Atul Ltd Management Discussions

Key performance ratios	UoM	2023-24	2022-23	Increase : (Decrease)
Debtors turnover	times	4.94	5.12	(4%)
Inventory turnover	times	7.10	7.42	(4%)
Payable turnover	times	6.35	7.27	(13%)
Interest coverage	%	348.00	447.50	(22%)
Current ratio	times	2.15	2.60	(17%)
Operating profit margin	%	16.18	17.89	(10%)
Net profit margin	%	8.95	11.04	(19%)
Return on net worth	%	7.96	12.40	(36%)

Return on net worth has dropped in the financial year 2023-24, on account of reduction in profitability of the Company. There are no significant changes (25% or more as compared to the financial year 2022-23) in the key financial ratios except the one mentioned above.

Atul Ltd identified two reporting segments, namely, Life Science Chemicals and Performance and Other Chemicals.

Life Science Chemicals segment

Sales ( cr)	1,257	1,715	(27%)
	2023-24	2022-23	change
Share in total sales (%)	29%	34%	(5%)
	2023-24	2022-23	change

Life Science Chemicals segment consists of three sub-segments, namely, Crop Protection, Pharmaceuticals and Intermediates and Aromatics - I.

Crop Protection - Bulk Actives

Product groups: herbicides, insecticides, fungicides, others

The products falling under these product groups are used by customers belonging to the Agriculture and Crop Protection Chemicals industries. The product groups comprise 34 products and 43 formulations. 2,4-D, Indoxacarb and Sulfonylurea herbicides are some of the key products.

During 2023-24, sales decreased by 48% from 953 cr to 491 cr. Sales in India decreased by 27% from 218 cr to 160 cr. Sales outside India decreased by 55% from 735 cr to 331 cr. De-growth on account of volume was 25%. The Company completed one project and undertook one project for implementation.

Sales of crop protection chemicals in the world decreased from US$ 69.2 bn in 2022 to US$ 68.3 bn in 2023, due to contractions across various segments.

The pivotal factors influencing the market dynamics were the build-up of high-cost inventory at customer end, decreasing input prices and increasing supplies from China. The world market is projected to grow at a CAGR of 4.2% from 2024 to 2032, expecting to reach US$ 98.5 billion by 2032.

The CAGR of the agrochemical market in India is expected to be higher than the world average, reaching 6-6.5% by 2027-28, and projected to reach US$ 9.8 bn. This growth is driven by both exports and domestic consumption.

India has emerged as the second-largest exporter of crop protection chemicals during 2023-24. The Company will participate in this growth by - i) improving internal efficiencies and working capital management, ii) focusing on value-added products, iii) expanding the regulatory approval footprint and, iv) evaluating investment opportunities in vertical integration.

Seasonal aspects may adversely affect the demand. Competition from Chinese sources may impact sales realisations as well as market share. The geopolitical developments leading to supply chain disruptions and high freight costs can impact the profitability of the business. Given that some of these chemicals can be hazardous, due care needs to be taken in their manufacture and use.

Crop Protection – Retail

Product groups: herbicides, insecticides, fungicides, others

The products falling under these product groups are used to serve the growing needs of food, feed and fibre. The product groups comprise 52 brands, some of the brands are Zura, Salix, Cyno, Rymix, Amsac, Sindica, covering 61 formulations (23 herbicides, 21 insecticides, nine fungicides, eight bio-stimulants and adjuvants). During 2023-24, sales increased by 4% from 197 cr to 205 cr. Growth on account of volume was 23%. The Company launched a novel and patented herbicide for sugarcane crop (brand name Sindica) in the last quarter of 2023-24. Besides Sindica, the Company has developed 11 unique patentable formulations, out of which patent was granted for four formulations and published for seven formulations. It is currently generating statutory data for five formulations for securing regulatory approval.

The size of the domestic crop protection formulations market is estimated to have grown by 3% from 27,200 cr in 2023 to 28,000 cr in 2024. Expecting a normal monsoon during the year 2024-25 based on forecasts, the domestic crop protection market is expected to grow at 10% volumetrically, however further price erosion may nullify part of the volume growth leading to overall 5% to 7% value growth.

The Company will continue to grow by - i) pursuing organic growth of the existing portfolio through market development activities, ii) widening the portfolio by way of enhanced cooperation, iii) strengthening the distribution channel and iv) continuing to develop patented novel formulations. Competitive trade practices as well as the launch of new products by competition may have a material impact on growth.

Pharmaceuticals and Aromatics – I

Product groups: active pharmaceutical ingredients and its intermediates, others

The products falling under these product groups are used by customers belonging to the Pharmaceutical industry for various therapeutic categories such as antidepressant, antidiabetic, anti-infective, antifungal, antiretroviral and cardiovascular. The product groups comprise about 90 products.

Acyclovir, Dapsone, Desvenlafaxine, Fluconazole, Valacyclovir and Venlafaxine are some of the Active Pharmaceutical Ingredients (APIs) while carbonates and chloroformates are some of the key product groups of intermediates.

During 2023-24, sales decreased by 1% from 559 cr to 556 cr. Sales in India increased by 5% from 315 cr to 332 cr. Sales outside India decreased by 8% from 244 cr to 224 cr and formed 40% of the total sales. Growth on account of volume was about 13% mainly due to i) debottlenecking done in the plants and ii) availability of the reconstructed PHIN-II plant for few months, which was not available in

2022-23 due to the fire accident that occurred in the plant in April 2022. The PHIN-II plant is fully insured and the claims are gradually being realised. Sales of Atul Bioscience Ltd (ABL), a 100% subsidiary company, decreased by 16% from 158 cr to 131 cr, mainly due to a conscious decision to reduce certain non-strategic areas of the business.

The world Pharmaceutical industry, valued at US$ 1.6 trillion in 2023, is poised to reach US$ 1.7 trillion by 2025, with the conventional pharmaceutical segment estimated at US$ 1.1 trillion. The API industry, valued at US$ 235 bn in 2023, is projected to hit US$ 357 bn by 2032. Biologics accounted for about 52% of sales of the top 100 products in 2022, with oncology leading the way with sales growing at a CAGR of approximately 12.7%. The presence of the Company in this sector is crucial, particularly as the domestic pharmaceutical market is on track to reach US$ 65 bn by 2024 and expand further to US$ 120-130 bn by 2030. The Company, along with ABL, will participate in this growth by i) focusing on getting regulatory clearances for its API facilities, ii) increasing manufacturing efficiencies, iii) debottlenecking and adding capacities and iv) introducing new products.

The price and demand of some products have seen inconsistency and are likely to vary widely over the short-term. Fluctuations in foreign exchange may impact sales.

Key trends such as supply chain disruptions, rising inflation and evolving ESG expectations will significantly influence market growth.

Performance and Other Chemicals segment

Sales ( cr)	3,044	3,287	(7%)
	2023-24	2022-23	change
Share in total sales (%)	71%	66%	5%
	2023-24	2022-23	change

Performance and Other Chemicals segment consists of four sub-segments, namely, Aromatics-II, Bulk Chemicals and Intermediates, Colors and Polymers.

Aromatics–II

Product groups: intermediates, perfumery, others

The products falling under these product groups are mainly used by customers belonging to the Fragrance and Personal Care industries. The product groups comprise about 41 products. para-Cresol, para Anisic aldehyde and para Cresidine are some of the key products.

During 2023-24, sales decreased by 4% from 766 cr to 736 cr. Sales in India decreased by 9% from 318 cr to 290 cr. Sales outside India marginally decreased from 448 cr to 446 cr and formed 61% of the total sales. The decrease in sales on account of volume was 13%. The Company completed one project during the year.

The world market for para-Cresol (a key product) is estimated at 70,000 MT and is growing at about 2%. Though earlier the product used to be manufactured in the UK and the USA, China and India are now the major suppliers of the product. The size of the world Fragrance industry is estimated at US$ 13.7 bn and is growing at about 3.5%-4%. The size of the world Personal Care industry is estimated at US$ 253.3 bn, of which the personal care ingredients segment is US$ 30 bn and is growing at about 5%.

The main user industries, namely, Fragrance and Personal Care are growing well due to an improved standard of living. The Company will participate in this growth by - i) broadening its market reach, ii) increasing its manufacturing efficiencies, debottlenecking and adding capacities, iii) introducing new products and iv) evaluating inorganic growth opportunities.

Fluctuations in foreign exchange may impact sales realisations.

Bulk Chemicals and Intermediates

Product groups: bulk chemicals, adhesion promoters, others

The products falling under the bulk chemicals product groups are mainly used for internal consumption, while the products in the intermediate product groups are used by customers belonging to the Cosmetic, Dyestuff, Pharmaceutical and Tyre industries. The product groups comprise 23 products. Resorcinol, Resorcinol formaldehyde resin and 1,3 Cyclohexanedione are some of the key products.

During 2023-24, sales reduced by 15% from 316 cr to 268 cr. Sales in India decreased from 188 cr to 158 cr while sales outside India decreased from 128 cr to 110 cr. Sales outside India formed 41% of the total. Growth on account of volume was 10%, which was negated by price erosion.

The world market for Resorcinol (a key product) is estimated at US$ 378 mn and is growing at about 3.9%. The size of the world Tyre industry is estimated at US$ 287 bn and is growing at about 8%. The size of the world Chlor-alkali industry is estimated at US$ 72 bn and is growing at about 5%.

The Tyre industry is projected to grow supported by the resurgence in Asia Pacific. The captive consumption of bulk chemicals is expected to grow as the Company expands the manufacturing capacities of various products. The Company will participate in this growth by - i) increasing its manufacturing efficiencies, ii) debottlenecking and adding capacities, iii) introducing downstream products and iv) widening its market reach.

The demand and price of bulk chemicals are cyclical in nature.

Fluctuations in foreign exchange may impact sales realisations.

Colors

Product groups: dyestuffs, pigments, dye intermediates, textile chemicals, others

The product groups comprise 488 products. The products are used by customers belonging to the Textile, Paint and Coatings and Paper industries. Vat green 1, Sulphur black 1 and Pigment red 168 are some of the key products. During 2023-24, sales decreased by 13% from 624 cr to 546 cr. Sales in India marginally increased from 329 cr to 334 cr. Sales outside India decreased by 28% from 295 cr to 212 cr and formed 39% of the total sales. The decrease in sales on account of volume was 3%. Fluctuation in cotton prices affected the competitiveness of textile producers engaged in exports.

High inflation in textile-importing countries and higher inventory levels across the textile value chain further impacted the demand for textile dyes and chemicals. This in turn affected the selling prices and margins of dyes and chemicals. Lower demand for exterior paints in Europe and other markets contributed to a significant loss in sales of high-performance pigments. The domestic denim market improved during the second half of the year 2023-24, resulting in better demand for Sulphur black. Rudolf Atul Chemicals Ltd (RACL), a joint venture company formed in 2011-12, provides a complete range of textile chemicals in the Indian market; its sales increased by 25% from 111 cr to 138 cr, primarily because of an increase in volume by 33%.

The size of the world Textile Dyestuff industry is estimated at US$ 6.6 bn and is expected to grow by about 3% in the coming years. China continues to be the largest manufacturer of dyes followed by India. The world market for high-performance pigments is estimated at US$ 5.9 bn (constitutes both organic and inorganic pigments) and is expected to grow at about 4% in the coming years.

The main user industries, namely, Textile, Paper, Paint and Coatings will continue to be influenced macro-economic and geo-political factors. The Company along with RACL is expected to grow by - i) improving capacity utilisation and managing cash flows ii) broadening the market reach in new geographies, iii) introducing new dyes and textile chemicals and iv) developing newer applications for existing products. High inflation, fluctuations in foreign exchange, limited availability of the

US dollars in South American, Asian and African markets, low demand and competition from China may impact sales. Treatment costs are expected to remain high because of stricterregulatory norms and increasing demand for the implementation of green chemistry principles and ESG compliance.

Polymers - Performance Materials

Product groups: epoxy resins, curing agents, reactive diluents, accelerators and catalysts and sulfones

The products falling under these product groups are used by customers belonging to the Adhesives, Aerospace and Defence, Automotive, Composites, Construction, Electrical and Electronics, Food and Beverage packaging, Marine, Paint and Coatings, Sport and Leisure, Transport and Wind Energy industries. The product groups comprise 48 synthetic products and 272 formulations. Liquid epoxy resins, solid epoxy resins, solvent cut resins, cycloaliphatic resins, epoxy phenol novolac, multifunctional resins, aromatic amines and their adducts, 4,4-Diaminodiphenyl sulfone, 3,3-Diaminodiphenyl sulfone and 4,4-Dichlorodiphenyl sulfone are some of the key products.

During 2023-24, sales volume increased by 18%, however, due to lower sales price, sales value decreased by 6% from 1,268 cr to 1,194 cr. Sales in India increased by 2% from 700 cr to 712 cr. Sales outside India decreased by 15% from 568 cr to 482 cr and formed 40% of the total. Growth on account of volume was 18%.

The world market for epoxy resins and curing agents is estimated at US$ 12.4 bn and is growing at about 3%, while the Indian market is estimated at US$ 410 mn and is growing at about 8%. Asia Pacific has been the leading consumer of epoxy resins, supported by the high demand from India. Infrastructure development along with increasing automotive production has fuelled demand for paints and coatings in this region. The world market for sulfones (curing agents) is estimated at US$ 420 mn and is growing at about 6%. Aerospace, automobile, defence and medical applications are key macro-level factors influencing industrial growth.

In India, major growth is observed in Construction, Defence, Electrical and Electronics and Paint and Coatings industries. The Company will participate in this growth by i) adding new capacities for key products and debottlenecking capacities ii) improving manufacturing and working capital efficiencies, iii) introducing new products and iv) expanding market reach to new geographies.

Lower demand in export markets will keep the market competitive in the near term and may keep margins under pressure.

Polymers – Retail

Product groups: adhesives based on epoxy, synthetic rubber, polyurethane, cyanoacrylate, PVC, PVA and epoxy sealants, tapes and protective paints

The products falling under these product groups are used by customers belonging to the automobiles, construction chemicals, flooring, foam and furnishing, footwear, furniture, handicraft, HVAC, stone processing and sports goods industries. The product groups comprise 236 products. Synthetic rubber adhesives (brushable and sprayable), polyurethane adhesives, natural rubber adhesives, epoxy adhesives, cyanoacrylate adhesives, epoxy sealants, multipurpose spray and protective paints are some of the key product groups predominantly targeted towards the domestic market. During 2023-24, sales marginally decreased from 245 cr to 243 cr. Growth on account of volume was 7%, which was negated by price erosion. The domestic market for Adhesives and Sealants is estimated at US$ 2.2 bn and is projected to grow at a CAGR of 5.1% reaching a value of US$ 3.1 bn by 2030. Eleven National players dominate the marketplace. Footwear, foam and furnishing, construction, furniture and HVAC applications are growing well. The Company will participate in this growth by i) improving manufacturing and working capital efficiencies, ii) debottlenecking and adding capacities, iii) introducing new products and iv) widening market reach in new geographies. Price sensitivity, fluctuating raw material prices and new entrants in the market will keep the market competitive and may keep margins underpressure.Sincethetwomainraw materials, namely Chloroprene rubber and thermoplastic polyurethane are imported, fluctuations in foreign exchange may impact margins.

Internal Control Systems

The Company has comprehensive internal control systems which are commensurate with the nature of its business, its size and the complexity of its operations. They provide reasonable assurance on the effectiveness and efficiency of its operations, reliability of financial reporting and compliance with the applicable laws and regulations.

The internal control systems that deploy an amalgam of modern and traditional processes are routinely tested and upgraded for both design and operational effectiveness by the Management, and the same is audited by the Statutory Auditors.

Significant audit observations, follow-up actions, and recommendations thereon are reported to the Senior Management and the Audit Committee for their review.

Internal Audit

The Company has an in-house Internal Audit department which includes professionals from finance and engineering disciplines and is also working with reputed audit firms specialising in internal audits. Together, they have the responsibility to identify areas requiring control enhancements, automation and implementation of leading practices for the Company, its subsidiary, joint venture and associate entities and also Atul Foundation and the entities overseen by it.

The annual internal audit plan is reviewed and approved by the Audit Committee to ensure adequate coverage. Progress of the internal audit plans, significant audit observations and the status of agreed actions are reviewed by the Management on a monthly basis and by the Audit Committee on a quarterly basis.

Enterprise Risk Management

The Company believes that risks are inevitable in any business and its approach is to identify, track and mitigate instead of avoiding them. Enterprise risk management (ERM) is an integral part of a business and its framework includes the identification, classification, assessment, prioritisation, mitigation, monitoring and reporting of key risks. The Company has adopted a bottom-up and top-down approach to drive ERM. The bottom-up approach includes the identification and regular assessment of risks by respective businesses and cross-functionalteams, along with a plan for mitigating such risks in a structured manner. This is complemented by a top-down approach where the Senior Management ensures the comprehensiveness of the framework, and effectiveness of mitigation measures and assesses long-term and macro risks. Risks are consolidated under major risk themes to create focus areas and prioritise mitigation plans.

The Company has constituted an ERM council comprising Senior Management officials to ensure the adoption of a comprehensive framework and the effectiveness of mitigation measures. ERM is driven by the Board of Directors through the Risk Management Committee of the Board.

Human Resources

People are the core foundation of the Company and it is committed to building a safe, inclusive and supportive workplace where everyone feels can thrive. The Company is ardent about investing in the continuous learning and development of its team members to enable them to be future-ready.

During 2023-24, the Company undertook six key people-related initiatives:

i) digitalised onboarding process for new team members,

ii) achieved a considerable increase in the number of key positions filled internally in the middle and senior levels; this is an ongoing initiative and more needs to be done,

iii) improved focus on campus recruitment by enhancing the quality and the number of management and executive trainees, to create a talent pool for occupying key positions in the future,

iv) launched end-to-end process automation of contract labour management,

v) conducted holistic shop floor training to enhance the functional competence of the team members in plants, and

vi) provided cr?che facility for the children of the team members.

One of the key challenges for the Company is to create a leadership pipeline by developing and retaining team members to secure its growth. It believes in the ‘leaders develop leaders philosophy and is thus committed to developing the leadership capabilities of its managers. The managers are encouraged to nurture their team members to prepare them for elevated roles and as future successors.

Employee relations at all locations remained cordial. The number of team members in the Company increased from 3,528 to 3,597. This number comprises its team members as well as those working for its retail businesses, information technology, and administrative services via four subsidiary entities, namely Atul Crop Care, Atul Consumer Products, Atul Infotech, and Atul Finserv. The number excludes team members in associate, joint venture, and other subsidiary entities.