Chembond Chemicals Ltd Management Discussions

The following discussion is based on the Audited Standalone and Consolidated financial statements of Chembond Chemicals Limited and its following subsidiaries and stepdown 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 (CMTPL) v. Chembond Polymers and Materials Limited (merged with CMTPL w.e.f. 11 Sept 23) vi. Chembond Water Technologies Limited vii. Phiroze Sethna Private Limited viii. Chembond Chemical Specialties Limited incorporated on 12 Dec 23)

Step-down subsidiaries

ix. Chembond Clean Water Technologies Limited x. Chembond Water Technologies (Malaysia) Sdn Bhd xi. Chembond Water Technologies (Thailand) Co. Ltd. xii. Gramos Chemicals India Private Limited

Step-down Associate

xiii. Rewasoft Solutions Private Limited

This discussion, therefore, covers the financial results and other developments from April 2023 to March 2024, in respect of the Group. The financial year 2023-24 has been referred to as the year and the financial year 2022-23 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 5,260 lakhs on a standalone basis and 46,199 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
	2023-24	2022-23	2023-24	2022-23
Net Sales	5,023	4,798	42,327	40,913
Product Margin	2,466	2,165	17,960	15,411
Gross Margin	2,163	1,340	15,087	12,724
Selling & Administration	1,655	860	6,621	5,593
Employee Cost	1,028	825	7,677	7,011
EBITDA	1,137	706	6,658	3,949
PBT	883	455	5,986	3,394

Ratio Analysis

Particulars	Standalone		Consolidated
	2023-24	2022-23	2023-24	2022-23
Product Margin, % of Sales	49.10	45.13	42.43	37.67
Gross Margin, % of Sales	43.06	27.93	35.64	31.10
Selling & Admin Costs, % of Sales	32.95	17.92	15.64	13.67
Employee Costs, % of Sales	20.47	17.20	18.14	17.14
% EBITDA to Sales	22.63	14.71	15.73	9.65
Net Profit Margin (%)	13.76	7.78	9.59	5.71
Return on Net Worth (%)	2.96	1.63	12.29	7.80
EPS (Basic & Diluted)	5.38	2.61	33.02	18.66
Debt/Equity ratio	0.00	0.00	0.02	0.02
Debtors Turnover	2.49	2.29	3.92	4.30
Inventory Turnover	8.87	9.00	7.24	7.49
Interest Coverage ratio	121.94	71.22	51.87	33.60
Current ratio	5.52	6.39	3.08	2.85

Standalone Selling & Admn exps were proportionately higher with top line growth and increase in freight exps. employee cost increase was due to increments and performance bonus, EBITDA & PBT was up due to increase 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 at the backdrop of strong sales growth and softening of input costs. Interest coverage ratio improved due to lower utilisation of limits.

There is no significant change (i.e. change more than 25% compared to FY 2022-23 ) in other key financial ratios for FY 2023-24.

Industry Structure & Developments

Global Economy

The global economy is influenced by a multitude of factors including trade policies, technological marvels, geopolitical intricacies, and the ebbs and flows of financial markets. One of the defining characteristics of the global economy is interconnectedness. Nations are increasingly reliant on each other for trade and investment, forming complex networks of economic relationships. This interconnectedness has been facilitated by seamless integration of transportation, communication, and technological advancements, which have made it easier for goods, services, and capital to flow across borders. As a result, events in one part of the world can have ripple effects that are felt across continents. Whilst technology has created opportunities for economic growth, it has also raised concerns about job displacement, income inequality, and privacy across the globe.

The global economy is continuing to grow at a modest pace, according to OECDs latest Economic Outlook, it projects steady global GDP growth of 3.1% in 2024, the same as the 3.1% in 2023, followed by a slight pick-up to 3.2% in 2025.

Inflation has emerged as a significant concern in many parts of the world. The echoes of supply chain disruptions, the crescendo of pent-up demand, and the symphony of fiscal stimulus measures intertwine to compose a chorus of rising prices for goods and services. Geopolitical risks, including trade tensions between the United States and China, the war between Russia and Ukraine, and regional conflicts, continue to influence the global economy. Technological innovation remains a driving force behind economic growth and transformation. Trends such as digitization, automation and adoption of artificial intelligence are reshaping industries and business models, driving productivity gains and efficiency improvements. However, technological advancements have also raised concerns about job displacement with so many global leaders laying off their employees.

Global trade patterns are evolving in response to shifting geopolitical dynamics, technological advancements, and changes in consumer preferences. Regional trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP), are reshaping trade flows and supply chains.

Overall, the current global economy is characterized by a mix of opportunities and challenges, with ongoing efforts to address and manage inflationary pressures, promote sustainable growth, and navigate geopolitical uncertainties. Monitoring these trends and developments is essential for understanding the dynamics of the global economy and informing policy decisions at the national and international levels.

Indian Economy

Throughout FY 2024, India has been one of the worlds fastest-growing major economies amid global headwinds, although growth rates have fluctuated due to various factors such as global economic conditions, domestic policy changes, and structural issues.

Key sectors such as information technology, services, agriculture, and manufacturing have traditionally been significant contributors to Indias GDP. Additionally, initiatives like "Make in India" aim to boost domestic manufacturing and job creation.

Indias GDP leaped to 8.4% in the third quarter of the fiscal year 2024, resulting in an overall growth rate of 8.2% in FY 2023-24. This growth was driven primarily by strong performance in the manufacturing and construction sectors, which saw growth rates of 11.6% and 10.7% respectively and also due to the strong performance of the economy and the Indian governments focus on economic reforms to improve the business environment, attract foreign investment, and streamline regulations. Reforms in areas such as taxation, bankruptcy laws, and ease of doing business have made a huge impact. The Government Schemes such as The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been directly providing jobs in rural areas and indirectly creating opportunities for rural households to diversify their sources of income generation. Schemes like PM-Kisan and PM Garib Kalyan Yojana have helped in ensuring food security in the country, and their impact was also endorsed by the United Nations Development Programme (UNDP). The results of the National Family Health Survey (NFHS) also showed improvement in rural welfare.

Chemical Industry

India ranks 11 in the World Exports of Chemicals (excluding pharmaceutical products) and ranks 6 in the World Imports of Chemicals (excluding pharmaceutical products) with the Indian Chemical Industry giving employment to more than 2 million people. The chemicals sector contributes 12% to Indias total exports, highlighting its significance in the global market. Speciality chemicals, in particular, are projected to grow at a CAGR of 12%, driven by innovations and increasing demand across various applications. As per reports of economic times in 2024, the value added per capita in this market is projected to be USD 20.6 with a value added margin of 21%. The overall market output is anticipated to be USD 143.3 billion, growing at a CAGR of 2.71% 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% from 2024 to 2029. This growth will translate into a higher enterprise density of 11 enterprises per 100,000 populations.

The Indian chemical industry is expected to continue its growth regime due to increasing demand in various sectors such as agriculture, pharmaceuticals, and consumer goods. The industry is likely to focus on sustainability, innovation and digital transformation to stay competitive and comply with regulations.

Outlook on Opportunities, Threats, Risks and Concerns

The specialty chemicals market is showing a steady growth in India. Your Company with its infrastructure with respect to manufacturing capacities, human resources, sales and technical expertise & new product development, is well placed to capitalise on the growing demand. 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. As you are aware, to leverage the arising opportunities in all of our sectors, your Company is in the process of consolidating its Water Treatment and Materials businesses into two separate listed entities - Chembond Chemical Specialties Limited and Chembond Chemicals Limited respectively.

Opportunities

1. Expansion plans being declared by various major customers, resulting in expansion of manufacturing capacities based on increased market requirements.

2. Customers looking for complete solution provider instead of product supplier to optimize overall costs and improve quality.

3. The advantage of being a professionally managed local company adaptable to quick change in current business environment.

4. India remains the fastest growing large economy.

5. In house product development centre and technical expertise.

6. Government initiatives, PLI for setting up manufacturing companies within the country.

Threats

1. Price and international shipping volatility due to the crisis in the Middle East.

2. The continuing war between Ukraine & Russia.

3. Cost competitiveness-Threats from low-cost manufacturers and Global manufacturers, particularly China.

4. Introduction of new technologies by Global suppliers resulting in obsoletion of existing technologies.

5. Changes in environmental regulations due to stringent Pollution Control and Safety Norms.

6. Increasing costs of compliance and corporate governance.

7. Cyber Attack/Data Breach.

8. Failure to Attract or Retain Top Talent.

9. Failure to Innovate / Meet Customer Needs.

10. Rapidly Changing Market Trends.

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 Technologies

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. New product introductions and acquiring customers in newer segments is a continuing activity at Chembond Water and this year too we maintained momentum on this front. 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 solutions are positioned to afford higher water-use efficiency in industries through its appropriate treatment.

The topline growth in FY 2023-24 as compared to that of FY 2022-23 was slightly subdued. This is attributed to a sudden slowdown in our target industrial segments in the second half of the year, and also to the equipment business where there was a lower carryover of high value one-time orders to execute. In spite of these, your company ended the year with a topline growth on the back of new initiatives and account wins. What was notable however is the significant strengthening in the bottom-line of the business afforded by lower input costs, a favourable product mix sold, and an expansion in our network and segment presence.

Construction Chemicals

Revenues for the Construction Chemicals business grew over the past year by 12%. This growth is a result of an increase in demand for our products like admixtures, sealants, cementitious products, and curing compounds. We bagged source approvals for government infrastructure projects undertaken by NHAI, PWD and Metro Rail. An increase in sales volumes while guarding product margins, and controlling overheads have helped us grow the bottom-line by 32% year on year. Stability in the supply chains led to an improved on-time delivery performance. The outlook for FY 2024-25 is positive on the demand side, and we would appropriately scale our team size in line with the opportunities. Like in the past few years, our focus on profitability and customer credit worthiness will continue to take precedence over driving an unsustainable top-line growth.

Biotech

The India animal health market size reached

Rs.80 billion in 2023. Looking forward, IMARC Group expects the market to reach Rs.160.5 billion by 2032, exhibiting a CAGR of 7.8% during 2024-2032. The growing occurrences of zoonotic diseases, the increasing investment by the government authorities to enhance animal healthcare, and extensive research and development (R&D) activities conducted by key players are some of the major factors propelling the market.

Our Animal Health business maintained its top line with marginal growth. We continue towards more focussed business gain, thus creating value for customer and the Company.

Material Technologies

The Material Technologies business grew by 14%, primarily by continued growth in the metal treatment chemicals, sealants, industrial coating, and adhesives business. In Metal Treatment the Company made continued progress in expanding its steel, cold forming, general industry and automotive components segments. The Sealants business grew on the basis of higher production of passenger vehicles though commercial vehicle production is indicating slow down. Introduction of new technologies with specific consideration of sustainability continues to be a focus. Raw material prices have stabilized at much higher levels and have again started indicating upward trend from the last quarter of 2023-24.

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, the sales declined as expected owing to the worldwide switchover of a key account to a single centrally approved vendor. Much of the year was invested in broadening the customer base and expanding our distribution network. We introduced our range of solutions for the Laundry, Kitchen and Housekeeping sections of Institutional customers. With this and a few other outreach initiatives, the Company is expected to return to the growth path in FY 2024-25.

Polymers

As informed in the Annual Report 2021-22 your Company had filed an application with Honble National Company Law Tribunal, Mumbai Bench (NCLT) on 6 May, 2022 for Scheme of Amalgamation, thereby merging Chembond Polymers and Materials Limited into Chembond Material Technologies Private Limited (under Section 230 to 232 and other applicable provisions of the Companies Act, 2013). The said Scheme of Amalgamation of Chembond Polymers and Materials Limited (Transferor Company) into Chembond Material Technologies Private Limited (Transferee Company) was approved by NCLT vide their order dated 11 September, 2023 with an Appointed Date of 1 April, 2022.

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

Your 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 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 :2018 & ISO 14001:2015 for which we are re-certified. The Company continues to maintain its Quality Management Systems certifications as per ISO 9001:2015 & IATF 16949:2016.

Chembond Water Technologies now have their drinking water treatment products namely, Reverse Osmosis Antiscalant, Distillation Antiscalant and AAntioamer certified with NSF ANSI 60 product certification.

We are focused on effective implementation on safety leadership for E.S.G. Excellence.

Human Resources

The Company is committed to excellent people management processes and strives to foster a healthy work environment built on trust. Over the past couple of years, we have focused on introducing workflow automation and implementing a transparent objective setting and monitoring process. These initiatives aim to standardize procedures across our expanding operations and ensure alignment between the Company and its employees. By doing so, we collectively work towards upholding our core values.

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 Company leverages an advanced SAP4 HANA system for data capture, accounting, consolidation and management information purposes. Automated controls are integrated into processes to minimise deviations and exceptions, aligning with global best practices. It provides a full audit trail, logging and evaluating all changed data in the system. Accounting documents are recorded for all business transactions. 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 donated Rs.13.98 lakhs to Visan Trust. 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. Chembond Material Technologies Limited contributed to Visan Trust and Chembond Clean Water Technologies Limited to Akshaya Patra Foundation and PM Cares Fund.

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 2023-24 in accordance with the Indian Accounting Standards (IND AS) as specified under Section 133 of the Companies Act, 2013.

Outlook

India has one of the youngest working populations in the world, with nearly 53% of its citizens under the age of 30. To ensure the growth and progress of the Country the Government through the Skill India Initiative under The Ministry of Skill Development and Entrepreneurship (MSDE) focuses on enhancing employability of the youth through skill development, bridging gap between demand and supply of skilled labours, upgrading existing skills, creative thinking etc. Indias large and young population, referred to as a Ademographic dividend,B can be a tremendous asset for economic growth, when combined with further investments in upskilling its workforce and increased female participation can lead to improved productivity and innovation. The Government initiatives are aimed to encash on it.

India is set to become the third-largest economy by 2030, and we expect it will be the fastest growing major economy in the next three years surpassing Japan and Germany, (Source: S&P). The robust growth of Indias domestic digital market leading to Global offshoring, energy transition has the potential to drive the expansion of its thriving startup ecosystem over the next decade.

Additionally, in the automotive sector, India is positioned for development, leveraging infrastructure, investment, and innovation. In a report released late October, it is said that Indias economy will more than double to $7.3 trillion by 2030. (Source: S&P)

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
25 May, 2024