seya industries ltd Management discussions

BUSINESS ENVIRONMENT

Global

The year in retrospect was a challenging year for the global economy, recording its lowest growth of the decade at 2.4%, as an outcome of protracted trade disputes, reverse globalisation and a slowdown in the domestic investments. The widespread weakness in global trade and investments affected advanced markets such as the European markets as well as the emerging markets and developing economies.

Manufacturing activities across the globe slowed down significantly and just as there were signs of stabilization of manufacturing output at lower levels, at the turn of the decade, the outbreak of COVID-19 led to economic disruption on an unprecedented scale.

USA-China bilateral negotiations had helped to de-escalate trade tensions to an extent, UK continued to struggle with Brexit related challenges while other major economies like the European region, Japan and China faced intermittent deceleration, adding to the slowdown in the pace of global growth. Even as nations were coming to terms with slowing growth, a new threat emerged with the spread of the coronavirus pandemic, which is expected to cost the global economy $ 2.7 trillion and is likely to push the global economy into a recession while undoing a large proportion of economic gains achieved over the last decade.

One of the most dramatic developments in the last 30 years has been the soaring consumption in Asia and its integration into global trade, capital, talent and innovation. The Emerging Asias GDP growth is expected to significantly weaken from 5.5% in 2019 to 1.0% in 2020 in-line with the global weakness mainly caused due to COVID-19 pandemic. Yet, the long term structural drivers remain intact. Asia is makingsignificant economic progress and rapid strides in human development in terms of life span, literacy and even internet usage and lifestyle standards.

As a silver lining, Governments of all countries have taken strong and bold measures to brace their economies from the expected impact of the Corona Virus. USA started off by rate cuts and infusing more than USD 1.5 Trillion into the financial system in an effort to calm the market turmoil after Wall Street suffered its worst day since the 1987 market crash.

As the pandemic situation continues to unfold, with containment measures resulting in significant loss in output. An estimated 170 countries will witness a negative per capita income,in price acrosswith many facing overlapping crises, including healthcare issues, a weakened economy, low external demand, capital outflows and commodity market declines. That being said, risks to forecasts remain on the downside and any recovery will depend on the pace at which the pandemic subsides and economic activities normalise.

Domestic

Indias long-term growth potential remains intact. The government announced an economic stimulus package of Rs 20 lakh crores, or 10% of GDP, in May 2020 to stabilize and revive the economy. Further, various other steps are being taken by the government to boost the economy. Prior to this slowdown, Indias GDP had been growing at a five-year average of 7.5%. Several key macroeconomic indicators, including fiscal deficit, current account deficitand inflation, had reached very comfortable levels. Indias ranking on the

Ease of Doing Business improved to 63 in 2019 from 77 in 2018 and 142 in 2014, a record jump for any major global economy. Several structural reforms, a vibrant business environment and a relatively stable currency attracted foreign investors. Weak performance by the manufacturing and construction sectors and slower credit growth and continued asset quality stress in the financial sector are largely responsible for the slowdown. Sluggish economic growth and tighter credit conditions in the non-banking sector have led to a substantial weakening of domestic demand.

Looking at FY 2020-21 , the initial momentum appears tapered owing to lockdown imposed by the Government to inhibit the spread of novel coronavirus (COVID-19). Before the lockdown, IMF and Moodys reduced the growth forecasts for India to 4.8% and 5.3% respectively, from 6.1% and 5.4% projected earlier. While this could be further reduced since the lockdown included full closure of all nonessential services, industries like manufacturing, transport, retail, leisure and recreation, which constitute a substantial component of Indias GDP will be halted for a while. For several decades, consumption has been the bedrock of Indias growth story. With it expected to be significantly impacted due to the pandemic, it will undoubtedly have a multiplier effect across the Indian Economy. Once the effects of the pandemic wanes, the Indian economy is anticipated to return to its growth trajectory relying on significant policy reforms

Global

The chemical industry has been an integral part of the global economic landscape for many centuries. The industry has evolved to become a bastion of productivity that permeates through nearly every goods-producing sector. Today, the chemical industry plays a crucial role in regional economies in every corner of the world and in most sectors of those economies. The industry experienced a slowdown in CY 2019, primarily due to escalating global trade tensions and a weakening economy impacting the chemical demand. The trade war led to a fluctuation global chemical market. Additionally, the industry was also affected by the weakening automotive markets and the uncertainty caused by Brexit. Despite worsening economic conditions and political tensions, sustainability has been a priority for the chemicals industry in CY 2019. The demand for eco-friendly and sustainable chemical continued to increase with companies across sectors adopting measures to reduce their environmental footprint and ensuring supply and manufacturing of eco-friendly products. The outbreak of Covid-19 led to production stoppage and slowed consumer demand significantly, resulting in a negative impact on the industry. However, as the effect of the pandemic fades and businesses resume, pickup in consumer confidence expected to improve sentiments in the near future.

Domestic

Over the past ten years, the Indian chemical industry has clocked a CAGR of over 10%. This growth is the testimony of structural advantage,diversified industry, promising export potential and high domestic consumption. Slowly and gradually, India is emerging as a preferred choice for chemical products, as domestic players are addressing environmental issues through adoption of best global practices and by staying committed towards sustainability programs. These augur well for the country as it already enjoys the advantage of cheap labour and easy availability of raw material. Going forward, in the near term, the Covid-19 landscape is bound to bring some volatility in the market. But, in longer term, the industry is expected to register a growth of 13-14% over the next 5 years owing to growth of strong intellectual property regime and infrastructure development.

The sector has been witnessing tailwinds with India emerging as an alternative supplier to China, for key raw materials and components. Indian manufacturers have been capitalizing on these opportunities and have set up additional capacities to cater to rising demand. The upcoming Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs) and Plastic parks will provide state-of-the-art infrastructure for Chemicals and Petrochemicals sector in India. The chemical industry in India is positioned to capitalize on near term opportunities.

The focus on petrochemicals in India might increase due to the interest of global oil and gas majors on downstream chemical opportunities. This would also lead to higher investment in the sector, which could ease feedstock challenges and boost self-sufficiency. Chinas chemical industry is facing challenges due to stricter environmental norms, leading to structural changes in the industry. These shifts would cause uncertainty for international players that source chemicals from China and could create opportunities for the Indian chemical industry. There have been shifts in global supply chains due to trade conflicts around the world, especially among China, the United States and Western Europe. This has affected bilateral trade between China and the U.S., with possible repercussions for other economies. In this scenario, large chemical markets that remain accessible, could present opportunities for the chemical industry in India. Many companies, worldwide, are embracing digital technology and enhancing their production techniques. Digital technology has established itself as a lever to enhance efficiency and productivity.

Indian companies could also tap into this opportunity to expand their profit margins.

The shift in production and consumption pattern towards Asian and South East Asian countries in all sectors is leading to increasing demand for Chemicals and Petrochemicals. The combination of domestic consumption and export growth has made it viable to locate manufacturing operations in India thereby enhancing Indias contribution to the Global chemical industry. The uncertainty in global trade caused by the US-China trade conflict and the changing structure of Chinas chemical industry are expected to open doors for the Indian chemical industry. Despite industry-specific challenges, rising domestic demand in chemical end-use sectors such as agriculture, consumer and retail, infrastructure, auto and electronics and healthcare is increasing the attractiveness of India as a manufacturing destination and Indias steadily improving ‘Ease of Doing Business ranking could further elevate its position as theanddemandis epicenter of chemical manufacturing in Asia, in the long run.

SPECIALTY CHEMICAL INDUSTRY Global

Chemical industry constitutes of 80% of specialty chemicals and 20% of other chemicals. Specialty chemicals are low volume and high value products that are sold on the basis of their quality and utility. Speciality Chemicals are known for end-use performance enhancing applications rather than their composition. They are recognised for "what they do" rather than "what they are" as in the case of basic chemicals. They provide solutions to customer applications, are knowledge-based and are known to deliver more financial returns as compared to basic chemicals. They are a blend of base chemicals and sold on the basis of their quality or utility, rather than product composition or brand. They are relatively high value, but low volume chemicals as compared with basic chemicals or commodity chemicals. In the specialty chemical sector, the focus is on value-addition to end product and technical specifications of the chemical. Since speciality chemicals are mainly used to add value to the finished product, they are primarily sold on a B2B (Business to Business) basis. Speciality chemicals can be further divided into various sub-segments on the basis of end-use applications. The major sub-segments are 1) Agro-chemicals, 2) Colourants, 3) Construction chemicals, 4) Flavours & Fragrances, 5) Paints & Coatings, 6) Personal care, 7) Polymer & additives, 8) Surfactants, 9) Textile chemicals, and 10) Water treatment chemicals.

Driven by innovation and expanding usage in several emerging areas, production and consumption of speciality chemicals were initially concentrated in developed regions like North America, Western Europe and Japan. With trade liberalisation, technology transfer and rapid economic growth, the industry began proliferating in developing economies. China emerged as a leading producer of speciality chemicals, aided by easy availability of raw materials/ feedstock, cheap labour and capital, sizable end-use market and government support. However, with increasing focus on safety, health and environment stipulations worldwide, stricter enforcement led to disruptions in the supply chain that was substantially dependent on China. Further, the relative strength of the Chinese currency, rising labour costs and reduction of government subsidies eroded the comparative advantage. The Chinese government is also promoting consolidation in the industry to shift away from high-polluting, lower-end segments.

Domestic

With supply chain disruption and uncertainty in China, global players are looking at diversifying their sourcing and India offers a strong alternative with comparable scale, technology, raw materials and supportive government policies. Ever since Chinas chemical plant shutdown, owing to violation of environmental norms, Indian speciality companies have seen their fortune turn. Domestic companies have spent vital amount of money to comply with regulatory norms which has helped them gain market share. This increased their utilisation level, economies of scale and improved margins. Further, to meet the rising demand, the Indian Speciality Chemical industry also spent a decent Capex to build a world-class facility and move up the value chain at a rapid pace. This capital spending is likely to decrease the nations chemical import bill. Indian speciality market looks promising, as the Chinese counterparts lose the power of better pricing due to rising environmental cost factor. This pace is expected to spur as Indians consume more food, wear more clothes and buy plastic.

The industry serves both the local market and the global market. The critical success factors for most of the speciality chemical segments include understanding of customer needs and product/application development to meet the same at a favourable price-performance ratio. Global firms are gradually facing the heat of compliance, cost and capacity issues in other markets, especially China, and are thus looking to outsource their manufacturing processes to India. The structural shift towards Indian speciality chemical players is ably supported by the Government in the form of a robust patent framework, the presence of appropriate regulations to protect intellectual capital, improvement in infrastructure and thrusts to promote investments in R&D, as well as green technologies and a rich pool of knowledge workers.

India has remained in Chinas shadow for a long time in the global chemical speciality market. However, gradually it is emerging out of with its own structural benefits and the spill-over effect of Chinas declining competitiveness. The factors driving the growth of the speciality chemicals market include large base of end-use industries, high demand from Asia-Pacific, increasing demand from automotive industry, and technological advancements. Over and above, faster end-use industry growth, low penetration of speciality chemicals in India will support growth. Exponential growth expectations led by favourable macro-economic factors in pharmaceutical, personal and home care products also presents a humungous growth opportunity for associated speciality chemicals manufacturers.

COMPANY OVERVIEW

SEYA INDUSTRIES LTD, a Company, promoted by Technocrats, is engaged in manufacturing of Specialty chemicals at its state of the art manufacturing facilities in MIDC Tarapur, Boisar a notified chemical manufacturing zone 90kms from Mumbai which have wide spectrum of applications in the manufacture of Pharmaceuticals

(like Paracetamol, floxacins, etc), Personal & Health Care Products (like Hair dyes), Printing Inks & Paints (used in Laser/Ink jet Printers, for Road markings, etc), Agrochemicals (like DDT, etc) Insecticides/ Pesticides (like Quinalphos, Mortein, Baygon, etc), Rubber chemicals

(for Leather protection),Textiledyes,Thermicfluids(used as heating medium), etc. The companys strength lies in its wide product offerings,ability to adapt to new markets and being environmentally friendly.

In the past few years, your company has emerged as most competitive and low-cost, Leading producer of Benzene based

Specialty Chemicals with complete backward and forward integration across Benzene value chain. Your Companys established and long standing customer relationships, with multi-product and multi-industry approach, state-of-art manufacturing practices, high quality standards, timely delivery, compliance to regulations, Extensively backward and forward Integrated Gobal Scale technological driven operations, efficient utilization and re-use of its By-products, well-diversified product portfolio and continued focus in expanding business in newer horizons has resulted significant growth in operations in last ten years.

COVID-19 Situation

The Operations of the Company have been severely impacted due to the Covid -19 pandemic. The Government of India declared a nationwide lockdown w.e.f. 24 March, 2020 and hence the manufacturing operations of the Company were halted during the quarter. Upon obtaining necessary permissions from the concerned authorities and after taking all safety measures as prescribed in the said permissions, though the Company have resumed operations in a phased-wise manner, several International and State governments continue to restrict distribution operations which impact the Companys operations. As a result, the revenues were materially impacted during this period. Subsequent to the year end, the Company has received notices of Force Majeure from certain suppliers and customers and similarly the Company has also issued notices of Force Majeure to customers and suppliers. However, based on the preliminary legal evaluation of these notices, the Management does not anticipate any material economic outflow of resources which would impact its cash position and the carrying value of its assets. The Company however continued to incur committed expenditure with respect to its Employees, Plant related expenditures and Other expenditures. This has significantly impacted the profitability. Covid-19 has alsohad significantimpact on its customers and their ability to meet their committed obligations. The extent and duration of COVID-19 is currently unknown and depends on future developments that are uncertain. Any resultant outcome and impact on business, due to this, is unpredictable. The

Management in process of evaluating the possible effects if any that may result from COVID-19 pandemic on the carrying amounts of Trade receivables and Inventories. In developing the assumptions and estimates relating to the uncertainties as at the balance Sheet date in relation to the recoverable amounts of these assets, the management has used internal and external sources of information to the extent determined by it. The Impact of the same may differ from that estimated as at the date of approval of these financial statements due to the impact of the pandemic and the Management will continue to closely monitor the developments.

We have taken several actions to mitigatetheeffectof Covid-19 on our business. We have taken steps to reduce our unit costs and increase our liquidity by making our operations more efficient and nimbler, putting on hold discretionary expenses, deferring certain capital expenditures, etc. In order to sustain operations, we also had to take actions to cut employee costs through pay cuts, leave without pay and reduction in workforce. We are ramping up our operations in a phased manner, subject to Government directions. The unprecedented nature of the pandemic makes the future business environment uncertain, however, we will continue to carry out the impact assessment on our assets and closely monitor any material changes to future economic conditions.

Net Sales during the year was Rs 25,820 lakhs as compared to Rs 41,278 Lakhs in PY, reporting a decrease by 37.4% on account of decrease in Average Unit Realisation of the Products sold due to resumption Chinese supply, Lower sales volume and capacity utilisation on account of shortage of Nitric Acid & water and restricted effluent discharge permitted by Pollution control authorities as per NGT(National Green Tribunal) directives in MIDC Tarapur due to pending implementation of expanded CETP in MIDC Tarapur in which the manufacturing facilities are located. The prices of crude oil and related petrochemical intermediates, which form an important source of raw materials for your Company and which govern the Selling Prices of the Products also marginally decreased.

	FY 20	FY 19	Change	% Change
Revenue from Operations	25,820	41,278	(15,458)	37.4%

Segment Revenue

Your Company has been focusing only on Specialty Chemical segment end-users with higher profitability, higher volumes, stable and increasing demand thereby resulting almost 100% revenues from the segment, hence segment wise analysis in-accordance with IND-AS 108 is not applicable.

Due to the differentiation from standardised products, the products manufactured by your company are customised as per specific customer requirements and enjoy higher value. The shift towards higher contribution products in the overall product mix and traction from newly introduced products has been instrumental in the sustainable performance of this segment. Your Company demonstrated its versatility, adaptability and dynamism by focusing on Specialty Chemical segment thereby and maintaining profitable operation performance despite adverse economic environment.

Capital Employed	Rs in Lakhs
Particulars	FY-20
Gross Block	87,010
Less: Adjustment as per IND-AS 16 w.r.t. representation of Fair market value of Land	(31,421)
Adjusted Gross Block:	55,589
Capital Employed in Manufacturing operations	34,449
Un-employed Capital (Land for future expansion)	21,140

Profitability

EBITDA for FY20 was lower by 45.52% at Rs 7,650 lakhs compared to Rs 14,042 lakhs in PY. The decline in EBITDA was due to normalisation of Sales prices of products which had spiked up due to closure of competing Chinese producers and their resumption of supplies during FY20, lower sales volume and capacity utilisation on account of shortage of Nitric acid(critical raw material) and water(critical utility) and imposition of restricted Effluent discharge(than what is permitted as per Sanction) by Pollution control authorities due to NGT directives. The spread in key products normalised due to resumption of Capacities from China however your Company, due to its favourable product mix, efficiency gains and better realisations across key products, achieved sustained and above normal profitable performance.

Profit before Tax (PBT) was at Rs 5,197 lakhs compared to Rs 10,624 lakhs in PY.

Profit after Tax (PAT) was at Rs 4,702 lakhs in FY20 compared to Rs 8,849 lakhs in PY19 despite the above challenges. Your Company was able to maintain its trend of sustained . profitability onvertebrae ofvalue-added products

				Rs in Lakhs
	FY 20	FY 19	Change	% Change
Earnings before Interest, Depreciation & Tax	7,650	14,042	(6,392)	45.5%
Profit Before Tax	5,197	10,624	(5,427)	51.1%
Profit After Tax	4,702	8,849	(4,147)	46.9%

During the period under review, there has been no transfer to the general reserve. There has been addition in the Securities Premium Reserve on account of Issue of 19,70,540 Compulsorily Convertible Preference Shares of Face Value of Rs 10/- each at a Premium of Rs 513/- each. There has been transfer from the Other Reserves to Capital Redemption Reserve on account of redemption of Non-Convertible Redeemable Preference Shares of Rs. 15,126.17 Lakhs. Total reserves and surplus increased by a 17.9% to reach the level of Rs 94,509.24 Lakhs as compared to previous year of Rs 80,133.46 Lakhs.

				Rs in Lakhs
	FY 20	FY 19	Change	% Change
General Reserves	2,013.53	2,013.53	-	-
Profit & Loss Account	27,931.12	23,664.21	4,266.91	18.0%
Securities Premium Account	33,143.59	23,034.72	10,108.87	43.9%
Capital redemption Reserve	15,126.17	-	15,126.17	-
Other Reserves	16,294.83	31,421.00	(15,126.17)	48.1%
Total Reserves & Surplus	94,509.24	80,133.46	14,375.78	17.9%

Earnings per Share (EPS) was at Rs 19.10 in FY20 as compared to Rs 35.97 in FY19. Given the developments with regard to the COVID-19 pandemic and its fallout, the Board prudently decided to conserve cash for the quarters ahead. The Diluted EPS was also at Rs 17.69 on account of outstanding and/or potential conversion of Compulsorily Convertible Preference Shares.

	FY 20	FY 19	Change	% Change
Basic EPS (Rs )	19.10	35.97	(16.87)	46.0%
Diluted EPS (Rs )	17.69	35.97	(18.28)	50.8%

Raw material cost stood at Rs 14,402 Lakhs compared to Rs 20,587 Lakhs in PY, a decrease by 1.32% inline with Lower capacity utilisation and suspension of Production on account of COVID-19 pandemic. There was an increase in the average unit price of

Raw materials despite which the Management due to better negotiations, efficient

Inventory Management and Price correction forecast, could reduce the impact of increase in Raw materials cost.

Finance cost was at Rs 792 Lakhs. Due to ongoing dispute with the Lenders in relation to their failure to comply with committed lending obligations and outstanding, the Company has, basis of legal advice, not provided for interest costs on certain loans outstanding, amounting to INR 807.98 Lacs in respect of Operating Assets. The

Company continues to believe in the merits of the litigation.

Depreciation and Amortisation Expenses increased to Rs 1,662 Lakhs from Rs 1,599

Lakhs (Y-o-Y) due to post commissioning Depreciation expense of expanded Plant capacities which were commissioned during previous year.

Employee Benefit Expenses marginally decreased to Rs 631 Lakhs from Rs 640

Lakhs (Y-o-Y) due impact of COVID-19 pandemic outbreak in Mar-20 and resulting rationalisation of expenses.

Other Expenses were lower at Rs 3,562 Lakhs vs. Rs 6,045 Lakhs (Y-o-Y) due to lower capacity utilisation and rationalisations and control of various expenses on account of COVID-19 pandemic outbreak.

				Rs in Lakhs
	FY 20	FY 19	Change	% Change
Raw Material Cost	14,402.12	20,587.11	(6,184.99)	30.0%
Finance Cost	791.98	1,817.99	(1,026.01)	56.4%
Depreciation & Amortisation Expenses	1,661.74	1,599.41	62.33	3.9%
Employee Benefit Expenses	630.57	640.47	(9.90)	1.5%
Other Expenses	3,562.49	6,045.49	(2,483.00)	41.1%

Key Financial Ratios
	FY 20	FY 19	% Change	Reason
Debtors Turnover Ratio	2.44	4.80	49.2%	Sluggish realisation - onset of COVID-19 in Q3FY20 in China
Inventory Turnover Ratio	9.97	13.14	24.1%	Lower Capacity utilisation
Interest Coverage Ratio	9.66	7.72	N.A.	Refer Note no. 30.1 of Financial Statements
Current Ratio	1.92	2.83	32.1%	Higher Working Capital utilisation - sluggish realisation
Return on Networth	11.6%	27.4%	57.6%	Lower Capacity Utilisation
Operating Profit Margin(EBIT%)	23.2%	30.1%	23.1%	Reduction in Product spreads, Lower Capacity Utilisation
Net Profit Margin(PBT%)	18.2%	21.4%	15.1%	Reduction in Product spreads, Lower Capacity Utilisation
Debt : Equity ratio	0.71	0.72	0.01

SWOT ANALYSIS

The present per capita consumption in India is very low as compared to other countries and the growing domestic household promises increasing opportunities for growth on the back of increasing disposable income of growing middle class. China no longer controls the market repelled by its present pricing policy due to increasingly stringent pollution control policy and measures being administered by its Government. The brand value ‘Make in India is lead by knowledge power and vast experience in handling customer demands and is at its brightest spot in the Chemical industry. Challenges of COVID-19 weigh on the Company, though your Company has resolved its SWOT for clenching the Opportunities and mitigating the Threats:

Key Strengths

Adroit Leadership & Management Team: Seya is led by a strong and experienced management team with strong fundamental knowledge and keen awareness of the shifts in the industry landscape comprising first generation technocrats all possessing excellence in Chemical Engineering. Your management possesses a proven track record in formulating strategies, implementing pioneering technologies and introducing high value high margin products to sustain profitable operational performance which have enabled your

Company to enhance stakeholder value while adhering to the code of Responsible Care and ethical values.

Integration & Global Size Plant: Seyas sustained focus on process development, plant automation and high quality benchmarks has made it possible to emerge as one of the highest quality at lowest-cost producers of benzene derivatives in the world. Your Companys environment friendly integrated facilities with backward and forward cost-efficient processes anddiversifieddownstream applications complemented by competitive, large and integrated supply chains empower your Company to address the growing needs of large global customers with committed and secured Supply Chain. Your Company has the largest installed capacities for its premium high valve and high margin products. Your Company is a global entity integrated backwards and forwards in its range of chemicals and also across various value chains, enhancing its capability to supply a basket of products and becoming a one-stop source. This has resulted in the fragmentation of competitive risks as very few global players are as integrated and diversified as your Company

Diversified Product portfolio: Your Companys de-risked portfolio with diverse products addresses different end-user applications across customers and geographies spanning from Agrochemicals, Polymers, Dyes, Pigments, Printing Inks, Pharmaceuticals, Health & Home Care, Oil & Gas, Rubber Chemicals, Flavours & Fragrances, Food Ingredients, Cattle Feed, etc. thereby insulating itself from vagaries in any one product or segment. Your Company supplies products to more than 100 customers. Each Product results in engagements with multiple customers, an effective entry barrier for competition providing flexibility to shift products based on market dynamics, countering demand vagaries and converting process byproducts into commercially viable products, enhancing value. There has been focus on developing integrated product chains rather than fragmented, standalone productsenablingsignificantcost synergies and deeper relationships with clients who partner with the Company for multiple products over several years. Your companys leadership in certain products facilitates knowledge transfer, provides demand foresight, the ability to absorb incremental SH&E costs. Diversified and comprehensive product portfolio and large customer base spread across several countries and customer categories, strengthen your Company to face headwinds, if any and dependence on any product, customer or geography.

Innovation & Technical Expertise: Innovation is deep-rooted in the DNA of your Company. Seya executes complex and hazardous chemical processes with high success rates by leveraging its License for niche chemistries from expert Technology Suppliers in Germany and its capability in managing, storing and handling various types of chemicals in quantities ranging from few kilos to several tons. Your Companys ability to develop new product application and to customize products to suit customer needs have helped in expanding its customer base and thereby enabling your Company to establish its leadership position. Your Companys expertise and competence provides customers the comfort that it will undertake these complex processes safely and in a cost competitive manner while adhering to the highest standards of quality. The enriching product mix combined with scale has enhanced the earning

Companys focus on R&D initiatives for Speciality Chemicals has built technological capabilities through know-how transfer resulting in several differentiated processes/ chemistries. The focus has always been on improving product quality and process yields of existing products, forward integration for downstream products etc, with thrust on environment friendly processes to further strengthen its global presence in the end-user applications.

Quality, Safety, Sustainability: Your Company practices the most stringent global environment, health and safety standards, ensuring optimal productivity and business sustainability. Seya emphasizes on Reduce-Reuse-Recover principles across its manufacturing site following the highest SHE (Safety, Health & Environment) standards. Your Company is looked upon as a benchmark and standard of Quality. Your company has revolutionized Quality of all the Products it manufactures to standard which can be matched by none and commands premium pricing for all its products.

Key Opportunities

Favorable Government Initiatives - Make in India – Geographical shift: India has developed into an important manufacturing hub for Speciality chemicals on account of superior compliance with environmental norms, increasing competitiveness and decline in Chinese competitiveness. India is capitalising on growing opportunities in the export of Speciality chemicals with increasingly stringent compliance to environment norms in China which has affected global supply enabling Indian producers with large capacities, international quality compliance and environment standards to benefit. Maturing of the Chinese economy has increased labour and other Costs in China with incremental compliances necessitating additional investments in effluent treatment thereby enhancing costs and impacting capacity utilization assessed by increased competitiveness of Rupee v/s. Chinese Yuan widening the Indian fosse. Amidst this the Governments ambitious ‘Make in India and ‘Atmanirbhar initiative has given tremendous boost to the Indian manufacturing sector attracting capital, technological investment and toting impetus to the emergence of India as a manufacturing hub for the chemical industry. Your Company driven by extensive product and process innovation,significantdifferentiator over the commoditized Indian chemical industry. With strong technical expertise, high Safety Health & Environment standards as well as deep customer relationships, it remain at the forefront to make significant in high value chemicals strengthening product mix and scale resultantly driving earnings

Large addressable market: To address the countrys large and dispersed end-user market, companies have to start adopting a key-account strategy for large customers and partnership with other companies to build distribution networks across geographies. Companies have realized the importance of having a strong vendor base and partnership arrangements with cost effective local companies to achieve a leadership position.

India as an R&D hub for specialty chemicals: Large MNCs have started tapping the Indias cost advantage by investing in production for exports and also moving some of their R&D work to India. There is a large untapped potential in this space.

Opportunities for local customization: A key success factor in the Indian specialty chemical market is the local customization. Many customers are willing to sacrifice on some of the product attributes for a lower product price. These offerings can also be expanded to other Asian markets. The recent trend evidenced by the structural headwinds prevalent in the chemicals industry is the extraction of increased value from its operations and embracement of smarter portfolio management to improve performance. Leveraging skilled labour, lower capital costs, improved knowledge, equity and cost advantages of Asian players have compelled the larger players from developed countries to progressively discontinue their operations and transfer capacities eastwards and using local facilities for manufacturing high-end performance products. Many of these companies operate asset-light structures that increasingly outsource intermediates from China and India. While this trend was for long favourably disposed towards China for various end user products, India has recently been developed into an important manufacturing hub for speciality chemicals on account of superior compliance with environmental norms, increasing competitiveness and decline in Chinese competitiveness. Moreover, as MNC customers remain keen to allay their country risk through widening diversification; India is well positioned to capitalise, translating into growing opportunities for the export of speciality chemicals. Regulating agencies in developing portfolio countries have become more stringent in ensuring a complete compliance with environment norms. In China, restrictions have firmed up and imposed over last 2 years; in India, compliances were stringent for five or six years, providing the country a competitive advantage, making it possible for Indian players with large capacities and international quality compliance and environmental standards to corresponding benefit. The incremental compliances necessitate additional investments in effluent treatment, enhancing costs and impacting capacity utilization for the Chinese. The maturing of Chinese economy, labour and other costs have increased meaningfully.

Key Challenges

Regulatory and environment: While chemical industry addresses growing need for materials required by different sectors, the industry employs highly complex manufacturing process that often involves handling of toxic and hazardous chemicals. The process being energy intensive, the importance of safety, health, security and environmental protection cannot be underestimated.

Like all chemical companies, your Company is subject to central, state, local and foreign 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. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Companys operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities. European and developed markets have progressively tightened their import regulations citing environmental concerns and protection of domestic manufacturers.

Non-availability of Alternate Energy Sources: Chemicals manufacturing Industry consistently requires high amount of energy in production processes through conventional fuels like coal, furnace oil, etc. for generation of power or as a heat energy source. Use of non-conventional energy like wind power, solar power or natural gas becomes unfeasible as these alternate fuels have shortcomings like lack of reliability of continual supply, inability to generate energy in large quantity, sizeable capital expenditure, availability at higher costs, etc. However your Company has implemented state-of-art Energy Management Systems and continues to focus sharply on improving Utility efficiencies at its facilities along with widening its scope of Green Chemistry.

Volatility in Raw Materials Prices: Volatility in the global prices of raw materials is the foremost challenges faced by the chemical industry which can be well mitigated due to the time lag before price hikes or cost revision enabling the same to be passed on to customers. While your Company has enhanced inventory management procedure, it periodically reviews prices with suppliers, which remains as an inherent weakness in the industry. Sharp corrections in the crude oil prices aligns prices of various raw materials procured by the

Company which influence topline even as they have a limited impact on profitability due to adoption of a cost plus pricing model for all its products. While the topline remains elastic to raw material price movements, enhanced volumes and superior product mix drive the profit capturing the essence of your Companys value chain.

Obsolescence of Product and Processes: Obsolescence of products and existing manufacturing processes pose a threat to the global chemical industry. Swift technological transformations, changes in materials and innovation-driven changes in manufacturing process render existing products and processes obsolete. Latest technologies can affect the overall market dynamics and existing operations of the industry.

Slowdown in End User Industries: The slowdown in growth of end-user industries such as Printing Inks, Paints, Pigments & coatings, Agrochemicals, Rubber, Paper and Textiles amongst others could impact the overall growth. Your Company caters to several industries, not overtly dependent on any single industry, customer or geography withitsdiversified comprising multiple products that cater to multiple customers across geographies and varied economic cycles.

Momentous Currency Appreciation: Sharp appreciation in the currency could impact growth as competitive advantages vis--vis China could reduce thereby slowing the pace of shifting of volumes from China to India. Appreciation of Indian Rupee against US Dollar also lowers the export realisation thus impacting the export potential.

Lack of Talent Pool: Efficient and hard-working human capital is a rare and valuable resource today. India lacks widespread and abundant availability of technically skilled laborers. Your Company has initiated several measures to develop talent and undertakes comprehensive training for skill development, understand business complexities and adherence to global best practices

STRATEGIES FOR GROWTH

SEYA has envisaged its growth path, by a clear and defined vision to:

• Invest locally with Scale and Size matching global norms and adopt cutting edge technology (developed or acquired)

• Secure Feedstock and Technology

• Become a coveted employer - Attract and Retain talent

• Establish a targeted innovation platform, Invest more in R&D

• Create a positive, consumer & environment friendly image

Capacity Expansions

The Company had completed the capacity of one of its product in Q1FY20, however due to unavailability of one of the critical raw material ie. Conc. Nitric Acid and restriction over permitted effluent discharge due to pending implementation of MIDC CETP the capacity could not be ramped up.

De-bottlenecking & Efficiency Improvement to the extent of Thesaidbrown-field

30% and shall be completed once the funds tied-up with Lender shall be released. Once completed, the Company shall have parallel capacities for select products to align the production plants and processes on new Technologies. In addition to this, considering the restriction imposed on all industries in MIDC Tarapur on permitted

Effluent discharge, the Company shall on top priority be upgrading its Effluent Treatment Plant to Zero Liquid Discharge(ZLD) to permanently circumvent restriction imposed by NGT and support its capacity expansions. The de-bottlenecking and efficiency improvement exercises under implementation are expected to boost production volumes and margins. The estimated capital expenditure for above Capital expansion and de-bottlenecking project is Rs. 70 – 75 Crores which is being funded through Debt.

Mega Green-Field Project Under Implementation

Your Company is addressing cost issues of raw materials and its price volatility and high energy costs which shall result in reduction in energy and fixed costs, yield better cash flows and aid in debt reduction, all of which will result in long-term value creation for its stakeholders. Cash generation through operational excellence and to realize the synergies of being a fully integrated facility shall drive efficiencies and effectiveness in transitioning to value-added products. With a clearly defined vision to emerge as an Integrated Global producer for Speciality Chemicals and having invested Rs. 5 Bn in Capex in last 6 years, Company took its next step forward to start next round of expansion at cost of Rs. 7.35Bn to set-up additional installed capacity of 527,900 MTPA. The project is expected to contribute additional Rs. 10-12Bn in Revenue at an estimated capacity utilization of 80%. The project is in close vicinity of Seyas existing manufacturing operations at MIDC Tarapur, Boisar in State of Maharashtra and is presently awaiting disbursement from its Lenders who failed to keep up their commitment. The Company has filed representation in Honble High

Court and based on its directions has submitted the funding plan to the Lenders which is under consideration with the Lenders. The

Equity has been fully introduced by the Promoters and is forming part of present Share Capital/Equity Structure of the Company. The Project is being built under the supervision of highly experienced and reputed EPC contractors, German Technology Suppliers and PMCs holding successful track-record of more than 105 years backed by performance guarantee. It involves latest state-of-the-art, cutting edge, continuous, fully automated process technology which will enable Seya to be the lowest cost producer in the World for the products under set-up. The installed capacities of proposed products under set-up will be the largest in the world at a single location. Seya has safeguarded any copy of the Technology by executing confidentiality and copyright agreements with its technology suppliers restricting sale of technology acquired, for next 20 years from the Contract date. Almost 50% of the installed capacity in the proposed greenfield mega project is to be captively consumed as intermediates. Out of balance 50%, 30% of the proposed installed Capacity is contracted to existing customers on long term supply contract and balance 20% is envisaged to provide as import substitute to cater to the increasing demand arising from Supply disruptions and geographical shift from China.

INTERNAL CONTROL SYSTEMS & ITS ADEQUACY

The Company has systems for internal audit, risk assessment and mitigation and internal control and risk management processes both at the business and operational levels. Internal audit function plays a key role in providing to both the operating management and to the Audit & Risk management Committee of the Board, an objective is to view and reassurance of the overall control systems and effectiveness of the risk management processes across the Company. Internal Audit also assesses opportunities for improvement in business processes, systems and controls and provides recommendations designed to add value to the operations. The scope and authority of the Internal Audit Department is derived from the Audit Charter approved by the Audit Committee. Internal Audits with respect to financial and compliance matters are performed by an internal Auditor and operational level internal audit is performed by the in house team of managers, engineers and project and production team. The internal audit department which operates on a decentralised basis continuously monitors the adequacy and effectiveness of the internal control environment across the Company and the status of compliance

RISK MANAGEMENT

Managing Risk is an integral part of Seyas business. The Company operates a structured and continuous process of identifying, analysing, responding and mitigating the risk events that have the potential to generate adverse effect on the achievements of organisational objectives. This section discusses various dimensions of our enterprise risk management and is not exhaustive and is for information purpose only. Our business model is subject to uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Risk Categories & Mitigants

Given the nature of the Companys business and changing market dynamics, it is exposed to various risks during its daily course of operations. Some of the key risks and mitigation strategies adopted by the company is illustrated below: The following broad categories of risks have been considered in the risk management framework:

Strategic Risk

It includes the range of external events and trends (like government policies that can adversely impact the Companys strategic growth trajectory and destroy stakeholder value.

Mitigant

The applicable regulatory framework is continuously tracked by various teams within Seya. Appropriate action as necessary is being undertaken to ensure compliance with all regulatory requirements.

Operational Risk

These are those risks which are associated with operational uncertainties like failure in critical equipment, attrition etc.

Mitigant

Hazop Study and Safety studies for Process risks are carried out at regular intervals through EHS initiatives and dedicated committee formed for Managing process related hazards and safety

Financial Risk

This covers financial risk facing the organisation in terms of internal systems, planning & funding.

Mitigant

Apart from detailed review across levels and functions an independent risk team evaluates all deals before the approval

Reputational Risk

Seya is expected to maintain global quality standards in manufacturing. Any deviation with regards to quality compliance of products would impact the Consumers and hence adversely affect the Companys performance.

Mitigant

Dedicated quality control and assurance team actively monitors the adherence to prescribed quality standards. Most stringent Quality Control and Quality Management systems are in place and reviewed periodically.

Economic Uncertainty

Rising trade tension, decreasing consumer confidence and political tension significantly affected the growth prospects of the Indian and global economy. The recent outbreak of COVID-19 has further dampened the growth potential, plunging major economies into recession. This might have an adverse impact on the Companys operations.

Mitigant

The Company constantly monitors changes in the macroeconomic environment and assesses its potential impact on the companys operations. It enables the Company to quickly respond to changing market trends and safeguard its operations against uncertainty. Further, the COVID-19 outbreak has led to a temporary slowdown and the Company is proactively dealing with the situation, following safety protocols in all its manufacturing facilities to ensure smooth operations even during the countrywide lockdown.

Competition

The Company faces competition from domestic as well as international players. The Companys inability to deliver new and innovative solutions and keep up with dynamic changes in the market may lead to loss of revenues. Further, competition may also result in pricing pressure leading to an impact on its margins and profitability.

Mitigant

Over the years, Seya has established a firm foothold in markets and has built a strong and healthy relationship with customers. It also significantly invests towards research and development of improved products quality, aligned to changing customer needs. This has enabled the Company to further strengthen its relation with its Customers, giving it a competitive edge over its peers

Environment

With increasing pressure from NGT to reduce the Effluent discharge by Industries to manage the Central Effluent

Treatment with available capacity, the Company is being restricted to operate its Plant at 30~40% capacity utilisation, which may severely impact Companys revenue and profitability and also lead to loss of Customers.

Mitigant

The Company after completing the Basic & Detailed

Engineering for setting-up its own ZLD-ETP has placed orders for Supply of Equipments and 30% of the Equipments have been delivered. The balance shall be delivered once the funds are released by the Lenders. Once the ZLD-ETP is set-up the company shall not have any interference from any Pollution

Control Authority and the Company shall be at free fill to operate the Plant at full capacity.

The Company has perceived certain risk mitigation strategies w.r.t. its business risks:

Nature of Risks	Mitigation Strategies
Foreign Exchange volatility	>70% of Sales are in domestic currency. For balance, the INR vs USD price is fixed and hedged to avoid any exceptional financial effect.
Customer Retention	Product customisation as per Customer requirements, Long-term contracts with pass through mechanism, attractive prices, world-class Infrastructure and Robust customer relationships
Availability of Skilled Personnel	Incentive and growth opportunities, all round learning experience, nurturing talent in a structured manner and proper mentoring
Technology Risks	License and Patented Technology driven state of art manufacturing with Continuous upgradations of Technology through OEM support and R&D
Product Quality	Rigorous monitoring and controlled by technically qualified personnel in QC, Most stringent Quality & Environment certifications like ISO 9001: 2008, ISO 14001:2004 and ISO 18001:2007, periodic QC & EHS audit by customers

HUMAN RESOURCES

Seyas talent base, as on March 31, 2020 stands at 131. With a view to equip the Company to address the business challenges of a dynamic economic environment, the HR function focused on retaining and attracting suitable talent, enhancing the technical / behavioural skills of employees and optimising employee costs. Learning and

Development has been prioritized as a means of expanding the knowledge base of employees, which is seen as a key driver of growth. Taken together, these initiatives and processes are making a positive impact on talent attraction, retention and commitment. Managing the human asset for an Organization is a strategy that helps build the resources for a robust future. A ready second line of leadership; a highly engaged workforce; low manpower turnovers are few of the multiple gambits handled by the Human Resources Team.

A productive and innovative workplace has been and will continue to remain a key requirement for successful business performance in the Companys perspective. It is in the DNA of SEYA where employees are empowered with the ability to bring new ideas to the table.

The Company believes in the conduct of affairs of the Company in a fair and transparent manner by adopting the highest standards of professionalism, honesty, integrity and ethical behaviour. With this aim, the Company has introduced the "Whistle Blower Policy/ Vigil Mechanism" for Directors and Associates to report genuine concerns or grievances of unethical behaviour, actual or suspected fraud or violation of the Companys Code of Conduct or Ethics Policy. The main objective of the policy is to build and strengthen a culture of transparency and trust within the organisation. As per the requirement of The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013(‘Act), the Company has constituted Internal Complaints Committees (ICC) across all the locations which are responsible for redressal of complaints related to sexual harassment at respective locations. The objective of the Policy is to create and provide a work environment that is safer, civilized, free from any sort of hostility, supportive to the diversity & dignity of all Associates, where Associates feel secure at the workplace on the basis of natural justice and confidentiality.

COMPANY OUTLOOK

Your company is in the business of manufacture of specialty chemicals which have applications in end user segments like Computer Printing Inks, Pigments & Paints, Pharmaceuticals, Personal & Health Care Products, Agrochemicals, Insecticides/Pesticides, Organic Chemical Intermediates, Rubber chemicals, Textile dyes, Thermic fluids, etc. The COVID-19 pandemic has caused unprecedented impact on the global economy. It has disabled global trade and cross border transactions like never before. The lockdown of countries and economies has resulted in overnight evaporation of demand for industries such as airlines, hotels, cinemas, and entertainment among others.

Global supply chains have been hindered and it is expected that consumption will pick up gradually where it was disrupted. This disruption has accelerated some of the emerging trends like virtualization, remote interactions and electronic transactions. Your Company is closely monitoring the development in its customer industries and assessing the near term as well as long term effects of this development. In its own operations, your Company is mindful and has taken all the necessary precautions while resuming plants operations to provide desired safety and security to its the employees. Your Company believes that the customer industries, in aggregate, will recover and grow to be larger in the future. Your Company has well-integrated operations and a healthy balance sheet position which will allow it to overcome the near term challenges and return to creating value in the long run.

Cautionary Statement

The report contains forward-looking statements, identifiedby words like ‘plans, ‘expects, ‘will, ‘anticipates, ‘believes, ‘intends, ‘projects, ‘estimates and so on. All statements that address expectations or projections about the future, but not limited to the Companys strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realised. The Companys actual results, performance or achievements could thus differ from those projected in any forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events.