Naperol Investments Ltd Management Discussions

Company Overview

The Wadia Group, one of Indias oldest conglomerates and a key shareholder in the Company, founded National Peroxide Limited (NPL) in year 1954 as a specialty chemical production Company. The Company continued as a specialty chemicals manufacturing Company up to 2022-23. However, pursuant to the effectiveness of the Composite Scheme of Arrangement amongst the Company and Naperol Investments Limited (the Transferor Company) and NPL Chemicals Limited (the Resulting Company) and their respective shareholders and creditors under Sections 230 to 232 of the Companies Act, 2013 (the Scheme) on September 11, 2023, the chemical business of the Company was transferred and vested in NPL Chemicals Limited and Naperol Investments Limited was amalgamated with the Company, respectively, with effect from the Appointed Date i.e. April 1, 2022, resulting in the formation of two distinct and separate entities.

The brief details of the Companies are as under:

• National Peroxide Limited, the "Company" or "Transferee Company" or "Demerged Company", is a public company incorporated under the provisions of the Indian Companies Act, 1913. The Transferee/ Demerged Company is engaged in (i) manufacturing, distribution and dealing of peroxygen chemicals; and (ii) making long term investments and corporate lending directly and/or through its wholly owned subsidiary viz., the Transferor Company.

• NPL Chemicals Limited, the "Resulting Company", is incorporated to carry on the business of manufacturing, distributing and selling of peroxygen chemicals. The Resulting Company was a wholly owned subsidiary of the Demerged Company.

• Naperol Investments Limited, the "Transferor Company", was a public company incorporated under the provisions of the Companies Act, 1956. The Transferor Company was engaged in the business of long-term investment and corporate lending. The Transferor Company was a wholly owned subsidiary of the Transferee Company.

Benefits of the Scheme include:

• Unlocking the value of each of the businesses for the shareholders of the Transferee/ Demerged Company, attracting investors and providing better flexibility in accessing capital

• Segregating different businesses having different risk and return profiles and providing investors with better flexibility to select investments which best suit their investment strategies and risk profile

• Enabling focused growth strategy for each of the businesses for exploiting opportunities specific to each business

As on March 31, 2023, i.e. before the Scheme became effective, the Company carried on the chemical business. Pursuant to the implementation of the Scheme, the Company is continuing the remaining business of making long term investments and corporate lending. Pursuant to the Scheme, part of the factory land is leased to NPL Chemicals Limited. Hence, the information regarding the chemical business and the remaining business is presented hereunder.

Global Economic Overview

The global economy is showing signs of a gradual recovery, amidst global headwinds due to Russia-Ukraine, Israel-Hamas conflicts and the adoption of a tightening monetary policy stance by several nations. As economies showcase signs of reopening, disruptions in supply chains are diminishing, leading to stabilisation in energy and food markets that were previously impacted by the Russia-Ukraine conflict. Additionally, many central banks are implementing coordinated efforts to tighten monetary policy, aiming to achieve target levels of inflation and yield positive results.

According to the International Monetary Fund (IMF), global growth is projected to experience a slight downturn, decreasing from 3.4% in 2022 to 2.8% in 2023. There is an anticipated decline in global economic growth for advanced economies, with a decrease from 2.7% in 2022 to 1.3% in 2023. Several factors contribute to this, including policy measures aimed at curbing inflation, the lasting impact of recent financial conditions, the ongoing Russia- Ukraine conflict and escalating geopolitical tensions. However, emerging markets and developing economies are expected to showcase stronger economic prospects, with predicted growth of 3.9% in 2023 and further increasing to 4.2% in 2024.

World Economic Outlook Growth Projections (in %)

Region	2022	2023	2024
World Economy	3.4	2.8	3.0
Advanced Economies	2.7	1.3	1.4
Emerging Markets Economies	4.0	3.9	4.2

(Source: https://www.imf.ora/en/Publications/WEO/ Issues/2023/04/n/world-economic-outlook-april-2023)

The global inflation rate is projected to decrease from 8.7% in 2022 to 7.0% in 2023, with a further decline to 4.9% in 2024. This decrease can be attributed to several factors like interest rate hikes, reduced energy and food prices and the easing of supply chain pressures. However, it is important to highlight that core inflation, excluding volatile items, has shown more resilience to these factors.

Outlook

The current war scenario has deeply impacted oil and gold prices. Although Israel and Palestine are not major oil players, the violent conflict is happening in a broader key oil-producing region. Crude has already spiked as much as 5% on fears that the Israel-Hamas war may escalate even further. Additionally, the price of gold has risen by more than 2% since the start of the conflict. However, with a projected growth rate of 3.0% for 2024, the scenario for the global economy looks optimistic. It is widely anticipated that the downturn will be moderate, offering an opportunity to effectively address global issues and navigate these challenges. This period of moderation presents a chance for strategic measures to be implemented in order to mitigate the impact of these obstacles and promote sustainable global economic growth.

(Source: https://www.imf.org/en/PubHcations/WFO/ Issues/2023/04/n/world-economic-outlook-april-2023)

Indian Economic Overview

The Indian economy has demonstrated remarkable resilience, surpassing many other nations and positioning itself on a growth trajectory of 7.2% for 2022-23. This impressive performance can be attributed to several factors. Firstly, there is an optimistic business environment that has fostered investment and entrepreneurship. Secondly, robust industrial output and increased consumer spending have contributed to economic growth. Furthermore, the implementation of the Aatmanirbhar Bharat vision has been instrumental in boosting domestic production and reducing dependence on imports. This focus on self-reliance has created opportunities for domestic industries and facilitated economic growth.

Over the past decade, India has experienced remarkable economic growth, elevating its position from the tenth- largest economy towards becoming the fifth-largest globally. This growth has been accompanied by a strong focus on developing physical infrastructure across various sectors. Additionally, initiatives like Amritkaal and Saptarishis are dedicated to bridging economic disparities, empowering individuals in rural areas, enhancing technological capabilities, and reducing dependence on Government assistance. The Governments commitment to inclusive development, coupled with endeavours to expand infrastructure, tap into untapped opportunities, promote sustainable growth, harness the youth demographic dividend and strengthen the financial sector, are the key drivers propelling India towards a promising and prosperous future.

Indian Economy GDP Growth Rate

(in %)

Year	2018-19	2019-20	2020-21	2021-22	2022-23
GDP Growth Rate	6.5	3.7	(6.6)	8.7	7.2

(Source: https://www.indiahudnct.nov.in/cconomicsurvey/doc/echapter.pdf)

Outlook

Following the successful launch of Chandraayan-3, India has set its sights on a remarkable mission to explore the sun with the Aditya-L! spacecraft. However, Indias advancements are not limited to the field of space exploration. According to projections from IMF, India is poised to emerge as the worlds third-largest economy by 2027, surpassing both Japan and Germany, as its GDP crosses the significant milestone of USD 5 trillion. Moreover, India has set ambitious goals to become a fully developed economy by 2047. India will need to sustain a growth rate of at least 6.5% to achieve its first milestone in 2027 and it will require a more robust growth rate ranging from 8% to 9% to realize its second milestone by 2047. The Indian rupee has already weakened against the US dollar due to rising geopolitical tensions. Experts believe that if the conflict continues to escalate, it could lead to a further weakening of the Indian rupee. The pace of progress in the initial years will play a pivotal role in establishing a sustained, rapid-growth trajectory in the long run. Overall, the reforms and initiatives aim to strengthen Indias self-reliance, attract investments, drive growth, and create new job opportunities. (Source: https://www.indiabudnet.nov.in/economicsurvey/dnc/ echapter.pdf)

Industry Overview Peroxygen Chemical Industry

Over the past decade, Indias chemical industry ha; demonstrated remarkable global success in terms o demand growth and the creation of shareholder wealth. Witl the potential to further solidify its dominance in both globe consumption and manufacturing, India is well-positioned fo continued success in the global chemical industry. Peroxygei chemicals include hydrogen peroxide (H₂O₂), peracetic acii (PAA) and sodium percarbonate. The peroxygen chemica industry encompasses a wide range of chemicals that releas oxygen when it undergoes chemical reactions. Hydrogel Peroxide, a versatile chemical compound, is commonl used for its effectiveness as both a cleaning solution an an antiseptic agent. The market for hydrogen peroxide i India is experiencing significant growth, primarily driven b its increasing applications in the food processing industry and pulp and paper sector, among others, including wate treatment, chemical synthesis, cleaning and disinfection medical and first aid. Other contributing factors includ environmental regulations, industries focus on developi n< more environmentally friendly processes, demand for greei chemistry, and the need for effective disinfectants.

Financial and Operational Performance

The key highlights of the standalone financials are:

(Rs in lakhs)

Particulars	2022-23	2021-22
Total Income	189.29	23,562
Profit Before Tax (After Exceptional Items)	37,609.28	744
Profit After Tax (PAT)	37,525.07	509

Key Financial Ratios

As per provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the key financial ratios are given below:

Sr. No. Key Financial Ratios	2022-23	2021-22
1 Debtors Turnover Ratio (times)	1.89	10.55
2 Inventory Turnover Ratio (times)	N.A.	4.73
3 Interest Coverage Ratio (times)	N.A.	1.05
4 Current Ratio (times)	2.18	1.14
5 Net Debt Equity Ratio (times)	N.A.	0.18
6 Adjusted Operating Profit Margin (%)	(0.13)	(0.40)
7 Adjusted Net Profit Margin (%)	0.99	2.16
8 Return on Net Worth (%)	0.69	0.90

#Note: Pursuant to the Scheme and transfer of the respective business, the ratios and other numbers are not comparable to previous year.

Risks and their Mitigation Strategies Chemical Business

Risk	Description	Mitigation Strategy
Input Material Risk	Hydrogen, a key input material, is derived from natural gas. As the nation relies on natural gas imports to meet its requirements, any unfavorable event has the potential to drive up input costs.	The Company establishes strategic partnerships with essential suppliers to mitigate the impact of unforeseen events.
Single Product Risk	With over 98% of the revenue being generated from a single product, Hydrogen Peroxide, the risk profile is susceptible to fluctuations in demand.	The Company maintains ongoing vigilance in monitoring demand and actively seeks opportunities for market diversification to lessen reliance on a limited number of sectors. Additionally, in the medium term, the Company aims to concentrate on Peracetic Acid and enter the food-grade Hydrogen Peroxide segments as part of its product portfolio expansion strategy.
Dependency Risk	NPLs business operation is tied to the demand of diverse industries. A slowdown in any of these sectors, whether directly or indirectly, could impact the Companys growth, potentially leading to reduced profits and sales turnover.	The Company has focussed on expanding its customer base both in Domestic and Global markets. It now has a global footprint thereby reducing the risk of dependency on few selected customers.

Investment Business

Risk	Description	Mitigation Strategy
Market Risk	The Indian economy and financial markets are significantly influenced by worldwide economic, financial and market conditions. A loss in investor confidence in the financial systems, particularly in other emerging markets, may cause increased volatility in Indian financial markets.	NPL develops contingency plans, which are regularly reviewed and updated to ensure that there are adequate social safety nets in place during economic downturns, reducing social unrest and economic instability.

Internal Controls

NPL has an internal control system tailored to its size, scope, and operational complexity. The Companys internal audits are conducted by M/s. PKF Sridhar and Santhanam LLP The Audit Committee reviews the internal auditors reports, findings, and the internal control system, on a regular basis. The internal auditors assess the effectiveness and appropriateness of NPLs internal control systems, ensuring compliance with operational systems, accounting procedures and policies. To strengthen these controls, process owners implement corrective measures in their respective areas based on the internal audit findings. Any significant audit observations and corrective actions are presented to the Boards Audit Committee.

Human Resources

NPL places its employees at the core, holding them in the highest regard. Building strong and amicable relationships with its staff is a source of pride for the Company. It consistently initiates engagement programs designed to enhance the well-being of its employees and fosters a highly motivated workforce. NPLs commitment to its team extends to providing comprehensive training opportunities, encompassing both technical skills and leadership development, which are accessible to employees at all levels within the organization.

Continual efforts are directed to enhancing working environment and ensuring a harmonious balance between work and personal life. Moreover, NPL believes that nurturing a healthy work-life equilibrium is pivotal to the well-being and overall success of its employees.

Resources and Liquidity

NPL finances its long-term and working capital requirements by blending internally generated cash and sourcing credit lines provided by its bankers.

Cautionary Statement

Statements in this Management Discussion and Analysis Report state that the Companys goals, forecasts, estimates, expectations, or predictions may be forward-looking statements under applicable securities laws and regulations. Actual outcomes may differ significantly from those expressed or implied. Raw material availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations and tax regimes, the US Dollar/Indian Rupee exchange rate, economic developments within India and the countries in which the Company conducts business, and other incidental factors are all important factors that could affect its operations.