Bhansali Engineering Polymers Ltd Management Discussions

The Management Discussion and Analysis Report has been prepared in accordance with the provisions of Regulation 34(2)(e) of the LODR Regulations, read with Schedule V(B) thereto, with a view to provide an analysis of the business and Financial Statements of the Company for FY 2023-24 and should be read in conjunction with the respective Financial Statements and notes thereon.

A. Economic Overview: Global Economy:

The global economy proved more resilient than expected in the first half of 2023, but the growth outlook remains weak.

With monetary policy becoming increasingly visible and a weaker-than-expected recovery in China, global growth in 2024 is projected to be lower than in 2023. While headline inflation has been declining, core inflation remains persistent, driven by the services sector and still relatively tight labour markets. Risks continue to be tilted to the downside. Inflation prove more persistent than anticipated, with further disruptions to energy and food markets still possible. A sharper slowdown in China would drag on growth around the world even further. Public debt remains elevated in many countries.

The world economy was expected to grow by 3.0% in 2023, before slowing down to 2.7% in 2024. A disproportionate share of global growth in 2023-24 is expected to continue to come from Asia, despite the weaker-than-expected recovery in China.

Headline inflation has continued to come down in many countries, driven by the decline of food half of 2023. However, core inflation inflation excluding the most volatile components, energy and food hasnt significantly slowed. It remains well above central banks targets. A key risk is that inflation could continue expected, which would mean interest rates need to tighten further or remain higher for longer.

Outlook

As per the Global Outlook published by World Bank, the baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. A slight acceleration for advanced economies—where growth is expected to rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in 2025 will be offset by a modest slowdown in emerging market and developing economies from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025. The forecast for global growth five years from now - at 3.1 percent is at its lowest in decades. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. Core inflation is generally projected to decline more gradually. The global economy has been surprisingly resilient, despite significant price stability.

The recentconflictin the Middle East, coming on top of the Russian Federations invasion of Ukraine, has heightened geopolitical risks. Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation. Other risks include financial stress related to elevated real interest rates, persistent inflation, weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters.

Against this backdrop, policy makers face enormous challenges and difficult trade-offs. International cooperation needs to be strengthened to provide debt relief, especially for the poorest countries; tackle climate change and foster the energy transition; facilitate trade flows; and alleviate food insecurity. Emerging Market and Developing Economy (EMDE) central banks need to ensure that inflation expectations remain well anchored and that financial systems are resilient. Elevated public debt and borrowing costs limit fiscal space and pose significant ratings - seeking to improve fiscal sustainability while meeting investment needs. Commodity exporters face the additional challenge of coping with commodity price fluctuations, underscoring the need for strong policy frameworks. To boost longer-term growth, structural reforms are needed to accelerate investment, improve productivity growth, and close gender gaps in labour markets.

Indian Economy and Outlook

India turned its story around in one decade - one that saw populism breakthrough in the West in 2016, demonetization in

2017, the shadow banking crisis of 2018, a once-in-a-lifetime pandemic in 2020, the highest inflation in 40 years in the West

(which still continues), and two wars since early 2022. Despite uncertainties, India managed to sail ahead while building its ship. India took determined and focused actions to convert know-how and capabilities into unique products and solutions. Indias emphasis on using technology to accumulate and diffuse tacit knowledge, building high-end manufacturing capacity, and improving competitiveness through exports formed the three necessary catalysts that boosted its growth trajectory and improved its economic fundamentals over the years.

Gross Good and Services Tax (GST) revenue for March 2024 witnessed the second highest collection ever at 1.78 lakh crore, with a 11.5% year-on-year growth. FY 2023-24 marks a milestone with total gross GST collection of 20.18 lakh crore exceeding 20 lakh crore, a 11.7% increase compared to the previous year.

Indias economy is projected to grow by 6.5% in 2024, according to a report by the UN which also noted that an increasing trend of multinationals extending their manufacturing processes into India to diversify their supply chains will also have a positive impact on Indian exports, while moderating commodity prices will be beneficial to the countrys import bill As per UN Trade and Development (UNCTAD) report, India grew by 6.7% in 2023 and is expected to expand by 6.5% in

2024, continuing to be the fastest-growing major economy in the world. "The expansion in 2023 was driven by strong public investment outlays as well as the vitality of the services sector which benefited from robust local demand for consumer services and firm external demand for the countrys business services exports," the report said, adding that these factors are expected to continue to support growth in India in 2024.

Outlook

The global economy is expected to witness a synchronous rebound in 2025 as major election uncertainties get sorted out and the central banks of the West may announce a couple of rate cuts later in 2024. Analysing changed market conditions,

Deloitte has revised Indias annual economic growth prediction from 7.6% to 7.8% and estimated the countrys GDP growth to be around 6.6% in FY 2024-25 and 6.75% in the current fiscal as markets learn to factor in geopolitical uncertainties in their investment and consumption decisions. Strong growth numbers over the past two years have helped the economy to catch up with the pre-COVID trends. Investment, backed by strong government spending on infrastructure, has helped India maintain a steady recovery momentum. The difference between actual GDP from the pre-COVID GDP levels is progressively narrowing as growth picks up pace. (Deloitte).

However, there were concernsaboutinflationand geopolitical uncertainties feeding into higher food and fuel prices. At the same time, the prediction of above normal monsoon would likely provide some respite by positively impacting agriculture output and easing pressure on food prices. Inflation is expected to remain above the Reserve Bank of Indias target level of

4% over the forecast period due to strong economic activity.

Industry Structure and Development:

The Company had entered into a 50 : 50 Joint Venture Agreement with Nippon A&L Inc., Japan (NAL) and incorporated a Joint

Venture Company namely Bhansali Nippon A&L Private Limited which provides sales support and technical support to the Company.

The Companys business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry. This activity is fully backed by state-of-the-art R&D Centre at Abu Road. Technical expertise, as and when required, is deployed from NAL Japan, in the purview of the JV between the Company and NAL.

ABS is a performance polymer and its grades are specially developed for specific application required by the customers.

This is precisely the reason that the Company has adopted the policy of focusing more on speciality grades which requires stupendous efforts in the beginning, but once developed, those efforts are highly rewarding not only in terms of price but also perpetual business with the customers due to the position acquired in the supply chain established by the customer.

For components manufactured out of ABS, BEPLs presence is well registered with all such international giants. The market outlook for BEPLs products is bright, opportunities are immense, facilities and abilities are well in place and hence, the future seems to be brighter than the present.

Appliances and Consumer Electronics (ACE) market:

By 2025, Indias Consumer Electronics and Appliances Industry is predicted to be the fifth-largest in the world. The Indian

Appliances and Consumer Electronics (ACE) market is predicted to nearly double in the next 3 years, reaching approximately US$ 17.93 billion ( 1.48 lakh crore) by 2025.

Indian Automobile Industry:

India is the worlds third-largest automobile market, the largest manufacturer of three-wheelers, passenger vehicles & tractors and the second-largest manufacturer of two-wheelers.

The Indian automobile industry has historically been a good indicator of how well the economy is doing, as the automobile sector plays a key role in both macroeconomic expansion and technological advancement. The two-wheelers segment dominates the market in terms of volume, owing to a growing middle class and a huge percentage of Indias population being young. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fuelled by new trendsincludingtheelectrificationof vehicles, particularly three-wheelers and small passenger automobiles.

India enjoys a strong position in the global heavy vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck manufacturer in the world. Indias annual production of automobiles in FY23 was

25.9 million vehicles. India has a strong market in terms of domestic demand and exports. Automobile sectors share of the national GDP increased from 2.77% in 1992-1993 to around 7.1% presently. It employs about 19 million people directly and indirectly.

India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India such as the Automotive Mission Plan 2026, scrappage policy, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market.

Market Size - The Indian passenger car market was valued at US$ 32.70 billion in 2021, and it is expected to reach a value of US$ 54.84 billion by 2027, registering a CAGR of over 9% between 2022 - 27. The global EV market was estimated at approximately US$ 250 billion in 2021 and by 2028, it is projected to grow by 5 times to US$ 1,318 billion.

The electric vehicle (EV) market is estimated to reach US$ 7.09 billion ( 50,000 crore) in India by 2025. A study by CEEW Centre for Energy Finance recognised a US$ 206 billion opportunity for electric vehicles in India by 2030. This will necessitate a US$ 180 billion investment in vehicle manufacturing and charging infrastructure.

Indian auto-components industry

India has become the fastest-growing economy in the world in recent years. This fast growth, coupled with rising incomes, a boost in infrastructure spending and increased manufacturing incentives, has accelerated the automobile industry. The two-wheeler segment dominated the automobile industry with automobile sales standing at 19.72 million units in FY24 (April-

January 24).

Significant demand for automobiles also led to the emergence of more

As a result, India developed expertise in automobiles and auto components, which helped boost international demand for Indian automobiles and auto components. Hence, the Indian automobile industry has a considerable impact on the auto component industry.

Indias auto component industry is an important sector driving macroeconomic growth and employment. The industry comprises players of all sizes, from large corporations to micro entities, spread across clusters throughout the country. The auto components industry accounted for= 2.3% of Indias GDP and provided direct employment to more than 1.5 million people. By 2026, the automobile component sector will contribute 5-7% of Indias GDP. The Automotive Mission Plan (2016-

26) projects to provide direct incremental employment to 3.2 million by 2026.

The Indian auto-component industry achieved an unprecedented turnover of INR 5.6 trillion (US$ 69.7 billion) in FY24, marking a remarkable growth of 32.8% compared to the previous fiscal year [as per Report of The Automotive Component

Manufacturers Association of India (ACMA), the leading representative body for the sector.]

B. Opportunities & Threats:

Opportunities: There is immense scope for growth, considering the existing supply and demand mismatch, and knowing the fact that the consumption of ABS in India is voluminously larger as compared to the combined output of the domestic manufacturers.

Threats: The limitation arises out of deliberate decision on the part of domestic manufacturers to keep low inventories of its imported key raw materials which is more than 85% (i.e. Styrene and Acrylonitrile monomers) to limit the risk of price fluctuations which may result in huge loss, if the price of monomers drastically falls in the international market, which happen many a times due to unpredictable reasons, i.e. fluctuation in price of crude oil, benzene and ethylene.

C. Risk and Concern:

The ABS business in India is exposed to the risk of foreign exchange fluctuations, as the key raw materials viz. ‘Styrene and

‘Acrylonitrile monomers are import dependent, as there is no indigenous producer for these monomers. The only raw material which is indigenously available is Butadiene monomer, which constitutes 15 per cent (weight wise) of the total raw material composition.

The war between Russia and Ukraine has led to disturbances in the supply chain, resulting in delay / roll over of shipments, further leading to pricing pressure on all petroleum products. Further, shortage of semi-conductors in Global market had its own impact on the Automobile Industry.

The Company has long term contracts for smooth supply of basic raw materials and maintains appropriate level of inventories for smooth operations. Further, the Company is taking various steps for energy saving by way of efficient equipment and alternative sources of energy.

D. Segment/Product Wise Operational Performance:

With regard to enhancement of ABS production capacity from 75000 TPA to 200000 TPA at Companys existing plants at

Abu Road (Rajasthan) and Satnoor (Madhya Pradesh), the Company had appointed Toyo Engineering India Private Limited

(‘TOYO) as Engineering consultant for Front End Engineering Design (FEED) and CAPEX Cost Estimation.

The realistic project cost for 200000 TPA ABS capacity will be arrived based on TOYOs report, detailing the project cost of increase in SAN, HRG and Compounding capacities at Companys plants.

The expansion will be funded through internal accruals and the Company will continue maintaining its "Zero Debt Status" in future as well. As capacity expansion is the "Need of the Hour", the Management shall endeavor to implement the project likely by March, 2026.

The Company deals with single business segment viz. manufacturing of ABS and SAN resins (which is classified under the category of Highly Specialized Engineering Thermoplastics).

Operations -

The Company optimally utilized the production facilities and achieved growth in production and sales quantities. The Company recorded the highest ever production levels of ABS and saleable SAN aggregating to 75152 TPA, thereby achieving a capacity utilization of 100.20 % of the installed capacity of 75000 TPA. Similarly, the Sales volume for the FY 2023-24 stood at 75143 TPA as against 73388 TPA during the previous year 2022-23, registering a growth of 2.36 %.

During the year under review, the gross sales of goods manufactured and traded by the Company amounted to 1,43,951.21 lakhs as against 1,60,779.02 lakhs during last fiscal. The Operational Revenue (net) for FY 2023-24 stood at 1,22,173.60 lakhs as compared to 1,36,255.66 lakhs for FY 2022-23. The EBIDTA for FY 2023-24 stood at 25,266.62 lakhs as against 20,588.10 lakhs for FY 2022-23. The PBT was 24,276.41 lakhs as against 19,479.24 lakhs for previous financialyear. After considering the provision for tax of 6,303.11 lakhs (previous year 5,886.36 lakhs), the profit continuing operations after tax stood at 17,973.30 lakhs as against 13,592.88 lakhs in FY 2022-23. The total Comprehensive Income for FY 2023-24 amounted to 17,863.56 lakhs as compared to 13,562.91 lakhs for FY 2022-23.

The Key Financial ratios as per Schedule V of the LODR Regulations have been disclosed in the Boards Report, under the head ‘Financial Highlights.

E. Internal Control System and its adequacy:

The Company has an effective internal control system considering the size of its operations. It maintains its accounting records on SAP, a well renowned software. The financial transactions are properly documented in accordance with the policies & procedures, as set out by the management from time to time and are properly approved and authorized, as per the approval matrix and reported to the management in a prescribed manner.

The Company has appropriate and adequate insurance cover for its immovable and movable assets. Both, the insurance cover and the assets are closely and consistently monitored by the management from time to time.

The Report on Internal Audit, carried by an independent Internal Auditor is placed before the management on quarterly basis, and requisite corrective actions, if any, are being taken. Observations of the auditors are properly reviewed and appropriate follow-up action(s) are taken by the concerned department(s) and reported to the management, who in turn, also reviews the sufficiency and effectiveness of the internal control system and including those relating to strengthening of the Companys internal policy and management practices.

F. Material Development in Human Resources/Industrial Relations Front, including the number of people employed:

The Company firmly believes that an able, disciplined, motivated, trained and skilled manpower is the key for sustaining growth of an organization. The Company has strengthened the team of top management by new recruitment of strong talent pool. The Company organizes and provides requisite training to its employees from time to time. Periodical appraisal and rewarding systems are in place. Industrial Relations at both the plants (i.e. Abu Road, Rajasthan and Satnoor, Madhya Pradesh) as well as inter-se relationship between employer and employee have been cordial and conducive during the year.

The Company believes in "Right Person for Right Job" and takes appropriate steps towards the same. As on 31^st March, 2024, the permanent employee strength of the Company was 478 (previous year 446).