Emmbi Industries Ltd Management Discussions.

Forward Looking Statements

The report contains forward-looking statements, identified by words like plans, expects, will, anticipates, believes, intends, projects, estimates and so on. All statements that address expectations or projections about the future, but not limited to the Companys strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realised. The Companys actual results, performance or achievements could thus differ from those projected in any forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any such statements on the basis of subsequent developments, information or events.

Economy and Outlook

Global growth in 2019 was muted at 2.90%, a growth of 1.70% in advanced economies, and 2.90% in Emerging and Developing Economies. Global growth was again dominated by the US, and Emerging and Developing Asia; although growth in China, and India were much lower compared to the previous years, on account of a slowdown in consumption, structural changes in the system and un-resolved trade issues with the US. Whilst cyclical and structural changes in most economies played a role, this was accentuated by trade barriers, and uncertainty which led to lower investments across industry. The IMF pointed out that weaker spending on machinery, equipment, and consumer durable goods was an important factor to the global slow-down. Many central banks responded by both cutting rates and engaging in asset purchases. Emmbis prominent export market, the US grew at 2.10%, whilst Europe at 1.20%

The Indian economy slowed down, and the growth for fiscal 19 was at 5.00%, levels. Slowing consumer demand, pace of pay increases lower compared to previous years, sluggish exports, lower than expected industrial production were one of the many factors. The governance issues in some of the NBFCs, and stressed assets in many Banks, had a direct effect on the sales of commercial vehicles, and automobiles which was also coming to grips with structural changes (advent of BS VI etc.). On the positive side, farm incomes, rural spending remained healthy, as was also higher production of fertilisers, cement (led by the government related infra projects), coal and steel production.

The outlook for both calendar 20 at a global level, and fiscal 21 from a domestic perspective, seems not only uncertain however laden with a lot of down-side risks. Whilst with the full lock-down in India, parts of Europe, and partial lock-down across most economies, has led to supply-side hurdles, and losses, we may over the next few quarters continue to witness demand-side destruction. The IMF predicts a (3.00%) contraction in the World Output, with the Advanced Economies contracting by almost (6.00%), and the emerging and developing economies by (1.00%); the only green-shoots in such a scenario are China, and India which are estimated to show marginal growths. However, these are estimates, and the actual assessment of damages to the economic, human and financial resources both tangible and intangible is likely to emerge only post lifting of the lock-down and re-setting the systems and perhaps ourselves to the changed circumstances. We can only be certain that both consumer and institutional spend would be geared towards essentials and necessities, with discretionary items taking a backseat. This would prompt both manufacturers, and service providers to adjust accordingly.

Emmbi has consciously been diversifying its business lines, geographies, clientele and more importantly made its manufacturing more agile to suit the changing need of the post Covid-19 world. At this juncture, we can say with confidence that foremost on peoples and governments minds, and agenda would be food safety, health safety, essential needs, and overall business safety. Emmbi is perfectly aligned in meeting this through its product lines - food and pharma grade polymers, water storage systems, crop protection, and packaging material for essential items.

Sector Performance

The world is witnessing an exponential growth in the usage and consumption of polymers. Production that used to range at 340 million tons p.a. in 2010 is expected to cross 550 tons by 2020, a compounded annual growth of 10%. The completely man-made nature of polymers makes innovation and creation of new materials and applications limitless. The Polymer sector in India is estimated at over $75 billion, and this is expected to grow at upwards of 9% over

the next five years. Despite being one of the worlds largest economies, India lags in the consumption of polymers at just under 10kgs (World Average 30kgs).

There has been a perceptible up-tick in the past two years the governments emphasis on infrastructure, the manufacturing pick-up, and the emphasis on water conservation products, are the primary double-digit growth drivers in the medium term.

Impact of post Covid-19 world is yet to be studied on this sector. As large part of polymers are part of the essential class of the supply chain in the industry we have a feeling that the impact of the Covid-19 will be substantially lower on this sector than other sectors like Aviation or Hospitality.

Emmbis Industries International and Domestic Business

Product Range

We are proud to state that we have over 40 individual products that cater to a client base of over 200, spread across 57 countries. The products are classified into four business segments - Speciality Packaging, Advance Composites, Water Conservation and Agro Polymers.

International Business

Revenues from Exports stood at Rs. 1,439.38 million, notably across 57 countries with North America being the largest contributor, followed by Europe. In addition to diversification across geographies, Emmbis clientele include a wide range of industries.

In the International Markets, our focus continues to be North America, on account of greater business prospects, the growth fundamentals, and the recognition of the Emmbi brand amongst marquee clients. The United States being a large market, and diversified clientele, our risks are mitigated. In the other economies, we restrict our exposure not more than 5% across each country, and below 4% per client.

Domestic Business

Domestic growth was dominated by water conservation, and Agro-polymer segments. The strategic move initiated in the earlier years, in terms of resource allocation to high margin products that began to pay-off in 2017, has since consolidated in the past two years, and 2020 showed significant growth.

Revenues for the coming fiscal, despite challenging circumstances and the rough weather ahead, is likely to be sustainable, on account of the salient factors:

1. A broad-based increase in the consumption of polymer products across Asia, including India.

2. Consumption Shift both in B2C, and B2B - be it polypropylene bags, or glass to polymer syringes, concrete lined canals to polymer, use of polymers in highways, etc.

3. Emmbis innovation and long standing credibility with clients makes it a first choice provider for existing clients, and serves as a strong referral base.

4. The criticalness, the awareness, and the urgent need for water conservation products. Avana has made a mark in a few states, and its positioning and acceptability makes it an ideal candidate to be an engine for the growth.

5. The increased focus, thrust, and spending on food security, personal and community health wellness, and storage of essentials.

6. The Governments initiatives for improving farmers incomes, and a greater thrust across rural India.

Retail Operations

The investment in both human capital, and brand identity has paid off handsomely with the higher margin B2C business contributing to higher margins of overall revenues. Avana, Emmbis Strategic Business Unit (SBU) which operates the B2C segment is now well entrenched in Maharashtra, Rajasthan, and has gained significant footholds in Madhya Pradesh, and Karnataka. In the next 18 months, this division should contribute to well over 25% of total revenues.

Emmbis Operations

Plant Capacity and Utilisation

Plant capacity remained at 27,440 MT/ Annum, and Capex spend, was on routine maintenance. Industry 4.0 standards (IoT), and Robotic Process Automation (RPA) have increased operational efficiencies, improved product technicalities, and reduced wastage to a near zero levels.

Inventories Management

Emmbis strategy of managing business in a non-speculative nature, translates down to its inventory management policies. We always make it a point to match the order pipeline to the inventory levels. Procurements of raw material is simultaneous to order booking, and that way neither the fluctuations in the prices of crude, and thereby its derivatives impact the income statement or capital in an adverse manner. More-over the relationship between crude prices, and polymer prices is not entirely direct. The floor cost of polymers, irrespective of the prices of crude can be pegged around US $ 950-1000- 1050 taking into account the fixed costs, and logistics. Finally, it is the many stage derivative Polypropylene that goes into our products, and the actual crude constitutes only under 15% of the total raw material component.

Despite this linkage, we as a policy continue to apply effective hedge mechanisms.

Record Earnings

We continued to impress both in terms of revenues, and earnings to shareholders. The company recorded an impressive top line growth in revenues to Rs. 3,331.40 million and a record profit of Rs. 186.64 million.

Quality and Adherence

We adhere to the latest international standards and believe in adapting the best practices in the industry, be it people, processes, quality of our products or internal systems. We are in the process of "Integrated Management System" (IMS) a customised combination of ISO 9001 & OSAHAS 18000 and ISO 14000. This is in addition to the certification of ISO 9001:2008 that your company possess.

People and Processes

We continue in investing and developing existing talent, and source human resources when needed. We continue to conduct workshops on both technical, and soft skills, with the help of internally created teams, and external experts. We have in place a Whistle Blower policy keeping in check with the best practices (Detailed in the Corporate Governance Section).

Information Technology

All our plants across the five locations are integrated, and they in-turn communicate to the head offices, through various systems. We are one of the first to adopt Industry 4.0 standards that has led to process and operational improvements, and getting translated into financial savings.

Research & Development

We are now a full-fledged R&D Development centre, accredited by the Department of Science and Technology, the Government of India. Our R&D department is staffed with a 30 member team. As a policy we allocate ~2.50% of revenues towards, research and product development. This not only helps us getting tangible benefits like tax breaks, excise and VAT benefits, preferred bidder for Government projects, etc. We also get invaluable intangible benefits such as visibility in the international arena, through government initiatives.

Cautionary Statement

The estimation and expectation made in this report may differ from actual performance due to extraneous factors such as economic conditions, governmental policies, regulations, and other factors.

For & On Behalf of the Board of Directors

Makrand Appalwar

Chairman & Managing Director

DIN: 00171950

Place: Silvassa Date: 18th June, 2020