GHCL Ltd Management Discussions

DISCLAIMER:

Readers are cautioned that this Management Discussion and Analysis contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words "anticipate", "believe", "estimate", "intend", "will", and "expected" and other similar expressions as they relate to the Company or its business are intended to identify such forward looking statements, whether as a result of new information, future events, or otherwise. Actual results, performances or achievements and risks and opportunities could differ materially from those expressed or implied in such forward-looking statements. The important factors that would make a difference to the Companys operations include economic conditions affecting demand supply and price conditions in the domestic and overseas markets, raw material prices, changes in the Governmental regulations, labour negotiations, tax laws and other statutes, economic development within India and the countries within which the Company conducts business and incidental factors. The Company undertakes no obligation to publicly amend, modify or revise any forward-looking statements on the basis, of any subsequent developments, information or events. This report is prepared on the basis of public information available on website / report / articles etc. of various institutions. The following discussion and analysis should be read in conjunction with the Companys financial statements included herein and the notes thereto.

MANAGEMENT DISCUSSION AND ANALYSIS

The management of GHCL Limited has provided an analysis of the companys performance and key business updates for the financial year ended on March 31, 2024, as well as an outlook for the future. The outlook is based on an analysis of the current economic landscape, although it may be impacted by socioeconomic and political change due to future economic and related developments, both in India and internationally.

Overview of Global Economy

Amidst the prevailing global economic landscape, challenges such as a subdued manufacturing environment, faltering trade flows and persistent inflation concerns paint a complex picture for the future ahead. However, amidst these challenges, certain sectors, notably services, demonstrate resilience.

The recent update from the International Monetary Fund (IMF) offers a glimmer of hope, with a modest upgrade in growth projections for 2024 and 2025. Global growth is projected at 3.1 percent in 2024 and 3.2 percent in 2025, marking an increase from previous forecasts. This uptick is attributed to the stronger-than-expected resilience observed in the United States and several major emerging market economies, coupled with fiscal support measures in China. However, these growth projections still fall below the historical average of 3.8 percent, largely due to factors such as elevated central bank policy rates to combat inflation, reduced fiscal stimulus amidst high debt levels, and sluggish underlying productivity growth.

Furthermore, there is a notable decline in global inflation rates, driven by the resolution of supply-side constraints and the implementation of tighter monetary policies. Global headline inflation is anticipated to decrease to 5.8 percent in 2024 and further to 4.4 percent in 2025, with the latter figure being revised downward. Additionally, the year 2024 also marks changing geopolitical situation for several nations which may introduce a degree of uncertainty. These changing landscapes hold implications beyond borders, influencing economic and public policy in an increasingly fractious global landscape. Despite potential challenges, these developments underscore the ongoing efforts to navigate economic challenges while striving for stability and sustainable growth in the global economy.

Overview of the Indian economy

Despite global economic uncertainties, Indias economic resilience shines through, as Moodys (a leading provider of credit ratings, research, and risk analysis) predicts it to maintain its position as the fastest-growing economy among G-20 nations. For FY 2023-24, Standard & Poors credit rating for India stood at BBB(-) with a stable outlook, Moodys credit rating stood at Baa3 with a stable outlook, Fitchs credit rating was reported at BBB (-) with a stable outlook. The upward revision of Indias 2024 growth estimate to 6.8% from 6.1% reflects stronger-than-expected data in 2023, with GDP growth estimated at 6.4% for 2025, with nominal gross domestic product (GDP) for FY 2023-24 at current prices being estimated at INR 293.90 trillion (US$ 3.53 trillion). Robust indicators such as goods and services tax collections, rising auto sales, and double-digit credit growth point to resilient urban consumption demand, complemented by expanding manufacturing and services PMIs on the supply side.

In parallel, the Interim Budget 2024 presented by Union Finance Minister Nirmala Sitharaman outlined pivotal initiatives to propel India towards becoming a developed nation by 2047. The budget reiterated the governments commitment to the "Make in India" initiative, particularly focusing on positioning India as a hub for semiconductor and electronics manufacturing.

This positive economic outlook is reinforced by the governments proactive measures, as evidenced by the interim budget for fiscal year 2024-25, which targets a capital expenditure allocation of Rs 11.1 lakh crore, signifying a 16.9% increase over the previous years estimates. While private industrial capital spending has been sluggish, ongoing benefits from supply chain diversification and the governments Production Linked Incentive scheme are expected to spur investment in key manufacturing sectors. Additionally, in 2024, Indias power sector is set to witness substantial expansion in renewables alongside the addition of new coal-based capacities, driven by rising demand. Despite the sectors robust growth, India remains committed to its climate goals, aiming to reduce emissions intensity by 45% by 2030 and achieve net-zero emissions by 2070. To realize these objectives, India plans to scale up its renewable capacity to 500 GW by 2030, supported by incentives for domestic solar manufacturing. Furthermore, industrial sectors are increasingly adopting renewable energy sources in preparation for the implementation of a compliance carbon market.

Global:

The total Global Soda Ash capacity in 2023 was reported to be around 73.00 million MT (MMT) with an operating rate of around 90% (Source IHS Chemical). Global demand was reported at around 67.8 MMT showing a growth of 2.7% in 2023 over last year. This growth is driven by China as World demand excluding China fell by 3.2%. Analysts expect Soda Ash markets to continue to growth by around 2.5 to 3.5% as compared to 2023. With energy costs are going down gradually and demand will continue to get a boost from sectors linked to the environment including Solar Glass, Lithium Carbonate and Sodium Bicarbonate.

US remained the largest Soda Ash exporter in the world followed by Turkey and China. China still remains the largest SA producer in the world.

China is the largest Soda Ash producer in the world, having a nameplate capacity of around 34 million TPA, which is almost 47% of the global capacity. China reported a production of around 32.3 million MT which was an increase of almost 11% over previous China: year as the Berun Natural Soda Ash capacities came on line.

Domestic consumptions was around 31.5 MMT up by 10% against last year lead by Solar Glass. Exports were down to 1.48 MMT, a decrease of 27.6% over last year volume of 2.06 MMT as manufacturers focused on meeting domestic demand. Soda Ash market in Europe continued to remain weak having been disrupted by high Natural gas and carbon EU: surcharge prices as well as lower demand from container Glass & Detergent. The average operating rate in 2023 was only at 80%. Production of SA saw a drop by 7% and domestic demand down by 6.2% compared to 2022. Imports drop by 18% and exports also drop by 28% in Western Europe.

In Russia and the CIS region production collapsed since the start of the war in Ukraine and volumes still remained significantly low.

Demand in the US also remained on the softer side throughout 2023. With a capacity of 13.33 million MT & US: operating rates at 81% total reported production was 10.8 million MT. Exports increased by 2.8% compared to 2022 with South East Asia (29%) as well as South America (30%) being the top export destination followed by North America region (24% - Canada + Mexico). The biggest recent expansions in the US was by Genesis where a total of about 1.2 million MT of capacity was added in two phases, with both phases operational since the end of 2023.

Global

The world estimated 2023 distribution of soda ash by end use is as under:

(Source: _IHS world soda ash conference Global SA report: Oct23)

INDIAN SCENARIO

Indian GDP witnessed a growth of around 7.6% in the FY 2023/24 as compared to the previous year supported by Industrial growth and economic recovery. However, the SA demand witnessed a muted growth of only around 2%. The industry reported lower production of around 5% (2 Lac MT) compared to 2022 levels mainly on account of surge of imports mainly from Turkey, US & Russia. Total imports into India were at 10.42 Lac MT as compared to 6.36 Lac MT in 2022 an increase of 64%. Exports also increased to 4.18 Lac MT up from 2.16 Lac MT last year an increase of 94% on account of higher inventory & increased imports.

Total installed capacity of Soda Ash in India is 44.5 Lac MT, with an estimated production of about 35.7 Lac MT in 2023-24. The total size of the Indian soda ash market is about 42.0 Lac MT and currently almost 25% of the Indian demand is being met by imports. Almost all the major industry players are located in the state of Gujarat due to the closeness and ready availability of the main raw materials namely limestone and salt.

As reported above, Indian SA demand saw a muted growth (estimated 2%) in 2023-24. While demand from the Detergent & Chemical segments are reported to be improving, The Flat Glass sector continues to be under pressure of low-price imports from China & Vietnam. The Solar glass industry which previously was anticipated as a high growth sector, has also been very adversely impacted by cheaper imports there by severely impacting growth as well as future investments. While we may see some improvement in demand going forward, the pricing situation may remain under pressure in the coming quarters.

GHCL SODA ASH BUSINESS

GHCL Limited is a leading producer of soda ash in India and the total Soda Ash business contributes about 98.30% of total standalone revenue of the company.

GHCL shares highly successful client relationships and is the preferred supplier to all major soda ash consumers like Hindustan Unilever Limited, P&G, Aditya Birla- Grasim Industry, Patanjali Ayurveda Limited, Fena Group, HNG Group, Gujarat Guardian Limited, Gujarat Borosil Limited, Piramal Glass Limited, ST. Gobain & Philips to name a few.

The current operating Soda Ash capacity of GHCL is 12.0 Lac MT & Sodium Bicarbonate is 1.4 Lac MT per year.

OPPORTUNITY AND CONCERNS

While the growth opportunities in India should remain steady on the back of a healthy GDP growth the excess capacities in EU / US may continue to find markets in India and disrupt domestic operations.

Caustic soda price drop has resulted in Silicate market shifting to Caustic, which proved to be a substantial loss for soda ash. Muted growth is seen in dyes, intermediates and specialty chemical industry, however the same is expected to improve in 2024. Detergent sector remained stable in current year and expected to show further strength due to better rural demand. Many new announcements in the form of PLI schemes have been made in the Solar Glass sector, further ADD investigations have also been initiated on cheaper imports from China / Vietnam, If these actions were to fructify it will give a huge boost to this sector & result in demand growth. With global capacities continuing to rise, India will have to guard against continued dumping of cheaper imports;

China is expected to add close to 4 million MT of capacity in the coming year, if demand growth in China was to slow down, they will pose a big threat for increased exports in most markets.

EU continues to see a recessionary trend as a result of which Turkey which is a major Natural ash producer has seen a large erosion in demand which has led to higher exports to the Indian sub- continent. If demand in EU does not improve in the near term, the threat of cheaper imports to India will continue.

The US which is a natural soda ash manufacturer currently has surplus capacities and will continue to remain a threat to the Indian Soda Ash industry.

The Indian industry which is based on the synthetic route, will continue to face significant challenges as most surplus capacities are based on the cheaper natural process.

The Indian industry which is based on the synthetic route, will continue to face significant challenges as most surplus capacities are based on the cheaper natural process.

Total Demand: 67.8 million mt Source: Chemical Market Analytics by OPIS

Historical GDP and growth rate of India

Salt Production and Refining Facility

The company owns and operates a 3,220-acre salt field located in Vedaranyam, Tamil Nadu, India. This salt field is vertically integrated with a salt refinery situated near Chennai, Tamil Nadu.

Washed Salt: Primarily sold to industrial clients, particularly caustic soda manufacturers, located in South India. This product is also supplied to the companys own vertically integrated salt refinery near Chennai.

Refined Iodized Salt: Marketed under the brand names SAPAN and iFLO through the Chennai refinery.

Refined Salt (Private Label): The refinery provides refining services for other branded products.

Refined Salt (Bulk): Packaged in large bags and sold to various end-user industries such as detergent, flavoring, and food manufacturing.

Challenges and Opportunities for Salt business

The company has experienced a significant decline in salt production over the past five financial years (2019-2024) due to rainfall during the harvesting season. To address this challenge, plans are underway and there is a target to harvest 1.2 lakh metric tonnes (MT) of salt during the 2024-2025 financial year.

The business has its salt harvesting works at Vedaranyam, Tamil Nadu and the refinery for its edible salt manufacturing is at Chennai, Tamil Nadu. Our industrial salt commands a premium in the caustic soda industries, and our edible salt is available in ‘I FLO and ‘SAPAN brands in the consumer retail market. A consumer behaviour trend in the use of salt in daily life was an indeed a notable trend over the past few years. Consumers are becoming increasingly health-conscious and looking for healthier options when it comes to their diet. GHCL CPD is taking utmost care and is meticulously working towards proving the end user the best quality and user experience. Salt production saw a major downfall during the last four years (2020-24) due to unseasonal rains. However, for 2024-25 salt production is expected to improve to 1.2 lakhs MT.

Revenue for the financial year ended 31^st March 2024 is Rs. 3498 Crore as against Rs. 4584 Crore for the previous Financial Year ended 31^st March 2023.

Profit before financial expenses and depreciation for the financial year ended 31^st March 2024 is Rs. 899 Crore as compared to Rs. 1519 Crore for the previous Financial Year ended 31^st March 2023.

PBT (Profit Before Tax) for the financial year ended 31^st March, 2024 is at Rs. 991 Crore against Rs. 1442 Crore for the previous Financial Year ended 31^st March 2023.

DETAILS OF SIGNIFICANT CHANGES IN THE KEY FINANCIAL RATIOS & RETURN ON NET WORTH

As per the Schedule V to the Listing Regulations read with Regulation 34(3) of the Listing Regulations, details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios and any changes in Return on Net Worth of the Company including explanations there for have been provided in note no. 46 (refer page no. 288 of Annual Report).

INTERNAL CONTROLS AND RISK MANAGEMENT

GHCL Limited has a well-established frame work of internal controls across all the businesses and in all the areas of its operations. The Company has adequate monitoring procedures and has appointed competent personnel to safeguard its assets, protect loss from unauthorized use or disposition ensuring reliably authorized, accurately recorded and transparently reported transactions. Establishment of highly efficient management information and reporting systems combined with robust corporate policies form the overall control mechanisms. The Company conducts its business with integrity, high standards of ethical behavior and in compliance with all applicable laws and regulations that govern its business. To supplement the internal control mechanism, the Company has appointed external independent internal audit agencies to carry out concurrent internal audit at all its business locations. Audit & Compliance Committee of the Board of Directors reviews the internal control systems on a regular basis to improve their effectiveness besides verifying statutory compliances. The Audit & Compliance Committee meets periodically to discuss findings of the internal auditors along with the remedial actions (i.e. Action Taken Report) that have been recorded or have been taken by the management to address weaknesses of the system. The statutory audits are conducted by globally recognized ‘Big 4 audit agencies to ensure that the companys practices are in line with global best practices. A compliance management tool had also been adopted to ensure timely compliance with legal, financial, environmental, labour, governance, safety and other relevant regulations.

At GHCL, Risk Management and Internal Audit functions complement each other to form an elaborate risk management system that evaluates the efficacy of the framework relating to risk identification and mitigation. The Company strives to adopt a de-risking strategy in its operations while making growth investments. This involves setting up and monitoring risks on a regular basis. GHCL has Risk & Sustainability Committee in line with the requirement of Regulation 21 of the Listing Regulations. The Company applies Risk Management in a well-defined, integrated framework, which promotes awareness of risks and an understanding of the Companys risk tolerances. The management monitors the internal control system, designed to identify, assess, monitor and manage risks, associated with the Company. Each risk is provided with different number of control measures depending upon its potential impact and probability of occurrence. The risk management framework incorporates both financial and non-financial risks, as explained in the Risk Management section of the Integrated Report and Corporate Governance Report.

HUMAN CAPITAL MANAGEMENT

In GHCL we are really proud of our "HUMAN RESOURCES". We believe that our employees make a key difference to our business success. It speaks volumes as to why GHCL is certified as a "Great Place to Work" consecutively for eight times in a row. Indeed it is a proud moment that we are also certified by GPTW as TOP 50 Great places to work in Manufacturing, an additional feather on the cap. Employees are one of our five key stakeholders and needless to mention that managing our human capital has been our key strength and pride. To corroborate this, the scores of our HR CULTURE Audit by GPTW shows a consistent journey even this year. It is our firm belief that nurturing and strengthening the human resource capital is of utmost importance to run the organization effectively and smoothly. Therefore, the HR function takes pride in managing the human capital both with warmth and care as a hallmark of a caring organization. The Human Capital is managed in a structured manner with key focus areas being Talent Management, Organizational capability Development, Employee Engagement and harmonious Industrial Relations. This contributes to our unique corporate identity in our journey towards high performance Coaching & Mentoring culture. Good human resource management is vital for the success of any business, therefore GHCL regularly reviews & revisits its various HR policies and practices to ensure that we comply with the values of the Company and can be benchmarked against the leaders in the industry. In fact our HR Mission emphasizes on creating a value driven, high performance learning organization in an engaged and digitized environment so that we are employer of choice. As on March 31, 2024, number of people employed are 3447 including all categories. For more details on Human Capital Management at GHCL, refer to ‘Human Capital section of the Integrated Report.

CSR Initiatives

GHCL Limited, since beginning, has been determined to focus on the holistic development, including the growth of society as a whole, particularly in the region of its operations. This is done with the aim to establish social license to operate and maintain a harmonious relationship with local stakeholders. For last three years, more focus has been given on expanding the CSR footprint in our operational areas along with meeting the expectations of the people. In doing so, our NGO partners, through GHCL Foundation, play a pivotal role in strategically planning and systematically executing our CSR initiatives. For more details on Corporate Social Responsibility at GHCL Limited, refer to ‘Social & Relationship Capital section of the Integrated Report.