Supreme Petrochem Ltd Management Discussions

<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

ECONOMIC REVIEW Global Economy

The global economy experienced another year of slow growth in F.Y. 2023-24 marked by high inflation, high interest rates, rising geopolitical tensions, weak global trade growth and concerns of recession in some parts of the world. Global economy is estimated to have grown by 2.7% in 2023 compared to 3.0% in 2022. The conflict in Middle East has increased geopolitical risks leading to surging energy prices with potential adverse implications for global growth. Under the circumstances World Bank estimates global economy to grow by 2.4% in 2024.

 

Indian Economy

The lndian economy supported by domestic demand and growth in manufacturing and services grew by 7-8% during 2023-24. The growth was also driven by Government investments in infrastructure. Inflation has remained within the Reserve Bank of Indias target range and policy interest rates remained unchanged. With improved capacity utilisation and strong balance sheet, the private sector investments are witnessing growth. As per World Economic Outlook published by IMF in April, 2024, India is poised to keep its position as the fastest growing economy in the world in 2024-25 with projected growth at 6.8%.

Robust GST collections, increased stamp duty collections by states on housing sales, and stable exports of manufactured products and services show all around increase in the economy and the same is expected to sustain on the back of a normal monsoon this year. Indian economys prospects remain bright with continuing investment spending and increased consumption by Government. Indias manufacturing sector ended 2023-24 on a stellar note with the Purchasing Managers Index (PMI) soaring to a 16 year high of 59.1 in March 2024.

 

REVIEW OF OPERATIONS

Companys revenue was R5,321.49 crores (net of GST) for the year 2023-24 as compared to R5,346.14 crores. Company earned a net profit after tax of R346.49 crores during the year 2023-24 as against R498.14 crores in the previous year.

Companys total sales volumes of its manufactured products including exports increased during the year by 13.75% to 325,235 MT. Domestic volumes grew by 7.3% during the year whereas export volumes increased by 82% during the year. The capacity utilisation for the Company put together all products including expanded capacities of PS and EPS was 74.50% during the year.

Though the volumes were up by 13.75% during the year, the sales revenue was lower as compared to previous year since the prices of Styrene Monomer, the main raw material were on annual average basis lower by over 11% during the year compared to previous year. The global margins were under pressure due to weaker than expected growth in China and

Europe. Export volumes and margins were also impacted in the second half of the year due to Red Sea crisis. Recent escalation in war between Iran and Israel causes anxious environment for global trade. Company is making efforts to navigate this uncertainty by exploring new markets and customers.

 

Styrene Monomer (SM)

Styrene Monomer prices remained largely stable during the year despite geopolitical risks except the first quarter of the year where it witnessed some sharp movements in its prices. Styrene availability was otherwise reasonably stable without any major disturbances. Most of the major new projects planned in China were completed. Firm Benzene prices ensured stable Styrene prices, despite poor demand for derivatives of Styrene in China. Chinas dependency on imported Styrene and its derivatives continue to decrease on ample domestic supply. In view of this exploring export options to other areas/countries, becomes more important for Asian producers, particularly Taiwanese & Korean players in styrenics industry.

While China dominates the global petrochemicals business due to its persistent efforts to become self-sufficient in all building blocks, Middle East producers are recalibrating their businesses to tackle the global glut in petrochemicals due to this changed circumstance. Company with its proactive management and deep understanding of the Styrene market is able to maintain regular supply of Styrene. India is being considered a key partner now more than ever before. Company is therefore well placed with support from all Middle East, South East and East Asia suppliers for Styrene. Shore tank infrastructure is being continuously increased in various locations to cater to the increased needs of Company as well as its customers for Styrene.

 

Polystyrene (PS)

PS demand during the year was flat in line with the previous year mainly due to weak demand from Appliance sector. Companys Non OEM domestic sales of PS were also flat and did not see any appreciable growth. Your Company could maintain its market share mainly due to the high quality of its product offerings and engaging in continual improvement program. Company developed certain grades especially to counter low priced imports and introduced same to the segments dominated by imports.

Companys total PS sales volumes increased in 2023-24 by 9.7% including exports. Company could grow its exports significantly during the year once additional capacity after expansion was available. Companys exports of PS increased during the year by 84%.

PS business in Asia is undergoing significant changes consequent to Chinese self-sufficiency drive. This shall impact Indian producers in terms of price pressure from other Asian PS producers who look upon India as a key market. Considering the projections made by appliance sector and also the increase expected in other applications, Company estimates

that domestic market for PS in 2024-25 shall grow by about 5%. Geopolitical issues and weak growth in Europe may limit Companys exports growth in 2024-25. Company expects to grow its PS sale volumes including exports by about 8-10% in 2024-25.

 

Expandable Polystyrene (EPS)

EPS Market showed a healthy growth of over 10% during the year on the back of increased demand from cold storage packaging sector including fish, fruit, appliances and other packaging. Companys EPS business grew by over 24% on addition of new customers into its fold and increasing its market share in many applications.

Floods around Companys Manali plant in Tamil Nadu impacted operations for over two weeks. During this period customers requirement in southern region were reasonably met from Amdoshi plant. Company was also able to meet demand from some of the north India based customers who were affected by the temporary closure of one of the producers in north India.

Market in 2024-25 is expected to grow by 5% based on projections given by the customers. Two new EPS units are likely to start operations during 2024-25, with an estimated effective installed capacity of about 3,700 tons per month creating more competition in the market. Company, however, shall be working to retain its market share with its excellent quality, customer service as well the all-India presence. Excess capacity, if any, will be exported to neighbouring countries as well as Europe where company has already got its grades approved by keycustomers.

 

Speciality Polymer Compounds (SPC)

SPC business grew by 23% during the year. Company was able to grow in the highly competitive Black MB market by virtue of maintaining consistent high quality. Keeping abreast of regulatory requirements Company upgraded various FR polymers offered by it and this enabled it to grow FR compounds business.

Company could get BIS License for manufacturing a variety of ABS Compounds in a short time which would give a fillip to our Compounds business in the coming year In preparation for the mass ABS grades that would be available on completion of the ABS project, the Technical team is fully engaged with developing several compounded grades to meet the demanding applications in electrical and electronics segment, sheet extrusion applications etc.

With various developments being pursued by the Company, particularly in the field of engineering plastics, we expect SPC business to grow by 20% in 2024-25 period.

 

Extruded Polystyrene Boards (XPS)

Building insulation segment showed steady growth. However, reduction in vaccine packaging requirement as well completion of certain large projects, which gave a fillip to XPS business in last two years and delays in orders from new large projects resulted in de-growth of 15% in overall demand.

In order to push the pace of Building Insulation, Company got XPS Boards approved by CII GreenPro under Type-1 EColabel. This is accredited by Global Ecolabelling Network (GEN) through GENs Internationally co-ordinated Ecolabeling System. INSUBoard is also included in GRIHA under several categories including as an Energy Efficient and low Ozone Depleting Potential (ODP) Material. Your Company is also closely working with IGBC to promote Insulation in various Green Building projects. Company expects that with new projects progressing demand for XPS will grow in the year 2024-25 by about 20 - 25%.

 

Acrylonitrile Butadiene Styrene (ABS)

Companys efforts in importing & supplying ABS grades is well appreciated by customers in various segments of ABS market. The compounds developed by Company were well accepted. After a brief disruption in supplies due to BIS certification procedures, Company re-started supply of compounds. BIS certification of Versalis, Italy plant is in progress. On completion of the same, Company will start seed marketing program which is timed in such a way that the completion of seed marketing and commissioning of the project will happen seamlessly.

 

EXPORTS

Polystyrene exports were pushed on completion of expansion and same grew by 84% over the previous year. Exports of other products put together increased by 63% over previous year. Total volume of exports increased by 82% over the previous year. However, high freight rates consequent to Red Sea issues dampened the exports in the last quarter to customers in Europe, Turkey & East Coast of U.S.A.

Company is fully cognizant of the changes in the global trade patterns due to Chinas drive to self sufficiency in petrochemicals and is geared to not only keep our traditional markets/customers but also develop new ones with emphasis on specialty grades of PS & EPS.

 

SUSTAINABILITY INITIATIVES

Company believes that environment sustainability is essential to create long term value for its stakeholders and therefore considers environment sustainability as one of its core values.

Company continues to undertake various measures for improved energy and water efficiency at both its manufacturing locations as part of its initiative towards environment sustainability.

Company has installed Zero Liquid Discharge system (ZLD) at both its manufacturing locations in Maharashtra and Tamil Nadu. This not only has reduced fresh water intake for its processes but also significantly lowered effluent discharge.

Considering importance of climate change as a business risk, Company partly uses renewable energy. During 2023-24 Company used 61% of its energy requirements at its Manali plant, Tamil Nadu from renewable sources. For its Amdoshi plant in Maharashtra, Company has entered into a JV for

generation of solar energy of 12.5 MW. Company has also put up solar power on rooftop at its plant at Amdoshi with capacity of 1 MW which has recently been commissioned in April 2024. With these solar energy capacities Company should be able to meet over 50% of its energy requirement from renewable sources at its Amdoshi plant.

Company continues with its efforts in educating general public on the need for collection and recycling of post consumer plastics waste with particular emphasis on EPS packaging with the help of several NGOs and ICPE. While substantially large volumes of post consumer EPS material are being collected and recycled into useful products like photo frames, panels / louvers for interior decoration, these activities are not well documented since the players are in un-organised sector. Your Company took the initiative to verify/enumerate them by physical visits to their facilities across the country and working with several recyclers to bring them into formal sector. More than 40,000 MT of post-consumer EPS collection and recycling has been recorded and the activity is still in progress and expected to be substantially complete by end of 2024. Your Companys target is to help collect and recycle the last kilo of EPS used in the country.

Company is complying with the directions of CPCB including Extended Producer Responsibility (EPR), as applicable to the Company. Company is meeting the requirement of use of reprocessed material as is calculated by EPR portal in respect of all plastic packaging used by the Company for its operations.

The Securities and Exchange Board of India has put together a comprehensive framework for Business Responsibility and Sustainability Report (BRSR) which requires measurable quantitative details to facilitate better benchmarking. BRSR is attached separately with the annual report forming its integral part.

 

CAPITAL EXPENDITURE

First line of Mass ABS project is progressing as per schedule. Detail engineering and procurement activities are on the verge of completion. Civil construction is progressing well and will be finished before the onset of monsoon. Structural erection work and piping prefabrication work is ongoing. Electrical works contract will be finalised in May. The project is expected to be commissioned in Q4 of FY 2024-25. Looking at the current ABS capacity creation in China and trade imbalances caused by geopolitical issues Company will appropriately time the construction schedule of the second line.

Second phase of EPS capacity expansion project is progressing as per schedule. Equipment delivery at site has started. The project is expected to be commissioned in Q4 of FY 2024-25.

Evaluation of new compounding lines for ABS as well as engineering compound is completed and are being ordered shortly. Project is expected to be commissioned in Q4. The proposed XPS expansion project at Amdoshi may be deferred if an alternate location is preferred.

Company announced a new growth centre at village Munak, Karnal, Haryana. Initial projects under consideration at Munak are PS, EPS and derivatives such as XPS, 3D panel, Sheeting etc. Company has started pre-project work for this site including environment clearance and other statutory approvals. Limited capital expenditure for infrastructure development on the Munak site will be done in F.Y. 2024-25.

The Company incurred a total expenditure of R313 crores during the year under review for projects related to EPS, mass ABS and hardware replacement at Amdoshi and Manali locations and purchase of land at village Munak, Karnal.

Capital Expenditure proposed to be incurred in the current financial year towards mass ABS project, EPS second phase expansion, SPC projects at Amdoshi and hardware replacement at both locations (Amdoshi and Chennai) and initial infrastructure development expansion at Munak, Karnal is estimated at R350 crores.

 

FINANCE

Company remains debt free. Company enjoys working capital facilities from its bankers mainly in the form of non- fund based limits.

Available surplus funds are deployed in short term debt schemes of reputed mutual funds, bank fixed deposits and sovereign bonds so as to optimise returns with minimum risk to the principal amounts invested.

Capital expenditure of R313 crores incurred during the year was met from internal accruals. All capital expenditure planned as on date is proposed to be funded from Companys own funds.

CRISIL Ratings Ltd. has reaffirmed long term rating at CRISIL AA -/ Stable and short term rating at CRISIL A1+ for Companys working capital facilities from banks.

lndia Ratings and Research (lnd-Ra) reaffirmed Companys long term rating with revised outlook to stable with INDAA-/ stable/ IND A1+ and short term rating to INDAA-/ stable/ IND A1+.

 

Changes in Key Financial Ratios :

Pursuant to the provisions of Regulation 34(3) of SEBI (LODR) Regulation 2015 read with Schedule V part B(1) details of changes in Key Financial Ratios are given as hereunder :

Sr. No.	Ratio		Year Ended
			31/3/2024	31/3/2023
1	Debtors Turnover Ratio	Times	13.83	13.66
2	Inventory Turnover	Times	7.99	9.14
3	Current Ratio	Times	2.23	2.41
4	Debt Equity Ratio*	Times	0.06	0.01
5	Operating Profit Margin	%	10.04	13.41
6	Interest Coverage Ratio	Times	74.00	200.81
7	Net Profit Margin	%	6.51	9.32
8	Return on Average Net Worth	%	17.94	29.66
9	Return on average capital employed	%	24.16	39.10

 

* The Company is Debt free. For purpose of calculation of this ratio amortised value of right to use assets taken on lease is considered as debt.

With pressure on margins in global markets, Companys margins reduced in turn affecting profitability ratios and return on net worth and capital employed.

 

RISK MANAGEMENT

Company continuously monitors the risks associated with its business and operations including timely identification of new risks, if any, and plans to mitigate risks so as to avoid any adverse impact on the Companys operations, Company has in place a risk management policy which is reviewed under the guidance of Risk Management Committee and Board. Committee met twice during the year to review the risk to the business of the Company and mitigation plan thereof.

International pricing and demand / supply risk are inherent in the import of Styrene Monomer, the main raw material. Company enters into annual procurement contracts for imports of Styrene Monomer. A part of SM requirement is also sourced on spot basis. On the sale side, some part of Companys sale is on annual contracts basis tied into monthly SM pricing which allows for equitable sharing of the volatility in SM pricing. Department of Chemicals and Petrochemicals has mandated BIS standards particularly on all imports of Styrene Monomer from 24/10/2024. This could be a cause of concern particularly for supplies from manufacturer suppliers in U.S.A., China, Europe and supplies through trading houses.

To overcome risks of cost and pricing due to foreign exchange volatility, Company hedges part of open foreign exchange exposure. Company also has a natural hedge to the extent of its exports and pricing its products locally on import parity basis. Foreign currency exchange rates being dynamic, Company constantly monitors FX movements to decide on proper response measure.

Company has adequately insured its assets against all risks and on reinstatement basis with adequate loss of profit insurance policy. Company has also insured itself against cyber and other crimes. The management periodically reviews the adequacy of the insurance cover.

Security of data and uptime of system is essential for our business. Company has instituted the best practices adopted across the industry to achieve the same. Company has co-located all its servers (Primary and Data Recovery) in the best-in-class Tier lV Data Centres located at different seismic Zones. Tools like antivirus, antispyware, antimalware, EDR (Endpoint Detection & Response), Data Bank and Protection (DLP) are installed and are regularly updated on all the endpoints for protection against any security threats. Firewall is in place to provide protection to the endpoints as well as to all the application servers, against threats through internet traffic, LAN or WAN. Company ensures the usage of licensed software products only on the Company-provided devices. Apart from this, Company gets lT Security infrastructure audited by the 3rd party service providers periodically by using ethical hacking tools. lssues found in the audit are reviewed and mitigated as per the recommendation, followed by re-audit for effective mitigation. DR drill is carried out to ensure business continuity. IT policy and controls are reviewed periodically.

 

HUMAN RESOURCES / INDUSTRIAL RELATIONS

The Company emphasizes to build a culture that prioritizes well-being of the employees and encourage them to attend and participate in various conferences/seminars/skill development programs/trainings etc. which will empower them to learn and develop, being crucial to its long-term success. The Company makes its best endeavour to provide the employees a conducive and positive work environment at the workplace which in turn enables the employees to perform at the best of their capabilities and potential and equips them to deliver improved and better results consistently. Career development opportunities are provided at all levels across the entire functions of the Company. Industrial relations at all the units remained cordial during the year.

 

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

The internal control systems for safeguarding and protecting assets of the Company against loss from unauthorized use or disposition are in place.

Regular internal audits, review by management and documented policies, guidelines and procedures supplement the internal controls which are designed to ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets. Audit of lnternal Financial Controls (lFC) was carried out by the statutory auditors.

 

HSE MANAGEMENT, AWARDS & RECOGNITION

Health, Safety and Environment:

Company places paramount importance on the health and safety of its workforce and is part of its core values. All requirements under applicable laws and regulations are fully complied with by the Company. Considering the significance of Health Safety and Environment to any petrochemical operations, the Company has established a robust HSE system at both of its plants situated at Amdoshi, Maharashtra and Manali, Chennai. Both the Environmental Management System and Occupational Health and Safety Management System continued to be maintained by the Company as per the ISO 14001:2015 Standard and ISO 45001:2018 Standard, respectively.

Company continues to implement the HSE Management Systems under the Guiding Principles of declared lntegrated Management System Policy (Occupational Health and Safety Policy and Environmental Policy). HSE Performance lndex for the period under review stood to be in "Excellent" Range Companys plant at Amdoshi completed 8568 accident-free days as on March 31, 2024 i.e. 22.45 million man-hours of accident-free operations. At Manali plant Company has completed 6139 accident free days as on March 31, 2024 i.e. 3.9 million man-hours of accident free operations.

 

Awards and Recognition

Company has achieved the following recognitions and awards in the field of HSE during the period under review :

 

Amdoshi - Maharashtra Unit:

• National Safety Council of India (NSCI) - National Safety Awards 2023 (Gold Award) Sarva Shreshtha Suraksha Puraskar at the national level

• Shri Narayan Meghaji Lokhande Industrial Safety and Health Award - 2023 Government of Maharashtra

• Winner - Maharashtra Safety Award Competition - 2022 organized by National Safety Council Maharashtra Chapter for Lowest Accident Frequency Rate (for the Factories

working more than Six Lakh up to Ten Lakh man-hours in a year)

• Winner - Maharashtra Safety Award Competition - 2022 organized by National Safety Council Maharashtra Chapter for longest accident-free period. (for the factories working more than Six Lakh up to Ten Lakh man-hours in a year)

• Winner - 21st Annual Greentech Safety Award 2023 in Safety Excellence Category

• Winner - 21st Annual Greentech Safety Award 2023 in Award Category Fire & Safety Skilling

• 23rd Greentech Environment Award 2023 in Innovative Technology Adoption Award Category

• 23rd Greentech Environment Award 2023 in Environment Excellence Award

 

Manali, Chennai - Tamil Nadu Unit:

• "Certificate of Appreciation" from National Safety Council of India (NSCI) under National Safety Awards 2023 at the national level

• Occupational Health, Safety and Environment Awards 2023 - Appreciation Award by the National Safety Council -Tamil Nadu Chapter

• 23rd Greentech Environment Award 2023 in Environment Excellence Award Category

 

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing Companys objectives, estimates, expectations, or projections may constitute "forward looking statements", within the meaning of applicable laws and regulations, actual results may differ materially from those either expressed or implied in the statements.

Important factors that could make a difference to Companys operations include economic conditions affecting demand/ supply and price conditions in the domestic and international markets, changes in the Government regulations, tax laws / other statutes and other incidental factors.