AksharChem (India) Ltd Management Discussions.

OVERVIEW

AksharChem (India) Limited is one of the leading chemicals manufacturing company based in India with a focus on exports to over 20 countries. Our product offerings fall into two categories being dyes and pigments, within the organic chemical spectrum. We are specialised in manufacturing Vinyl Sulphone, H Acid and CPC Green which have multiple applications in textile, inks, rubber, plastics, paints and leather industries. We are one of the key manufacturers in the chemical markets for these products and have been recognised as Star Export House by the Government of India. We believe that we have built strong reputation in our markets, over 30 years of experience that has translated to a customer base. The Company has also set up the new plant of Precipitated Silica and Production has started.

INDUSTRY STRUCTURE AND DEVELOPMENTS

Our manufacturing facility is located in Gujarat, with installed manufacturing capacity of 23,400 MTPA, as of March 31, 2021. Our facility is fully integrated and equipped to manage products from the stage of chemical treatment to dispatch, lending us competitive advantages such as cost effectiveness and maintenance of quality standards. Our facility includes automated and cost-efficient systems and quality control and quality assurance laboratories, among others. The plants of the Company are situated at Chhatral and Dahej.

While the Indian chemical industry was adversely affected due to Covid-19 in the first half of CY 2020 resulting in disrupted supply chains and reduced demand, it witnessed a recovery in the second half of CY 2020. As seen in the Index of Industrial Production (IIP) for Chemical Manufacturing, the demand recovery is expected to continue in FY 2021-22 and will achieve pre-Covid levels. The Indian Chemical Industry has a structural and locational advantage to rapidly grow from its current size of US$ 178 billion to US$ 300 billion over next 5 to 7 years. In addition to its demographic dividends, India has one of the lowest per capita consumption of chemicals, offering adequate headroom for the sector to grow. Its vantage location provides opportunities in servicing export demand.

Specialty chemicals account for a major share of chemical exports, dominated by agrochemicals, dyes and pigments. Consumer trend towards good health to drive demand for home and personal care items. The sector is expected to grow more than 9% over the next 5 years with exports growing faster than the domestic market.

OPPORTUNITIES AND THREATS

As the Corona Virus has started from China, the reputation of Chinese companies has spoiled in entire world. In India also there are boycott of Chinese Products. We expect that the Indian Textile manufacturers will prefer Indian Products than Chinese Products. Our Domestic Sales might increase. Depending upon the Indian market demand, company may increase the capacity of production in future.

We believe FY 22 will turnout to be a normal year with improvement in revenue and margins compare to FY 21, provided textile demand recovers and become normal. Lot depends on demand of global textile market, since dyes and intermediate business mainly depends on textile demand. We believe textile demand to improve heavily in next six to twelve months. Pigments will be remain stable to positive.

OUTLOOK AND STRATEGY

The prime focus is to keep employee safe and deployed guidelines and policies including hygiene measures, provision of additional protective equipment, where necessary, physical distancing and modification to existing governance and behaviour. Increased virtual meeting with suppliers to assess capability and adding new sources to ensure adequate supply to feed production. With significant port congestion and shortage of empty containers, the advance shipment planning, working closely with transporters, freight forwarder and custom house agent helped to mitigate risk of delay. In the crisis time, customer feedback is the important tool to understand the changing market requirement and company has increased interaction with customers through digital way. Proactively keeping customers posted about the crisis developed in our country and subsequent impact on manufacturing operations and supply disruptions, if any.

Precipitated Silica demand is growing in India and abroad @ 7% on an annual basis, though this has suffered partially in 2020 due to the pandemic situation. With sharp revival of business by the automotive and tire industry, our strategy is to offer precipitated silica grades tailor made for the tire industry on a long term basis. As tire and rubber constitute most of the precipitated silica requirements with 60% share, we propose to align our growth strategies to aspirations of customers in this segment with offering of powder and granular silicas with different physio-chemical properties. Supplying to large tire accounts within Gujarat with minimum freight and small lead time would help us boost our sales, as proximity is a key requirement for customers.

The Company has started to adopt more customer focused approach by understanding customer needs and develop new products, provide exceptional service and nurture existing customers. Expand market segments and geographic reach with broader product portfolio, improved packing, product safety and competitiveness. Promotion through trade exhibition participation, trade journals and digital platform.

And for silica business our volume of sales will be promoted through various distribution partners/agents located across India and abroad in order to have a larger reach to all types of customers. Joint visits with distribution partners to present our product portfolio to customers would be considered as a key strategy in the initial phase. Exports to neighboring countries like Srilanka, Bangladesh etc would be a key export strategy in addition to focusing on countries where we enjoy duty free exports. We propose to offer specialty grades of high absorptive silicas to Agro and Animal Feed industries for value creation exercise in their formulations. As this increases the customers products stability and shelf life, our strategy here is to offer them solutions for a wide variety of their process related challenges.

RISKS AND CONCERNS

In Starting of FY 21, we witnessed Covid 19 Pandemic, which was unexpected and effect of the same remained during FY 21. Top line and bottom-line remained under pressure during full FY 21. The Profitability of the Company was affected mainly due to that factor.

FINANCIAL AND OPERATIONAL PERFORMANCE

The financial performance of the year 2020-21 in terms of revenues was impacted due to lower realisations, which were a result of Covid -19 Pandemic, which led to reduction in demand from end user industries. The volume was 8853 MTPA for FY2020-21 and our current capacity utilization blended basis stands at 78%. Net revenue from operations for FY2020-21 is H 24,648.29 Lakhs as compared to H 26,014.50 Lakhs for FY2019-20, a decline of 5.25% is due to lower realization in key products like Vinyl Sulphone and

other dye intermediates as there is a lower demand in the textile industry. The year is full of challenges and disruptions caused by COVID affecting productivity and supply. Export business severely impacted during the year due to lockdown and certain challenges relating to manufacturing operations, logistic and supply of raw material. The pigment though was largely unaffected and the company continues to register healthy volume numbers supported by strong capacity utilization. Below are the Financial Figures for the financial year 2020-21.

(H in Lakhs)

Particulars 2020-21 2019-20
Revenue from operations 24,648.29 26,014.50
Other Income 112.81 105.24
Total Income 24,761.10 26,119.74
Profit for the year before Finance Costs, Depreciation, Exceptional Items and Tax Expenses 2503.57 2,694.50
Less: Finance Costs 68.52 110.76
Profit for the year before Depreciation, Exceptional Items and Tax Expenses 2435.05 2,583.74
Less: Depreciation 704.99 672.78
Profit for the year before Exceptional Items and Tax Expenses 1730.06 1,910.96
Add/(Less): Exceptional Items Nil Nil
Profit for the year before Tax Expenses 1730.06 1,910.96
Less: Current Tax 333.50 499.73
Less: Deferred Tax 176.63 (168.36)
Less: Adjustment of tax for earlier years (Net) (30.16) 7.32
Net Profit for the year 1250.09 1,572.27

IMPORTANT RATIOS (Changes with respect to the Previous Year)

Ratio 2020-21 2019-20
Debtors Turnover Ratio (Days) 43 48
Inventory Turnover Ratio (Days) 129 97
Interest Coverage Ratio (Times)* # 88 30
Current Ratio 1.90 2.73
Debt Equity Ratio 0.05 0.05
Operating Margin Ratio (%) 19 20
Net Profit Margin PBT (%) ^ 7 7
Return on Net Worth (%) 4 6

* Interest Coverage Ratio has increased due to lower utilization of working capital during the year

# Current Ratio has reduced due to reduction of balance with the Government Authorities and increase in Creditors

^ Return on Net Worth has reduced due to lower price realization, higher depreciation and effect of Covid-19 Pandemic

CERTIFICATIONS

The certification of ISO 9001:2015 and ISO 14001:2015 is a testimony to the Companys commitment towards quality, safety and sustainable environment friendly approach. Further, the Company is having the certificate for registration of trademark from the Registrar of Trade Marks, Trade Marks Registry, Gujarat for its logo i.e. AksharChem and its product Pigment Green 7, i.e. Asaflow. During the year under review the Company has also filed application for trademark of brand names for its product namely precipitated silica which is under progress.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Board has adopted policies and procedures to ensure the orderly and efficient conduct of its business, including but not limited to the prevention and detection of frauds and errors, the safeguarding of its assets, the accuracy and completeness of the accounting records, adherence to the company’s policies, periodical review of financial performance of Company and review of the accounts every quarter by Statutory Auditors.

HUMAN RESOURCES DEVELOPMENT

The Management of the Company is driven by the mission to help the employees realize their potential to develop, grow and achieve their purpose, to build the right culture and capabilities to enable us to delight our customers. As a company we took major initiative to hire new talents, and new methods of working pattern for better output, took young minds as trainees and apprentice and giving them training on multiple sectors, giving them more knowledge of our industry and also getting presentations and market surveys from them, and their enhanced understanding was also taken into consideration and implemented in the needed areas of the company.

There is no significant change in the attrition rate. Further as the new project of Precipitated Silica has completed, the Company has also started recruiting new employees in the field of operations and administration. During the year under review Twenty Six (26) employees were appointed by the Company. The Company has 168 employees as on year ended March 31, 2021. The Board of Directors had admired the efforts put in by all employees to achieve good performance and looks forward to its continuation.