Arvee Laboratories (India) Ltd Management Discussions

Annexure III

Over the past decade, the Government of India has introduced a series of transformative policies aimed at accelerating economic growth, enhancing competitiveness, and integrating key sectors into Global Value Chains (GVCs). Reforms such as the implementation of the Goods and Services Tax (GST), liberalization of Foreign Direct Investment (FDI), and initiatives like “Make in India” and “Aatmanirbhar Bharat” have significantly contributed to improving the business environment, bolstering manufacturing, and fostering industrial growth. The Production Linked Incentive (PLI) schemes and strategic policy interventions across multiple sectors have further strengthened Indias position as a global manufacturing hub. Among these critical sectors, the chemicals industry stands as a pillar of Indias industrial and economic landscape. The domestic chemicals market was valued at $220 billion in 2023 and is expected to grow to around $400 to 450 billion by 2030, with aspirations to reach about $850 to 1,000 billion by 2040 complemented by the Government support.

Indias chemicals industry is a cornerstone of the countrys manufacturing ecosystem, contributing approximately 7 percent to the national gross domestic product (GDP) and supplying essential raw materials to critical industries such as agriculture, pharmaceuticals, textiles, automotive, and construction. Ranked as the sixth-largest chemicals producer globally and third in Asia, India holds immense potential for expansion—provided it receives the right strategic support from the Government. The sectors dynamic growth trajectory underscores its potential to play a key role in Indias aspiration of achieving a $5-trillion economy. Despite its strengths, Indias participation in the global chemicals market remains relatively modest, accounting for only 3 to 3.5 percent of global consumption in 2023.

As Asia continues to be the leading market for the chemical industry, India is poised to become a global manufacturing hub in the years to come. The chemical and petrochemical sector contributes over 9% to manufacturing gross value added and 7% to total exports. One of the largest worldwide, Indias chemical industry ranks sixth in production and 14th in exports. It is also the second largest manufacturer and exporter of dyes, third largest consumer of polymer and fourth largest producer of agrochemicals globally. Manufacturing over 80,000 different varieties of chemical products, it is also one of the most-diverse industries in the country. Moreover, it provides raw materials to various end-use sectors and serves as a pillar in the nations development and journey towards self-sufficiency.

GROWTH DRIVERS

Domestic demand and strategic efforts to enhance self-sufficiency have resulted in an unprecedented surge in the industrys market value. Estimated to be worth $220 billion in 2024 and projected to reach $300 billion by 2028, the chemical industry is a major contributor to Indias economic growth.

A Mckinsey report titled “India: The next chemicals manufacturing hub” has estimated that the Indian chemical industry will grow by 11-12% during 2021-27 and by 7-10% during 2027-40—increasing its global market share by three times by 2040. This growth, the report emphasised, will be driven by:

• Rising domestic consumption: It plays a foundational role in multiple end user industries, including but not limited to agriculture, pharmaceuticals, automotive, electronics, construction and more. Nearly 70% of Indias chemical production is consumed domestically. India is poised to account for 20% of incremental global consumption of chemicals over the next two decades, with domestic demand expected to increase to $850-1,000 billion by 2040.

• Changing consumer behaviour: The demand for ecofriendly/sustainable products is gaining momentum worldwide and India is poised to benefit from this upsurge. It is one of the leading producers of the chemicals required for producing such products.

• Evolving supply chains: Several geopolitical factors affect the global supply chain for chemicals and petrochemical products. Manufacturers are seeking new markets to strengthen their supply chains. Here, India, with its value proposition, can emerge as a trusted partner.

• Government intervention: Policy reforms and incentive schemes like Remission of Duties and Taxes on Exported Products (RoDTEP), Production-Linked Incentive (PLI), along with initiatives like Petroleum, Chemicals and Petrochemical Investment Region (PCPIRs), and Plastic Parks are contributing significantly towards the industrys growth.

• Others: Indias low manufacturing costs, skilled workforce and natural resources, combined with the nations commitment to adhering to and adopting sustainability practices throughout the supply chain, provide distinct advantages in the global value chain.

KEY INVESTMENT OPPORTUNITIES AND TRENDS

Indias chemical sector is one of the fastest-growing industries globally and its exports reach 175 countries. It exported chemical products worth approximately $20 billion to its prominent export destinations such as China, the US, Brazil, the Netherlands and Saudi Arabia. Indias chemical industry offers several products and opportunities to build scalable businesses across several segments, such as specialty, inorganic and petrochemicals.

Specialty chemicals: With growing domestic demand and the global trend of embracing sustainable practices and decarbonising, there is an increasing demand for specialty chemicals. Overall, the specialty segment is the strongest pillar of the industry. The demand for specialty chemicals has correspondingly increased due to rising domestic and global demand in electronics, automotive, construction, aerospace, food and pharma sectors. The speciality chemical sector accounts for 47% of the nations domestic chemical market and is projected to increase at a CAGR of nearly 11% over the next five years. Meanwhile, agrochemicals - a specialty chemical sub-segment, is currently a $5.5 billion market and poised to account for ~40% of Indias overall chemical exports by 2040.

Petrochemicals: Indias petrochemical capacity is projected to increase from approximately 29.62 million tonnes to 46 million tonnes by 2030. The governments initiative to establish Petroleum, Chemicals & Petrochemicals Investment Regions (PCPIRs) and 10-plus plastic parks is priming India for a big leap in the petrochemical industry. PCPIR strategy aims to attract investments worth $420 billion within the sector. PSUs like ONGC and BPCL and private players like Haldia Petrochemicals have committed approximately $45 billion to various petrochemical projects. As polymer demand is set to outpace domestic capacity addition in the next decade, theres an opportunity for investments in the industry to build capacity for a larger global role.

OUTLOOK FOR INDIAS CHEMICAL INDUSTRY

Recently, chemical companies in India have prioritised expansion and capital excellence, one of the primary reasons the industry is robust and growing at its staggering speed. Global MNCs like Lubrizol, Celanese and Nouryom have established technical and global capability centres in India along with greenfield manufacturing plants. The nations chemical industry is firmly and sustainably accelerating towards decarbonisation and proactively investing in R&D and innovative technologies with streamlined functional excellence and increased profit margins. Major petrochemical companies have allocated significant CAPEX to expand and develop R&D infrastructure. In FY 2022 alone, approximately ?600 crore was invested in R&D by major chemical companies. The growing global demand for sustainable chemical products offers India a growth opportunity. The specialty chemicals sub segments will drive growth in the coming years, with an 80% share of Indias chemical exports.

CHEMICAL INDUSTRYS CONTRIBUTION TO INDIAS ECONOMY

India is one of the leading chemical exporters globally. The sector is a crucial part of the countrys manufacturing industry, with direct and indirect linkages to most industrial segments, including agriculture, food and beverages, textiles, rubber and petroleum refining. The chemical sectors share of Gross Value Added (GVA) in the manufacturing sector in FY 2021-22 is about 9.2% at current prices. GVA of the chemical sector has grown with a CAGR of 8.3% from FY 2016-17 to FY 2021-22. It employs over two million people and exports to over 175 countries. With a 6% share in the total exports , the sector exports products such as inorganic and organic chemicals, dyes, agrochemicals, plastics, synthetic rubber, filaments and more. Between April 2000 and March 2024, FDI inflows to the chemicals sector (excluding fertilisers) totalled $22.146 billion. Moreover, the industry is projected to receive further investments amounting to ?8 lakh crore by 2025. India is looking towards a sustainable future. It has established itself as a trusted manufacturer and global supplier of dyes, dye intermediates, basic chemicals, agrochemicals, cosmetics, toiletries, castor oils and other chemical products.

ROAD AHEAD

Despite the pandemic situation, the Indian chemical industry has numerous opportunities considering the supply chain disruption in China and the trade conflict between the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments.

Additional support, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry. The dedicated integrated manufacturing hubs under the Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of Rs. 20 lakh crore (US$276.46 billion) by 2035.

To bring about structural changes in the working of the domestic chemical industry, future investments should not only focus on the transportation of fuels such as petrol and diesel but also on crude-to-chemicals complexes or refineries set up to cater to the production of chemicals.

ROADMAP

Indias chemicals market, valued at USD 220 billion in 2023, is projected to grow to USD 383 billion by 2030, with an 8.1% CAGR. This growth is underpinned by an 8.1 per cent anticipated CAGR from 2021 to 2030.This sector, currently the sixth largest globally by sales, has attracted USD 21.7 billion in FDI from April 2000 to September 2023, benefiting from 100% FDI under the automatic route. Investments in Petroleum, Chemical, and Petrochemical Investment Regions (PCPIRs) are expected to reach USD 420 billion.

As the sixth largest globally by chemical sales, India has attracted significant foreign direct investment (FDI), with cumulative FDI inflows reaching USD 21.7 billion from April 2000 to September 2023.

The sector benefits from 100 per cent FDI under the automatic route, bolstering investor confidence and facilitating growth.

Indias Petroleum, Chemical, and Petrochemical Investment Regions (PCPIRs) are expected to attract investments worth USD 420 billion, reflecting the sectors robust potential.

The chemicals sector contributes 12 per cent to Indias total exports, highlighting its significance in the global market.

Speciality chemicals, in particular, are projected to grow at a CAGR of 12 per cent from 2020 to 2025, driven by innovations and increasing demand across various applications.

According to recent projections, the value added in the chemicals market is expected to reach USD 29.7 billion in 2024, with a compound annual growth rate (CAGR) of 3.26 per cent from 2024 to 2029.

The chemicals market in India is set to witness substantial growth across various metrics. In 2024, the value added per capita in this market is projected to be USD 20.6, with a value added margin of 21 per cent.

The overall market output is anticipated to be USD 143.3 billion, growing at a CAGR of 2.71 per cent over the next five years. Additionally, the output per enterprise is projected at USD 9.1 million.

The chemicals sector is not only expanding in terms of market value but also in enterprise and employment numbers. By 2024, the number of enterprises operating in this market is expected to reach 15,730, with CAGR of 4.70 per cent from 2024 to 2029. This growth will translate into a higher enterprise density of 11 enterprises per 100,000 populations.

Employment in the chemicals sector is projected to reach 1 million by 2024, supported by a CAGR of 3.19 per cent over the forecast period.

The employment rate within the sector is projected to be 0.07 per cent, with labor efficiency and productivity expected to be USD 143,000 and USD 29,700, respectively.

Several factors are driving the demand in Indias chemicals market. Growing domestic consumption, coupled with the demand from end-use industries such as packaging and automotive, is propelling market growth.

Favorable government policies, improving infrastructure, and the availability of skilled labor at competitive costs further enhance the sectors attractiveness.

Multinational firms are diversifying their sourcing countries, with India emerging as a key player due to its competitive advantages.

Within the elemental sub-sectors, specialty chemicals, agrochemicals, and petrochemicals are expected to witness substantial growth, with CAGRs of 11.5 per cent, 8.3 per cent, and 11 per cent respectively, until 2027.

Chemicals market in India

• Indias chemical sector, which was estimated to be worth US$ 220 billion in 2022, is anticipated to grow to US$ 300billion by 2025 and US$ 1 trillion by 2040.

• The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute US$383 billion to Indias GDP by 2030.

• India has traditionally been a world leader in generics and biosimilars and major Indian vaccine manufacturers, contributing more than 50% of the global vaccine supply.

• Chemicals and petrochemicals demand in India is expected to nearly triple and reach US$ 1 trillion by 2040.

• An investment of Rs. 8 lakh crore (US$ 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.

• Specialty chemicals account for 20% of the global chemicals industrys US$ 4 trillion, with Indias market expected to increase at a CAGR of 12% to US$ 64billion by 2025.

• This gain would be driven by a healthy demand growth (CAGR of 10-20%) in the export/end-user industries.

• The Department of Chemicals & Petrochemicals intends to bring PLI in the chemical & petrochemical sector and will redraft the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) guidelines.

• The Indian chemical industry is expected to further grow with a CAGR of 11-12% by 2027, increasing Indias share in the global specialty chemicals market to 4% from 3%.

• A shift in the global supply chain brought on by the China+1 strategy and a resurgence in domestic end-user demand was expected to fuel significant revenue growth of 18-20% in 2022 and 14-15% in 2023

GROWING DEMAND

^Rise in demand from end-user industries such as food processing, personal care and home care is driving development of different segments in Indias specialty chemicals market.

^ Exports of Organic and Inorganic Chemicals increase by 16.75% and reached US$ 2.50 Billion in April 2024.

^ Chemicals and petrochemicals demand in India is expected to nearly triple and reach US$ 1 trillion by 2040.

^ India is the 6th largest producer of chemicals in the world and 3rd in Asia, contributing 7% to Indias GDP.

OPPROTUNITIES

^Indias specialty chemicals companies are expanding their capacities to cater to rising demand from domestic and overseas.

^ With global companies seeking to de-risk their supply chains, which are dependent on China, the chemical sector in India has the opportunity for a significant growth.

^ The Dahej PCPIR project in Bharuch, has attracted an investment of Rs. 1 lakh crore (~US$ 12 billion) and is expected to generate 32,000 jobs.

POLICY SUPPORT

^ PLI schemes were introduced to promote Bulk Drug Parks, with a budget of Rs. 1,629 crore (US$ 213.81 million).

^ Under the Interim Union Budget 2024-25 the government allocated Rs. 192.21 crore (US$ 23.13 million) to the Department of Chemicals and Petrochemicals.

^ The Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) set up at Paradip has attracted investments worth US$ 8.84 billion (Rs.73,518 crores) resulting in employment of about 40,000 people.

^ Government to open 25,000 Jan Aushadhi Kendras to make medicines available at affordable prices.

INCREASING INVESTING AND SPENDING

^ FDI inflows in the chemicals sector (other than fertilizers) reached US$ 22.146 billion between April 2000-March 2024.

^ Prime Minister, Mr. Narendra Modi, laid the foundation stone of development projects worth more than Rs. 50,700 crore (US$ 6.11 billion) on September 14, 2023

^An investment of Rs. 8 lakh crore (US$ 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.

Specialty chemicals on domestic drive

The Indian specialty chemicals sector will see revenue growth of 6-7% in fiscal 2024, with higher domestic demand (~60% of total revenue) driving up volume growth even as macroeconomic headwinds in the US and Europe subdue exports. Besides, realisations are expected to remain flattish this fiscal, which will have a moderating effect on the overall revenue growth.

Last fiscal, revenue growth had plunged to ~11% from 41% in fiscal 2022 owing to steep correction in realisations in the second half triggered by dumping from China, where consumption fell sharply owing to strict zero-Covid policy.

An analysis of 121 specialty chemical companies rated by CRISIL Ratings, accounting for nearly a third of the ~Rs 4 lakh crore industry, indicates as much.

Over the past two fiscals, exports had propelled revenue growth. This fiscal, it will be the turn of domestic sales, which we see rising 8-9% on-year. We expect exports — accounting for ~40% of industry revenue — to rise just 2-3% as the main markets such as the US and Europe are battling economic slowdown.

That said, growth trends would be different across sub-segments, with the agrochemicals and fluorochemicals sub-segments (over ~35% of total revenues) likely to see double digit growth in fiscal 2024. Agrochemicals help improve nutrient in crops besides control pests, and has been growing at a steady pace, while fluorochemicals cater to niche emerging verticals such cold storage, semiconductors, EV batteries, and hydrogen fuel cells. On the other hand, subsegments such as dyes & pigments, personal care & surfactants, and flavours & fragrances (together contributing over 40% of total revenues) shall see relatively lower growth as their demand is linked to discretionary spending.

With realisations having bottomed out, higher sales volume and moderated crude- linked raw material prices will support operating margin, which is expected to stabilize at 14.0-14.5% this fiscal, almost similar to last fiscal.

Operating margin had fallen 300-350 basis points last fiscal following dumping by China. Some companies, especially in the polymer segment, suffered material inventory losses.

Capital expenditure (capex) is expected to remain high as manufacturers focus on augmenting capacity and expanding downstream to value-added products to seize opportunities emanating from Europe, where high labour cost makes local operations less competitive. This will be in addition to the continuing China+1 strategy adopted by global majors as part of their diversification strategy.

Steady cash generation and healthy balance sheets will ensure debt metrics remain adequate, despite higher debt for capex and incremental working capital lending stability to credit profiles.

Strong operating performance in fiscals 2021 and 2022, and control over working capital cycle have strengthened the balance sheets of most specialty chemical makers. Hence, even with capex spends remaining elevated at ~Rs 22,000 crore over fiscal 2023 and 2024, ~ 50% higher compared to pre-pandemic levels, debt metrics such as gearing should remain healthy at below 0.5 times.”

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 maximization 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 3,91,440.81 Rs. in Thousands as against 3,03,851.23 Rs in Thousands in the previous year. And Net Profit of the Company during the Current year stand at Rs. 21,473.10 in Thousands as against profit of Rs. 10,518.35 in Thousands 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, 2025 was 70 (69 number of male employees and 1 number of female employees and 0 number of transgender employees).

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.:

During the year under review no fund raising by way of public issue, right issue or preferential issue was made.

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 therefor are given in notes to the financial statements. Members are requested to refer the same.

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: 12th August, 2024	Sd/-
	CHAIRMAN CUM MANAGING DIRECTOR
	Shalin Sudharkarbhai Patel
	(DIN: 01779902)