chembond chemicals ltd share price Management discussions

The following discussion is based on the Audited Standalone and Consolidated financial statements of Chembond Chemicals Limited and its following subsidiaries and step-down subsidiaries (together referred to as "the Group"):

i. Chembond Biosciences Limited

ii. Chembond Calvatis Industrial Hygiene Systems Limited

iii. Chembond Distribution Limited

iv. Chembond Material Technologies Private Limited

v. Chembond Polymers and Materials Limited

vi. Chembond Water Technologies Limited

vii. Phiroze Sethna Private Limited

Step-down subsidiaries

viii. Chembond Clean Water Technologies Limited

ix. Chembond Water Technologies (Malaysia) Sdn Bhd

x. Chembond Water Technologies (Thailand) Co. Ltd.

xi. Gramos Chemicals India Private Limited

Step-down Associate

xii. Rewasoft Solutions Private Limited

This discussion, therefore, covers the financial results and other developments from April 2022 to March 2023, in respect of the Group. The financial year 2022-23 has been referred to as "the year" and the financial year 2021-22 has been referred to as "the previous year". Some statements in this discussion describing the projections, estimates, expectations or outlook may be forward looking. Actual results may, however, differ materially from those stated owing to various factors such as changes in government regulations, tax regimes, economic developments, exchange rates and interest rates fluctuations, impact of competition, demand and supply constraints, etc.

During the year under review, your Company has achieved revenue from operations of _5,086 lakhs on a standalone basis and _44,044 lakhs on a consolidated basis. The comparative figures are tabulated below.

Standalone and Consolidated

The highlights of the standalone and consolidated performance are as follows:

Particulars	Standalone		Consolidated
	2022-23	2021-22	2022-23	2021-22
Net Sales	4,798	4,233	40,913	32,519
Product Margin	2,165	1,961	15,383	12,151
Gross Margin	1,340	1,193	12,696	9,800
Selling & Administration	860	699	5,593	4,457
Employee Cost	825	690	7,011	6,259
EBITDA	706	1,368	3,921	2,571
PBT	455	1,093	3,367	2,054

Ratio Analysis

Particulars	Standalone		Consolidated
	2022-23	2021-22	2022-23	2021-22
Product Margin, % of Sales	45.13	46.33	37.60	37.37
Gross Margin, % of Sales	27.93	28.18	31.03	30.14
Selling & Admin Costs, % of Sales	17.92	16.51	13.67	13.71
Employee Costs, % of Sales	17.20	16.31	17.14	19.25
% EBITDA to Sales	14.71	32.31	9.58	7.90
Net Profit Margin (%)	7.78	18.94	5.62	4.00
Return on Net Worth (%)	1.63	3.61	7.92	4.68
EPS (Basic & Diluted)	2.61	6.53	18.36	10.35
Debt/Equity ratio	0.00	0.00	0.02	0.00
Debtors Turnover	2.29	2.29	4.30	4.04
Inventory Turnover	9.00	6.68	7.49	6.44
Interest Coverage ratio	71.22	227.76	33.33	30.80
Current ratio	6.39	9.95	2.72	3.64

Standalone EBITDA & PBT was down due to decline in other income, mainly dividend & net gain from valuation of investments. Consolidated Sales growth remained strong across the operating business units.

EBITDA, PBT, Net Profit and return on net worth have improved as a result of strong sales growth and input costs being relatively stable.

The Current ratio has been negatively impacted due to tight cash flows leading to an increase in utilization of banking limits. There is no significant change (i.e. change more than 25% compared to FY 2021-22) in other key financial ratios for FY 2022-23.

Industry Structure & Developments Global Economy

The global economy, which was recovering from the downfall due to the pandemic induced downturn, continued to face volatility and setbacks on account of the ongoing Russia–Ukraine war. Global inflation, which in 2022 was at its highest level in this millennium due to rising oil and gas and food prices, is decreasing. Global consumer confidence is also now higher. (Source: Statista; Ipsos) Rising interest rates and decreasing purchasing power could weaken consumer confidence and thus dimming growth prospects for the global economy. China is also experiencing an economic slowdown. World output growth is projected to decelerate from an estimated 3% in 2022 to only 1.9% in 2023, representing one of the lowest growth rates in recent decades. (source: Report published by United Nations Department of Economic and Social Affairs. (UN DESA) To address the current economic challenges, it is crucial to focus on increasing employment opportunities, prioritizing public investment, investment in education, health, digital infrastructure, new technologies and the green economy are essential. Many developing countries are prioritizing green investments to aid their recovery from pandemic. Several other nations are exploring transformative measures for their economies, including implementing carbon taxes, fostering private-public partnerships, utilizing green bonds and other mechanisms to finance the sustainable initiatives.

Indian Economy

As per the report of the World Bank dated 4^th April, 2023, Indias growth continues to be resilient to external conditions. Having faced challenges in the form of inflation, monetary tightening, Russia-Ukraine war, COVID 3^rd wave, unemployment and interest rate hikes, India continues to be one of the fastest growing major economies. The measures taken by the government to boost manufacturing in new sectors by providing incentives, the Atmanirbhar Bharat scheme, especially in Defence and Railways, the continued expansion of public digital platforms, and transportation infrastructure are some of the likely causes for this growth story. The continued focus on the same is expected to play a large role in improving Indias cost and export competitiveness in the coming years.

The services sector has always been a dominant contributor to Indias GDP, with significant contribution to exports and FDI. In FY 2022-23 service exports rose by 42% to USD 322.72 billion from USD 254 billion in 2021-22 (source: data from commerce ministry). Meanwhile, manufacturing and investment activities consequently gained traction. By the time the growth of exports moderated, the rebound in domestic consumption had matured sufficiently to propel Indias economic growth forward. With a robust domestic demand, thriving services exports and favourable macroeconomic indicators, Indias outlook stands out among its peers. The countrys sustained growth and broad based recovery will not only benefit its own population but also contribute significantly to the global economy in the years ahead.

Chemical Industry

The Indian chemical Industry is one of the most important components of our economy and contributes around 7% to the nations GDP. Despite the challenges posed by the global pandemic, the chemical sector has not only survived but thrived. Being the 6^th largest producer of chemicals globally and 3^rd in Asia, the Indian chemical industry capitalizes on forthcoming opportunities. (Source: TOI). India ranks 3^rd in chemical imports and 4^th in exports over the last five years, showcasing its crucial role in the countrys inclusive trade flow. Indias appeal as a manufacturing destination can be attributed to an advantage of lower labour costs, a large domestic market, a large talent pool, and an ability to build cost effective manufacturing units coupled with Government strategies viz. changes to corporate tax rates, public infrastructure investment and improvement and continuous efforts to improve the ease of doing business.

Despite industry specific challenges, chemical companies in India can benefit in the long term from factors such as rising domestic demand in chemical end use sectors like agriculture, consumer goods, infrastructure, automobiles, electronics, housing, steel, power and healthcare. All these factors are expected to drive chemical demand, creating lucrative value pools across most chemical sub segments.

The Indian government allows 100% FDI in chemicals and has plans for production linked incentive schemes in the Chemical sector. With the shift of manufacturing out of China, India is becoming a preferred manufacturing hub for many specialty chemicals segments. The Indian specialty chemical market is expected to grow at ~12% CAGR to US$120 billion, which will presumably double its share in the global market from 3-4% to 6% in the next 2-3 years to come. (Source: ANI NEWS, MINT)

Outlook on Opportunities, Threats, Risks and Concerns

Your Company has a well-established infrastructure with respect to manufacturing capacities, human resources, sales and technical expertise & new product development, which are key factors for future growth of its businesses. The Company banks on its product development skills for creating new markets and products, quality improvement and cost reduction. With advance remote monitoring and control systems based on AI, we are positioned well to manage the future of the water business in coming times.

Opportunities

1. Expansion & revamping by major customers to add capacities

2. Customers looking for solutions that save operating costs

3. The advantage of being a professionally managed local company adaptable to the ever-changing business environment

4. Automotive companies and their Tier 1 are growing rapidly

5. In house research centre and technical expertise

6. Customers looking for outsourcing utility operations on O & M basis

7. Government initiatives / incentives for setting up sourcing / manufacturing companies within the country

8. Expansion in the manufacturing capacities to cater to growing demand

Threats

1. Volatility in the global and Indian economies

2. The continuing war between Ukraine & Russia

3. Accelerating climate change and unpredictability of changes in the weather

4. Global companies strategically buying out businesses and investing in India

5. Threats from low-cost manufacturers

6. Introduction of AI and new technologies

7. Changes in environmental regulations due to climate change

8. Increasing costs of compliance that could potentially make certain operations unviable

Risks & Concerns

The growth of the speciality chemical industry is driven by R&D activities and a need for constant innovation in the product spectrum. On the other hand, a strong R&D set-up ensures quality management and cost reductions. Since your Company has its own R&D Centre, the above concerns are well addressed. The Company is exposed to safety, health, security and environmental risks, given the diversity and complexity of the industry in which your Company operates.

The Managements commitment towards employee safety, health and the environment extends beyond accidents and occupational health hazards to social well-being of employees. The Company conducts frequent SHE audits to confirm its framework protocol and regulatory compliances. The Company has a Safety, Health and Environment Policy entailing its commitment towards high standards of SHE across its facilities. The evolution of the regulatory environment across the globe has resulted into increased scrutiny that raises minimum standards required by the Company necessitating increased investment in compliance. The Company considers regulatory requirements as a source of competitive advantage and therefore abides by and strives to exceed the changing regulatory compliance requirements to consolidate its position in business.

Macro-economic conditions like the policy decisions of the government, currency fluctuations and volatility in commodity prices can affect the business of the Company. As the Companys revenue generating sources are diversified into various sectors having strong domestic demand, such risks are mitigated to some extent.

Business Snapshot Water Treatment

Your Company offers speciality chemicals, systems and services for Total Water Management and water re-use across the industrial and C&I spectrum in the country and in limited international geographies. During the year under review, we added a few chemical additives for process use in fertilizer, petrochemical and refining industries. Our solutions are based on customer needs, years of field expertise, extensive customer system surveys, advanced performance monitoring techniques and proactive technical support to meet and exceed our customers expectations. Our capabilities include managing all water treatment applications like raw water, cooling water, boiler feedwater, produced water and waste water to allow recycle and re-use of water while allowing the plant to run efficiently and reliably. Our NSF approved RO membrane treatment and evaporator treatment products allow enhanced water recovery and zero liquid discharge operations. Our solutions are positioned to afford higher water-use efficiency in industries through its appropriate treatment. The challenges faced in the past few years around raw material availability and price escalation have tapered down slightly in the year under review. Though they have not returned to their base levels, we do expect more stability in the near future. The top-line has grown faster than in the past few years on the back of the generally robust business environment and the outlook for FY 2023-24 remains positive for this business.

Construction Chemicals

Revenues for the Construction Chemicals business grew over the past year. Overall growth of the construction industry drove an increase in demand for our products like admixtures, sealants and curing compounds. An increase in sales volumes while maintaining a healthy product margin and controlling overheads and direct costs helped us increase our bottom line as compared to the prior financial year. Stability in the supply chain allowed us to execute more orders on time. The outlook for FY 2023-24 is positive on the demand side, however our tightfistedness on profitability and customer credit worthiness will continue to take precedence over driving an unsustainable top-line growth.

Biotech

Our Animal Health business did not perform as expected in FY 2022-23 even when overall, the India animal health market size reached INR 73.40 billion in 2022. Decisions were called for to maintain hygiene within the business which resulted in slowing down the pace of growth to take control and steer the business in the right direction.

Challenges due to external factors will continue and is part of the dynamic of this business. Looking forward, analysts expect the market to reach INR 120.30 billion by 2028, exhibiting a CAGR of 8.58% during 2022-2028. Our belief in the potential of this business continues as we re-strategize and strive to gain business from renowned and respected customers.

Material Technologies

The Material Technologies business grew by over 38% vs the previous year, driven primarily by continued growth in metal treatment chemicals and sealants as well as coatings and adhesives. The Metal Treatment Chemicals division won business from some of the leading cold forming customers, appliance manufacturers and automotive vendors. The introduction of green technology products to our valued customers continues to be a focus. The Sealants business grew on a strong growth of the automotive industry – passenger as well as commercial vehicles and the introduction of new products. Efforts are being made to obtain approvals from some of the major OEMs for paint shop sealants and butyl sealants. The business has received approvals for a few new applications viz. cavity wax and expandable butyl, the supplies of which are likely to commence in the current FY. Efforts are being made to further improve the growth of

High-Performance Coatings and Industrial Coatings. The sales of Paint Booth products registered steady growth and efforts are being made to improve domestic as well as export sales. Raw material prices were a mixed bag. For Sealants and Coatings, input material prices stabilized albeit at much higher levels compared to pre-pandemic times. Whereas in Metal Treatment, raw material prices rose sharply.

Industrial Hygiene

Chembond Calvatis is a Joint Venture between your Company and Calvatis GmbH, Germany. The JV offers hygiene and cleaning solutions to the Food, Beverage, Dairy, Institutional and Hospitality segments in India. During the year under review, though the sales grew over the past year, business with one of our prime brewery customers was impacted across the country owing to their worldwide switchover to a single centrally approved vendor. We continue to be bullish about the prospects of this growing segment and continue to build our team, expand product offerings and expand our distribution network. The Company is therefore confident of business growth in FY 2023-24 and beyond.

Polymers

As informed in the Annual Report 2021-22 your Company has filed an application with NCLT for Scheme of Amalgamation, thereby merging Chembond Polymers and Materials Limited into Chembond Material Technologies Private Limited. All the formalities, procedures, submissions are completed as on the date of the report and the Company is awaiting NCLT order.

Research & Development

Innovation requires effective interaction among R&D, strategy, marketing, sales, supply chain and support functions. Investment in R&D is a priority for your Company in order to build a sustainable and valuable business. In Material Technologies, we developed new sealants that won approval from automobile lines; eco-friendly products were well accepted by the steel industry; and energy saving cleaners were developed for the metal treatment industry. The Animal Health group introduced new probiotics with better delivery systems. In Water Technologies, your Company introduced new products for membrane treatment and for effluent treatment while continuing to develop more sustainable product chemistries. A range of hybrid admixtures were successfully developed and introduced for our Construction Chemicals business.

Manufacturing

The Company has manufacturing plants at Baddi, Dudhwada, Navi Mumbai, Pune, Ranipet and Tarapur. These plants are regularly upgraded and equipped to meet the continuously improving standards around safety, health and environment. All our plants conform to various norms and quality standards. The teams at all the plants are well versed with chemical manufacturing and the use of global best manufacturing practices.

Safety, Health, Environment and Quality

Our focus remains undeterred when it comes to providing a safe and healthy workplace to our employees, caring for the environment by adhering to and exceeding statutory norms 4 and to our diverse customers to whom we aim to be a "supplier of choice". All manufacturing plants and functions have targets for improving upon existing safety, environment, quality and customer service metrics. A dedicated team conducts risk assessments and environmental impact assessment of manufacturing operations to identify occupational hazards and environmental aspects and define control measures to reduce the risk to people, property and environment, to acceptable levels as per ISO 45001 & ISO 14001 for which we are re-certified. The Company continues to maintain its Quality Management Systems certifications as per ISO 9001 & IATF 16949. Chembond Water Technologies now have their drinking water treatment products namely, "Reverse Osmosis Antiscalant", "Distillation Antiscalant" and "Antioamer" certified with "NSF ANSI 60" product certification.

Human Resources

The Company has good people management processes in place and strives to provide a healthy work environment built on trust to its personnel. The introduction of workflow automation and a transparent objective setting and monitoring process have been the focus of the Company in the past couple years. These initiatives are aimed at standardizing processes across its growing operations and at helping the Company and its employees be aligned with the common goal of ensuring our core values are well served.

Industrial / Employee Relations

The Company has maintained harmonious industrial / employee relations throughout and no man-days were lost due to industrial / employee actions.

Internal Control Systems and their Adequacy

Chembond has a sound internal control system, which aims to assure that operations are effective and well aligned with the strategic goals and its evolving needs. The Companys internal controls are commensurate with its size, nature, geographical spread and complexities of its operations both at the entity and the process levels. The Companys ERP system has been designed to have in-built checks and controls. The internal control framework is intended to provide reasonable assurance towards the effectiveness and efficiency of its operations, reliability of financial reporting, compliance with applicable laws and regulations, prevention and detection of frauds and errors and safeguarding its assets.

The Company has implemented the Internal Financial Control (IFC)framework to ensure proper internal controls over financial reporting. The internal control system is further supplemented by internal audits carried out by independent Chartered Accountants and periodic reviews by the Management. The internal audit process is designed to assess the adequacy of internal checks and controls in the system and covers all the significant areas of the Companys operations. Process owners undertake corrective actions in their respective areas based on the internal audit observations, thereby further strengthening the controls. The Audit Committee reviews the adequacy and effectiveness of the internal control systems and tracks the implementation of corrective actions. Significant audit observations and corrective actions taken by the Management are presented to the Audit Committee. The Audit Committee also meets the Statutory Auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the Board of Directors informed of its major observations.

Corporate Social Responsibility (CSR)

The Chembond Childrens Centre runs non-formal educational centres in 15 villages around Tarapur. The objective of these centres is to augment school curriculum by providing individual attention to students and improving the self-esteem of girls via skills like martial arts, dance, painting, chess, kho kho, sewing and other self-development courses. In addition to the above, the Centre conducts camps and workshops in the areas of health care, life skills and assists students in obtaining scholarships. The fundamental goals of Visan Trust are: - to teach kids, especially girls, a variety of skill sets that would enable them to carve their future. Visans unwavering thought and support towards women empowerment and education has led to encouraging women to realize their self-worth and potential, develop a source of income for themselves and to stand strong in life independently. - to ensure that children in rural areas get opportunities for overall development and take responsibility for their lives and the world around them.

- nurturing underprivileged children from a very young age and providing coaching for sports, chess, football, kho-kho, etc. is significant as they are the future of India.

During the year your Company also donated 10.17 lakhs to the PM CARES Fund. Chembond Water Technologies Ltd, wholly owned subsidiary of the Company met its CSR goals through contributions to Visan Trust, and by donating and installing one of the latest Operation Theatre lights in the Obstetrics Department of Sir J. J. Hospital. Details pertaining to CSR Committee, Policy etc. are given in the Boards Report.

Disclosure of Accounting Treatment

Chembond has prepared financial statements for the FY 2022-23 in accordance with the Indian Accounting Standards (IND AS) as specified under Section 133 of the Companies Act, 2013.

Outlook

India emerged strong from the pandemic with its GDP growth in FY 2023 at around 7.2%. Despite some uncertainties in the global economy, it is believed that our economy will continue to grow at a rate among the highest in large economies. From a global perspective, China is the leader in the specialty chemical market worldwide. India has the opportunity and potential to emerge as a viable alternative hub for specialty chemical manufacturing. The operational cost disparity between China and India has been reduced due to Chinas enhanced pollution control regulations. Additionally, due to the ‘China plus one offshore strategy, numerous global manufacturers are increasingly sourcing products from India. The Indian Specialty Chemicals sector is confident of healthy and profitable growth in the coming years on the back of strong domestic demand and waning inflation in Europe and America.

The investment gap caused by low private and foreign investment is being filled by the government through higher spending on infrastructure and improving the logistics ecosystem through its initiatives such as the National Infrastructure Pipeline, PM Gati Shakti and National Logistics Policy (NLP), among others. A study by the State Bank of India suggests that capital productivity has improved significantly over the last decade, and hence, any incremental investment spending will generate much larger output than it did in the past.

Moving ahead with the growth vision of the nation, Chembond is trying to build people capabilities, infrastructure, technology to take advantage of the expected high growth phase of the Indian industry.

Forward Looking Statements

This report contains statements, which may constitute ‘forward looking statements within the meaning of the applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of the future events. Actual results could differ materially from those expressed or implied. Important factors that could impact the Companys performance include, among others, economic conditions affecting the demand / supply and price conditions in the markets in which the Company operates, changes in the Government policies, regulations, tax laws, other statutes and incidental factors. The Company undertakes no obligations to update or revise forward-looking statements based on any subsequent developments, information or events.

On behalf of the Board

sd/-	sd/-
Sameer V. Shah	Nirmal V. Shah
Chairman &	Vice Chairman &
Managing Director	Managing Director
DIN: 00105721	DIN: 00083853
Mumbai
20th May, 2023