Pasupati Acrylon Ltd Management Discussions

MANAGEMENT DISCUSSION & ANALYSIS REPORT

Management Discussion and Analysis Report for the year under review as stipulated under Regulation 34(2)(e) read with Schedule V of the SEBI Listing Regulations is given as under:

a) INDUSTRY STRUCTURE AND DEVELOPMENT Acrylic Fibre

Acrylic Fibre is an integral part of the total textile fibre mix which satisfies clothing and other needs of an increasing population. Acrylic fibres are being extensively used for manufacturing various apparel such as sweaters, sportswear, socks, home furnishing, and industrial cloth due to their lightweight, flexibility, and low cost. With the rapid growth of the apparel & textile industry and increasing usage of acrylic fibres for making apparel, the overall acrylic fibre market is projected to rise at 3.9% CAGR between 2023 and 2033. Factors such as a rapidly growing population, changing lifestyle, increasing disposable income, and flourishing fashion industry are expected to indirectly influence the growth of acrylic fibre during the next ten years. The demand for acrylic fibers is anticipated to rise in the coming years, particularly due to the macroeconomic development of end-use sectors which is supported by regional GDP and population growth.

CPP Film

Packaging industry is an enormous economic generator on a global scale and is one of the largest & highest growth sectors of the Indian economy. Cast Polypropylene or CPP packaging films have several beneficial properties from industrial perspective such as transparency, high impact strength, heat sustainability, dimensional stability, printability and are manufactured using high grade raw materials, and laminating aspects. The global market for CPP packaging films is expected to reach US$ 8,742.2 Mn by 2033, growing at a 4.2% CAGR from 2023 to 2033. CPP packaging films are readily used to increase the shelf life of the products in the industries such as food, beverages, apparel, cosmetics, and healthcare products. With the rising requirement for packaging across sectors, with traditional businesses preferring to package products, and the retail and e-commerce growing rapidly, the CPP films industry is projected to expand at a robust rate.

b) OPPORTUNITIES AND THREAT

The usage of acrylic fibers in blends with other materials like wool, cotton, polyester, etc. is growing in popularity as a result of their favorable physical, chemical, and thermo-biological properties. This will provide a strong thrust to the growth of the acrylic fiber market. The rapid growth of end-use sectors including apparel, home furnishing, and industrial will therefore continue to propel the sales of acrylic fibres in the upcoming years.

Global Acrylic Fibre consumption is impacted due to volatility in prices of raw material, energy, coal and other key inputs. The raw material to produce the Companys products is crude derived. The fluctuation in crude affects the raw material prices to some extent and during the year under the review, the crude prices remained volatile due to conflict in Israel-Hamas War & Russia-Ukraine War. Additionally, since the Company is dependent upon imports, the fluctuation in foreign exchange i.e. USD vs. INR has also a bearing on the margin of the Company.

The market for CPP Films is primarily driven by the rapidly expanding demand from the food and beverage sector and the rising use of bags and pouches in end-use industries. The market for CPP Films is expected to increase in the near future due to the rise in the consumption of convenience foods and the high need for packaging solutions. The development of consumer goods packaging has shown to be a major possibility for CPP film growth.

However, the market for CPP Film Market is moderately competitive owing to the presence of multiple vendors in the market. On the other hand, stringent regulations concerning packaging, changing consumer preferences and environmental pressures may restrain the growth to some extent.

Acrylic Fibre

The Companys Acrylic Fibre plant was set up in technical collaboration with SNIA BPD Italy, part of the famed FIAT group - a proven world leader in the manufacture of acrylic fiber. Advanced technology, automation, computerized process control systems and captive power, make the operations of your Company extremely efficient and reliable. The production capacity to produce Acrylic products of the Company is 42,000 MT PA.

During the year under review, the Company has recorded production of 31,534 MT and Sale of 31,685 MT, as against production of 36,425 MT and Sale of 35,260 MT respectively during the previous year. During the FY 2023-24 due to lower demand, production was declined around by 14% as compared to previous year.

Revenue of Acrylic Fibre during the year under review was Rs. 497.44 Crore as against revenue of Rs. 719.28 Crore in the previous year. Profit before tax, exceptional items and interest was Rs. 25.10 Cores as compared to Rs. 59.12 Cores in the previous year.

CPP FILM

The Company installed European machinery which ensures quality product giving edge over other producers. The Companys production capacity to produce CPP film is 10000 MT PA.

During the year under review, the production and sale of CPP film was 6,463 MT and 6,476 MT respectively as against production of 7,663 MT and sale of 7,640 MT respectively during the previous year.

Revenue of CPP Films during the year under review was Rs. 77.79 Crore as against revenue of 108.68 Crore in the previous year. Loss before tax, exceptional items and interest was Rs. 4.12 Cores as compared to loss of Rs. 7.06 Cores in the previous year. Loss of CPP segment is incurred during the year caused by persistent fall in selling prices on account of excessive production capacity added in the market.

Your company is covering both domestic and export markets and the Companys products are well accepted. During the year, the sale and production was declined due to lower demand but in the last quarter of FY 2023-24, it was improved due to better sentiments in the market and it is expected to improve in the coming years.

ETHANOL PROJECT

Board of Directors, at its meeting held on 18^th May, 2022, had accorded its approval to the Company to set-up Ethanol Project with a production capacity of 150 KLPD to align with GOIs Ethanol Blending Programme (E20), subject to clearance and approvals from the concerned statutory authorities. The setting-up of Ethanol Plant is under process. The Company has obtained Environment Clearance for the proposed project. The total Project cost is Rs. 167.58 crores. Indian Bank had sanctioned Term Loan of Rs. 108 Crores and as per stipulations of sanction letter, the remaining project cost of Rs. 59.58 would be met out of the Companys internal accruals. However, the Company has already spent around Rs. 92.17 Crore so far which includes Rs. 44.08 Crores of Term Loan and balance amount out of internal accruals. Civil work is going on at the site and major order for Plant & Machinery has been placed. Delivery of machines has been started.

d) OUTLOOK

Indias economic activity and GDP growth are expected to remain resilient despite ongoing geopolitical uncertainties. As a result, India is poised to become one of the major economies in the world with a promising growth outlook. Your Company anticipates sustained demand growth across segments.

According to Future Market Insights (FMI), India is expected to account for a substantial share of the global acrylic fibre market, owing to the rapid expansion of the textiles industry and the rise in the export of yarns and fibres. The rise in the number of textile industries in India is favoring the growth of the acrylic fibre market and the trend is likely to continue in the upcoming years. India is probably going to be the new development engine of the regions acrylic fibre market, propelled by a rising population, increasing disposable income, and changing lifestyle.

Demand for packaged foods is at an all-time high due to growing world population. Additionally, due to concerns about sanitation and health, consumers themselves prefer packaged meals. CPP films are also widely used in the pharmaceutical industry for packing pharmaceuticals to control the damage and contamination during transport. The global CPP Film Market is anticipated to rise at a considerable rate during the forecast period, between 2022 and 2027.

e) RISK AND CONCERN

Geo-political tensions including supply chain disruption, subdued global economic conditions, changes in government policies and trade sanctions and restrictions, intense competition from local and global players, regulatory changes and cyber security threats are key risks which expose the Company to potential challenges and uncertainties. Furthermore, persistent volatility in input costs and foreign exchange risks remains on the radar. These factors can pose risks to the companys plans, operations, supply chains, cash flows and market access potentially dampening its export business.

Further, since the Company is dependent upon imported raw materials, movement in USD and increase in crude oil prices due to ongoing Israel-Hamas war and Russia-Ukraine war may affect the margin. The Company is giving thrust on increasing the exports so that effect can be mitigated. Global economy is likely to be hit by inflation, continuing high energy cost, logistics issues and costs in international trade. Tightening of monetary policies by Central banks to curb inflation may have necessary impact which will impact consumption in general including Acrylic Fiber & CPP Films Industry.

Since raw material is crude derived as such movement either side shall affect the raw material price. To mitigate the effect, the Company has entered into long term contracts with suppliers in films division.

The Company fully dedicates itself to quality and implements robust quality processes and systems at its manufacturing unit to ensure the safety and quality of its product. The Company consistently invests in equipment, processes, and systems to ensure full compliance with manufacturing and audit norms.

f) INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Company maintains an adequate and effective Internal Control System commensurate with its size and complexity. It believes that these systems provide, among other things, a reasonable assurance that transactions are executed with management authorization. It also ensures that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting principles, along with the assets of the Company being adequately safeguarded against significant misuse or loss. An independent Internal Audit function is an important element of the Companys Internal Control System. The internal control is supplemented by an extensive programe of internal, external audits and periodic review by the Management. This system is designed to adequately ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets.

g) DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review, the Company registered Revenue from Operations of Rs. 575.23 Crores as compared to Rs. 827.96 Crores for previous year with decline in revenue of 30.52 %. Profit before Tax was Rs. 18.40 Crore as compared to Rs. 48.45 Crore. Net Profit in financial year 2023-24 was Rs. 13.19 Crores as against Rs. Rs. 35.91 Crores in the previous financial year 2022-23. Revenue and Net profit during the year declined due to lower demand of acrylic fibre and negative return on CPP Segment caused by persistent fall in selling prices on account of excessive production capacity added in the market.

h) MATERIAL DEVELOPMENT IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT INCLUDING NUMBER OF PEOPLE EMPLOYED

The Company believes that their workforce is an invaluable asset for the Company and Company endeavors to ensure the well-being of all its employees. The safety, health and work life balance of employees are extremely important. Company made all the required efforts to ensure safety of all workforce and employees.

Development and Training of team has always been a focus area of management. The Human Resource Development continues to be focused on improving employee productivity, reducing employee cost and building necessary skillsets whilst building employee motivation through varied employee engagement initiatives. To augment technical strength in existing business areas, various technical trainings covering existing business are being conducted on a regular interval. Regular safety training is imparted to all personnel at factory and regular review of safety incidents is done by top management.

The Company employed on an average 433 persons during the year.

i) DETAILS OF SIGNIFICANT CHANGES (i.e. CHANGE OF 25% OR MORE AS COMPARED TO THE IMMEDIATELY PREVIOUS FINANCIAL YEAR) IN KEY FINANCIAL RATIOS, ALONG WITH DETAILED EXPLANATIONS THEREFOR

In accordance with the SEBI Listing Regulations, the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios including the following ratios.

# DebtorsTurnover Ratio and Inventory Turnover Ratio are declined due to fall in turnover caused by low demand.

^Operating Profit Margin, Net Profit Margin and Return on Net Worth are declined as cost of production was relatively high as compared to previous year.

CAUTIONARY STATEMENT

Some of the statements in this Management Discussions & Analysis, describing the Companys objectives, outlook, projections, estimates, expectations and predictions may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed or implied, since the Companys operations are influenced by external or internal factors. Your Company closely monitors all major developments likely to affect the Operations and will respond to meet the potential threats and to gain from any possible opportunities.