NOCIL Ltd Management Discussions

Economic Overview

The journey of the major global economies over the last decade, is an important aspect to be considered, for any discussion and analysis revolving around the business outlook, the likely opportunities, threats, risks & concerns which the future might unfold and the plausible mitigants to it.

The ten-year ride began with a stable and a resilient growth scenario for the first few years, which was later severely impacted by events such as auto slowdown in China, Chinese pollution issues and the World-wide standstill brought by COVID-19 lockdowns. Thriving for some positive strokes after the prolonged effects of successive lockdowns, a sudden recovery was witnessed in 2021. While resumption to normalcy looked just around the corner, the global economy in 2023-24 faced significant challenges, including the aftermath of the Covid-19 prices,pandemic, geopolitical tensions, fluctuating and tightening monetary policies by major central banks to control inflation.

As Central Banks worldwide implemented a series of interest rate hikes to combat inflationary pressures, the economic slowdown proved to be more pronounced than anticipated. Recent events such as the Red Sea crisis, have further impeded the recovery process, in such unstable conditions, cross-currency exchange rates remain volatile. In summary, the primary challenge for Global Economies is to navigate ongoing geopolitical volatilities while stiving to build and sustain growth momentum.

Industry Structure and Developments Rubber Chemical Industry:

As stated in the earlier years, the Global Rubber Chemical Industry derives its trend from the Global Rubber consumption pattern. While Global Rubber consumption showed a de-growth in Calendar Year (CY) 23 when compared with CY 22, a deep dive into the global and domestic trend vis-?-vis your Companys performance can demonstrate its strong positioning and the expected growth opportunities.

The Tire industry is largest consumer of Rubber. The Global Tire market size reached USD 164.9 Bn in 2023. Looking forward, IMARC Group expects the market to reach USD 256.8 Bn by 2032, exhibiting a growth rate (CAGR) of 4.9% during 2024-2032. (Source: https://www.imarcgroup.com/ tyre-manufacturing-plant)

Business Outlook: Opportunities & Threats Opportunities:

Your Company is not only seen as a dependable and quality supplier, but also a player that offers almost a complete range of rubber chemicals. With our constant efforts to build on our long-term domestic relations with Tire Companies, we are quite confident of increasing our wallet share.

On the international front, your Companys positive interactions with customers to secure volumes coupled with the expectations of recovery in the world markets are positive outlook indicators. By virtue of its long association with most international Tire majors, your Company also enjoys a preferred-supplier status with their Indian operations as well. With increasing presence of these players in the Indian market, your Company stands to gain significant as well. Advancement in Rubber Chemical formulations and production technologies offers opportunities for enhanced product performance. Growing demand for eco-friendly and sustainable products provides avenues for market expansion and innovation. Moreover, your Companys strong R&D capabilities and focus on Sustainability are considered as very important strengths by the Tire majors. The continuous expansion of the Tire industry in key markets along with the rise of electric vehicles will drive the demand for high quality Rubber chemicals.

Threats:

China generates an exportable surplus, considering its consumption of 35% as against the production of 80% of worlds rubber chemical demand. This factor coupled with continued sanctions levied by the U.S (second largest market) makes India (third largest market) a prime destination for aggressive dumping of rubber chemicals by China.

Our Chinese competitors have for long been dumping their products (including penultimate intermediates) in the Indian market at low prices. The possibility of competitors pursuing an irrational pricing approach cannot be ruled out, this may create pressure on our margins. Fluctuation in the prices of raw materials, such as petrochemicals, pose a risk to cost management and profitability. Geopolitical tensions and trade disruptions can adversely affect supply chains and market access, posing a threat to business continuity.

Risks & Concerns:

Though there are indications of rate cuts by the end of the calendar year by the central banks of the world, the data points supporting the same are not forthcoming. Any delay in recovery in the market conditions can delay your Companys target to achieve a wider market share.

Also, though your Company is de-risking its supply chain, any disruptions in the supply chain from China can affect the prices of its raw materials very significantly. Chemical

Industry is intricately woven to each other and any imbalance in demand-supply for a group of chemicals can threaten the manufacturing activities of several industries.

The Rupee, though expected to be range-bound in the coming year, can be affected by any changes in the geo-political conditions. The Company largely continued to mitigate the risk of this volatility through a judicious mix of natural hedge and other tools in the form of forward/ option contracts. Sentiment-driven currency changes can also impact domestic prices and profitability. On the Crude Oil front, we see that production cuts by OPEC+ thereby reducing global oil inventories in the first half of 2024 (1H24). The ongoing production restraint may lead to a relatively balanced oil market in 2024, with firmed up oil prices for the remainder of 2024. However, there ongoingremains significant developments in current geopolitical scenario, which have the potential to increase oil price volatility and lead to sharp increases in oil prices thereby increasing the raw material prices.

Operating & Financial Performance for the Year

The Financial Statements comply in all material aspects with Indian Accounting Standards (Ind AS) notified under Section 133 of the Companies Act, 2013 (the ‘Act) [Companies (Indian Accounting Standards) Rules, 2015] and other relevant provisions of the Act.

During the year CRISIL & CARE have reaffirmed ratings as CRISIL AA & CARE AA respectively (Double A) (Stable) for long term Bank Facilities (Fund Based facilities) and CRISIL A1+ & CARE A1+ respectively (A One plus) rating for short term Non-Fund Based Bank facilities.

During the year, some Plants were forced to operate at sub-optimal volumes to align with the market environment. Further the lacklustre latex demand in SE Asian markets and slowdown in the advanced economies, had its effect on the performance of the Company.

A summary of the financial performance of the Company is presented below:

Particulars	2023-24	2022-23
Revenue from Operations	1,444.67	1,616.57
Other Income	39.88	7.25
Total Income	1,484.55	1623.82
Operating EBIDTA	190.36	249.03

During the year under review, the Company achieved a profit before tax of Rs. 177.14 Crores as compared to Rs. 200.70 Crores in 2022-23. Pursuant to the SEBI (Listing Obligations and Disclosure

Requirements), Regulations, 2015, the key financial ratios viz., Debtors turnover, Inventory Turnover, Current Ratio,

Net profit (%), and Debt Equity and Interest Coverage ratios do not exceed the threshold of 25% or more as compared to the immediately preceding financial year. However, Operating Profit Margin (%), Return on Net Worth exceeded the threshold limits due to the reasons stated above.

Internal control systems

The Company has in place, adequate Internal Control

Systems and Procedures covering all the financial and operating functions. These have been designed to provide adequate assurance to the Management regarding compliance with the accounting standards by maintenance of appropriate accounting records, monitoring the

Economy and efficiency of operations, protecting the assets of the Company from losses, and ensuring the reliability of financial and operational information through proper compliance with the Statutory Enactments and its

Rules and Regulations. Some of the significant of the internal control systems and procedures are as follows:

Appropriate delegation of authority limits with responsibility for incurring capital and revenue expenditures.

Approval and monitoring of annual revenue budget for all operating and service functions.

Procedure for approval of capital budget proposals and monitoring the expenditure on such acquisitions.

Formulating and reviewing the annual and long-term business plans.

A comprehensive code of conduct for ensuring the integrity of financial reporting, ethical conduct, regulatory compliances, and conflict of interest, if any.

Review of the operations and financial plans in key business areas through monthly management meetings.

Appointment of Internal Auditors to conduct periodical internal audits on operations, systems, internal control on financial reporting etc and issue reports to the management and the Audit Committee of the Board, regarding the adequacy and compliance with the internal controls and the efficiency and effectiveness of operations.

An ERP system (SAP) connecting the Plants, Regional

Sales Offices and the Head

Management to evaluate and take decisions based on real time information systems.

The Audit Committee of the Board of Directors regularly reviews the findings of the Internal Auditors, adequacy of Internal Controls, Financial Controls, Compliance with the Accounting Standards, as well as recommends to the Board, the adoption of the Quarterly and Annual results of the Company and appointment of auditors. The Audit Committee also reviews the Related Party Transactions, entered by the Company during each quarter.

Further, the Secretarial Auditors review on a periodical basis through their own systems and check lists the compliances part with respect to the Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, as amended and other SEBI regulations as may be applicable to the Company.

Human resources

Talented and skilled manpower is an important enabler for a Company to deliver on its growth ambitions and be future ready while remaining competitive. People are the most important and valuable assets of your Company. During the year, we continued our focus on attracting the right talent and building internal capability to meet our current operational requirements as well as the future business expansion and growth plans. One of the key business imperatives was retaining key contributors by leveraging innovative incentive schemes as a motivational and retention strategy.

Your Company continues to curate and deliver technical, behavioural, HSE and Leadership learning offerings along with the ISO standards. ‘Managerial Skill Development programs to develop potential managers. Your Company is committed to enabling a high-performance culture and accordingly, a new performance management system was rolled out during the year. Your Company partnered with a reputable external agency to strengthen enables employee and managerial capability to engage in structuredthe performance conversations with a development focus. During the year, your Company successfully concluded the Value-Added Hierarchy exercise which aimed at providing a platform for reflection and dialogue, facilitating greater collaboration, and establishing the differential value added by each layer within the organisation. Your Company is now defining phase II of this initiative which will help institutionalise the same.

Your Company has complied with all the regulations pertaining to Factory, Labour and other applicable laws and has sustained very cordial Industrial Relations with the recognised labour Union.

Cautionary statement

Certain statements in the Management Discussion & 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.