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Dai-ichi Karkaria Ltd Management Discussions

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Jul 19, 2024|09:55:00 AM

Dai-ichi Karkaria Ltd Share Price Management Discussions

The year 2020-21 was meant to be a very promising year for the company.

We had finally resolved our Labour issues at Kasarwadi, we had agreement for sale of our land, we had a strong order book and strengthened our collaboration with our partners, and were finally hopeful that we could settle down to business. Unfortunately, the pandemic struck, and the world was thrown into uncertainty.

It was a year of unprecedented disruption and pandemic induced challenges.

Fortunately, however for the company, we were very quickly able to scramble back and start production. We were making a key product that goes into the manufacturing of Hazmat suits and were permitted to start production in spite of the lockdown. With this we were able to also complete some of our export orders and continue business in spite of the very challenging circumstances. Many of our domestic customers continued to be under lockdown till June, and we were working at 40% capacity for several months. By the month of October, we were close to 80% capacity. And accepting new business from our partners for export.

The development work carried out jointly with our partners, was slowly resulting in bulk business.

As we approached the end of the year, we unfortunately faced another serious hurdle. This time there was a fire incident that set us back. However, with amazing speed and flexibility our team was able to start production at 5 different sites within a short period of time. We were able to complete a lot of our export commitments without much disruption to our customers.

In Fact, in March 21, we reached the highest ever sales turnover for the month, and we are proud to say that we exceeded our targets.

INDUSTRY STRUCTURE & DEVELOPMENT: OPPORTUNITIES AND THREATS, RISKS AND CONCERNS

The year ahead for the country will depend on how well we are able to control the pandemic and withstand the sporadic regional lockdowns, and unprecedented supply chain disruptions.

Many industries have shown great resilience through innovative RESETS, in the face of collapsing demand, and surging raw material costs.

With WFH initiatives and enhanced digitization in the business processes, most companies have tried to make the best of a difficult and uncertain situation.

Location is no longer a barrier, but can now be used to activate secondary supplier relationships, as the company has done recently to enhance capacity.

There has been an economic unlock, but once again with rising cases the uncertainties loom large.

Though surveys talk of a 7.5% to 11% growth trajectory in the coming year, and India is touted to be one of the fastest growing major economies, the significant uncertainty around epidemiology and policy factors would greatly determine the outcome.

Overall Performance:

Our performance for the financial year 20-21 was impacted due to two major events - the pandemic and the fire incident at our facility. While the pandemic greatly affected the business in Q1 and Q2, the unfortunate incident in one section of the plant affected the sales in Q3 and Q4. Timely action in identifying outsourcing sites and starting operations at these sites has helped us to reduce the impact of the drop in Sales, which otherwise would have been much more. Despite such hurdles, the company was able to post an all-time-high top-line for the month of March21. We expect to maintain this tempo in the upcoming quarters, and look forward to a significantly better FY 22.

Vertical-wise Performance:

In the Agro vertical the sales were lower by around 15% in volume terms. On the positive side, we developed a new speciality product. The product was commercialized during the first quarter of FY20/21 and we were able to bag a good share of this import substituent in Q4. Also, contract orders for emulsifiers have increased to nearly 50 tons this season.

Our key business of emulsifier for bio-pesticides was affected both due to the global impact of COVID 19 as well as due to the fire incident. However, we were able to quickly resume manufacturing of this key product and service the outstanding orders. The agro segment is likely to remain steady in the next two quarters and remains an area of focus and growth.

In the area of Construction Chemicals, we were able to develop and supply our new range of Superplasticizers. The construction industry was one of the most affected ones due to the lockdown, which also impacted the demand for our additives. Subsequently, the fire incident impacted the key machinery to manufacture our waterproofing additive, which resulted in loss of sales in this segment.

In the Home & Personal Care vertical, the business saw a growth in the sales of the speciality emulsifiers to the leading Spice Export Houses this year. We expect this business to continue growing in the upcoming year. Our Kosher and Halal certifications are renewed.

In the Oilfield segment which is a vital segment for our company, we were able to post a 10% growth despite it being one of the worst years for the Oil & gas industry. Identifying multiple sites for outsourcing of production, managing the resources to handle the manufacturing at these sites, and getting an increase in prices from our customers are the key factors which helped us avoid any break in our exports. We were able to develop and commercialize some key products for our partners in this segment. We expect good growth in the Oil field sector in FY 2021-22.

In the Paints & Coatings segment, our performance has been reasonably stable compared to last year despite the many hurdles. We received contract orders from a key domestic customer for an import substituent product. The export business of anionic emulsifiers for Paint units in Bangladesh and the Gulf region witnessed an increase of more than 50%.

In the area of Rayon, we are supplying our products to all the major Rayon producing units in the country. All these units were under prolonged shutdown due to the pandemic, leading to low demand in the textiles segment. This severely impacted the local sales though we could revive the export orders in Q3 and Q4. The industry also had to face an acute shortage of key raw materials required for the formulation of Finishing chemicals. We were able to retain all our key customers during this difficult phase.

In the Sizing chemicals vertical, we achieved a major breakthrough in Q1 as one of our large customers required our specialized products for their fabrics to be made into haz-mat suits for PPE. This had resulted in bagging a contract order for the first quarter. Subsequently, the key machinery for the main high-volume Sizing product was damaged during the fire incident, resulting in loss of sales in Q3 & Q4. We have made necessary arrangements to manufacture this product beginning Apr21, and we should be able to get back all the key customers. Recently we have also got a breakthrough in this sector with leading units in Surat and Ahmedabad.

The Textile Auxiliaries vertical was affected in a big way as the processing units were majorly impacted by the pandemic in the first two quarters, and the remaining two quarters were impacted by the fire incident. Our range of textile finishing softeners which contribute a major component of sales in this segment were affected by the fire incident due to the damage to the specialised reactors. We have restarted the softeners business from March21, and we should be able to regain the lost sales in the coming months.

KEY FINANCIAL RATIOS:

As per the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the significant changes (i.e. changes exceeding 25%) in the key financial ratios along with explanations are given below:

Particulars As at 31.3.2021 As at 31.3.2020 Variance Explanation for variance
Interest Coverage Ratio -1.71 -1.04 64% Due to repayment of Term Loan of Axis/HDFC Bank
Debt Equity Ratio 0.14 1.10 87% Due to repayment of Term Loan of Axis/HDFC Bank
Operating Profit/ Loss Margin (%) -26% -16% 62% Due to Fire incidence at Dahej on November 22, 2020.
Return on Net Worth (%) 34% -25% 236% Due to Profit from Sale of Land

JOINT VENTURE/ASSOCIATE/ SUBSIDIARY COMPANIES:

Dai-ichi Karkaria Limited has a Joint venture with CTI Chemicals Asia Pacific Pte. Ltd., in ChampionX Dai-ichi India Private Limited (formerly known as Nalco Champion Dai-ichi India Private Limited) in the ratio of 50:50.

The Company has a Subsidiary, Dai-ichi Gosei Chemicals (India) Limited. The Annual accounts of the Subsidiary Company are placed on the website of the Company and will be provided to the members on request.

As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Companies Act, 2013 and applicable Accounting Standards, the Consolidated Financial Statements of the Company with its Joint Venture Company, ChampionX Dai- ichi India Private Limited (formerly known as Nalco Champion Dai-ichi India Private Limited) and Subsidiary Company, Dai-ichi Gosei Chemicals (India) Limited., duly audited by the Statutory Auditors are attached to the financials.

Statements containing salient features of the financial statement of subsidiary/ associate company/ joint venture are attached to the financials.

DIRECTORS AND KMP:

Ms. Meher Vakil retires from the Board of Directors by rotation, in pursuance of the provisions of the Companies Act, 2013 and Articles of Association of the Company. Being eligible she has offered herself for re-appointment. The Board of Directors recommends her re-appointment. The information required to be furnished under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 & Secretarial Standards is given in the Notice of the 61st Annual General Meeting.

Mr. Behram Sorabji, Independent Director of the Company resigned from Directorship of the Company w.e.f. closing of business hours of June 8, 2020 on account of his pre-occupation and ongoing health issues. He has confirmed that there are no other material reasons for his resignation. The Board acknowledges his significant contribution as a Board & Committee Member of the Company during his tenure.

Dr. Anil Naik, Independent Director of the Company expired on July 29, 2020. His sudden and unexpected passing away will be an irreparable loss to the Company and the Board of Directors.

Pursuant to the recommendations of the Nomination and Remuneration Committee (‘NRC), the Board of Directors, at its meeting held on September 9, 2020, appointed Mr. Ashok Hiremath as an Additional Independent Director of the Company. A resolution seeking shareholders approval for his appointment as Independent Director for a term commencing from September 9, 2020 upto the conclusion of 65th Annual General Meeting, forms a part of the Notice.

The Members of the Company had appointed Mr. Kavas Patel and Mr. Keki Elavia as Independent Directors under the Companies Act, 2013, not liable to retire by rotation and to hold office upto the conclusion of 63rd Annual General Meeting. All the Independent Directors have given declarations that they continue to meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

During the financial 2020-21, Mrs. Kavita Thadeshwar resigned as a Company Secretary and Compliance officer of the Company w.e.f. closing of business hours of March 10, 2021. Pursuant to the recommendations of the Nomination and Remuneration Committee (‘NRC), the Board of Directors, at its meeting held on February 13, 2021, appointed Mr. Ankit Shah as Company Secretary and Compliance officer of the Company w.e.f. March 11, 2021.

Pursuant to the provisions of Section 203 of the Act, the Key Managerial Personnel of the Company as on March 31, 2021 are Mrs. Shernaz Vakil, Chairperson & Managing Director, Ms. Meher Vakil, Whole-time Director, Mr. Shailesh Chauhan, Chief Financial Officer and Mr. Ankit Shah, Secretary of the Company.

MATERIAL DEVELOPMENTS ON HUMAN RESOURCES INCLUDING NUMBER OF PEOPLE EMPLOYED:

All manpower requirements are assessed and filled in a timely manner. The Company has a sound knowledge pool of experienced employees, which helps it to maintain consistency in performance across all disciplines. It has built a team of dedicated employees, who work with commitment and a sense of belonging towards the growth of the Company.

Following areas are given special attention to enhance performance of the employees.

• Identification of Training & development needs and upgrade job specific skills.

• Compensation, recognition & rewards.

• Career growth plan through annual assessment.

• Supporting employment related legislative compliance.

• Promoting excellence in human resource management.

• The promotion of an atmosphere of mutual respect, fairness and concern.

• Company has extended its facility for Apprentice Scheme, to needy and economical weak youths for pursuing special industrial training.

COVID-19 Management:

• Temperature machine and sanitizer dispenser has been installed at the security gate so that employees, contract workmen and visitor proceed further after proper sanitization & temperature measurement.

• Only important visitors are allowed and all of them have to share relevant information as per guidelines instructed by the local administration.

• Any employee/visitor coming from other state need to carry negative RT-PCR report to get entry within the premises. Payment for this test is reimbursed by the organisation to the employees.

• COVID-19 positive employees have been quarantined as per the recommendation of concerned doctor and payment for the quarantine period is ensured.

Toll Manufacturing:

• Based on the requirement of toll manufacturing, employees with appropriate skill sets have been deployed at different sites to supervise and ensure quality production.

As on 31st March, 2021, the total numbers of employees on the payrolls of the company are 162.

HEALTH, SAFETY & ENVIRONMENT:

Health, Safety & Protection of the Environment are the priority areas for the Company. The Company continues to put special emphasis in this area at every stage, from conception and design of new products, optimization of process, to commercial manufacturing and delivery of goods to the customers. Recently company has successfully completed DNV-GL Periodic Audit of ISO 14001:2018 & OHSAS ISO 45001:2018 and received the certification in F.Y. 2020-21.

a) Health:

A special committee ensures good sanitation and hygienic condition in the plant and canteen. Medical examination of all the employees is carried out annually. Six monthly medical examinations are conducted for the employees who are working in Hazardous Areas. Health awareness trainings and programs are being conducted regularly. Company is practicing all government guidelines and precautions to ensure the employees remain safe during COVID-19. Thermal scanning, sanitization, social distancing and usage of N95 masks are made mandatory. Special programs are conducted to bring awareness amongst employees regarding COVID-19. RT-PCR test is mandatory for guests and visitors. The company has insured all its employees for COVID-19 treatment.

b) Safety:

Internal and External Safety Audit, regular inspections pertaining to risks and hazards for Ethoxylation/ Propoxylation process are carried out as per the provisions of Factories Act. New DCS system has been installed for Ethoxylation/ Propoxylation process to ensure enhanced safety features and automation to nullify human errors. HAZOP Study and Risk Assessment are carried out to identify the potential hazards as proactive measures to enhance safety. Appropriate corrective actions are implemented.

Un-planned Mock drills are conducted to ensure the Emergency preparedness as per the requirement of The Factories Act, 1948 & planned Mock drills are conducted to train the employees.

Every year Safety week is celebrated from 4th March to 11th March during which competitions, lectures and training sessions are organized to inculcate and enforce the need for a safe working environment and Emergency Planning.

"Goal Zero" campaign is started to achieve Zero accident, Zero incident & Zero pollution.

Despite having all safety measures in place, there was an unfortunate fire incident in one section of the plant in the month of Nov20. There was no injury or loss of life during this incident. A detailed investigation was carried out along with a thorough safety audit of the plant. The necessary corrective and preventive actions have been put in place to ensure that no such incidents repeat in the future.

c) Environment:

Regular environment monitoring is carried out to ensure pollution levels for air and water are below the specified limits by the State Pollution Control Board. Strict adherence to environment rules is ensured by conducting inspections and environment audit.

Environment programs and trainings conducted to inculcate a sense of conservation of environment.

Effluent Treatment Plant is upgraded with SUF (submersible ultra-filtration) technology and treated effluent is used in various processes, thus, increasing water conservation. Vacuum pumps have been upgraded with closed loop circulation to minimize the water consumption. This has resulted in reduction of 1500 KL/month.

CAUTIONARY NOTE:

Certain statements in the Directors Report and Management Discussion and Analysis section may be forward looking and are stated as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook.

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