Arvee Laboratories (India) Ltd Management Discussions

Industry Structure and developments

Chemicals industry in India is highly diversified, covering more than 80,000 commercial products. It is broadly classified into Bulk chemicals, Specialty chemicals, Agrochemicals, Petrochemicals, Polymers and Fertilizers. Indias proximity to the Middle East, the worlds source of petrochemicals feedstock, makes for economies of scale. India is a strong global dye supplier, accounting for approximately 16% of the world production of dyestuff and dye intermediates. The Chemical industry in India provides several raw materials for many industries, including textiles, paper, paints, soap and detergents, pharmaceuticals and agrochemicals. The production of Total Major Chemicals and Petrochemicals in 2020-21 (up to September 2020) was 12,502 thousand MT. CAGR in production of Total Chemicals and Petrochemicals during the period 2015-16 to 2019-20 is 5.74%. Alkali Chemicals accounts for around 71% of the total production of Major Chemicals for the year 2019-20 (up to September 2019).

• The Chemicals and Petrochemicals market is projected to reach $300 bn by 2025. The specialty chemicals constitute 18% of total chemicals and petrochemicals market in India. As of FY19, the total market size is around $32 bn. The demand for speciality chemicals is expected to grow at 12% CAGR from FY19-22.

• Export of chemicals and chemical products grew at a CAGR of 7.2% between FY16 and FY20.

• Demand of chemical products is expected to grow at approximately 9% p.a. during 2020-25.

• The petrochemical demand is expected to grow at 7.5% CAGR from FY 2019-23.

• The Chemical industry (including fertilizers and pharmaceuticals) in India stands at USD 178 Bn as of 2019 which is expected to reach USD 304 Bn by 2024-25 at an annual growth rate of 9.3%.

• Indias Chemical Industry ranks at the 6th position in the world and 4th position in Asia in terms of size.

Indian chemicals and petrochemicals industry is growing to new heights, looking forward to an investment of INR 8 lakh cr by 2025.

• Indian chemical industry employs more than 2 million people.

Reasons to Invest

The growth drivers of the sector in India include a large domestic and foreign demand for chemicals and petrochemicals. Four Petrochemical Investment Regions (PCPIRs) policies being implemented in Andhra Pradesh, Gujarat, Odisha and Tamil Nadu which is expected to attract investment of around INR 7.63 lakh cr. The value additions in the petrochemicals chain offer immense possibilities and cater to the needs of textiles and clothing, agriculture,

packaging, infrastructure, healthcare, furniture, automobiles, information technology, power, electronics and telecommunication, irrigation, drinking water, construction and a variety of other articles of daily and specialized usage amidst other emerging areas. In recent times, there has been a global shift towards Asia as the worlds chemical manufacturing hub. India also offers the availability of a large pool of skilled science professionals. India has several world-class engineering facilities and strong R&D capabilities. The per capita consumption of chemicals is lower in India, compared to western countries, therefore presenting immense scope for setting up export-oriented manufacturing units through new investments. To promote investments in the sector, the government is implementing four Petroleum, Chemical and Petrochemical Investment Regions (PCPIR) in the country. PCPIRs will be clustered providing investors with a transparent and investment-friendly policy and facility regime.

1.4%	11.3%	2.5%
Nations Gross Value Added	Chemical products exports share	Contribution to global chemical sales

Major Segments of the Indian Chemical Industry

1. Base chemicals: Petrochemicals, man-made fibers, industrial gases, fertilisers, chlor-alkali and other organic and inorganic chemicals.

2. Speciality Chemicals: Dyes and pigments, leather chemicals, construction chemicals, personal care ingredients and other speciality chemicals.

3. Pharmaceuticals: Active Pharmaceutical ingredients (APIs) and formulations

4. Agrochemicals: Insecticides, herbicides, fungicides, and other crop protection chemicals.

5. Biotechnology: Bio-pharma, bio-agri, bio-services and bio-industrial products.

Opportunities

Despite the current critical financial and economic hurdles, the expected positive long term economic development and the increasing freight transport volumes constitute an opportunity for the growth and the further development of most of the chemical enterprises. This can be an important contribution to the stabilization of markets and the improvement of customer satisfaction.

Threats

The present economic position serves as a threat to many chemical companies both worldwide and on the regional level. In general labour avoid working in chemical plants. Hence company may have to face labour problem.

OUR STRATEGIES

Expansion of our presence in the domestic markets

Our Company seeks to expand and enhance our presence in our existing business segments by identifying markets where we can provide cost effective, technically advanced products to our clients. Our Company plans to cater to various customers from different geographical locations by following the direct market route for large customers. Our Company would also aim to build-up our sales force which will enable us to effectively market our products.

Meeting Quality Standards and developing customer focus

Our driving force has always been the quality of our products, as the same would enable us for long standing relationship with our customers. Our technical team is equipped with testing facilities to ensure that all our products are thoroughly tested prior to dispatch from our factory. We will continue to strive our quality standards high.

Continue to develop & maintain relationships

We provide services to national as well as international clients. We continue to enjoy the patronage of our clients. We believe that we can leverage our existing relationships, our brand and our technical expertise to grow our client base which would help us in achieving our growth objective.

Reduction in Cost

We continue to monitor and explore all the possible opportunity for reduction in the Cost including manufacturing and administrative cost for maximisation of resources and creation of wealth for shareholders.

Outlook

The outlook for the coming year looks promising for the Chemicals business at this point in time. Demand is showing signs of improvement and with a price advantage due to our best negotiation abilities we are likely to perform well. However, global recession and market condition may have an impact on our business to suffer which in turn can have bearing on profitability. Further with the rise in Delta Variant can be a global cause of concern.

The outlook for the demand of the Products continues to be robust considering the COVID. It is expected that the outlook for the Chemicals sector continues to be bright. In view of the Atmanirbhar Bharat, it is expected that the demand for the Company products will grow manifold.

Risks and Concerns

Your Company had put a risk management framework in place post a comprehensive review of its risk management process. Your Company takes a fresh look at the risk management framework through our Audit Committee at least once in a year. The review involved understanding the existing risk management initiatives and assessment of risks in the businesses as the relative control measures and arriving at the desired counter measures keeping in mind the risk appetite of the organization. The audit Committee has periodically reviewed the risks in the business and recommended appropriate risk mitigating actions.

The business of the Company is likely to be affected by various internal and external risks enumerated as under:

• Our success depends largely upon the services of our Promoter, Directors and other key managerial personnel and our ability to attract and retain them.

• The prices we are able to obtain for the products that we trade depend largely on prevailing market prices.

• We face intense competition in our businesses, which may limit our growth and prospects.

• Global economic, political and social conditions may harm our ability to do business, increase our costs and negatively affect our stock price.

• Global recession and market conditions could cause our business to suffer.

• Natural calamities and changing weather conditions caused as a result of global warming could have a negative impact on the Indian economy and consequently impact our business and profitability.

• Tax rates applicable to Our Company may increase and may have an adverse impact on our business.

• Political instability or changes in the Government could adversely affect economic conditions in India generally and our business in particular.

As a responsible employer, to ensure occupational safety and employment standards, your Company maintains strict safety and quality control programs to monitor and control these operational risks.

Internal Control System and their adequacy

The Company maintains adequate internal control systems, which provides, among other things, reasonable assurance of recording the transactions of its operations in all material respects and of providing protection against significant misuse or loss of companys assets.

Internal Controls are adequately supported by internal audit and periodical review of by the management. The audit committee meets periodically to review with the management and statutory auditors, financial statements. The Audit Committee also meets with the internal auditors to review adequacy /scope of internal audit function, significant findings and follow up thereon and finding of abnormal nature.

Discussion on financial performance with respect to operational performance

During the year company has reported total income of Rs. 4576.47 lacs as against 4795.98 lacs. Net Profit of the Company during the Current year stand at Rs. 267.73 lacs as against profit of Rs. 229.89 lacs in the previous year.

Material developments in human resources/ Industrial Relations front, including number of people employed

Relations with the employees of the Company at various levels remained harmonial during the year under the review. The Company is making its best efforts to retain and attract talented employees. During the year under the review, the Company has complied with all legislative provisions of labour laws. The number of employees of the company as of 31st March, 2021 was 76.

Other Disclosures

a. Basis of related party transaction;

During the year under the review, related party transactions, if any, are disclosed in the Balance Sheet. Transactions are entered at arms length.

b. Disclosure of accounting treatments;

The Company has followed all relevant Accounting Standards while preparing the financial Statements.

c. Board Disclosures - Risk Management;

The Company has developed comprehensive risk management policy and same is reviewed by the Audit Committee, which in turn, informs the Board about the risk assessment and minimization procedures. Major risks identified for the Company by the management are Currency fluctuation, Compliance, Regulatory changes, Manufacturing & Supply, Litigation, Information Technology and new capital investments return. The management is however, of the view that none of the above risks may threaten the existence of the Company as robust Risk mitigation mechanism is put in place to ensure that there is nil or minimum impact on the Company in case any of these risks materialize. Since the risk control frame work is new to Indian Corporate Culture, it is being strengthened on continuous basis using the outside professional help.

d. Proceeds from public issues, right issues, preferential issues etc.:

No issue was made during the year. However there was an issue of Bonus Shares in ratio of 1: 1

Besides above, there was no instance of non-compliance of any matter related to the capital markets during the last three years.

Details of significant changes in key Financial Ratios & Return on Net worth

Pursuant to amendment made in schedule V to the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in return on net worth of the Company (on standalone basis) including explanations therefore are given below:

Particulars	FY ended 31st March, 2021	FY ended 31st March, 2020	Changes Between CY and PY	Explanation of changes exceeding 25% in comparison to previous year
(i) Debtors Turnover	6.55%	6.21%	0.33%	Change less than 25% hence reason for change is not required.
(ii) Inventory Turnover	58 Days	53 Days	-5 Days	Since the Company has adopted the policy of having higher inventory the change has occurred
(iii) Interest Coverage Ratio	7.32	4.13	3.19	It is a good sign that there is an increase of 75% in comparison with previous year. It is due to company had prematurely closed its term loan & hence interest burden of company also reduces.
(iv) Current Ratio	1.40	1.44	-0.04	Change less than 25% hence reason for change is not required.
(v) Debt Equity Ratio	0.45	0.24	0.21	Change less than 25% hence reason for change is not required.
(vi) Operating Profit Margin (%)	8.79%	8.91%	-0.12	Change less than 25% hence reason for change is not required.
(vii) Net Profit Margin (%)	5.58%	4.87%	0.71%	Change less than 25% hence reason for change is not required.
(viii) Return on Net worth (%)	24.30%	40.42%	-16.12%	Because of COVID and Lockdown, the Business of the company was adversely impacted

Cautionary Statement

The above Management Discussion and Analysis contains certain forward looking statements within the meaning of applicable security laws and regulations. These pertain to the Companys future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties, regarding fluctuations in earnings, our ability to manage growth, competition, economic growth in India, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, government policies and actions with respect to investments, fiscal deficits, regulation etc. In accordance with the Code of Corporate Governance approved by the Securities and Exchange Board of India, shareholders and readers are cautioned that in the case of data and information external to the Company, no representation is made on its accuracy or comprehensiveness though the same are based on sources thought to be reliable. The Company does not undertake to make any announcement in case any of these forward looking statements become materially incorrect in future or update any forward looking statements made from time to time on behalf of the Company.

	FOR & ON BEHALF OF THE BOARD OF
Place: Ahmedabad	ARVEE LABORATORIES (INDIA) LIMITED
Dated: 17th July, 2021	Sd/-
	CHAIRMAN CUM MANAGING DIRECTOR
	Shalin Sudharkarbhai Patel
	(DIN: 01779902)