Godrej Industrie Management Discussions


FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE The highlights of overall performance are as follows:

Rs Crore

Particulars

2022-23 2021-22
Sales 4,487.96 3,339.60
Total Income 4,556.96 3,414.21
Profit / (Loss) Before Taxation 232.57 (44.19)
Profit / (Loss) After Current Taxation 232.57 (44.19)
Profit / (Loss) After Current & Deferred Taxation 232.57 (44.19)
Earnings per Equity Share (Rs) - Basic 6.91 (1.31)
Earnings per Equity Share (Rs) - Diluted 6.91 (1.31)

Profitability Ratios

PBDIT/Total Income 17% 12%
PBT/Total Income 5% -1%
PAT/Total Income 5% -1%
Return on Capital Employed 8% 4%
Return on Net Worth 15% -3%

Financial Risk Ratios

Debt / Equity 3.50 3.53
Debtors Turnover (Number of Days) 10.67 10.28
Inventory Turnover (Number of Days) 5.09 4.50
Current Ratio 0.40 0.53
Interest Coverage 1.69 1.09

Reasons for significant change in ratio:

Interest Coverage Ratio: Company has borrowed long term fund of Rs550 Crore during the year and Rs1,500 Crore in previous year. The fund is utilized for strategic investment in Subsidiary Companies. Interest expense has increased due to incremental borrowing. The return on investment will accrue in future years by way of Dividend Income and increase in value of Investment. The market value of quoted investment is Rs42,239 Crore as on March 31, 2023.

Operating Margin: Operating Margin of Chemicals Division of the Company has improved significantly due to value added products and favorable market conditions.

Net Profit Margin: Increased Operating Margin of Chemicals Division due to value added products and favourable market conditions has improved the profitability of the company. Moreover, in previous financial year, Net profit margin had been impacted due to write down on certain property, plant and equipments and higher finance costs due to incremental borrowings. The return on investment will accrue in future years by way of Dividend Income and increase in value of Investment. The market value of quoted investment is Rs42,239 Crore as on March 31, 2023.

Return on Equity / Networth: Increased Operating Margin of Chemicals Division due to value added products and favorable market conditions has improved the profitability of the Company.

Return on capital employed: Increased Operating Margin of Chemicals Division due to value added products and favorable market conditions has improved the profitability of the Company.

OUR CHEMICALS HELP MAKE LIFE BEAUTIFUL OLEOCHEMICALS SURFACTANTS OLEO DERIVATIVES SPECIALTY MOLECULES BIO-SURFACTANT CHEMICALS DIVISION

We are a leading manufacturer of Oleo-Chemicals, Surfactants and Derivatives of Oleo-Chemicals.

The Chemicals Business has state-of-the-art manufacturing facilities at Ambernath (near Mumbai, Maharashtra) and Valia (Near Ankelshwar, Gujarat). Our Ambernath Factory is a "Responsible Care" certified factory and our Valia Factory is a "Greenco Platinum" certified factory. Our Valia Factory has also been recognized by Union of Japanese Scientists & Engineers (JUSE) for 5S Workplace Management system.

The Chemicals Business, as part of the Godrej Group culture, believes in profitable and sustainable growth. Our Chemicals Business recorded a Total Income of Rs4,173 Crore, a growth of 36% over the previous year and an Operating Profit (PBIT) of Rs706 Crore, a growth of 207% over the previous year. This has been the highest ever operating profit for the business. The Chemicals Business has a good global presence and exports to over 70 countries. In Fiscal Year 2022-23, the Chemicals Business recorded an export sales of Rs1,383 Crore, a growth of 55% over the previous year. The business faced several challenges like Geo-political instability and Currency risk in certain countries. Despite these challenges, the Chemicals Business exports grew at a healthy rate. Exports now account for 33% of our overall sales.

Domestic sales too grew at a healthy rate of 29% over the previous year, recorded a revenue of Rs2,762 Crore. The Chemicals Business caters to several end-user industries including FMCG, Oil & Gas, Chemicals intermediates, Pharmaceuticals, Tyres etc. Our constant focus on Research & Development and developing specialty Chemicals and special applications for various industries has helped our business grow in a very profitable manner and at the same time broadening our Product offering.

The Chemicals Business is one of the largest consumers of domestically procured Rapeseed oil and imported Palm based fatty acids. The Business has a robust procurement and risk mitigation framework to protect itself against market volatility in terms of price and availability.

Lets review product category wise performance:

Fatty Acids

Fatty Acid portfolio has Palm fatty acid based products and Rapeseed oil based products. Palm fatty acid based products are mainly used in Tyre industry and FMCG sector. Rapeseed oil based products are mainly used as ingredient for specialty chemicals and also in Oil and Gas Industry. The Fatty Acid portfolio accounts for 46% of turnover of the division. Division has improved its presence in Oil and Gas Sector. Operating Margin also improved due to higher sale of value added fatty acids in Domestic and Export market.

Fatty Alcohol

Fatty Alcohol portfolio has mix of mid chain Alcohol and Long chain alcohol. Fatty alcohol contributes to 33% of the turnover of the division. Increase in Demand coupled with restricted supply from Domestic and international suppliers has helped division achieving higher sales with improved margin.

Surfactants

Surfactant portfolio has product based on Lauryl Alcohol like Sodium Lauryl Ether Sulphate (SLES), Sodium Lauryl Sulphate (SLS) and Alpha Olefin Sulfonate (AOS). The products are mainly used in Detergents & Cleaners and Personal Care. Surfactants contributes to 15% of the turnover of the division. Demand from industry producing cleansing products continued to remain strong in current fiscal year also. The division enjoys product approval from several multinational companies which helps in participation in Global Sourcing Programme. The portfolio has maintained margin by effective sourcing of raw material.

Glycerin

Glycerine is used in Pharmaceutical and Personal Care industry. Glycerine accounted for 5% of the turnover of this division. Demand for Glycerine in the country is higher than the domestic manufacturing capacity. The Gap is filled up by import of Refined Glycerine. Current fiscal year witnessed higher import of Refined Glycerine. Also price differential between Crude Glycerine and Refined Glycerine has reduced significantly. This has affected the selling price and margin in the portfolio.

Derivatives

Division is manufacturing Oleo Chemicals based derivatives. Derivatives business accounted for 8% of the turnover of this division. Concentrated effort on Research and Development, division is introducing products with new applications which helps in increasing sales and margin. Division is also having emphasis on chemicals based on bio fermentation route. Focus on value added chemicals which have steady margins has helped division in de-risking the business.

Other Initiatives

Your Company continues to focus on use of renewable energy. In FY 2022-23, more than 68% of the energy was consumed through renewable sources. We achieved this through use of biomass briquettes, Solar roof top, wind energy, and other initiatives. We have also installed cogeneration plant which runs on biomass briquette & contributes to further increase in our renewable energy as well as in GHG reduction.

We have committed to EP100 target in which we aim to reduce our specific energy consumption by 50% up to 2030 compared to baseline FY 12. Till FY 22, we have reduced the specific consumption by 17%. We are working relentlessly towards achieving the goal. This is achieved through various energy efficiency initiatives at our plant locations. Adoption of ISO 50001:2015 at Valia site also helped in it.

We also monitor our Greenhouse gas emissions. We have reduced our overall carbon footprint by 66% since 2011. This is achieved through various energy efficiency and renewable energy projects.

We have also been implementing various project for water savings and those projects helped us to reduce our overall specific water consumption by 46% from 2011.

We have been ranked in Top 50 list of Great Place To Work in Manufacturing.

We also received Business World HR Excellence Awards 2022 in category- "Excellence in Compensation & Benefits". We are winner of Bronze Medal in Category "Excellence in Health & Wellness Initiatives" in ECONOMIC TIMES HUMAN CAPITAL AWARDS 2022

We are glad to share that Godrej Industries limited has scored "B" rating in CDPs (Climate Disclosure Program) Indias Climate Change 2022, Water Security Disclosure Index "B" and in Forests 2022- Palm Oil "B", which is higher than Asia regional average.

We are focused on building a diverse and inclusive work culture that values diversity of experience, knowledge and ideas, and fosters innovation and collaboration for organizational success. In 2023, we launched a focused program named Pahal-Today for Tomorrow to enhance women representation in our manufacturing roles. We partnered with a DEI consultant firm to assess the readiness of the Ambernath factory with respect to welcoming women on shopfloor roles via focused group discussions with senior leadership, people managers and women employees. A Plant audit was conducted to gauge legal compliance of plant in relation to Factories Act 1948 (and other local laws as applicable to the state of Maharashtra), in terms of womens employment.

Wadala Factory is using 91% renewable energy for steam generation by useing vegetable soft pitch as boiler fuel. Factory has zero sewage water discharge by installation of sewage water treatment plant, using excess water for gardening. Factory is using battery operated pallet truck for material movement, stopped using diesel operated forklift for internal material movement and reduced diesel consumption. We are collecting post sale plastic waste packaging material by an NGO for reprocessing and recycling. We collect rain water during monsoon and using as boiler feed.

Outlook

Geopolitical situation in Russia-Ukraine region, increase in Non-Tariff barriers in international trade will keep Fuel price at high level. To control inflation and depreciation of Rupee against US $, Reserve Bank of India is likely to keep interest rates at high level. While this may adversely impact the sales performance and margin, we continue to closely monitor the situation and take appropriate action. The division has in-house expert for commodities and also has strong risk management policy which will protect the operating margin. The division will also closely monitor the logistics and supply chain situation and will ensure timely delivery of goods to the customer.

Finance and Investments

During the year, your Company continued to earn return from its investments in the form of Dividend of Rs118 Crore (previous year Rs96 Crore). Your Company invested Rs19 Crore in Godrej Properties Limited and Rs232 Crore on Godrej Agrovet Limited by purchasing shares from the secondary market.

Your Company is looking at expanding and diversifying its business activities. It believes that there is a strong potential for housing finance and non-banking finance(NBFC) business in our country with a decent return on investments. Looking at the opportunity in the housing finance sector and NBFC business, to nurture the finance business under the umbrella of the your Company being the flagship company of the Group, your Company has further invested Rs685 Crore in Godrej Capital Limited (erstwhile Pyxis Holdings Limited). Godrej Capital Limited being the Holding Company of Godrej Housing Finance Limited & Godrej Finance Limited (erstwhile Ensemble Finance & Holdings Limited) has invested in its both the subsidiaries. Entering the financial services business has diversified the business of the Company and would lead to overall value creation for the stakeholders of the Company in the future.

Veg Oils

The business clocked a Revenue of Rs155 Crore. Sales is focused in Mumbai, Maharashtra and Goa. Business faced challenges in terms of volatility in oil prices due to socio-economic factors. Our factory is Kosher, Halal and ISO 22000-2018 certified. Production capacity is 100 TPD continuous vegetable oil refinery and produces variety of edible oils, Vanaspati and pharmaceutical grade oils. We produce Vanaspati with Zero Trans Fat & beats FSSAI limit of 2% max. This meets with our commitment to manufacture & supply healthy products of best quality.

Human Resource Development and Industrial Relations

During the year under review, industrial relations at all plant locations remained harmonious. We continued to prioritize workers welfare by providing a supportive working environment through various means. Proactively, actions were taken to address various needs of workers through forums like Grievance Handling Mechanism. Long term settlement was signed off between Union and GIL Industries across all our factories. On the Human Resource Development front, efforts made to engage employees and enable them to perform at their best. Employees were provided with innovative platforms to learn and grow, by leveraging both digital and classroom modes. At the same time health and wellbeing was given highest priority. Various sessions and webinars conducted focusing on mental & physical health. There was special emphasis on strengthening our organizational culture through voice of employees & stakeholders. Leadership connect and communication throughout the year played a significant role in building a high performance culture. Further employees were duly recognized and appreciated in various forums for their contributions to the organization. Our work practices were also recognized by Great Place To Work and we were featured among the Top 50 best workplaces in Manufacturing. Thus all round efforts were made to drive employee motivation, experience and performance which in turn translated into excellent business results. The total number of persons employed in your Company as on March 31, 2023 were 1,078.

Policy to Prevent Sexual Harassment at the Work Place

We are committed to creating and maintaining an atmosphere in which employees can work together without fear of sexual harassment, exploitation or intimidation. We have strengthened our existing Policy on Prevention of Sexual Harassment at the workplace. Every employee is made aware that the Company is strongly opposed to sexual harassment and that such behaviour is prohibited both by the law and the Group. To deepen their understanding on what constitutes workplace harassment, we have provided an online training module to all employees. We also conducted classroom sessions for all workers across our factories. Our training sessions apprises employees and workers about the legislative updates, details on Internal Complaints Committee and process to address grievances. The Company has formed two separate committees – one for the Head Office, factories in Maharashtra and branches in India and the other for the factory at Valia, Gujarat. Ms. Shefali Kohli is the Presiding Officer for both the Committees. While the Act is applicable only to women employees, our Company policy would be covering all employees and all premises of the Company in India. During the year, the Company launched an online platform called as "Conduct" to assist employees to raise and track complaints easily. No complaints were received by the committee during the year under review. Since the number of complaints filed during the year was NIL, the Committee prepared a NIL complaints report. This is in compliance with Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.

Internal Control Systems and their Adequacy

Your Company has a proper and adequate system of Internal Controls, to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposal and that transactions are authorized, recorded and reported correctly. Your Companys Corporate Audit and Assurance Department, issues well documented operating procedures and authorities with adequate built-in controls at the beginning of any activity and revised procedures if there is any major change. The internal control is supplemented by an extensive programme of internal, external audits and periodic review by the management. The system is designed to adequately ensure that financial and other records are reliable for preparing financial information and other data and for maintaining accountability of assets. Corporate Audit & Assurance Department during the year, facilitated a review of your Companys risk management programme. The risks and mitigation measures were reviewed by your Companys Risk Committee and corrective measures initiated. During the year the Corporate Audit & Assurance Department carried out various reviews and provided assurance on compliances to lay down policies, processes and internal controls.

Information Security

GIL is constantly evolving its Information Security policies and processes to comply with Indian regulations and follow global best practices and standards. GIL has made significant strides in Information Security over the past year. GIL recognizes the importance of Information Security and has undertaken various initiatives to enhance its people processes and technology capabilities. GIL focuses on continuous cybersecurity awareness program for employees and measures overall security behaviour throughout the year. Our Security Incident Response process is improved by integrating all events and incident sources and automating responses. Our multi layered defence in depth security architecture is further strengthened by implementing various technological solutions in the areas of Zero Trust and Cloud Security. As a result, GIL has experienced zero security breaches in the past year and overall process maturity has improved, as per the NIST framework. GIL has also completed stage 1 Audit for ISO 27001 and is in the process of acquiring the certificate by end May 2023.

Opportunities and Threats

Continuation of Russia Ukraine war, high fuel prices, high inflation amongst developed economies which led to high interest rates could impact the global demand, economic environment/economic policies. At the same time, government thrust on make in India, exports and establishing mechanism for Trade in Rupee will give good opportunity for growth.

Risks and Concerns

Your Company had put a risk management framework in place post a comprehensive review of its risk management process. Your Company has taken a fresh look at the risk management framework. The review involved understanding the existing risk management initiatives, zero-based identification and assessment of risks in the various businesses as also the relative control measures and arriving at the desired counter measures keeping in mind the risk appetite of the organization. The Risk Committee has periodically reviewed the risks in the various businesses and recommended appropriate risk mitigating actions.

The Commodity based businesses are likely to be affected by vagaries of the weather, demand for edible oil, oilseed production, etc. The business is exposed to commodity price risks relating to raw materials which account for the largest portion of the costs of both the Chemicals and Vegoils businesses.

The Chemicals business growth will also depend on the growth of end user industries like polymer, detergent, cosmetic and personal care. As a significant employer and chemicals producer, to ensure occupational safety, employment standards, production safety, and environmental protection, your Company maintains strict safety, health, environmental protection and quality control programs to monitor and control these operational risks.

Macro-economic factors including economic and political developments, natural calamities which affect the industrial sector generally would also affect the businesses of your Company. Legislative changes resulting in a change in the taxes, duties and levies, whether local or central, also impact business performance and relative competitiveness of the businesses.

Cautionary Statement

Some of the statements in this management discussion and analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include a downtrend in industry, significant changes in political and economic environment in India and abroad, tax laws, import duties, litigation and labour relations.