chemcrux enterprises ltd Management discussions

1.ECONOMIC OVERVIEW:

GLOBAL

During FY 2022-23, the global economy witnessed unforeseen challenges affecting the global GDP. Global growth slowed down from 3.2 percent in 2022 and 2.7 percent in 2023. It is further expected to come down to 2.4 percent in 2024. Continued surging inflation, Russo-Ukrainian War and the extended effects of COVID- 19 pandemic, all weighed heavily on the outlook. There are multiple concerns that continue to create an element of uncertainty about the intensity and speed of recovery. Considering these factors, the overall world economy recorded, significantly lower than the robust growth of 6.1% witnessed in the previous year, according to the International Monetary Fund (IMF). This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. In response, central banks in many major economies have begun raising interest rates in an effort to bring inflation under control. The sharp increase in borrowing costs is making consumption and investment more expensive. Economic Growth returning to pre-covid era looks tough. The outlook for growth appears less favourable than preceding years.

INDIAN:

With the global markets posing uncertain outlook, the Indian Economy is geared up to relish the fruits of demographic dividend with its vibrant youth population. According to the International Monetary Fund (IMF), Indias growth rate would rise from 5.9% in 2023 to 6.3% in 2024. India is anticipated to continue its status as the worlds fastest expanding big economy. The IMF expects Indias inflation to fall to 4.9% this year and 4.4% the next year. Indias GDP growth is likely to continue in FY2024 and will be robust (at 6.3%, as predicted by the World Bank) backed up by advantageous capital investment cycles.

2.CHEMICAL INDUSTRY OVERVIEW:

The global chemicals sector was predicted to grow at a CAGR of 6.2% between 2020 and 2025 before the war between Russia and Ukraine. Because of this, many chemical companies experienced supply chain disturbances, especially ones dependent on imports or exports from Russia or Ukraine. The Indian chemicals industry stood at US$ 178 billion in 2019 and is expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute US$ 383 billion to India?s GDP by 2030. India ranks 6th largest sales of chemicals globally and contributes 3% to the global chemical industry.

2.1SPECIALTY CHEMICALS INDUSTRY:

Specialty chemicals are low-volume, high-value products used in a large number of consumer-facing sectors. The global specialty chemicals market size was valued at USD616 billion in 2022 and is expected to grow at 5.1% CAGR over 2023 to 2030. Rise in demand from end-user industries is driving development of different segments in India?s specialty chemicals market. The specialty chemicals constitute 22% of the total chemicals and petrochemicals market in India. A significant opportunity for the Indian chemical industry is the increasing demand for specialty chemicals globally. Specialty chemicals account for over 50% of chemical exports, dominated by agrochemicals, dyes and pigments, etc. According to the CRISIL report, the specialty chemicals market in India would grow faster than China, increasing its market share to 6% by 2026 from 34% in fiscal 2021. India?s specialty chemicals companies are expanding their capacities to cater to rising demand from domestic and overseas.

Since China constitutes 20% of the global Speciality chemical industry ($800 billion), even a 5% shift in market share from China to India can translate into an $8-billion opportunity for the Indian Speciality chemical companies. China contributes to 18 per cent of specialty chemical exports globally, which is nearly quadruple the value of Indian exports. However, as India presents itself as a viable alternative market for specialty chemical companies, there is a potential to reduce the disparity in China?s and India?s export capacities.

2.2ACTIVE PHARMA INGREDIENTS (API) & INTERMEDIATES INDUSTRY:

GLOBAL:

The global active pharmaceutical ingredients market size was valued at USD 222.4 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 5.90% from 2023 to 2030. The growth can

be attributed to the advancements in active pharmaceutical ingredient (API) manufacturing and the rising prevalence of chronic diseases, such as cardiovascular diseases and cancer. Favorable government policies for API production, along with changes in geopolitical situations, are boosting market growth. The API market is undergoing immense changes due to supply chain disruption by COVID-19. Countries such as India are being preferred over China for the export of API owing to geopolitical situations and the demand to reduce dependence on China for API products. Furthermore, governments of many countries have formulated plans and granted incentives to promote the production of API. The Chemical Intermediates Market size is forecast to reach around $132.1 billion by 2027, after growing at a CAGR of 8.2% during 20222027.

DOMESTIC:

As the world was grappling with the pandemic, many countries including China closed down borders and the supply chain stagnated. It was now imperative for the world to have an alternative source of bulk drugs. India, which was already a leader in the formulations space, was well-placed to use this opportunity and emerge as an alternative source. While the production of generic drugs is bound to see some significant transformation as different countries are evolving to become active producers, India can step up and develop infrastructure for large scale manufacturing of APIs, thus enabling the India pharma sector to dominate the world market in future.

India is the 3rd largest producer of API accounting for an 8 per cent share of the Global API Industry. 500+ different APIs are manufactured in India, and it contributes 57 per cent of APIs to prequalified list of the WHO. The Indian API market is anticipated to increase at a CAGR of 13.7 per cent during the first four years - about 8 per cent higher than the generic API industry. The Indian API space has become lucrative for several investors and venture capitalists. India?s robust domestic market, advanced chemical industry, skilled workforce, stringent quality and manufacturing standards, and low costs (about 40 per cent less than that in the West) for setting up and operating a modern plant give an added advantage.

The increasing demand for food coupled with the surging population further drive the growth of the agriculture sector, which in turn propel the market growth in the coming years. The demand for agrochemical products is projected to be driven by these factors, thereby positively impacting the demand of the chemical intermediates market. Moreover, the development in the end-use industries such as petrochemicals, paints, building and construction, and pharmaceutical are driving the Chemical Intermediate Market growth.

3.OPPORTUNITIES & THREATS:

OPPORTUNITIES:

Increasing chemical demand: The demand for chemicals is and will continue to rise as the global population rises. Chemicals are used in just about every facet of present-day life, from construction to transportation to healthcare, making this industry an indispensable portion of the worldwide economy. Your Company will try to cater the future needs.

Technological changes: The chemical industry is continually developing and new technologies are being developed to increase efficiency, reduce waste and improve safety. Innovations such as green chemistry, process escalation and 3D printing are changing how chemicals are produced, promoted and consumed. Your Company has in place greener technologies like CNG fired boilers, economizers, etc. Further, your Company is constantly looking for greener technologies & minimizing effluent load.

Sustainability: With increasing pressure to reduce the environmental impact of industrial processes, there is an emphasis on sustainable practices in the chemical industry. This grants an opportunity for companies to invest in developing strategies and implement more effective waste management and recycling practices. Your Company has Corporate Social Responsibility (CSR)-Bronze medal by EcoVadis. The Company is compliant with ISO 9001:2015, ISO 14001:2015 and 50001:2018 and aims for continual improvement in energy performance, including energy efficiency, use and consumption.

Your Company continues to work on economies of scale. The company falls under MSME sector due to which it enjoys various incentives. Company?s highly motivated manpower helps in continual process improvements & cost reductions. Our focus is on quality of product, long-term relationships, stable and sustainable operations and best practices for suppliers and customers with end applications in APIs, dyes and pigments.

Threats:

Increasing energy costs and raw material prices volatility due to changing global scenario, worsened by the unending Russia-Ukraine conflict

4.RISKS AND CONCERNS:

Global Concerns: Continued effects of Russia-Ukraine war, has disrupted both supply chains and global growth. The resulting uncertainty in the global economy and capital markets leads to decline in demand. Your Company may be affected to that extent.

Regulatory and environmental risks: Like all chemical companies, your Company is subject to central, state and local laws and regulations relating to pollution, protection of the environment, greenhouse gas emissions, and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Other areas of risks are accidents, fire or mishaps. However, the Company is adequately insured and health and safety measures are always prioritized. Any major change in Environment Policy by Government can affect the production on short term basis.

Volatility in Raw Materials Prices: Volatility in the global & domestic prices of raw materials is also a major challenge faced by the chemical industry. Sharp corrections in the crude oil prices and prices of various raw materials procured by the Company can influence bottom line.

Your Company has been continuously striving to keep its costs to minimum possible to aggressively compete with Indian & global competitors.

Human Capital Risk: Acquiring & retaining right human capital is important to achieve the desired results. Your Company is emphasizing and constantly working towards the training and development of human resources of the Company in order to provide employees with ample growth and development opportunities.

5.SEGMENT WISE PERFORMANCE:

Your Company operates in Single segment of manufacturing of Specialty Chemicals which includes intermediates for bulk Drugs (API), Dyes & pigment industries segment. Your Company also has been optimally utilising capacities for manufacturing intermediates for bulk Drugs (API), Dyes & pigment industries.

6.OUTLOOK:

The biggest risk to the outlook is persistent inflation and continued increase in interest rates that will prolong and deepen the coming recession. Additional risks include an escalation in the war in Ukraine, the potential for conflicts to arise elsewhere in the world, financial instability and returning supply-chain disruptions. The chemical industry is resilient enough to REBOOT, RESET, RETHINK and REBOUND back in a more resolute way to surprise the stakeholders. Chemcrux is endeavoring to get the benefits from Make in India and increased adoption of China+ 1 Policy. The Capacity expansion of the Company is underway in phased manner and an attempt is being made to complete the same by the end of FY 2023-24. With requisite Environmental clearance, your Company is working for expansion as scheduled. Through a combination of efficient planning, expanding production and the relentless efforts we shall definitely do our best to overcome all odds and deliver the satisfactory year ahead. JV Company- Kalichem Private Limited Project is under construction and plant is expected to be in operation by end of FY 2023-24.

7.ENVIRONMENT HEALTH & SAFETY:

Your Company has appropriate Waste Management Systems for Air, liquid & solids. In-house team ensuring pollution control & energy conservation, treating effluents and Safe disposal of waste. Environmental requirements are incorporated into the plant design right from the preliminary stage of a process. Air scrubbers, dust filters, fire protection systems and Effluent Treatment Plants are in place & well maintained. Your Company is also member of CETPs for their various liquid effluents. Regular safety drills ensure that readiness for safety gets top priority. The Company will strive to further improve to create safer working conditions for the workers.

8.INTERNAL CONTROL SYSTEM:

Your Company has sound and adequate internal control systems commensurate with its size and nature of business. The Audit Committee of the Board periodically reviews these systems. These systems ensure protection of assets and proper recording of transactions and timely reporting. Internal audit is conducted by an independent professional firm on regular basis. The Audit Committee also regularly reviews the reports of the Statutory Auditors and Internal Auditors. The Company has successfully implemented ERP solution in order to enhance the internal control systems in procurement, planning, production, dispatch, operations and accounts & finance departments.

9.FINANCIAL & OPERATIONAL PERFORMANCE:

The financial performance has been maintained on the same lines as of previous year. Financial performance is summarized are as under:

Particulars	31st March 2022	31st March 2023
Revenue from Operations	9527.06	9515.24
Other Income	99.83	105.21
Total Revenue	9626.89	9620.45
Profit before Tax & Extra Ordinary Items	1994.80	1964.79
Profit Before Tax	1955.21	1964.94
Profit after Tax	1485.87	1435.81
Earnings per Share	10.03	9.7

RATIOS: The reasons for variation are provided where variance is more than 25% compared to previous financial year:

Ratio	Numerator	Denominator	Mar-23	Mar-22	% Variance	Reason for variance
(a) Current ratio	Total Current Assets	Total Current Liabilities	3.36	2.10	60.58%	The increase in the ratio is due to an increase in current investments.
(b) Debt-equity ratio	Short Term Borrowing + Long Term Borrowing	Total Equity	0.202	0.147	37.83%	The increase in the ratio is due to an increase in long term borrowings.
(c) Debt service coverage ratio	Profit Before Interest and Tax	Total Debts Service (Interest + Finance Lease Payment + Principal Repayment)	1.13	1.79	-36.96%	The decrease in the ratio is due to an increase in the borrowinng cost.
(d) Return on equity ratio	Net Profit after Tax	Total Equity	0.24	0.31	-23.84%	-
(e) Inventory turnover ratio	Net Sales	Average Inventory	7.42	10.06	-26.28%	The decrease in the ratio is due to an increase in average inventories.
(f) Trade receivables turnover ratio	Net Sales	Average Trade Receivables	5.89	8.59	-31.42%	The decrease in the ratio is due to an increase in average trade receivables.
(g) Trade payables turnover ratio	Net Purchases	Average Trade Payable	4.61	7.62	-39.55%	The decrease in the ratio is due to an increase in average trade payable.
(h) Net Working capital turnover ratio	Net Sales	Working Capital	4.12	5.59	-26.39%	The decrease in the ratio is due to an increase in current assets.
(i) Net profit ratio	Net Profit	Sales	0.15	0.16	-3.25%	-
(j) Return on capital employed	Earning Before Interest and Tax	Capital Employed	0.22	0.26	-18.62%	-
(k) Return on investment	Profit After Tax	Total Assets	0.15	0.18	-17.09%	-

Value in our industry is all about creating and delivering quality, while keeping costs in check and almost every value focused, Company is working towards that goal. We are working not only towards top line growth, but also for bottom line growth.

10. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES / INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED:

Human capital has always been the most important and valuable asset for the Company. Your Company continued its activities during the year in a cordial atmosphere with utmost co-operation amongst employees and the management. As of the end of FY 2022-23, the total number of the employees of Company is 94. With a strong commitment to safety and wellbeing, Chemcrux adheres to ethical principles and standards, ensuring a positive work environment and sustainable growth.