Ducol Organics & Colours Ltd Management Discussions

Forward looking statement -

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally.

The financial statements of the Company have been prepared under the historical cost convention, in accordance with generally accepted accounting principles in India (Indian GAAP) on an accrual basis. The company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies (Accounts) Rules, 2014, and the relevant provisions of the Companies Act, 2013, to the extent applicable and the guidance notes, standards issued by the Institute of Chartered Accountants of India. As per MCA notification dated 16th February 2015, companies whose shares are listed on SME exchange as referred to in Chapter XB of SEBI (Issue of Capital and Disclosure requirements) Regulations, 2009 are exempted from the compulsory requirement of adoption of IND-AS. As the Company is covered under the exempted category, it has not adopted IND-AS for preparation of the financial results. The management of Ducol Organics and Colours Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year.

The following discussions on our financial condition and result of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "Ducol" are to Ducol Organics and Colours Limited

About the Company

Ducol Organics and Colours has emerged as a prominent industry player, solidifying its position over the course of 25 years. Having originated as a small laboratory in 1990, the Company has achieved notable advancements in product development, innovation, and enhancements. Commercial production commenced in 1995, marking the beginning of Ducols journey to cater to diverse sectors such as Paints, Inks,

Textile, Paper, Rubber, Plastics, and FMCG through its extensive range of pigment dispersions and color solutions.

As a specialized manufacturing enterprise, Ducol excels in producing and distributing pigment dispersions, preparations, concentrates, paste colorants, and master batches. The Company operates across three well-established manufacturing facilities, including two plants situated in Taloja and one in Mahad, that facilitate the development of robust process capabilities and application techniques for its product portfolio.

Ducols customer base spans the entire Indian market, delivering comprehensive product solutions tailored to meet diverse needs. By virtue of its integrated operations, the Company ensures a seamless experience, offering customers the highest quality products alongside exceptional service.

Global Economic Outlook

The global economic outlook for 2024 and 2025 shows moderate growth, with projections at 3.1% and 3.2% respectively.

This forecast is slightly higher than previous estimates due to stronger economic activities in the United States and some large emerging markets, along with fiscal support in China. However, this growth rate is still below the average growth seen from 2000 to 2019. The improvement in the forecast is partly 33 because these economies are doing better than expected, which helps the global economy.

Inflation, which has been a significant concern globally, is expected to decrease. By 2024, the global inflation rate is projected to fall to 5.8% and further down to 4.4% by 2025. This decline is attributed to the easing of supply chain issues and strict monetary policies by central banks. These measures are helping to reduce the cost of goods and services more quickly than anticipated, which is good news for consumers and businesses alike.

Despite these positive signs, the global economy faces several challenges. High debt levels and the withdrawal of fiscal support in many countries are likely to slow economic growth. Additionally, while advanced economies like the United States and Europe are expected to see slight improvements in growth, emerging markets and developing economies might experience a slowdown. This mixed growth pattern reflects the varying impacts of economic policies and external factors across different regions.

Looking ahead, the risks to the global economy are considered balanced. There could be better-than-expected outcomes if inflation continues to decrease rapidly, allowing for more relaxed monetary policies. However, there are also potential downsides, such as unexpected spikes in commodity prices or further economic disruptions from geopolitical tensions. Overall, while the global economic landscape shows signs of resilience, it remains laden with uncertainties that could shift the growth trajectory.

Source:https://www.imf.org/en/Publications/WEO/ Issues/2024/01/30/world-economic-outlook-update- january-2024

https://www.imf.org/en/Publications/WEO

https://www.imf.org/-/media/Files/Publications/WEO/2024/

Update/January/English/text.ashx

Indian Economic Outlook

The Indian economy in 2024 has demonstrated remarkable resilience and robust growth, despite facing global uncertainties and geopolitical challenges. According to the Press Information Bureau, Indias Real GDP is projected to grow at 7.3% for FY 2023-24. Strong domestic demand for consumption and investment, along with Governments continued emphasis on capital expenditure are seen as among the key driver of the GDP.

On the supply side, industry and services sectors were the primary growth drivers. India has registered the highest growth among major advanced and emerging market economies during this period. The strength of the domestic demand has driven the economy to a 7 per cent plus growth rate in the last three years.

The robustness seen in domestic demand, namely, private consumption and investment, traces its origin to the reforms and measures implemented by the government over the last ten years. The supply side has also been strengthened with investment in infrastructure - physical and digital - and 4 measures that aim to boost manufacturing. These have combined to provide an impetus to economic activity in the country.

As per the IMF, India is likely to become the third-largest economy in 2027. Fiscal policy has played a crucial role in Indias economic performance. The government has increased its capital expenditure outlay by 11.1% to 11,11,111 crore for the next fiscal year, which is expected to have a substantial multiplier effect on economic growth and employment creation.

Source.- https://pib.gov.in/PressReleasePage. aspx?PRID=2001124

https://dea.gov.in/sites/default/files/The%20Indian%20

Economy-A%20Review_Jan%202024.pdf

Indian Specialty Chemical Sector

The Indian specialty chemicals sector is experiencing significant growth and development, with several key trends and projections shaping its future. As of 2024, the sector is poised for expansion, driven by increasing demand from various end-user industries such as food processing, personal care, and home care. India, holding a modest share of around 3% in the global specialty chemicals market, is expected to witness a compound annual growth rate (CAGR) of 11% until FY26. This growth is attributed to the export of insecticides and the demand from the textile industry, with agrochemicals, dyes, and pigments accounting for 51% of the market share in the Indian specialty chemicals sector.

The sectors of construction chemicals, flavors and fragrances, and dyes and pigments are identified as key drivers for the domestic specialty chemicals industrys growth. The

industrys expansion is further supported by the Indian governments initiatives, such as the introduction of a production-linked incentive (PLI) scheme aimed at promoting domestic manufacturing of agrochemicals and the allocation of significant funds to the Department of Chemicals and Petrochemicals in the Union Budget 2023-24.

The specialty chemicals market in India represents 22% of the countrys overall chemicals and petrochemicals market, valued at USD 32 billion. It accounts for more than 50% of all chemical exports from India, with the top 10 specialty chemical manufacturers experiencing a CAGR of over 20% between FY15-FY20. The growth of the Indian specialty chemicals market is driven by factors such as strong process engineering capabilities, low-cost manufacturing, and abundant manpower. Government policies like the PCPIR policy and PLI schemes have bolstered manufacturers confidence to invest within the country.

Source.- https://www.ibef.org/industry/chemical-industry-india

https://www.thehindubusinessline.com/portfolio/in-charts-

indian-specialty-chemicals-sector/article67817659.ece

https://kpmg.com/in/en/home/insights/2022/11/specialty-

chemicals-industry-india.html

Indian Paint Industry

The Indian paint industry is on a vibrant growth trajectory, with significant developments and projections shaping its landscape in 2024. The sector is witnessing a robust expansion, driven by various factors including urbanization, increased disposable incomes, and a growing inclination towards ecofriendly paint solutions. As of 2024, the market size of the Indian paint industry is projected to reach $14.61 billion, underpinned by a compound annual growth rate (CAGR) of 1.85% from 2024 to 2028. This growth is attributed to the rising demand for paints across different segments, including residential and industrial applications, fueled by urban expansion and higher consumer spending power. The usage of nanotechnology and the increasing influence of the architectural industry are two major trends influencing the future of Indias paint industry.

A favourable development for the paints and coatings industry occurred in fiscal year 2022-23 when the prices of raw materials dipped from their previous highs. The input costs of the industry saw an improvement in margins due to price corrections in crude and other essential components, which account for 55% to 60% of the total.

Source.- https://www.stockgro.club/blogs/trending/paint- industry-in-india/

Indian Packaging Industry

The Indian packaging industry is projected to grow significantly, reaching a market size of USD 84.37 billion in 2024 and is expected to expand to USD 142.56 billion by 2029, with a compound annual growth rate (CAGR) of 11.06% during this period.

This growth is largely driven by the increasing demand in consumer markets, particularly in sectors like processed food, personal care, and pharmaceuticals. The industry is one of the fastest-growing sectors in India, contributing to various manufacturing sectors including agriculture and fast-moving consumer goods (FMCG).

Technological advancements and government initiatives such as the Make in India policy are major factors fueling this growth. The industry is also moving towards more innovative packaging solutions that enhance the customer experience, especially in the food and beverage sector, which dominates the market. Additionally, there is a strong emphasis on sustainability, with paper packaging emerging as a preferred eco-friendly option.

Source.- https://www.mordorintelligence.com/industry-reports/ packaging-industry-in-india

Financial Overview

The financial performance of the Company for the financial year ended March 31, 2024, is as follows.

Total revenue from operations stood at 75.41 crore for the year ended March 31, 2024, as against 90.73 crore for the corresponding previous period, an decrease of 16.89% Y-o-Y, mainly due to significant decrease in raw materials cost which has been passed on to the customers and hence impacting revenue despite higher volume sales.

The EBIDTA (earnings before interest, depreciation and tax, excluding other income) was 6.61 crore for the year ended March 31, 2024, as against 12.01 crore for the corresponding previous period, a decrease of 44.93% Y-o-Y. EBITDA margin was at 8.77%.

The PAT (profit after tax) was 4.43 crore for the year ended March 31, 2024, as against 6.11 crore for the corresponding previous period, a decrease of 27.53% Y-o-Y. This is mainly due to decline in revenue and higher depreciation on account of ongoing CapEx. PAT Margin was at 5.87%.

FY24 EPS was at 3.05 vs 4.20 in FY23.

Resources and Liquidity

Interest Coverage Ratio was at 4.40 times in FY24 vs 6.27 times in FY23. This is mainly due to decline in Earnings before Interest and Tax by over 30% whereas, the interest expense only decreased marginally around 1.66%.

Current Ratio for FY24 was 2.28 times vs 3.18 times in FY23, this decline was mainly due increase in short term borrowings in FY24 as compared to previous year ( 14.41 cr in FY24 vs 3.14 cr in FY23).

As on March 31, 2024, the net worth stood at 62.74 crore and the consolidated debt was at 20.36 crore.

The debt-to-equity ratio of the Company stood at 0.32 crore as on March 31, 2024. This is mainly due to increase in short term borrowings for working capital requirements.

Risk and Concerns

Like every business, the Company faces risks, both internal and external, in the undertaking of its day-to-day operations and in pursuit of its longer-term objectives. A detailed policy drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

The Company faces the following Risks and Concerns.

Market Risk

Market risk is the risk that changes with market prices - such as foreign exchange rates and interest rates, will affect our Companys income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Credit Risk

To manage its credit exposure, Ducol has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before bidding for a project. Timely and rigorous process is followed up with clients for payments as per schedule. The Company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. It has been using a mix of loans and internal cash accruals. The Company has well managed the working capital to optimize the overall interest cost.

Contractual Risk

Ducol follows a meticulous process to evaluate the legal risks involved in a contract and ascertain its legal responsibilities under the applicable law of the contract. All the worst possible scenarios are considered and as a strategic priority with consultation from advisors, stringent terms are inserted to restrict liabilities to the maximum extent possible.

Competition Risk

Like in most other industries, growth opportunities lead to a rise in competition. We face different levels of competition, from domestic as well as multinational companies. Furthermore, the Company continues to invest in technology and its people to maintain a competitive edge. A stable and long-standing client base comprising large and mid-sized companies further helps maintain a strong order book and insulate the Company from this risk. We also mitigate this risk with the quality of our infrastructure, our customer-centric approach and our ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, coupled with prudent financial and human resources management and better control over costs. Thus, we do not expect to be significantly affected by this risk.

Input Cost Risk

Our profitability and cost effectiveness may be affected due to change in the prices of raw materials, power and other input costs. Some of these risks that are potentially significant in nature and need careful monitoring are raw material prices, and availability of power, among others.

Liability Risk

This risk refers to our liability arising from any damage to cargo, equipment, life and third parties which may adversely affect our business. The Company attempts to mitigate this risk through contractual obligations and insurance policies.

Opportunities:

Favorable Market Outlook for Indian Growth: The Indian market presents a promising outlook for growth, providing ample opportunities for our Company to expand and thrive. With a growing economy and increasing consumer demand, we can capitalize on the favorable market conditions to enhance our market share and profitability.

Opportunities to Expand Share in Exports: The potential to expand our presence in the global market is significant. By leveraging our strengths and capabilities, we can explore and capture new export opportunities. This expansion in exports can further diversify our revenue streams and contribute to our overall growth and success.

Increased Product Portfolio and End User Applications: There are possibilities for expanding our product portfolio and exploring new end-user applications. By investing in research and development, we can introduce innovative products that cater to evolving customer needs and tap into emerging markets and industries. This diversification can drive revenue growth and strengthen our competitive position in the market.

Threats:

Technological Obsolescence: Rapid advancements in

technology pose a threat to our business. To remain competitive, we must stay abreast of technological developments and continually upgrade our processes, machinery, and systems. Failure to adapt to technological changes can lead to obsolescence and hinder our ability to meet customer expectations.

Attraction and Retention of Human Capital: A key challenge lies in attracting and retaining skilled professionals. The industrys success depends on the expertise and talent of our workforce. To mitigate this threat, we need to focus on creating an attractive work environment, providing opportunities for growth and development, and implementing effective talent management strategies.

Execution Risk: Successful execution of our business plans is crucial for sustained growth. However, various execution risks, such as supply chain disruptions, regulatory compliance, and operational challenges, can hinder our progress. It is important to identify and mitigate these risks through robust risk management practices and proactive contingency planning.

Competition from Local and International Players: The industry we operate in is highly competitive, with both local and international players vying for market share. To maintain our position, we must continuously monitor and analyze the

competitive landscape, identify our unique value proposition, and differentiate ourselves through product quality, innovation, customer service, and operational excellence.

Internal Control Systems and Adequacy - To be reviewed

The Company has appointed, M/s. A.P & Co., Chartered Accountants (Firm Reg. No. 100040W) as an Internal Auditor of the Company for a term of five (5) years i.e., from Financial Year 2022-23 to 2026-27. The Company has in place adequate internal controls which covers all significant areas of Companys operations such as accounting and finance, procurement, business operations, statutory compliances, IT processes, safeguarding the assets and their protection against unauthorized use, among others. The Internal Auditor performs the internal audit of Companys activities based on an internal audit plan, which is reviewed each year and is approved by the Audit Committee. The Audit Committee reviews the report submitted by the internal auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. Disciplinary action is taken, wherever required, for non-compliance to corporate policies and controls.

The Company has also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aims at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring.

Human Resources

Ducol has Human Relations and Industrial Relations policies in force. These are reviewed and updated regularly in line with the Companys strategic plans. The human relations team continually conducts training programs for talent development. The Company aims to develop the potential of every individual associated with it as a part of its business goal. Ducol leverages a mix of experienced as well as young talent to drive growth.

The Company values its human resources as the principal drivers of change. The Company focuses on providing individual development and growth in a work culture that encourages team work and high performance.

As on March 31, 2024, the Company had a workforce of 105 (permanent and contractual).

Changes in Key Financial Ratios:

Pursuant to provisions of Regulation 34 (3) of SEBI (LODR) Regulation, 2015 read with Schedule V part B(1) details of changes in Key Financial Ratios is given hereunder:

S. NO. Key Financial Ratio		FY 2023-24	*FY 2022-23
1. Debtors Turnover Ratio	%	0.16	0.11
2. Inventory Turnover Ratio	%	2.37	2.91
3. Interest Coverage Ratio	%	Net finance charge is positive	7.47
4. Current Ratio	%	2.28	3.18
5. Debt Equity Ratio	%	0.32	0.17
6. Operating Profit Margin	%	8.77	13.23
7. Net Profit Margin	%	5.87	6.74
8. Change in Return on Net Worth	%	7.06	10.29

*Previous years Figures have been regrouped / rearranged wherever necessary

Outlook

The recovery and growth in the paints and coatings industry present a significant opportunity for the pigment and dispersion sector, and the Company is well-positioned to capitalize on these trends. As the residential construction sector expands and home remodeling activities increase, the demand for pigments will continue to rise. Ducol, with its enhanced production capacity and modern technology, is ready to meet growing demand with high-quality and sustainable products. The Company is also in the position to leverage its established relationships and market presence to secure newer contracts and expand its customer base.

After enduring challenging period, it is evident that the market has bottomed out, signaling a turning point for our industry. We are optimistic about the future as indicators suggest a rebound in demand. Our strong cash flow and ongoing capital expenditures as part of our long-term growth strategy underscores our resilience and commitment to driving our business forward. Our unit upgradation at the Taloja facility is well underway and is important for us to be prepared to meet the evolving needs of the market. This will enhance our production capabilities as we are already experiencing notable growth in volume and demand.

Looking ahead, we remain dedicated to our core values and strategic goals. Our focus on sustainability, research and development, and strengthening relationships with customers and partners will continue to be our guiding principles. By leveraging our expertise and resources, we are confident in our ability to deliver sustainable growth.

ON BEHALF OF THE BOARD OF DIRECTORS DUCOL ORGANICS AND COLOURS LIMITED

Sd/-	Sd/-
AAMER AHMED FARID	HANI AHMED FARID
MANAGING DIRECTOR	WHOLE TIME DIRECTOR
(DIN: 00711705)	(DIN: 00711968)

PLACE: MUMBAI DATE: 14^th AUGUST, 2024

Registered Address:

Office No 302, Express Building, 14-E Road, Churchgate, Mumbai 400020