fine organic industries ltd Management discussions

INDIAN ECONOMIC LANDSCAPE

As per the economic survey for the F.Y. 2022-23, India has become the fifth-largest economy in the world in terms of exchange rates and also became the third-largest economy in the world in terms of Purchasing Power Parity (PPP). However, during the F.Y. 2022-23, the global economy faced numerous challenges, such as the Russia-Ukraine conflict, supply chain disruption, food grain crisis, climate change, and escalating commodity and fuel costs, leading to higher global inflation. All of these had a massive impact on Indias growth story. Many central banks have increased their interest rates, putting additional strain on the countrys banking system. However, the Indian Government and RBI undertook various measures to actively manage the situation and bring retail inflation below the upper tolerance target in November 2022. Despite these downturns, the Indian economy has been headstrong, emerging as the worlds fastest-growing economy with a growth rate of 7.2% in F.Y. 2022-23, according to the International Monetary Fund (IMF).

This years Union Budget aimed to strengthen Indias economic status. Governments policies have progressively been geared towards promoting and expanding the economys manufacturing outline, encouraging economic growth and employment. Additionally, there have been some supportive measures such as corporate tax rate reductions and fiscal incentives offered through the Production Linked Incentive (PLI) scheme. These have attracted domestic as well as international manufacturers to engage in industries like automotive, electronics & specialty chemicals.

According to predictions for a country of this size, the Indian economy has almost "recovered" what was lost, "renewed" what had halted, and "re-energised" what had stagnated during the pandemic and since the conflict in Europe in the F.Y. 2022-23.

Outlook

After three intense years, the Indian economy is looking at better growth prospects over the next five years. According to CRISIL, GDP growth is expected to average 6.8% in the next 5 years (fiscal year 2024-28) on the back of structural improvements in the financial system. Additionally, with the ongoing pace of reforms and policies by the government that aims at resolving ground level challenges, will provide thrust and support a revival of the private sector pave way for an improved medium-term growth. Technological advancements, and other structural shifts such as emerging

trends in global supply-chain de-risking and green transition also hold greater promise.

(Source: https://www.weforum.org/press/2019/01/challenges- and-opportunities-emerge-as-india-becomes-third-largest- consumer-market-by-2030/, https://www.crisil.com/en/home/ newsroom/press-releases/2023/03/crisil-forecasts-indias- gdp-growth-at-6-percent-next-fiscal-corporate-revenue-to- log-double-digit-rise-again.html)

INDUSTRY OVERVIEW

Specialty Chemicals

Specialty chemicals, some of which are the performance chemicals, are used as ingredients in various finished products and to improve manufacturing processes. They can be single-chemical formulations or entities whose composition prominently impacts the performance of the users products. These chemicals are used based on their function and performance.

Some categories of specialty chemicals include applications in Adhesives, Cleaning Materials, Pigments, Personal Care, Constructions, Elastomers, Flavours, Foods, Fragrances, Lubricants, Paints and Coatings, Polymers, Surfactants, and Textiles. Other industrial sectors include Automotive, Aerospace, Agriculture, Manufacturing, etc.

Continuous R&D in the specialty chemicals field has aided the development of products with optimum and advanced features. This is one of the major factors driving the growth of the market. Most specialty chemicals are organic chemicals used in an extensive range of everyday products.

(Source: F&S Report, https://www.alliedmarketresearch. com/specialty-chemicals-market)

Specialty Chemicals Industry - India

In spite of prevailing challenges in India, specialty chemicals industry has expanded exponentially in recent years and is anticipated to reach US$ 64 billion by 2025 at a CAGR of 12.4%. This segment has been one of the fastest growing in the Indian manufacturing sector. The country has a potential to be a preferred manufacturing hub for specialty chemicals. This expansion can be attributed to the increasing demand from many end-user sectors such as foods, automobiles, packaging, clothing, construction, cosmetics, agriculture etc, along with favourable government policies. Some of these policies include the Petroleum, Chemicals, and Petrochemicals Investment Region (PCPIR) policy and Production Linked Incentive (PLI) schemes. Other growth

factors are a growing domestic customer base and changes in consumer lifestyle. Strong process engineering and low-cost manufacturing capabilities, and a large labour pool in India will also contribute to the growth of the specialty chemicals business.

However, as pollution control regulations are becoming stricter and labour costs are increasing in other countries, manufacturers are looking to diversify their production and searching for alternatives. India has a distinct advantage in this regard due to multiple factors and this puts the country in a good position for substantial and rapid growth in the specialty chemicals segment. However, Government of India still needs to implement the right policies at the ground level.

(Source: https://www.indianchemicalnews.com/opinion/

indian-specialty-chemical-industry-poised-for-a-quantum-

leap-13553)

Oleochemicals

Oleochemicals are primarily produced from natural raw materials derived from renewable vegetable oilseed crops. They are environmentally beneficial as they are biodegradable and naturally renewable. The surge in demand for green chemicals from end-user industries, and easy availability of raw materials are some of the important factors driving the demand for oleochemicals.

Oleochemicals are broadly utilised in personal care and cosmetic products, such as soaps, lotions, creams, and personal care products. In addition, their growing adoption as coatings, rubbers and adhesives in the construction industry is also contributing to the market growth.

During 2022-29, the global oleochemicals market is estimated to grow from US$ 35.43 billion in 2022 to US$ 54.43 billion by 2029, at a CAGR of 6.3%.

The market is buoyed by increasing consumer demand for daily use products such as organic soaps, foods, cosmetics, etc. Oleochemicals are also extensively used as, thickening agents, and emollients in the personal care and home care products. They are also gaining adoption in packaging of processed and ready-to-eat (RTE) food products. This, coupled with noteworthy evolution in the Food & Beverage (F&B) industry, is contributing to better growth prospects for the segment.

The tightening of environmental regulations and the fact that non-renewable resources are diminishing is also enabling oleochemicals to gain market share and replace the petroleum-based products in use currently. Many large producers are also switching to bio-based, eco-friendly products to meet the growing demand for sustainable products.

(Source: https://www.fortunebusinessinsights.com/ oleochemicals-market-106250 )

INDUSTRY SEGMENT

1. Food Additives

Food additives have been in use for many years to preserve, flavour, blend, thicken, texture, and colour foods. They have played a significant role in decreasing serious nutritional deficiencies among consumers. Since ancient times, additives such as salt, spices, and sulphites have been used to preserve foods and make them more tasty and flavourful. Increased processing of foods in the 20^th century brought about the need for new types of food additives. These ingredients also ensure the availability of flavourful, nutritious, safe, convenient, colourful, and inexpensive foods that meet consumer expectations.

Many modern products including snacks and other ready-to-eat foods require additives. Their usage has thus positively correlated with increasing demand for packaged/canned food.

(Source: https://www.who.int/news-room/fact-sheets/ detail/food-additives)

Global Outlook

The food additives market size is expected to register a CAGR of 4.6% from 2023 to 2030. The global food additives market is driven by the increasing demand for processed, packaged, and convenience foods, particularly in developing countries.

Additionally, changing diet and lifestyles are driving the demand for packaged food & beverage worldwide. This is further fuelling the demand for additives used in food processing to improve their nutritional content and quality.

(Source: https://www.verifiedmarketresearch.com/ product/food-additives-market/)

India Outlook

Changing lifestyles are increasing the demand for processed foods. There is also a growing consumer willingness to experiment with new unconventional flavours. As a result, the consumption of packaged and processed foods, cereals, alcoholic and non-alcoholic beverages, chocolates, confectionery, ice-cream, desserts, margarine, peanut butter, bakery goods, chewing gum, and ready-to-eat foods. Over the next few years, these trends are projected to help Indias food additives market grow, registering at a CAGR of 6.5% during 2020-25.

Due to cultural and regional diversities, the food consumption pattern is not uniform in various parts of the country. These varying food preferences are also increasing the demand for additives.

There is an increased demand for food emulsifiers from food manufacturers to preserve the freshness, safety, taste, appearance, and texture of processed foods. India has been a prominent milk producing country. The booming demand for emulsifiers in the dairy industry is also fuelled further by the consumer demand for flavoured milk and reconstituted milk manufactured from milk powder, ice-cream, yogurts and other dairy products.

(Source: https://www.techsciresearch.com/news/338-

india-food-additives-market-to-register-growth-at-

over-12-cagr.html

Factors driving the food additives industry

• Growing demand for processed, packaged, and ready-to-eat convenience foods

• Growing demand for items that can be stored for a long time, such as pickles, sauces, sweets and savouries

• Growing disposable incomes and rapidly increasing urbanisation

• Increasing demand for premium ice creams, frozen desserts, and other dairy products

• Demand for food additives from hotels and restaurants to prevent spoilage

2. Plastics and Packaging

Additives are a crucial components of the plastics industry. The exclusive properties of plastics such as versatility, sturdiness, barrier properties, and weight are altered through creative additives. They are broadly used to modify the properties of plastic products during the compounding and processing stages. Plastic additives help to protect polymers in functional use against extreme weather conditions and exposure to UV light or water. Additives also provide protective characteristics like flame retardancy.

The processing and manufacturing of plastic has evolved over time primarily to promote a "circular" economy and successfully address the issues caused due to plastics waste management. Some of the primary trends noted in the plastics industry include encouraging the use of bio-based raw materials and maximising recycling of used plastics. Plastic additives now have a more important role to play.

(Source: https://plastics-rubber.basf.com/global/en/ plastic_additives.html)

Global Outlook

The global plastic additives market was valued at US$ 51.01 billion in 2022 and is anticipated to grow from US$ 52.45 billion in 2O23 to US$ 83.3 billion in 2030, registering a CAGR of 5.3% between 2022 to 2030. This can be attributed to the increased demand from the packaging industry as it is used in various industrial and household applications.

Plastic additives have many applications in areas such as packaging, construction, automotives, consumer goods, agriculture, household products and healthcare. They are frequently utilised in the automotives and construction industries due to qualities such as greater impact strength, improved coupling, higher elongation,

reduced brittleness, and increased plasticity. They have also received significant acceptance in the automotive industry to increase fuel efficiency by weight reduction. The demand for plastic additives is thus projected to remain stable backed further by the excellence in innovation, usability, and application.

Lifestyle changes, growing population, and rapid urbanisation triggered the growth of the packaging industry, boosting the global market. The global market is also driven by the increasing use of plastic in day- to-day life. Some of the other common applications of plastic additives include roofing, pipes, wires, cables, safety gears, household products, kitchenware, etc.

(Source: https://www.alliedmarketresearch.com/plastic- additives-market ; https://www.marketresearchfuture. com/reports/plastic-additives-market-1753)

India Outlook

India is a significant consumer of plastic additives such as plasticisers, flame retardants, and stabilisers. Various finished goods, including wires and cables, pipes and fittings, packaging films, and automotive components mainly drive the countrys demand for plastic additives. The high demand can be attributed to urbanisation, a growing middle class, robust economic growth, and efficient manufacturing centres. Plastic additives are also seeing increased use in various end-user industries such as packaging, automotives, consumer goods, construction, electronics, agriculture. The government has also framed strict regulatory policies for encouraging the use of bio-degradable plastics, which in turn are likely to boost demand for green plastic additives in India in the coming years.

(Source: https://www.lucintel.com/India/plastic- additive.aspx)

Factors driving the plastics and packaging industry

• The growing demand for plastics in consumer goods and other everyday use

• The high demand for packaging-related applications and therefore, plastic additives

• Shift in consumer preference towards eco-friendly plastic products and increasing use in food packaging

3. Cosmetics and Pharmaceuticals

Cosmetics are described as "items with minimal impact on the human body for cleaning, beautifying, altering the appearance, or maintaining or promoting the skin or hair in good condition." Additives like Emollients, Cosmetic Emulsifiers, Preservatives, Fragrances, Colourants, Surfactants, Water, Vitamins, and Antioxidants are used in cosmetics. They aid the manufacturing of products in different forms such as creams, gels, pastes, lotions, solutions, lipsticks, powders, and sprays. They provide these products with long-term physical stability for transport and storage and hinder germination through yeast and bacteria. They also help keep cosmetics fresh and safe for usage.

The primary product categories of the cosmetics market are skincare, haircare, makeup, perfumes, toiletries, oral cosmetics, and deodorants.

(Source: https://www.fortunebusinessinsights.com/ cosmetics-market-102614)

Global Outlook

The global cosmetic ingredients market is estimated to register growth at a CAGR of 5.3% during 2022-28.

One of the significant factors driving the market expansion is the widespread increase in the adoption of skincare and personal care products along with the rise in the global ageing population. In addition, cosmetic products are witnessing high demand due to better living standards, increased awareness around products, growing disposable incomes, rapid urbanisation, and increasing consumer interest in natural ingredients.

The global cosmetic ingredients market is primarily driven by the desire for better self-grooming and selfcare to improve external appearance. One of the key elements influencing the use of cosmetics is the rise in awareness about ones internal intelligence and external beauty. Other factors driving the growth of the global cosmetics market include government regulations around the use of toxic chemicals and increased demand for products made from natural ingredients.

(Source: https://www.globenewswire.com/en/news- release/2022/12/07/2569152/0/en/Cosmetic- Ingredients-Market-Size-Share-to-Surpass-42-9- Billion-by-2028-Vantage-Market-Research.html)

India Outlook

In the Asian region, India is considered as one of the fastest-growing countries in the personal care market. It is forecast to grow at a double digit CAGR of 16.39% since 2020 to reach US$ 28,985.33 million by 2026. There is an increased demand for cosmetic products due to various factors. Another important factor likely to propel the cosmetics market is the development of online retail and the rising interest of youth in skin care and other grooming products.

Indian cosmetics and beauty products are classified into five categories: body, face, hair, hand care, and colour cosmetics. One of the key elements shaping the demand for beauty and personal care goods in India is the growing emphasis on personal hygiene and health. Additionally, the Indian Government is working with private organisations on several initiatives to spread awareness about the importance of feminine and personal hygiene.

(Source: https://www.businesswire.com/ news/ home/20210126005520/en/India-28.9- Billion- Cosmetics-Market-Competition-Forecast- Opportunities-FY2026---ResearchAndMarkets.com)

Factors driving the personal care industry

• Growing demand for various skin and hair care products

• Growing consumer awareness

• Increasing focus on improving and modifying the textural features of various ingredients used in the personal care and cosmetics industries

• Inclination towards natural products

• Growing importance of personal and feminine hygiene

4. Coating Additives

Additives are one of the raw materials used for coatings. Coating applications improve product quality and stability and offer maximised benefits for end-user applications. Although the usage levels of these additives are typically modest, the functional improvement they offer is noteworthy. Additives are used in the printing process. Printed surfaces often include materials such as plastic, cardboard, paper, and metals.

Coating additives are used in the Automotive, Industrial, Architectural, Wood, and Furniture industries. They are also used in construction paints for improving

substrates, impact resistance, viscosity, and surface effectiveness.

(Source: https://www.irocoatingadditive.com/ introduction-additives-paints-coatings/)

Global Outlook

The global market for coating additives is expected to reach US$ 17 billion by the end of 2032 registering a CAGR of 5.9% from 2022 to 2032. The worldwide booming building and construction sector is projected to propel the global coating additives market. Coating additives are utilised in the construction industry to increase viscosity and surface effectiveness. Governments around the world are stepping up initiatives to decrease carbon emissions from construction operations.

(Source: https://www.persistencemarketresearch.com/ market-research/coating-additives-market.asp)

Indian Outlook

Paint and coating additives are primarily used to improve paint and coating performance and provide surface protection. The increased usage of these commodities for construction projects is likely to have a noteworthy impact on the growth of the coating additives market. Rapid industrialisation in a developing economy like India is also likely to propel the demand for these. It is expected to witness increasing production of paints and coatings in the application areas such as interior/ exterior coatings, paints, industrial coatings, and other high-end protective coatings.

India is one of the largest consumer and producer of inks. The printing ink market in the country has registered strong growth in recent years due to the increased demand from key end-user segments such as package printing, publishing, and other commercial printing.

(Source: https://www.technavio.com/report/coating- additives-market-industry-analysis)

Factors driving the coating additives industry

• Growing packaging sales are increasing consumption and demand for consumer goods like paints

• Growth in the market for environment-friendly coating additives due to the increasing influence of such products

• Higher production of paints and coatings due to their increasing application in construction, automotive, equipment manufacturing, and consumer durables

CHALLENGES AND THREATS Lengthy Product Approval Process

The regulatory approvals obtained from different industry institutions are typically only valid for a specific time. In addition, regulatory compliances are frequently revised depending on the location, industry, end-use, and other factors. It might then take another three to five years for an end client to accept the additives once the immediate customer has given their approval. Only then will the manufacturer be authorised to supply the additives. To avoid costly and time-consuming validation procedures, end-users of additives are therefore inclined to purchase tested additives from trusted sources. This process creates a high entry barrier for major players as it requires extremely high standards of quality and consistency for manufacturing additives which are very important to the end users.

Supply Chain Disruption

The conflict between Russia and Ukraine has profoundly impacted the world logistics sector. This was at a time when the impact of the pandemic on storage capacity and container availability had just started to fade. The conflict slowed down trade, fuelled price hikes and commodity shortages, and led to disastrous food shortages across the world. The war also led to an increase in the price of several commodities, including fertiliser, food items, oil, and gas.

Vegetable Oil Prices

Vegetable oil prices are influenced by domestic and international demand-supply dynamics, as well as other climatic and crop-related variables. Extreme weather and the war in Ukraine have tightened global supplies of the foremost commonly used types of vegetable oil. In addition, the war has interrupted supplies and driven up costs.

Climate Conditions

Different vegetable oil seeds produce different amounts of oil depending on the weather. Bad weather conditions can affect availability of the crop leading to price increase of commodities, which may further influence farmers choices on the kinds and quantities of crops to plant. All this may ultimately influence the cost of the additives.

BUSINESS OVERVIEW

Fine Organic Industries Limited (hereafter referred to as Fine Organics or The Company) is a pioneer and the

largest producer of oleochemical-based additives rooted in India and is a strong player globally. The Company has developed a wide range of distinctive specialty additives for several applications. The Company is a leading producer of the widest range of additives for foods, polymers, personal care, coatings,feed nutrition etc.

There is an increased demand for additives produced from oleochemicals. Fine Organics, green additives have been commendably replacing potentially hazardous chemicals in a wide range of industries such as plastics, packaging, foods, cosmetics, rubbers, and coatings etc., without compromising on the performance. Further, growing consumer awareness around the environment has led to an inclination for green and sustainable products.

Fine Organics state-of-the-art production facilities are situated in Patalganga, Badlapur, Dombivli, and Ambernath. With a highly dedicated team of 25 scientists and technicians functioning in innovative R&D centre, the Company provides a platform for developing the most effective solutions possible in accordance with the needs of customers and clients. The Company provides specialised products and technical services to the end-user industry, reinforced by inhouse manufacturing and design/engineering facilities, well- equipped R&D, and a techno-commercial approach.

In the preceding year raw material prices were high, owing to the geopolitical situations such as - Suez Canal blockage, supply chain turmoil and rise in trade prices. However, the Company procured the raw materials at market rate with maximum volume and utilised its capacities to serve the previous contracts. The Company has contracts ranging from three to six months with its suppliers.

In Q2 F.Y. 2022-23, suppliers in Europe and other geographies were unable to supply products owing to the persisting war between Ukraine and Russia, in addition to freight rates and supply chain constraints. At that point, Fine Organics served its customers and honoured every contract on a time bound manner, without increasing the price. This resulted in the appreciation from customers. In Q3 and Q4, normalisation was witnessed in the raw material prices, with the newer contracts being initiated with the normalised prices. Currently, all the facilities are working at optimum utilisation, except Patalganga which was commissioned in March 2022. Moreover, the Company has identified the land in Gujarat, paid the earnest money, and are currently awaiting for the allotment letter from the Gujarat Government.

Food Additives

A pioneer in the manufacturing and marketing of emulsifiers in India, Fine Organics caters to the food industry requirements with its emulsifiers and other functional additives. The Company has expanded its additive range to anti-fungal agents, bread improvers, beverage clouding agents, and other additives/blends. Additives for sustaining the quality and freshness of the food products also impart better product structure and increase the shelf life of food products. Its customer base comprises bakeries and manufacturers of ice creams, biscuits, dairy products, beverages, margarine, peanut butter, cakes, confectionery, chocolates, chewing gums etc.

Plastic Additives

The diversity of oleochemistry has empowered Fine Organics to develop a wide range of additives for various types of polymers, rubbers and elastomers etc. These plastic additives provide several benefits: lubricant additives decrease surface friction between plastic film-to-film surfaces and film-to-metal surfaces; antstatic support in dissipating static charges to make plastic safer to handle; and anti-fogs recover visibility through plastic films.

Specialty Additives for Cosmetics

The product range for CosPha (Cosmetic and Pharmaceuticals)

applications serves both functional additives and base ingredients. They are used in products made for skin care & hair care. This product range also helps in the manufacturing of products with diverse compositions like creams, gels, pastes, lotions,ointments etc.

Feed Nutrition Additives

The range of unique feed additives aims to replace hazardous antibiotics that are provided to poultry for various commercial benefits. Among many benefits one of the benefits of the green suppliments is that it improves antibiotic properties, reduces mortality rates, enhances fat digestibility and energy efficiency in poultry and cattles. In a nutshell, the Companys additives boost feed effectiveness, feed efficiency and impart numerous technical advantages to the end products to make it safer and nutritious.

STANDALONE FINANCIAL HIGHLIGHTS

Particulars	2022-23	2021-22	Change (%)
Revenue from operations in lakhs)	3,02,914.62	1,85,842.83	63.00%
EBITDA (^ in lakhs)	78,127.96	34,852.40	124.17%
EBITDA Margin (%)	25.79%	18.75%	37.53%
PAT (^ in lakhs)	59,059.89	25,066.93	135.61%
PAT Margins (%)	19.50%	13.49%	44.55%

KEY FINANCIAL RATIOS

Key Ratios	2022-23	2021-22	Variance (%)	Comments
Inventory Turnover (%) Net Credit Sales / Average Inventories	12.11	11.97	1.19%	The ratio has improved due to the efficient usage of working capital
Interest Coverage Ratio (%) (Earnings Before Interest and Taxes (-) Other Income / Finance Cost)	164.18	63.13	160.07%	The ratio has improved due to a reduction in borrowings as repayment of debts
Current Ratio (%) (Current Assets/ Current Liabilities)	5.5	3.56	54.31%	The ratio has improved due to the efficient usage of working capital
Debt Equity Ratio (%) (Total Debt/ Shareholders Equity)	0.02	0.06	-67.25%	An increase in Shareholders equity and reduction in borrowings due to repayment of debts have made the ratio improve
Debtors Turnover (%) (Net Sales/ Average Accounts Receivables)	7.49	7.33	2.12%	The ratio has improved due to the efficient usage of working capital
Operating Profit Margin (%) (Profit Before Interest and Taxes (-) Other Income/Net Sales)	24.21%	16.61%	45.76%	The ratio has improved on account of higher earnings due to better operating margin as compared to the previous financial year
Net Profit Margin (%) (Net Profit After Taxes/Net Sales)	19.50%	13.49%	44.55%	The ratio has improved on account of higher earnings due to better operating margins than the previous financial year and debt repayment
Return on Net-Worth (Net Profit After Taxes/ Average Shareholders Equity)	47.62%	29.54%	61.21%	Increase in ratio as the Company has earned more profit as compared to the previous year

RISK MANAGEMENT

Fine Organics, understands that the nature of its business may have many risk factors that can adversely affect the future operational and financial performance. The Companys risk governance team identifies and assesses all applicable risks, the strategic mitigation plans to minimise those risks, and maximise the business growth, through an integrated approach. The Company strives to add value to the life of every customer by managing the associated risks responsibly.

The Companys risk governance structure comprises the Risk Management Committee at the Board level, and risk management is taken care by the respective operative units. The Board level Risk Management Committee, chaired by the Lead Independent Director, reviews the overall risk management guidelines & framework, reviews and recommends risk limits as well as assesses the adequacy and effectiveness of the risk management policies and systems.

Economic or Market Risks

Fine Organics, business depends substantially on global economic conditions. A significant number of its export customers and the end users of the products are located and primarily operating in Europe, North and South America, Middle East, Africa, Australia and Asia. Some of them were adversely impacted by the economic downturn in these markets, disruption in banking and financial systems, unfavourable government policies, rising inflation, lowering of spending power and customer confidence and political uncertainty. This is even more complex considering different economic conditions in each country. The Companys business operations may be impacted due to global slowdown. The resultant impact could be credit market risk, weakening consumer and business confidence, fluctuating commodity prices, volatile exchange rates and other challenges.

Response

The Company constantly monitors the macro-environmental situation, making detailed and timely assessment to ensure business continuity. Fine Organics, wide range of products and impeccable global presence with diversified customer base helps the Company limit its risk related to a particular sector.

Competition Risks

The Company faces significant competition from several large players across all the product lines and markets in which it operates. Its competitors may develop enhanced products which could affect the market acceptance of certain products that the Company manufactures. This could adversely affect margins and profitability of the Company.

Response

The Company is highly reputed and recognised as one providing best-in-class products and develops unique specialty additives that are green and sustainable for a variety of applications connected to daily lives. Fine Organics, continues to develop new products and invests in better technology for the commercial production of newly developed products.

Commodity Price Risk

Agricultural commodity prices are very volatile, and affected by factors such as weather, government policies, global demographic changes, and competition from substitute products. India is a net importer of edible oils and imports around 60% of its consumption of edible oils such as Palm oil, Soybean oil and Sunflower oil. In sourcing the raw materials and selling finished products to various industries, price fluctuations in the commodities market could affect the profitability of the business.

Response

The Company is exposed to commodity price risk for its business operations. Currently, the Company does not engage in any direct commodity hedging activities. However, the internal systems through which the price of raw materials derived from commodities is monitored to the maximum possible extent. The Company also manages the associated commodity price risks through a long-term (wherever & whenever possible), periodical contracts with vendors and customers.

Raw Materials Unavailability

Since the Company manufactures products for specialty applications, it intends to procure raw materials from different vendors due to the large volumes. Also, it does not enter contracts for duration exceeding three to six months with any of the supplier base depending upon products, suppliers, and prevailing situation. Any disruption in the supply of raw materials and sudden, sharp, or prolonged changes in their prices can disrupt the Companys manufacturing operations. This may have a material adverse effect on the business and results of operations and impact profit margins.

Response

Since the Company has long-standing relationships with its carefully selected suppliers, it helps in minimising the risk of procuring raw materials of desired quality at the right prices.

Foreign Exchange Risks

Fine Organics, is exposed to foreign exchange risks emanating from business, assets and liabilities denominated in foreign currency. The export sales constitute approximately 68% of revenue from operation in value term. Most of the sales to overseas customers are denominated, predominantly in US$ and Euro. The Company imports goods, primarily raw materials which is approximately 30% in value term of the total raw material procurement and mainly denominated in US$.

Response

To hedge foreign currency exposure, the Company uses forward contracts as hedging instruments from time to time for exports as well as imports.

Human resource risk

The Companys success is largely dependent on the efforts and abilities of its employees. Also, a big part of its future performance will be determined by its ability to sustain and also appoint the key management personnel. The loss of one or more of Key Management Personnel, or a reduction in their services, could have a negative impact on the business, financial condition, and results of operations. Failure to attract and retain the right talent will stifle the Companys growth even further.

Response

The Company has a competitive remuneration strategy in place, as well as an adequate incentives and recognition, to prevent such attrition. The Company also carries out employee training on a regular basis to keep their abilities up to date.

Regulatory Risks

Food products and their ingredients, food contact packaging materials, pharma packaging, feed nutrition additives and cosmetic substances are subject to high regulatory standards. This helps protect consumers from health hazards in all countries where the Company manufactures or distributes its products. Similar regulations also apply to plastic additives used in manufacturing packaging materials used for food packaging and medical products. In addition to Indian laws, rules, and regulations, the Company must also comply with the laws, rules, and regulations in each

country where it sells products, like all chemical companies. Fine Organics, is also subjected to foreign, central, state, local laws and regulations related to pollution, environment, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. Changes in environmental regulations could also inhibit or interrupt the Companys operations.

Response

The Company abides by the necessary requirements of all concerned regulatory bodies and environment-friendly manufacturing processes.

Quality Risk

Additives, although used in very small quantities, are very critical in terms of performance in end-use material, be it foods, plastics, cosmetics, feeds coatings or any other products. This makes it imperative for the customer using the additive to validate its quality and performance thoroughly. In addition to performance, as many of these additives are used in food, feeds, cosmetics and food packaging materials, they also need to comply with stringent health and environment- related regulations globally. Any failure in quality standards may lead to loss of reputation and goodwill of the Company, order cancellations and customer attritions.

Response

The Company has remained focused on strengthening the quality standards through its in-house process development, automation, instrumentation and quality management. This helps in maintaining the highest level of quality and consistency.

Environment, Health, and Safety (EHS)

The Company adheres to the safety, health, environmental, labour, workplace and related laws and regulations. Any failure to comply with any current, or future laws or regulations, could have a material adverse effect on the business, financial condition, and results of operations.

Response

The Companys strategic EHS policies aids it to mitigate this risk. The decisions are based on the framework that these policies suggest, thereby minimising such risks.

HUMAN RESOURCES

Fine Organics, recognises its employees as an asset for the success of the business and losing them could have an adverse effect on the Companys performance. It promotes and initiates skill development and preparedness against major challenges. This facilitates high employee morale and a healthy work environment.

The human capital is its most incredible tool that helps the Company in shaping a sustainable future. It is critical for the Companies smooth functioning. Hence, discovering talented people and retaining them is the key aim of the HR policy. As on March 31, 2023, the Companys workforce strength stood at 825.

INTERNAL CONTROL SYSTEM

The Company implements and manages efficient internal control systems to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, by maintaining proper records and reports in a timely manner. This is supplemented by an extensive programme of internal audit, reviewed by the Management and relevant policies, guidelines, and procedures. The internal control is designed to ensure the reliability of financial and other records for preparing precise financial statements, maintaining accountability of assets and more. The Management is committed to regularly reviewing and making relevant

amendments to the internal control system, as and when required. The Companys process framework provides well- documented standard operating procedures and authorities with adequate built-in controls. The internal control is further enhanced by an extensive programme of internal, external audits and periodical reviews by the Management.

The Company adopts and follows a risk mitigation strategy and reviews risk occurrence to find probable mitigation strategies. The Companys Risk Management Committee reviews risks and mitigation measures at regular intervals, and accordingly initiates corrective steps at times of need.

CAUTIONARY STATEMENTS

The Management Discussion and Analysis Report containing the Companys objectives, projections, estimates and expectation may constitute certain statements, which are forward-looking within the meaning of applicable laws and regulations. The statements in this Management Discussion and Analysis Report could differ materially 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, changes in the Governmental regulations, tax regimes, forex markets, economic developments within India and the countries with which the Company conducts business and other incidental factors.