Godrej Industries Ltd Management Discussions.

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

Rs. Crore

Particulars 2020-21 2019-20
Sales 1,855.53 1,968.72
Total Income 1,920.86 2,004.03
Profit / (Loss) Before Taxation (107.60) 30.69
Profit / (Loss) After Current Taxation (107.60) 30.76
Profit / (Loss) After Current & Deferred Taxation (107.54) 30.81
Earnings per Equity Share (Rs. ) - Basic (3.20) 0.92
Earnings per Equity Share (Rs. ) - Diluted (3.19) 0.92
Profitability Ratios
PBDIT/Total Income 11% 16%
PBT/Total Income -6% 2%
PAT/Total Income -6% 2%
Return on Capital Employed 2% 6%
Return on Net Worth -7% 2%
Financial Risk Ratios
Debt / Equity 1.94 1.55
Debtors Turnover (Number of Days) 51.94 43.33
Inventory Turnover (Number of Days) 85.39 55.02
Currnet Ratio 0.95 1.03
Interest Coverage 0.84 1.48

Operating margin has reduced from 16% to 11% this is mainly due to lower Dividend Income in Finance and Investment Business.

CHEMICALS DIVISION

The Chemicals division is one of India’s leading manufacturers of basic oleo-chemicals, surfactants and derivatives of oleo-chemicals. The division has a blend of domestic and international operations and is one of the leading suppliers in the Indian market. The division achieved export turnover of Rs. 452 Crore in this fiscal, accounting for about 27% of its turnover.

The division is focusing on value added chemicals which have steady margins and also helps in de-risking the business.

The current fiscal year began with spread of COVID 19 pandemic across the world. Our country imposed nationwide lockdown. The operation of the Company were scaled down during April to June 2020. This had an impact on Chemical division during April to June 2020.

However, demand from industry producing cleansing products and pharmaceutical industry increased in remaining period of Fiscal year. Chemicals business performance improved in July 2020 to March 2021 increase by 18% in comparison to PBIT of July 2019 to March 2020. The product category-wise review follows:

Fatty Acids

The Fatty Acids portfolio, comprising stearic acid, oleic acid, as well as value-added fatty acids, accounted for about 40% of the turnover of the division. The division plans to expand business to oils & gas industry and also enhance the sales of its value-added fatty acids in the domestic as well as export markets.

Fatty Alcohol

Fatty alcohol contributed 30% to turnover of this division. A good portion of the revenues for this category comes from exports. The division is also expanding the product basket by focusing on value-added fatty alcohol and also long chain alcohol.

Surfactants

Surfactants contributed 23% to the turnover of the division. Our products have been approved by several multi-national companies and we can now strongly participate in their global sourcing programs. Effective sourcing of raw material and increasing customer base are important for improving margins. This product portfolio has done reasonably well on both these counts. The division also has significant presence in Sodium Lauryl Ether Sulphate (SLES) and Alpha Olefin Sulfonate (AOS) market segments.

Demand from industry producing cleansing products has boost the sale and margin in current fiscal year.

Glycerin

Glycerin accounted for 8% of the turnover of this division. Being largely a co-product, additional sales are mostly opportunistic, depending on market conditions. With the help of R&D, the division is now manufacturing value added glycerin products.

Other Initiatives

Your Company continues to focus on use of renewable energy. In FY 2020-21, more than 49% of the energy was consumed through renewable sources. We achieved this through use of biomass briquettes, Solar roof top and other initiatives. Our Valia (Gujarat) factory has reduced its specific energy consumption by 6.7% since 2011. This is achieved through various energy efficiency initiatives at our plant locations.

We also monitor our Greenhouse gas emissions. We have reduced our overall carbon footprint by 45 % in last 10 years. This is achieved through various energy efficiency and Renewable energy projects.

We have also been implementing various project for waster savings and those projects helped us to reduce our overall specific water consumption by 41% from 2011.

This year, our Ambernath unit has also received the prestigious- Most Environment Friendly Award from FICCI and Energy Efficient Unit by CII and Valia unit has received Award for Excellence in the Category of Pollution Management & Sustainable Practices -2020 in 16th FGI Awards (Federation of Gujarat Industries) and Green Co Star Performer Award by CII. We have also received- Best Practice in Health and Safety (Forklift) by CII and an award for Covid case study by Baroda Council. Valia Unit has successfully completed 5S and ISO 50001:2018 (Energy Management System) certification. We have been winning recognition at national and international level for our 5S implementation and most recently, we won the Platinum Award at the International Convention on Quality Control Circles.

We have been ranked "B" on CDP Climate Disclosure Program (CDPIndia’s) India’s Climate Change and Water Security Disclosure Index 2020. The rating is above than the average score of C in the Chemicals sector and the global average for Climate Change ,Change, whereas for water security we stand similar to the industry average.

Also, we have secured Silver rating on the Ecovadis Platform (write something about ecovadis) for our Ambernath Unit. EcoVadis is one of the world’s most trusted provider of business sustainability ratings, intelligence and collaborative performance improvement tools for global supply chains.

Outlook

In view of outbreak of second wave of COVID pandemic, the movement of goods is marginally impacted. While this may adversely impact the sales performance, we continue to closely monitor the situation and take appropriate action, in due compliance with the applicable regulations.

Increase in price of vegetable oil and other Raw Material will play significant role in operating margin of the division. The division has in house expert for commodities and also has strong risk management policy which will protect the operating margin.

Sharp increase in freight rates and lower availability of containers and vessels will have impact on movement of export goods. The division will closely monitor the same 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 Rs. 62.86 Crore (previous year Rs. 244.51 Crore). Your company invested Rs. 60.96 Crore in Godrej Agrovet Limited by purchasing shares from the secondary market. On March 25, 2021, your Company completed the acquisition of shares of Pyxis Holdings Limited, consequent to the said acquisition, Pyxis Holdings Limited has become the subsidiary of the Company with effect from March 25, 2021.

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 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, the subsidiary of your Company will acquire 95% stake in Godrej Housing Finance Ltd (GHFL). Entering the financial services business will diversify the business of the Company and would lead to overall value creation for the stakeholders of the Company in the future. Pyxis Holdings Limited will acquire shares of GHFL and EHFL subject to the approval of the RBI.

Veg Oils

The veg oils business started direct sales of edible Oils under ‘Godrej Brand’ in bulk and consumer packs from September, 2015. The business clocked a revenue of Rs. 105 Crore and has a reach of 8000+ retail outlets in Mumbai Metropolitan Region (MMR) and 2000+ retail outlets in Western Maharashtra and Goa.

Veg Oils business is impacted due to COVID pandemic. The complete and partial lockdown has impacted demand of vegetable oil from Hotel / Restaurant / Catering (HoReCa) segment. The division will focus more on consumer pack business by more sales promotion activities.

Human Resource Development and Industrial Relations

Industrial relations at all plant locations remained harmonious.

With an aim at enhancing employees’ experience, the highest priority was given to people-focused measures and policies in areas of health, safety and wellness of employees and their families, especially in the wake of COVID-19. In order to drive employee motivation and performance, a structured culture and engagement framework was put in place with focus on three core pillars of Learning and Development, Communication and Connect, and Recognition.

The total number of persons employed in your Company as on March 31, 2021 were 1,070.

Policy to Prevent Sexual Harassment at the work place

Your Company is committed to creating and maintaining an atmosphere in which employees can work together without fear of sexual harassment, exploitation or intimidation. Your Company has strengthened its 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. A detailed online training module on prevention of sexual harassment at workplace was made available to all employees to spread awareness on security and safety of women employees as well as to apprise them of the legislative updates on prevention of sexual harassment at workplace.

During the year, the Company has reconstituted its Internal Complaints Committee, pursuant to the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. 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 is covering all employees and all premises of the Company in India.

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 Company’s 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 company’s risk management programme. The risks and mitigation measures were reviewed by your company’s 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

Your Company accords great importance to the security of its information assets. To ensure that this gets desired focus and attention, a Chief Information Security Officer, who is attached to the Corporate Audit and Assurance Department, is entrusted with the task of ensuring that your Company has the requisite security posture.

Your Company has in place, all the procedures and practices that are in line with the ISO Security Standards.

Opportunities and Threats

The outbreak of Second Wave of COVID pandemic could impact the global demand, economic environment/economic policies. At the same time, government thrust on vaccination will soon reduce the impact of pandemic. Government initiatives like make in India 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 Management 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 Company’s 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 Company’s 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.