Accent Microcell Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The economic landscape

Global Economy: In the past year, the global economy has experienced a mix of recovery and challenges. The major economies navigated the post-pandemic landscape, dealing with supply chain disruptions and inflationary pressures. However, emerging economies grew at a faster rate compared to advanced economies.

Going forward, the GDP growth of advanced economies is projected to decline marginally from 1.6% in 2023 to 1.5% in 2024 before rising to 1.8% in 2025. This upward revision of 0.1 percentage point for 2024 reflects stronger-than-expected US growth, partially offset by weaker-than- expected growth in the euro area.

According to the International Monetary Fund (IMF), the global economy is projected to grow at a rate of 3.1% in 2024 and 3.2% in 2025, driven by robust consumer demand and increasing investment in technology and infrastructure.

Global headline inflation is expected to fall to 5.8% in 2024 and 4.4% in 2025, with the 2025 forecast revised downward. However, geopolitical tensions and fluctuating energy prices remain significant risks, potentially impacting global trade and economic stability.

Indian Economy: Indias economy demonstrated remarkable resilience, with IMF upgrading Indias GDP forecast for FY25 by 20 basis points to 7%. This revision is up from the previous estimate of 6.8% in April. This reflects the rise in consumption prospects, especially in rural areas. India continues to maintain its position as the fastest-growing economy among emerging markets and developing economies.

Indias GDP expanded by 8.2% in 202324, higher than the 7% growth in 202223, aided by a greater-than-expected expansion of 7.8% in the fourth quarter.

The RBI has played a key role in maintaining economic stability through its astute monetary policy framework, which helped reign in inflationary headwinds and foster sustainable economic stability.

Despite global headwinds, Indias exports reached a record US$776.68 billion in FY24. While merchandise exports fell to US$437.06 billion, services exports grew by 4.4% to a record US$339.62 billion. The trade deficit improved by 35.77%.

The manufacturing sector grew steadily, supported by various government schemes like Make in India and the Production Linked Incentive (PLI) scheme, further bolstering the countrys economic landscape.

Indias economic outlook remains positive, supported by strategic reforms, robust domestic demand, and a young, dynamic workforce poised to drive future growth.

The industry overview

Microcrystalline Cellulose (MCC) is a refined wood pulp derivative that is widely used in various industries due to its unique properties. As a white, odorless, tasteless powder, MCC is composed of crystalline particles derived from cellulose, making it an excellent excipient. It is a non-reactive substance used to bind, stabilize, and add bulk to products, ensuring consistency, stability, and improved performance in the final output.

Global Market: The global microcrystalline cellulose (MCC) market was valued at US$ 1,140.62 million in 2022 and is projected to reach US$ 2,044.66 million by 2031, growing at a compound annual growth rate (CAGR) of 6.7% during the forecast period (2023-2031). This growth is driven by increasing demand across various industries, particularly pharmaceuticals and processed foods.

The two key regions contributing to the growth of the MCC market are North America and Europe. Europe currently holds the largest share of the MCC market. Germany, France, Italy, and Russia are some of the major producers and consumers of microcrystalline cellulose.

However, the market dynamics are shifting to Asia Pacific. The region is poised for significant growth in the MCC market, driven by the low cost of labour and raw materials in developing countries like China and India. The regions massive population and rising popularity of packaged, processed, ready-to-eat, and ready-to-cook foods, coupled with shifting consumption patterns and higher disposable incomes, fuels the demand for MCC.

Opportunities & Outlook

Pharmaceutical Industry:

The pharmaceutical industry significantly drives the MCC market due to its extensive use as an additive in tablet formulations, ointments, and other therapeutic bases. It is a stabiliser, binder, film-forming agent, suspension agent, and disintegrant, making it a vital excipient. MCCs key features include high compressibility, making it ideal for tablet manufacturing, and chemical inertness, ensuring the stability of the end product.

The Pharma market has witnessed steady growth over the years. In 2023, the global pharmaceutical market was estimated at around US$1.6 trillion, an increase of over US$100 compared to 2022. The expanding pharmaceutical industry, especially in rapidly developing markets like China, Brazil, and India, is anticipated to boost the demand for MCC.

Food and Beverages Industry:

The food and beverages industry utilizes MCC as a stabilizer, emulsifier, and bulking agent, improving texture and consistency in products such as ice creams, sauces, and dressings. The global food and beverages market experienced an uptick, expanding from US$6,729.54 billion in 2022 to US$7,221.73 billion in 2023, CAGR of 7.3%. This growth indicates the increasing consumer demand for processed and nutritious foods, driven by rising health awareness and changing lifestyles.

Asia-Pacific emerged as the largest region in the food and beverages market in 2022, followed by Western Europe. The robust growth in this industry is expected to boost the demand for microcrystalline cellulose (MCC), which is widely used as a stabiliser, emulsifier, and bulking agent in various food and beverage products. As the food and beverages market expands, the MCC market is poised to benefit significantly from this upward trend.

Cosmetics Industry:

MCC is employed in the cosmetics industry as a thickener and stabilizer, providing a smooth, consistent texture in creams, lotions, and powders. In 2022, the beauty market, encompassing skincare, fragrance, makeup, and haircare, generated approximately US$430 billion in revenue. Today, the beauty industry is on an upward trajectory across all categories, demonstrating resilience amid global economic crises and a turbulent macroeconomic environment.

Following a solid recovery since the height of the COVID-19 pandemic, the beauty market is projected to reach approximately US$580 billion by 2027, growing at 6% annually.

"Premiumisation" is expected to characterise the beauty industry, with the premium beauty tier projected to grow at an annual rate of 8%, compared to 5% in mass beauty, between 2022 and 2027. Consumers are increasingly trading up and increasing their spending, especially in fragrance and makeup, driving robust growth in the premium segment.

Indian Market:

India is emerging as a significant player in the global MCC market, ranking among the top 5 countries. The presence of prominent market participants and the recent uptick in manufacturing, including raw materials for chemicals, pharmaceuticals, and other industries such as plastics, polymers, paints, and coatings, contribute to this growth. MCC, a key excipient in pharmaceutical tablet manufacturing, is booming alongside this manufacturing surge.

Over the last decade, China has dominated the global pharmaceutical market.

However, India is positioning itself as a viable alternative, especially during the global COVID-19 pandemic, when it emerged as a global supplier of vaccines and medicines. This trend is expected to boost pharmaceutical-related industries like API and excipient manufacturing.

Key players in the Indian MCC market are expanding their production capacities to meet the increasing global demand, particularly from American and European markets. This development is anticipated to drive the Indian MCC market at nearly 8% CAGR over the next decade.

Company overview

Accent Microcell is a pioneering leader in producing Microcrystalline Cellulose (MCC), offering a comprehensive range of high-quality grades to meet diverse industry needs. Accent Microcell is recognised for its technological excellence and commitment to innovation, with a proposed annual installed capacity of around 12,000 MT post the third facility is installed. It has an extensive global presence spanning over 75 countries.

Our state-of-the-art manufacturing facilities feature advanced equipment, ensuring the highest product quality and safety standards. Our in-house lab and microbial facility support rigorous quality control and continuous product development, positioning us as Indias number one MCC production company. Our commitment to sustainability and eco-friendly production processes further distinguishes us in the market, reflecting our dedication to responsible growth and environmental stewardship.

SWOT Analysis

• One of the leading MCC and related excipients manufacturing company globally.

• Use of sophisticated technology for manufacturing of various range of excipients products.

• Optimum utilization of resources

• Focused on R&D and technology-led processes

• Presence in 75+ countries

• In house technical expertise with 20 years of experience by promoters

• Competitive market condition

• Higher dependency on import of major raw material read with ongoing geopolitical issues around the globe.

• Limited number of manufacturers of wood pulp in India.

• Expanding manufacturing capacity for premium range of excipients products by establishing Unit-III with an intent to "Going Green"

• Growing demand for excipients range of products in pharmaceuticals, nutraceuticals, food, and cosmetics industry

• Export incentives from government.

• User friendly products with wider acceptance from multifarious industries for its uses

• Fluctuations in global economic conditions and commodity prices

• Regulatory Changes

• Geopolitical tensions and trade restrictions

Human Resource

At Accent Microcell, our employees are the lifeblood of our organisation. We steadfastly cultivate a workplace culture that nurtures innovation, collaboration, and professional growth. Our human resources strategy is meticulously designed to attract, develop, and retain exceptional talent, ensuring we possess the requisite expertise to propel our company towards unprecedented success.

We are dedicated to empowering our employees through continuous growth and development. We invest substantially in comprehensive learning programs designed to enhance skill sets and expand capabilities across all levels of the organisation.

Regular training sessions and targeted leadership development initiatives provide our talent with opportunities to advance their careers and contribute meaningfully to the Companys success. Recognising the importance of work-life balance, we prioritise employee well-being through robust health and wellness programs, fostering a supportive and nurturing work environment that cultivates job satisfaction and loyalty.

Our performance management system is built on the principles of transparency and meritocracy, ensuring that achievements are recognised and rewarded appropriately. Maintaining a strong focus on diversity and inclusion, we strive to create an equitable workplace where everyone can thrive and contribute to our shared goals. Through these efforts, Accent Microcell remains dedicated to building a dynamic, engaged, and high-performing team. As of 31^st March 2024, there are 174 employees with us in the corporate office and the two plants.

Operational Performance

Our international marketing department has demonstrated exceptional operational performance over the past year, significantly expanding our global footprint. Through strategic market analysis and targeted campaigns, we have successfully entered new markets and strengthened our presence in existing ones. Our teams expertise in navigating diverse regulatory environments and understanding local market dynamics has enabled us to build strong relationships with clients worldwide. This has resulted in increased sales, enhanced brand recognition, and a robust pipeline of opportunities, underscoring our commitment to driving global growth and delivering high-quality excipients to the pharmaceutical industry.

Financial Performance

Our company has demonstrated exceptional financial performance in the fiscal year 2023-24. We achieved a notable increase in revenue from operations, driven by higher sales volumes and improved pricing of our finished goods. This growth was further bolstered by significant improvements in our EBITDA, reflecting enhanced operational efficiency and reduced finance costs. Lower cost of raw materials, operational excellence and issuance of shares through an IPO, has positioned us well for future growth.

Particulars	2023-24	2022-23	Quantum of change	Change (%)	Reasons for change
Revenue from operations (C in lacs)	24,549.78	19,727.36	4,822.42	24.45	Increase in volume and price of finished goods sold.
EBITDA (C in lacs)	4,310.15	2,144.05	2,166.10	101.03	Better profit margins in form of improved operating efficiency and decrease in finance cost.
EBITDA Margin (%)	17.56	10.87	6.69	61.54	Better profit margins in form of improved operating efficiency and decrease in finance cost.
PAT (C in lacs)	3,016.80	1223.21	1,793.59	146.63	Decrease in price of major raw materials & increase in sales volume.
PAT (%)	12.29	6.20	6.09	98.18	Decrease in price of major raw materials & substantial reduction in Ocean freight charges.
ROCE (%)	21.23	23.71	-2.48	-10.46	Increase in amount of shareholders fund.
Capital Employed (C in lacs)	17751.22	7311.90	10,439.32	142.77	Increase in amount of capital employed vide issue of shares in form of IPO during the FY 2023-2024

Internal control systems and their adequacy

Accent Microcell Limited maintains robust internal control systems tailored to its operational scale and business nature. Our well-documented policies and procedures ensure effective monitoring of business performance, supported by integrated IT systems for daily operations.

An independent audit firm periodically reviews these controls, ensuring their adequacy and adherence to company policies and regulatory compliance. The firm focuses on accounting and operational efficiency, with internal auditors reporting their observations and recommendations to the Audit Committee.

The Audit Committee regularly reviews these reports and evaluates the effectiveness of our internal control systems, providing necessary recommendations to enhance them. This comprehensive framework ensures the security of our assets, operational efficiency, and alignment with our strategic objectives.

Risk management

We are seized with the reality that risks and their mitigation are critical for business sustainability in an ever-changing business ecosystem in which it operates. Our Risk management framework focuses on strengthening the business model and ensuring that profitable business growth becomes sustainable.

We have adopted a comprehensive and integrated risk appraisal, mitigation and management process. It encompasses strategy and operations and seeks to identify proactively, address, and mitigate the existing and emerging risks. The multi-layered risk management framework involves all key managers of the Company to actively engage in the process.

Over-dependence risk

Dependence on a few industries or geographies could impact the Companys progress in the event of a downturn.

Mitigation measures

We cater to diverse sectors: pharmaceuticals, cosmetics and food & beverages. Moreover, we have a strong presence in India and market our products globally to more than 36 nations. This diversity cushions our performance from a sectoral or geographic downturn.

Supply Chain Risk

A shortfall in raw material availability could impact business operations.

Mitigation measures

We diversify our supplier base and maintain strategic inventory levels to ensure a steady supply of essential materials.

Compliance Risk

Changes in industry regulations and standards could increase compliance costs and operational complexities.

Mitigation measures

Our dedicated compliance team monitors regulatory changes, updating our policies and procedures regularly to meet new requirements.

Quality risk

Inconsistencies in product quality could damage our reputation and customer trust.

Mitigation measures

We maintain stringent quality control measures throughout our production process.

Outlook

Accent Microcell is poised for substantial growth in the coming years. The global microcrystalline cellulose markets anticipated growth, driven by increasing demand in pharmaceuticals, processed foods, and cosmetics, sets a positive backdrop for the Companys future.

Accent Microcell is expanding its production facilities by 30% to capitalise on these opportunities. This expansion includes the establishment of a new state-of-the-art unit at Nayka Kheda, which will significantly boost the production capacity of high-demand products such as Cross Carmellose Sodium (CCS), Sodium Starch Glycolate (SSG), and Carboxymethylcellulose (CMC). These value-added products are integral to the pharmaceutical and food industries, enhancing the Companys product portfolio and competitive edge.

With a keen focus on innovation and quality, Accent Microcell aims to meet the growing global demand, particularly from American and European markets. The companys strategic location in India and its expanded capabilities position it as a key player in the global MCC market.

Cautionary statement

This document contains forward-looking statements about expected events and the Companys financial and operational results. By their nature, forward-looking statements require the Company to make assumptions and are subject to inherent risks and uncertainties. There is a significant chance that the assumptions, predictions and other forward-looking statements may not be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as several factors could cause assumptions and actual results and events to differ materially from those expressed here.