, a strategically located manufacturing footprint with room for planned expansion, a diversified and de-risked business model, and a track record of innovation through technology absorption and in-house developments. Furthermore, the Companys strengths lie in its depth and breadth of talent, coupled with a well-defined value system. While over more than three decades, the Companys performance has established a track record of resilience. Going forward, the Company has clearly defined the goals of excellence that have been set to ensure that all stakeholders are aligned. The commitment towards EHS has also been enhanced from FY 2023-24 onwards with the creation of Laxmi Life Saving Rules and focusing on leading indicators, which not only ensures that the business is operated with safety as a top priority but the entire Laxmi family also follows safety as a part of their daily lives. The Industrial Safety and Health Award 2023 has been a great evidence to this commitment.

Essential Chemicals

Essential chemicals, also known as essential products, are fundamental components necessary forvarious industries. These products play a crucial role in manufacturing processes or end products across a range of industries. Esterification is a chemical reaction that converts an acid into an ester by reacting it with an alcohol in the presence of a catalyst, typically a strong acid such as sulfuric acid or phosphoric acid. This process is vital in the production of various esters used in different industries.

Acetylation is another important chemical process that Laxmi Organic Industries specialises in. Leveraging Swedish technology, the Company has achieved a prominent global position, in the area of these products. It ranks number one domestically and third worldwidefexcluding China) in this segment, with over 30% market share in India.

The portfolio expansion diversification of the product portfolio of Essentials is done with nominal capex and ensuring extremely efficient cost curve. These essentials products find applications across various industries such as pharmaceuticals, agrochemicals, flexible packaging, auto coatings, printing inks, personal care, and cosmetics. With a best-in-class cost of production, the Company enjoys stable returns over the cycle, maintaining its cash-generative status. The portfolio diversification journey is meaningfully diversifying the revenue contribution of products which also helps improve the business resilience over cycles.

Specialty Chemicals

Established with German Swiss technology, the Company has witnessed strong growth in ketene/diketene downstream derivative chemicals, expanding over 10 times in the last decade. With a portfolio of over AO products serving diverse sectors from pharmaceuticals to coatings,the Company continues its leadership in the Indian markets with about 50% market share. The capital expenditure completed in 2022-23 added to the revenue and profitability of the business. With the fluorine intermediate assets beginning to contribute revenues from 202A-25 onwards, this business will see further diversification of products and customer industry base.

Diketene Specialties

The Company stands out globally with an extensive backward integrated portfolio from Diketene to downstream derivatives, having applications in Agrochemicals, Pharmaceuticals, Nutraceuticals, Pigments and Dyes, Adhesives, coatings, papermaking chemicals, and more.

We are the leading manufacturer of diketene derivatives in India with a market share of approximately 53% of the Indian diketene derivatives market in terms of revenue as of 2022- 23 and one of the largest portfolios of diketene products. The global diketene derivatives market is forecast to expand at a CAGR of 6.A%, increasing from a projected value of US$ A85.7 Mn in CY 202A to US$ 7A9.8 Mn by the end of CY 2031.

Fluorospeciality Intermediates (FI)

The global fluorochemicals market reached US$ 2A.3 Bn in CY 2023 and is projected to reach US$ 35.7 Bn by CY 2032, exhibiting a CAGR of A.3% during 202A-2032. The Company operates in a large market, and the relevant market segment for the Company is about US$ 2.5 Bn within the Pharmaceutical, Agrochemical, and Industrial segments.

The technology acquired from Miteni is aimed at delivering more specialized products that do not fall into the category of refrigerants and surfactants. This business complements Laxmis specialty business, offering an opportunity to leverage best in class technonology and established customer relationships. As revenues from the commissioned assets grow, the diversification of the Companys business will also increase.

Risk Management

ESG

Recognising the profound impact businesses have on communities and society, the Company upholds the highest Environmental, Social, and Governance(ESG)standards. Committed to employee safety, environmental stewardship, and fostering inclusive growth, the team actively engage with local communities. The Companys comprehensive BRSR report combined with the Companys first Sustainability report showcases the emphasis on ethical governance, environmental initiatives, and social impact. Continuously striving for growth and improvement, the Company remains dedicated to driving long-term value for shareholders, communities, and the environment. Today almost 15% -17% of the power consumed comes from renewable sources, with the capacity already in place to rampe this up to 25% and this is an area of focouse for the Company.

Human Resource Management

Acknowledging the pivotal role of its workforce in driving our growth & significant emphasis is placed on fostering the personal and professional development of employees. Diverse training and development initiatives are regularly conducted to upskill staff and broaden their knowledge base. Throughout the year, the Company has maintained harmonious relations with its employees, expressing gratitude for their invaluable contributions to operational growth and commending them for their proactive initiatives. As of March 31, 2024, the Company boasts a workforce of 954 permanent employees.

In FY2024 there was a conscious effort to increase the gender diversity in the workforce. The ratio of women employed at the Company has increased from 4% to 8%.

Performance Review

Quality Assurance

Committed to delivering superior products and services, the Company ensures customer satisfaction and loyalty, fostering repeat business. The team consists of dedicated professionals across various functions, supported by state-of-the-art infrastructure and effective processes to optimise guality output. Additionally, a stringent supplier guality evaluation process guarantees that received materials meet internal standards and specifications, aligning with customer reguirements. In FY2024 customer complaints reduced 14% YoY.

Internal Control Systems and Their Adequacy

Governance relies on robust systems and controls, with the ERP system serving as a cornerstone. Teams receive comprehensive training to effectively utilise this system, ensuring seamless operations. The Information Technology function maintains process uptime, connectivity, and hardware and software integrity, facilitating enhanced engagements and collaborations. Financial controls are

aligned with operations, with internal audits conducted periodically by a reputable firm of Chartered Accountants and reports submitted to the Audit Committee of the Board. Continuous improvement and digitalization efforts remain ongoing within the Company IT team, reflecting industry standards.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the objectives, projections, estimates and expectations of the Company, its direct and indirect subsidiaries and its associates, may be forward-looking statementswithin the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important factors that could make a difference to the Companys operations include, among others, economic conditions affecting demand/supply, price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws and other statutes and incidental factors.

The Members,

Laxmi Organic Industries Limited

Your Directors are pleased to present their report on the business and operations of your Company along with the audited accounts of your Company for the year ended March 31,2024.