p i industries ltd Management discussions

Management Discussion and Analysis - PI Industries FY 2022-23

Economic Overview Global Economic Outlook

Global economic activity is experiencing a widespread slowdown and high inflation, fueled by factors such as the cost-of-living crisis, tightening financial conditions, the Russia-Ukraine conflict, and the lingering effects of the COVID-19 pandemic. The International Monetary Fund (IMF) is predicting a decline in global growth from 3.4 percent in 2022 to 2.8 percent in 2023.1 However, Chinas reopening under the Zero-COVID policy offered hope for a faster recovery. Inflation is projected to decrease to 6.6 percent in 2023 and 4.3 percent in 2024, yet it is expected to remain above prepandemic levels.2 These challenges have led to significant erosion of median income levels due to inflation, currency depreciation, and underinvestment in the public and private sectors.

The Russia-Ukraine conflict has precipitated a costly humanitarian crisis that needs a peaceful resolution. It has also resulted in economic damage and supply chain disruptions, leading to rapid increases in fuel and food prices. Vulnerable populations in low- income countries have been hit hardest, experiencing eroded purchasing power and heightened price pressures. Inflation in many nations is pushing real wage growth into negative territory due to war-induced commodity price hikes and broader price pressures. The World Inequality Report highlights the stark wealth disparity, with the wealthiest 10 percent owning 76 percent of the worlds wealth, while the poorest 50 percent own only about 2 percent.3 With the Cost-of-Living crisis being ranked as a severe global risk for the next two years,4 global central banks are aiming to restore price stability through monetary policy, while governments are implementing fiscal policies to alleviate cost-of-living pressures while maintaining a tight stance consistent with monetary policy objectives. By increasing productivity and easing supply constraints, structural reforms can bolster the fight against inflation, while multilateral cooperation is essential for preventing economic fragmentation by maintaining global liquidity and managing debt distress.

Climate change is a global priority, with the World Economic Forums Global Risks Report identifying climate action failure as the most consequential long-term risk facing the world over the next ten years.5 Inaction in addressing climate change poses significant longterm risks, including increased extreme weather events, biodiversity loss, and infrastructure degradation. Mitigation and adaptation measures are essential, involving the reduction of greenhouse gas emissions and the preparation for and adaptation to unavoidable impacts. However, the world is currently deviating from the goal of limiting global warming to 1.5?C by 2030, as outlined in the Paris Climate Accords and reaffirmed in COP27.6 Uncontrolled warming and its ecological consequences directly impact global economic growth. A rise of 3.2?C by 2050 could result in an economic loss of up to 18 percent of global GDP.7 The sustained warming trend

contributes to adverse climate events such as heatwaves, irregular rainfall, droughts, and El Nino, which in turn negatively affect agricultural output and exacerbate global food security concerns. For instance, in India, volatile food prices have been witnessed due to erratic monsoon rains. Overall, immediate attention is required to address climate change, its systemic risks, and its implications for the environment, society, and the global economy.

Given here, is a schematic representation of the cascading effects of climate change impacts on food security and nutrition.8

In an era marked by climate change, geopolitical uncertainties, food security issues, and inflationary pressures, the global economy faces challenging times. Amidst this backdrop, businesses and households must acknowledge the need for preparedness and exercise caution while navigating the unpredictable environment.

Indian Economic Outlook

India faced negative repercussions from the headwinds affecting the global economic climate - the Russia-Ukraine conflict, rising global interest rates, and sluggish growth in key trading and export partners. India experienced an annual growth rate of 9.7 percent in the first half of FY23 due to robust private consumption and fixed investment growth.9 Indias growth is anticipated to decelerate from 8.7 percent in 2021 to 6.9 percent in 2022, before resuming its potential rate of just above 6.5 percent in 2023.10 The low-base

1 International Monetary Funds World Economic Outlook April 2023 - httDs://www.imf.ora/en/Publications/WEO/lssues/2023/04/11/world-economic-outlook-aDril-2023

2 OECDs Economic Outlook for June 2023 - https://www.oecd.org/economic-outlook/iune-2023/

3 World Inequality Report 2022 - https://wir2022. wid. world/executive-summary/

4 World Economic Forum - Global Risks Report 2023 - httDs://www3.weforum.ora/docs/WEF Global Risks Report 2023.pdf

5 World Economic Forum - Global Risks Report 2023 - httDs://www3.weforum.ora/docs/WEF Global Risks Report 2023.pdf

6 United Nations Climate Change - Key Takeaways from COP27 httDs://unfccc.int/maintainina-a-clear-intention-to-keeD-15deac-within-reach

7 World Economic Forum httDs://www.weforum.ora/aaenda/2021/06/imDact-climate-chanae-alobal-adD/

8 Food and Aariculture Oraanization of the United Nations - httDs://www.fao.ora/3/i5188e/I5188E.Ddf

9 World Bank Group — Global Economic Prospects January 2023 - https://openknowledae.worldbank.ora/server/api/core/bitstreams/254aba87-dfeb-5b5c-b00a- 727d04ade275/content

10 World Bank Group — Global Economic Prospects January 2023 - https://openknowledae.worldbank.ora/server/aDi/core/bitstreams/254aba87-dfeb-5b5c-b00a- 727d04ade275/content

effect for the previous year along with slower consumption growth and difficult external conditions are expected to restrain economic expansion. As a result of the withdrawal of pandemic-related fiscal support measures, private consumption is projected to increase at a slower rate. Export and investment expansion will be hampered by the global economys slowdown and rising uncertainty. However, increased government spending on infrastructure and various business facilitation measures should attract private investment and support the expansion of manufacturing capacity. India is anticipated to have the fastest economic growth among the seven largest emerging markets and developing economies (EMDEs).

Between May and December of last year, the policy rate was increased by 2.25 percentage points because of consumer inflation exceeding the Reserve Banks upper tolerance limit of 6 percent. Deficits for crude petroleum and petroleum products ($7.6 billion) and other commodities (such as ores and minerals at $4.2 billion) are responsible for the increase.11 Retail inflation, as measured by the Consumer Price Index (CPI), decreased to 5.66 percent in March 2023, compared to 6.95 percent a year earlier in March 2022.12 Similarly, Wholesale Price Index (WPI) inflation data, which calculates the overall prices of goods before they are sold at retail, is projected to decrease to 1.34 percent from 14.63 percent during the period.13 The unemployment rate, which reached 7.8 percent in March 202314, is anticipated to decline because of an increase in government capital expenditure targets and investments in infrastructure and manufacturing.

Although global food price inflation appears to have slowed, the risks of increased deprivation and inadequate nutrition remain high. High fertilizer and petroleum prices, being critical inputs, are likely to have an impact on upcoming planting seasons, prolonging the high food prices and threatening the ability of households to handle the price rise by depleting savings. In FY23, India imposed export restrictions on rice, wheat, and sugar, among others. In the Indian context, it is anticipated that the measures of monetary and fiscal tightening will be comparatively milder over the forecast period, setting it apart from other countries in the region. This is primarily due to the presence of sufficient policy buffers, which have provided a cushion to support the ongoing economic recovery and facilitate increased public investment.

Industry Overview

Global Agricultural Sector

At a compounded annual growth rate (CAGR) of 9.4 percent, the global agriculture market expanded from $12,245.63 billion in 2022 to $13,398.79 billion in 2023.16 In the short term, the Russia-Ukraine conflict diminished the likelihood of a global economic recovery while the prolonged post-effects from the COVID-19 pandemic are lingering in the sector. The sustained inflationary pressure and the consequent rise in commodity prices is the catalyst behind the expansion of the market.

Globally it is estimated that the food and agribusiness sector accounts for 35 percent of all jobs and close to 4 percent of global GDP.17 Food and agriculture are responsible for over thirty percent of global Greenhouse Gas emissions18 and over 80 percent of tropical deforestation and biodiversity loss. Transformation of food systems is crucial for achieving net-zero, nature-positive goals by 2030, providing dignified livelihoods, and contributing to improved nutrition and health for the planets 8 billion inhabitants. Up to 2.3 billion people face moderate or severe food insecurity, a number that has been exacerbated by recent crises. Multiple shocks, including extreme weather, pests, and conflicts, are impacting food systems, resulting in higher food prices and an increase in hunger. Since the first United Nations (UN) Food Systems Summit in 2021, 117 countries have pledged to transform their food systems under the Sustainable Development Goals (SDGs).

Food systems that are healthy, sustainable, and inclusive are essential for achieving global development goals. Agricultural development is one of the most effective tools for eradicating extreme poverty, increasing shared prosperity, and feeding 9.7 billion people by 2050, as projected.19

Agriculture Sector in India

India, the most populous nation20 in the world with a large population economically dependent on agriculture, also has the largest arable land resources in the world. The country is endowed with 15 agroclimatic regions, six major climates, and six major soil types, and is renowned for its rich biodiversity. India is the leading producer of spices, pulses, tea, cashews, milk, and jute, the second- leading producer of wheat, rice, fruits and vegetables, sugarcane, cotton, and oilseeds, and has the largest area under wheat, rice, and cotton. In addition to being the worlds largest producer of mangoes and bananas, the country also has the largest livestock population.

Having already achieved food security for its 1.4 billion people through the Green Revolution, Indian agriculture is now focusing on nutritional security - for a rapidly expanding urban population in the domestic market, as well as lucrative export markets. Therefore, the countrys agriculture sector offers substantial room for long-term, sustainable growth. In the last six years, the agriculture sector has maintained a robust annual increase in the total output of food grains as well as fruits and vegetables, thanks to steady advances in

scientific agronomy. Indias agricultural sector has grown at a rate of 4.6 percent annually on average.21 In fiscal policy statements, it was noted that the Indian agriculture sector is projected to expand by 3.5 percent in FY 223. In recent years, India has rapidly emerged as a net exporter of agricultural products in addition to meeting domestic

demand. With agricultural exports exceeding $50.2 billion in FY2 322. According to the second advance estimate, India is projected to produce a record-breaking 323.55 million tonnes of foodgrains in FY23, an increase of 7.5 million tonnes over the previous years output, which can be subdivided as23:

Cotton

Ministry of Agriculture and Farmers Welfare - Press Information Bureau - https://pib.eov.in/PressReleaseIframePaee.aspx?PRID=1899193

In line with past trends, the food grain production in the country is dominated by Wheat and Rice, accounting for around 63 percent of the grains produced. To ensure food security and sustainable agriculture, aggressive crop diversification away from Rice and Wheat is of the essence, which is being promoted to make India the global hub for millets, while we celebrate 2023 as the International Year of Millets24. Indias food security is dependent on cereal crop production, as well as an increase in the production of fruits, vegetables, and milk, to meet the demands of a growing population with rising incomes. To achieve this, a productive, competitive, diversified, and sustainable agricultural sector must emerge rapidly.

Compared to advanced economies, India faces several challenges in its agricultural sector, including low yields, inadequate irrigation infrastructure, limited adoption of modern agronomy, and insufficient farm mechanization. The country also lags in terms of agricultural inputs consumption and the scale and spread of support infrastructure. These challenges are critical and require a comprehensive strategy that focuses on increasing agricultural productivity, reducing rural poverty through inclusive approaches encompassing agriculture and non-farm employment, and ensuring that agricultural expansion meets the demands of food security. In her 2023-24 speech, the Honourable Minister of Finance made the following agricultural proposals:

• The Digital Public Infrastructure will be constructed as an open- source, open-standard, and interoperable public good. This will allow for inclusive, farmer-centric solutions through crop planning and health information services, as well as improved access to farm inputs, credit, and insurance.

• Agriculture Accelerator Fund: The Fund will be established to encourage agribusiness startups by young rural entrepreneurs.

It aims to increase agricultural productivity and profitability by introducing modern technology.

• Agriculture Credit: With an emphasis on animal husbandry, dairy, and fisheries, the agriculture credit target will be raised to Rs 20 lakh crore.

• Storage: A plan will be implemented to establish decentralized storage capacity to assist farmers in storing their produce and realizing profitable prices through timely sales.

• Cooperatives: Over the next five years, the government will facilitate the formation of multipurpose cooperative societies, primary fishery societies, and dairy cooperative societies in undeveloped panchayats and villages.

• Atmanirbhar Clean Plant Programme will be launched with a budget of ^ 2,200 Crores to increase the availability of high- quality planting material for high-value horticulture crops.

• The Indian government established a network of 729 Krishi Vigyan Kendras (farm science centers) at the district level to ensure that farmers have access to improved seed varieties, crop protection, and agricultural technology.

• In April 2022, Indias Ministry of Agriculture and Farmers Welfare issued a two-year authorization for drone-based spraying of many registered pesticides to combat locust damage.

• Making India a Global Hub for Millets: Sree Anna - Research Promotion Assistance to IIMR, Hyderabad.

• Three specialized Artificial Intelligence (AI) centers will be established in educational institutions to investigate AI-based solutions for agriculture, healthcare, and sustainable cities.

Sustainable agriculture focuses on crop and livestock production with minimal environmental impact over the long term. It seeks to achieve a delicate balance between the need for food production and environmental ecosystem protection. Existing agricultural practices, such as crop mixing, coupled with water management practices, such as drip irrigation, can have a direct impact on the sustainability of agriculture in India. The management of livestock and manure should be encouraged to sequester carbon and/ or reduce greenhouse gas emissions. A shift from traditional rice cultivation to Direct Seeding of Rice (DSR) should be encouraged, as it is seen to be one of the most efficient, sustainable, and economically viable rice production methods used today with around 40 percent of worlds irrigation water being used for rice production25. With India being the second largest producer of rice, DSR can help achieve the countrys sustainability ambitions. Efforts should be made to promote Integrated Pest Management (IPM), which combines cultural, biological, and chemical measures to provide a method of controlling diseases, insects, weeds, etc. that is cost-effective, environmentally sound, and socially acceptable. State and national programs, such as Rashtriya Krishi Vikas Yojana, support IPM through pest surveillance activities.

Even though there has been progress in Indias agricultural industrys sustainability efforts, there is still much work to be done. Agriculture in India is one of the sectors with the highest greenhouse gas (GHG) emissions, which can only be mitigated through sustained efforts by both the government and the private sector. The Indian government has already embarked on its journey towards Amrit Kaal with the seven Saptarishi priorities adopted in the Union Budget for FY24, including Green Growth. This would support the countrys vision of Green Growth by providing the necessary impetus to the various government entities and the industry to make progress towards sustainability in agriculture.

Agrochemical Industry

Global Scenario

Increasing human and livestock populations continue to fuel the growth of demand for agricultural products, both food and nonfood. Concurrently, shrinking arable land pools and cultivated acreage exerted pressure on agricultural output. As millions of families advance to higher socio-economic classes, nutrition, and health-conscious consumers are adopting discerning dietary patterns. Consequently, the demand for food items, such as fruits, vegetables, dairy, meat, and organic produce, continues to increase at a healthy rate. In the inverse relationship between decreasing inputs (resources) and increasing output (food production), yield improvement can effectively bridge the gap. When crop loss due to pests, diseases, etc. is minimized, it not only helps meet the rising demand for food but also improves farmer earnings. Crop protection chemicals are crucial to achieving food security, nutrition assurance, farm income growth, and sustainable agriculture. Located in the sweet spot of food and nutrition, the crop protection industry typically grows at the same rate as the overall economy.

The global market for agrochemicals is estimated to reach $235.2 billion in 2023. The market for agrochemicals is anticipated to grow at a CAGR of 3.7 percent between 2023 and 2028.26 Global population growth has a significant impact on the industrys growth, as rising food consumption is a major factor. Asia-Pacific, for instance, contributes significantly to the global population. The rising global demand for food has prompted farmers to increase production. The increasing global demand for herbicides, pesticides, and insecticides

because of their increased use in agricultural applications has put pressure on manufacturers and suppliers to increase production and supply. Sustained higher inflationary levels leading to higher commodity prices is the main driver for an increase in the market size of the industry.

Herbicides are the largest segment of crop protection chemicals in most countries across all regions due to their extensive use in weed control and low cost. Additionally, GMOs have altered the use of pesticides in agriculture. Genetically modified (GM) crops that are resistant to herbicides have led to an increase in herbicide use. Asia-Pacific is the largest geographical segment of the studied market and India is the fastest-growing herbicide market in the Asia- Pacific region. The size of the global herbicides market is projected to increase by 10.7 percent per year, from $34.37 billion in 2022 to $38.04 billion in 2023.27

Changing climatic conditions, shrinking arable land, and rising food demand are the key primary forces propelling the global herbicide market. Integrated pest management (IPM) is paving the way for pest control without harming the environment, despite a variety of government policies designed to restrict the use of herbicides. This provides herbicide manufacturers with an outstanding opportunity to capitalize on the market potential for manufacturing green herbicides, which are expanding at a faster rate, thereby driving the market during the forecast period.

The size of the global fungicides market will increase by 6.4 percent per year, from $20.77 billion in 2022 to $22.11 billion in 2023.28 Multiple factors affecting the impact on the Fungicides supply chain and the growing demand for a cleaner, more sustainable environment are compelling businesses to modify their strategies.

In 2022, the global insecticides market was valued at USD 9.12 billion, and it is anticipated to expand at a compound annual growth rate (CAGR) of 4.6 percent from 2023 to 2030.29 The expansion is attributable to its increasing use in preventing pest and insect attacks on agricultural fields.

According to the World Banks 2023 commodity report, fertilizer prices have increased since 2022 due to rising input costs, supply disruptions resulting from sanctions against Belarus and Russia, and export restrictions imposed by China. The price of urea has surpassed its 2008 global food crisis peak, while the price of phosphate and potash is approaching its 2008 peak. Since the 1970s, the weed populations resistance to single and multiple modes of action has steadily risen and is now present in hundreds of species. A similar scenario may apply to the countless fungi and insects that have acquired resistance. This requires the development of new, innovative technologies. In principle, the significance of IPM has been known for decades, and while it is mandated in many countries, its implementation is slow in some parts of the world. Additional research and training would help to advance this.

The segment of synthetic chemicals holds a significant market share due to its widespread use in developing economies, such as Africa and Asia. In addition, demand for chemicals derived from biological sources is anticipated to increase during the forecast period because of local and federal government support for eco-friendly crop protection chemicals. These are viable alternatives to conventional pesticides due to their low cost and near-zero environmental impact. The global market for biopesticides is anticipated to grow at a CAGR of 15.6 percent from 2022 to 2027, reaching $11.3 billion by 2027.30 Crop protection chemicals, such as herbicides and fungicides, are anticipated to gain market share due to the increasing frequency of

rodent and insect attacks on crops.

The regulatory system for crop protection chemicals has become both more transparent and more stringent. Since 1991, more than fifty percent of active ingredients have been withdrawn (in the European Union), placing an increasing burden on the agrochemical industry. The regulation of biopesticides is still in its infancy, although biopesticides may replace some banned chemicals, we can expect this group of substances to face increasing challenges, particularly political ones. Recently, the European Union (EU) has been at the forefront of sustainability efforts and has developed the Chemicals Strategy for Sustainability, which includes a long-term vision for the EUs chemicals policy. These regulatory initiatives and the growing environmental consciousness of consumers have prompted companies in the most important end-use industries to innovate and develop sustainable chemical solutions.

New opportunities exist in chemistry (e.g., biopesticides, biostimulants) as well as in technologies and practices (e.g., artificial intelligence, robotics, advanced hybrids, gene editing, etc.) in addition to the more established IPM practices, such as resistance traits and effective cultural practices. Transitioning to a crop protection system that promotes soil health is an underexplored means of achieving agricultural sustainability and productivity over the long term. This will necessitate pest control methods that are compatible with specific soil health practices and do not diminish the functional capacity of soil communities. Green chemistry is the development of chemical products and processes that minimize or eliminate the use or production of hazardous substances. Green chemistry encompasses the entire life cycle of a chemical product, including its design, production, use, and eventual disposal. The future of the agrochemical industry will be primarily driven by digital technology. Utilizing Industry 4.0, IoT, AI, and digitalization of processes using various IT platforms for various business processes in the value chain has become essential for making fact-based decisions in the modern world. The digital world in the agrochemical industry is a differentiator that is leveraged across all business aspects.

Indian Agrochemicals Industry

Indias agrochemicals market is a major contributor to the expansion of the global agrochemicals market. Due to the enormous consumption of pesticides and fertilizers for agricultural purposes, the Asia-Pacific region is expanding at the fastest rate worldwide. This is a result of the regions adoption of modern and innovative farming techniques. The Indianization of the agrochemical industry, which has fueled the sales of agrochemical products, has had a positive effect on the industry. Other factors influencing the expansion of the Indian agrochemical industry include a rise in population, rising demand for food production, and economic expansion. India is the fifth largest producer, the fourth largest exporter, and the thirteenth largest importer of agrochemicals worldwide. Due to Chinas 2015 tightening of environmental regulations and the subsequent impact on the global chemicals supply chain, India has been at the forefront of the chemicals and agrochemicals industry for the past decade.

In 2022, the Indian agrochemicals market reached a size of approximately USD 6 billion.31 The market is anticipated to expand at a CAGR of 8.5 percent between 2023 and 2028, reaching nearly $9.82 billion by 2028.32 According to the Federation of Indian Chambers of Commerce and Industry, the Indian government recognizes its agrochemical industry as one of its top 12 Champion industries to achieve global leadership by 2025, with a growth rate of 8 to 10 percent.

India uses only 307g/ha compared to 13 kg/ha in the United States, China, and other nations, which is insufficient. As a result of weeds and insects attacking their crops, Indian farmers lose significant

profits. The agrochemicals industry in India has been confronted with significant obstacles, such as an influx of counterfeit agrochemicals solutions, which negatively impact food production, the health of farmers and consumers, and the environment. To prevent further proliferation, it is imperative to address the situation proactively. Additionally, there is a pressing need for the establishment of quality standards, testing protocols, and a comprehensive review of pesticide usage to promote awareness and ensure their prudent and responsible use. Crisil projects that the industrys revenue will increase by 10-12 percent in FY24, as India continues to benefit from global players "China plus one" strategy, and the efforts to diversify their supply chains, and as patents on key molecules expire. In the agrochemicals industry, exports will continue to account for approximately 53 percent of total revenue. Europes domestic chemical industry has been rendered weak by the geopolitical and macroeconomic climate, the high cost of labour and raw materials, and the skyrocketing price of natural gas — the primary feedstock for the industry, as well as the newly enacted sustainability norms and regulations. This creates new opportunities for Indian exporters to serve Europes top buyers, such as the United States, the United Kingdom, and China. Favourable factors such as regulatory compliance, R&D capacity, intellectual property (IP) protection, low- cost manufacturing, government support, and the size and maturity of the Indian agrochemical industry will enable India to gradually increase its share of the global agrochemical market. This objective is hindered by several obstacles, such as limited feedstock/land availability, low investments in R&D, and delayed environmental clearances, among others. Fortunately, the government has already begun creating an easily accessible scientific database and launching farmer education programmes on the advantages of agrochemical use. To attract more investments in this sector, the government is also working towards rationalizing customs duty, developing PLI schemes, reducing the time required to grant environmental clearances, and establishing chemical parks.

As the Indian government continues to promote sustainable agriculture, a developing opportunity exists in bio-stimulants and biopesticides. The chemical industry interacts directly with other industries and can influence them by urging businesses to develop a greener product portfolio and adopt environmentally friendly practices. Utilizing natural ingredients, energy conservation techniques, low-carbon products, and investing heavily in R&D can go a long way towards making Indian products competitive on the global market. Low financial incentives (return on investment) from the incumbent agrochemicals industry inhibit the adoption of biopesticides for minor crops. The cost of registering and introducing R&D can prevent small companies from entering the market. Integration of biological expertise into R&D and business strategies is not yet optimal.

Companys Business Overview

With over 75 years of service, PI Industries has established itself as a leading agrochemical Company in India. Our strong brand recognition and global presence are built on the pillars of Trust, Integrity, and Respect. We have secured exclusive distribution rights from multinational corporations, expanding our product line to meet the evolving needs of our customers. From research and development to manufacturing, marketing, and customer engagement, PI provides a comprehensive range of services. We have consistently delivered value-added solutions to farmers in India and worldwide, creating a niche market and leaving a lasting impact on our customers. Through our strategic, differentiated, and partnership-based approach, we have achieved rapid growth and delivered superior returns to all our stakeholders.

Discovery, Development and Scale-up

PIs Research and Development (R&D) is directed towards reimagining a healthier planet for the future. With the demand for food forecasted to increase substantially in the next decade food security is a major concern. Our R&D efforts are aligned to discover new Active Ingredients which can potentially be insecticides or fungicides in the future.

Throughout the year, the R&D team worked on over 40 products in various phases of development, and the pipeline contains over 25% non-chemical products. PI has registered over 145 patents, surpassing the previous record. The R&D department continues to review the existing research pipeline, twice a year, based on intensive market research and peer analysis to make appropriate decisions. This agility ensures that R&D is dynamic and light-footed in an environment where sudden changes are common.

We attract highly qualified scientists to conduct multidisciplinary research in the fields of Biology, Formulations, Process Chemistry, Kilo Labs etc. providing diverse exposure to the scientists. We strongly support learning and development by enabling personnel to visit different conferences, lectures and Universities in India and abroad. PI also has a Higher Education Policy which encourages further development of the employees. We strongly support learning and development by enabling personnel to visit different conferences, lectures and Universities in India and abroad. PI also has a Higher Education Policy which encourages further development of the employees.

Focusing on "Responsible Growth for a Better Tomorrow" we are emphasizing greener solutions, producing less waste, and decreasing the use of toxic catalysts. All our products are free from red triangle and adopting Green Chemistry and engaging in greener innovations is the way forward with increasing focus on sustainable products - Biopesticides, Bio-stimulants and newer innovations like Combination products, Nano-pesticides, RNAI pesticides, drone spraying and precision farming.

For additional information please refer to the Intellectual Capital Section of the Integrated Report on Pg. 100

Product Evaluation & Registration

PI has a world-class, highly competent product evaluation team that is equipped with the best-in-class tools for data administration, product characterization, and knowledge generation to assist Indian farmers in reaping bountiful harvests using these modern chemical ingredients. In accordance with the Insecticides Act of 1948, the Registration committee is required to register all products containing active ingredients that are on the list of products scheduled for export. The registration requires data on the chemistry and manufacturing process, in addition to other information as per the protocol. The team has comprehensive knowledge of the Indian regulatory framework and specializes in planning and coordinating studies with CROs pertaining to bio-efficacy, residue, and toxicological studies following applicable regulations to submit quality data and obtain regulatory approvals.

For additional information please refer to the Intellectual Capital Section of the Integrated Report on Pg. 100

Manufacturing

Please refer to the Manufactured Capital Section of the Integrated Report on Pg. 96

Marketing & Distribution

Please refer to the Social and Relationship Capital Section of the Integrated Report on Pg. 124

Customer Connect

Please refer to the Social and Relationship Capital Section of the Integrated Report on Pg. 124

Inspired by Science

Financial Review

During FY23, PIs revenue from operations grew by 23 percent to ^ 64,920 million as compared to ^ 52,995 million in the previous year. The Company saw strong growth in export of 26 percent in FY23, contributing to the volume growth of existing products and the commercialization of new products. Domestic revenues were up by 12 percent, well in line with the Companys business plan. PIs Net Profit for the year saw a healthy 46 percent growth to ^ 12,295 million from ^ 8,438 million in FY23.

The net worth of PI Increased by 18 percent over last year to ^ 71,833 million in FY23 due to increased operating profits. As on March 31st, 2023, the Surplus Cash net of Debt stood at ^ 32,343 million, including QIP net proceeds of ^ 18,885 million. Debt equity ratio was at NIL as compared to 0.04 in the previous year. The Board of Directors have recommended a final dividend of 550 percent which is ^ 5.5/- per share. This, in addition to interim dividend of ^ 4.5 that was already declared in FY23, takes the total dividend to ^ 10/- per share for the financial year. The Company saw significant improvement in its Free Cash Flow and Gross Cash during FY23. Total CAPEX entailed in FY23 was ^ 3,385 million, order book position continues to stay strong at ~$1.8 billion with high visibility growth for the next couple of years.

PIs growth can be attributed to a variety of factors, which can be attributed to our high quality product portfolio, our ability to upscale the existing products. Additionally, commercialization of new product offerings was met with improved traction and market acceptance. An overall conducive macro-economic environment complemented our competencies, with an overall positive global demand scenario driving volume growth. Rising commodity prices and favourable foreign currency conditions are other factors helped in improving our profitability.

As required under SEBI (LODR) Regulations, key financial ratios are enumerated below as compared to previous year:

Particulars	FY 2022-23	FY 2021-22
Earnings per Share (EPS)	81.06	55.65
Current Ratio	4.79	3.68
Debt Equity Ratio	0	0.04
Operating Profit Margin (%)	23.9%	21.6%
Net Profit Margin	18.94%	15.92%
Inventory Turnover	2.52	2.36
Debtors Turnover	7.06	5.71
Interest Coverage Ratio	*	89.19
Return on Net Worth	18.46%	14.72%

* ECB loan paid off during the year.

Internal Control Systems

Your Company has in place adequate Internal Financial Controls concerning the Financial Statements commensurate with the size, scale, and complexity of its operations. The Company has identified and documented all key internal financial controls as part of its Internal Financial Control reporting framework. The Company has laid down well-defined policies and procedures for all critical processes across Companys plant, and offices wherein financial transactions are undertaken. The policies and procedures cover the key risks and controls in all the processes identified to the respective process owner. In addition, the Company has a well-defined financial delegation of authority, which ensures the approval of financial transactions by the appropriate personnel. The Company uses SAP ERP to process financial transactions and maintain its books of accounts to ensure its adequacy, integrity, and reliability. The Company has also deployed an online control tool to enhance the operating effectiveness of internal controls. The control system comprises continuous audit and compliance by an in-house internal

audit team supported by an appointed auditing firm. M/s Ernst & Young LLP have been engaged as the corporate auditors covering all central corporate functions along with the CSM business vertical and PKF Sridhar & Santhanam LLP who are covering the Agri business vertical along with Depot audit. The agencies perform the internal audit and assess the internal controls and statutory compliances in various areas and provide suggestions for improvement.

Independence of internal auditors is ensured through direct reporting to Audit Committee. Internal Auditors independently evaluate the adequacy of internal controls and concurrently audit the financial transactions and review the various business processes. Internal Audit reports are placed before the Audit Committee of the Board. Accordingly, the Board is of the opinion that the Companys internal financial controls were adequate and effective for the financial year ended March 31, 2023.

Risk Management

Please refer to the Risk and Opportunities section of the Integrated Report on Pg. 144

Human Resources

Please refer to the Human Capital section of the Integrated Report on Pg. 106

Information Technology

Please refer to the Intellectual Capital section of the Integrated Report on Pg. 100

Business Outlook

The prediction of another normal monsoon for the crop year 202324 bodes well for Indias agricultural industry. The latest IMD (Indian Meteorological Department) forecast upgrade to 96 percent of LPA due to El Nino makes this the eighth consecutive year of normal monsoon conditions. The output of food grains as well as fruits and vegetables are likely to break records for a second consecutive year. Therefore, the domestic demand for agrochemicals is likely to continue its upward trend, given the high dependency on rainfall for irrigation. In turn, this improves PIs prospects within the domestic agrochemicals market. Additionally, the Company is likely to benefit from the maturation of its recent product launches. In addition, the Company intends to introduce five new products to domestic markets during FY24. In addition, its targeted approach to the horticulture segment through JIVAGRO, combined with a robust pipeline of new product launches, will support domestic market growth in FY24 and beyond.

The Company continues to maintain a robust order book in exports as a solid foundation for revenue visibility and expansion. With the planned commercialization of three new molecules and two new process innovations, is well positioned to maintain its growth and profitability in FY24. In addition, the Companys non-chemical enquiry portfolio continues to advance qualitatively and quantitatively. On the heels of some of these inquiries entering the commercialization phase in FY24, PIs CSM business is not only projected to maintain its growth momentum but also to bolster its non-agro chemical base. The Companys increasing investments and activities in the R&D domain will continue to hone its scientific prowess and complex chemistry capabilities to not only increase the loyalty of its existing innovator customers but also attract many new innovator customers from the AgChem space and beyond. Considering these factors, PI is poised to further consolidate its comparative position as Indias leading specialty chemicals player, uniquely positioned with domestic agrochemicals and export businesses as growth engines.

A growing population, increasing demand for agricultural products, both in the domestic market and in the international market, improved awareness about the products, and the necessity to increase productivity per hectare will play a part in this growth. The positive trend and the integration of farming practices in the country are expected to propel the industry growth rate of agrochemicals in India within the forecast period. PI is an industry leader and using sustained R&D efforts, having a knowledge-oriented vision, and turning to greener chemistry your Company aims to establish itself as a sustainability leader, a benchmark, in every sector it operates. An increase in market share and the corresponding growth can take place only when the business is being responsibly conducted. We strive to improve resource efficiency, reduce waste and pollution, and promote sustainable consumption through ethical marketing practices, to ensure "Responsible growth for a better tomorrow".

Our strategic diversification into the pharmaceutical sector marks an important milestone for our company. We are expanding our presence in this industry through key acquisitions and partnerships. Recently, our wholly owned subsidiary, PI Health Sciences Ltd, has entered into definitive agreements with Therachem Research Medilab (TRM) LLC, a renowned provider of chemistry-driven solutions for medicinal chemistry research and development, with a focus on rare diseases. This acquisition includes TRMs subsidiaries in India, TRM India and Silis Pharmachem, as well as its U.S. assets. Additionally, we have also signed a definitive agreement with Plahoma Twelve GmbH for the acquisition of Archimica SpA. These acquisitions are a significant step towards establishing a strong foothold in the pharmaceutical CDMO space. By leveraging our expertise and resources, we aim to deliver comprehensive services and products to pharmaceutical and biopharmaceutical companies worldwide. We are dedicated to building a differentiated position across the pharmaceutical value chain. To support our expansion, we are developing a state-of-the- art integrated pharmaceutical research center in IKP Hyderabad. This center will serve as a hub for CRO and CDMO offerings, catering to a broader range of customers throughout the life sciences value chain. Establishing a business that grows responsibly is integral to collaborating with global innovators and being at the forefront of innovation to develop transformative life sciences solutions. Through these strategic moves, we are poised to tap into the vast global market of CDMO, broaden our offerings, and strengthen our position in the pharmaceutical industry. We remain committed to creating sustainable growth and delivering value to our stakeholders while advancing healthcare solutions for the betterment of society.

Cautionary Statement:

Statements in the Management Discussion and Analysis report may be forward looking statements within the meaning of the applicable laws and regulations. Actual results may differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include among other, climatic conditions, economic conditions affecting demand, supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental.