Godrej Industries Ltd Management Discussions

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

Particulars	2023-24	2022-23
Sales	3,017.72	4,487.96
Total Income	3,112.53	4,556.96
Profit / (Loss) Before Taxation	(202.52)	232.57
Profit / (Loss) After Current Taxation	(202.52)	232.57
Profit / (Loss) After Current & Deferred Taxation	(202.52)	232.57
Earnings per Equity Share ( ) - Basic	(6.02)	6.91
Earnings per Equity Share ( ) - Diluted	(6.01)	6.91
Profitability Ratios
PBDIT/Total Income	15%	17%
PBT/Total Income	-7%	5%
PAT/Total Income	-7%	5%
Return on Capital Employed	4%	8%
Return on Net Worth	-13%	15%
Financial Risk Ratios
Debt / Equity	4.78	3.50
Debtors Turnover	7.62	10.67
Inventory Turnover	3.73	5.09
Current Ratio	0.38	0.40
Interest Coverage	0.79	1.69

Reasons for significant change in ratio:

Debt Equity Ratio: Company has borrowed long term fund of 1,400 Crore at competitive rate. The fund is utilized for strategic investment in subsidiary.

Interest Coverage Ratio: Company has borrowed long term fund of 1,400 Crore during the year and 550 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 has increased by 24,517.04 Crore during the year.

Operating Margin: Operating Margin of Chemicals Division of the Company has reduced significantly due to unfavorable market conditions. This year Chemical Industry as a whole is facing strong headwinds and has faced low Demand and de-growth, majorly due to destocking by all major customers across end use industries. The Chemicals Division of the Company has performed relatively better than Industry.

Net Profit Margin: Net profit margin has been impacted due to lower margin in the Chemicals Division. Also, the company has borrowed long term fund of 1,400 Crore during the year at a competitive rate. As a result, there was increase in Finance Costs. The fund is utilized for strategic investment in subsidiary. 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 has increased by 24,517.04 Crore during the year.

Return on Equity / Networth: Reduced Operating Margin of Chemicals Division due to unfavorable market conditions and increase in Finance Costs due to incremental borrowings has reduced the profitability of the Company.

Return on capital employed: Reduced Operating Margin of Chemicals Division due to unfavorable market conditions has reduced the profitability of the Company.

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 2,697 Crore, and an Operating Profit (PBIT) of 261 Crore. This year Chemical Industry as a whole is facing strong headwinds. The Chemicals Business has a good global presence and exports to over 62 countries. In Fiscal Year 2023-24, the Chemicals Business recorded an export sales of 771 Crore. The business faced several challenges like an increase in ocean freight rates due to tension in Red Sea and other export logistical issues. Exports now account for 29% of our overall sales.

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 41% of turnover of the division. The division has maintained its presence in Oil and Gas Sector. Operating Margin has reduced due to stagnant demand and over supply situation.

Fatty Alcohol

Fatty Alcohol portfolio has mix of mid chain Alcohol and Long chain alcohol. Fatty alcohol contributes to 31% of the turnover of the division. Operating Margin has significantly reduced due to low demand in international market.

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 22% of the turnover of the division. Demand from home and personal care industry remained stable in current fiscal year. The division enjoys product approval from several multinational companies which helps in participation in Global Sourcing Programme. There was increase in volume, however, had reduction margin as compared to previous financial year.

Glycerin

Glycerine is used in Pharmaceutical and Personal Care industry. Glycerine accounted for 6% 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. Portfolio is also having inverted duty structure and there was increase in Imports of Refined Glycerine. The portfolio had increase in volume, however, had reduction margin as compared to previous financial year.

Derivatives

Division is manufacturing Oleo Chemicals based derivatives. Derivatives business accounted for 7% of the turnover of this division. Concentrated effort on Research and Development, the 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

For achieving the ambition of growing at a faster pace, your Company understands the importance of investing in Research and Innovation. Your Company has invested in Nadir Godrej Centre for Science, Technology and Applications Research (NGSTAR), an 8,000 sq. ft. state-of-the-art center located at Ambernath factory. The facility is well equipped with advanced analytical instruments, best-in-class safety features and applications and microbiology lab, which will serve us well as we innovate and develop new and improved products and applications. It will also help us strengthen our green and sustainable product range, in line with our Green, Efficient and Milder (GEM) strategy.

Your Company accords very high importance to safety and ensures that people and business processes are safe. Your Company has launched "Aim for Zero" a safety initiative to drive a safety-first environment at the factory. Valia and Ambernath Factory installed a fixed fall protection system that is helpful during tanker loading and unloading operations. Additionally, women employees at the factory underwent a special firefighting training.

Your Company is committed to working environment which encourages Diversity and Inclusion. As part of our commitment to fostering diversity across all levels, Ambernath Factory has onboarded women employees in production operations. All necessary statutory and regulatory approvals have been granted and we have successfully integrated women into second and third shift operations also. We will continue to onboard more women in different areas of our business.

Your Company continues to focus on the use of renewable energy. We achieve this by use of biomass briquettes, Solar roof top, wind energy, and other initiatives. We also have a cogeneration plant which runs on biomass briquette & contributes to increase in our renewable energy as well as in GHG reduction.

Outlook

Geopolitical tension in Russia-Ukraine region and Israel-Hamas conflict, increase in Non-Tariff barriers in international trade will have an impact on increase in Fuel cost and also on logistics cost and time. This will also have an inflationary trend in the country. Interest rates remained high during current fiscal and is expected to remain at the same 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 240 Crore (previous year 118 Crore). 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 your Company being the flagship company of the Group, your Company has further invested

902 Crore in Godrej Capital Limited. Godrej Capital Limited, being the Holding Company of Godrej Housing Finance Limited & Godrej Finance 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 veg oils division was in existence for close to 3(three) decades having manufacturing and packing operation at located in Wadala, Mumbai. The vegetable oil is a low margin and low profitability industry and having to deal with constant and significant fluctuations in the prices of the raw material (vegetable oils). The veg oils Division had recorded losses in past 2(two) decades.

The Management of the Company on August 11, 2023, decided to close the operations of the Veg-oils Division (Companys Factory situated at Wadala, Mumbai, Maharashtra) given the consistent losses. The Board also took note of the fact that the Company does not foresee any significant change in this situation and hence, in the best interest of the Company and its stakeholders, the operations of the Veg-oils Division have been closed during the year under review. The impact of the closure on the financial statements was not material.

Human Resource Development and Industrial Relations

Throughout the review period, positive industrial relations prevailed across at all plant locations. Our ongoing commitment to workers welfare was evident through the creation of a supportive work environment using various approaches. Proactive measures, including the Grievance Handling Mechanism, were implemented to address workers diverse needs effectively.

In terms of Human Resource Development, initiatives were undertaken to engage employees and enhance their performance. We provided innovative learning platforms, utilizing both digital and classroom methods, to facilitate continuous growth and development. Concurrently, we prioritized the health and wellbeing of our workforce, organizing sessions and webinars focusing on mental and physical wellness. Efforts to strengthen our organizational culture were underscored by amplifying the voices of employees and stakeholders and undertaking necessary actions based on feedback.

Consistent and transparent leadership communication played a pivotal role in cultivating a high-performance culture throughout the year. Additionally, employee contributions were duly acknowledged and celebrated in various internal and external forums. These collective endeavors aimed to bolster employee motivation, enrich their experience, and ultimately drive exceptional business outcomes.

As of March 31, 2024, the total number of employees in our company was 1,050.

Policy to Prevent Sexual Harassment at the Work Place

We are dedicated to fostering an environment where employees can collaborate without facing any form of sexual harassment, exploitation, or intimidation. Our commitment to preventing sexual harassment at the workplace is reflected in the reinforcement of our existing policy. Each employee is briefed on the Companys staunch stance against sexual harassment, emphasizing that such behavior is not only unlawful but also contrary to the principles of our Godrej Group.

To enhance awareness regarding workplace harassment, we have implemented an online training module accessible to all employees, along with in-person sessions conducted across our various locations. These training sessions cover legislative updates, details regarding the Internal Complaints Committee, and procedures for addressing grievances.

In line with legal requirements, we have established two distinct committees—one overseeing the Head Office, Maharashtra factories, and branches across India, and the other specifically for the Valia factory in Gujarat. Ms. Divya Murthy presides over both committees. While the law applies primarily to female employees, our Company policy extends protection to all employees and premises nationwide.

To facilitate the reporting and tracking of complaints related to sexual harassment, we have introduced an online platform called "Conduct." Despite no complaints being filed during the review period, we remain vigilant in our compliance efforts. As per Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013, the committee has prepared a report indicating zero complaints received.

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

In the realm of Information Security, your Company has remained steadfast in its commitment to fortify its digital defenses, adapting to both Indian regulatory requirements and the global best practices. Over the past year, Company has achieved significant milestones in its Information Security endeavors, reflecting a proactive approach to safeguarding its digital assets and maintaining the trust of its stakeholders. Central to these achievements has been the enhancement of Companys Information Security framework, aligning it with stringent Indian regulations and the global standards. Additionally, Company has prioritized the cultivation of a cybersecurity-aware culture among its employees, fostering responsible security behavior and bolstering overall resilience. The organization has also made notable strides in incident response capabilities, integrating various event and incident sources to streamline responses and mitigate security threats more effectively.

Building upon these accomplishments, Company has embarked on several strategic initiatives in the current year to further strengthen its Information Security posture. Notably, the attainment of ISO 27001 certification stands as a testament to Companys adherence to international standards for Information Security Management Systems. Furthermore, the implementation of Data Leak Prevention measures underscores Companys proactive stance in safeguarding sensitive information and mitigating the risk of unauthorized data exposure. Work on ensuring compliance with the Digital Personal Data Protection Act 2023 has commenced, emphasizing Companys commitment to protecting personal data and privacy rights. The deployment of a Governance, Risk, and Compliance (GRC) tool has enhanced Companys ability to manage and mitigate risks effectively while ensuring regulatory compliance.

In tandem with these initiatives, Company has focused on elevating its BitSight score to 800, indicative of the organizations proactive approach to risk management and maintaining a high level of cybersecurity posture. Moreover, achieving a NIST maturity level of 3.5 reflects Companys continuous improvement in Information Security processes and practices aligned with the NIST Cybersecurity Framework. Collectively, these efforts underscore Companys unwavering dedication to Information Security excellence, positioning the organization to navigate the evolving cybersecurity landscape with resilience, agility, and a steadfast commitment to safeguarding its digital assets and maintaining stakeholder trust.

Opportunities and Threats

The Geopolitical tension in Russia-Ukraine and Israel-Gaza region has increased the logistics cost of export from India to Europe and America. This has also resulted in higher transit time in exports. Customers from these regions prefer to import from nearby countries / regions. This will adversely impact export business. At the same time, continued China + one policy of international customers, political stability in India, Government focus on ‘make in India is generating demand in Domestic as well as International market.

Risks and Concerns

Your Company had put a risk management framework in place post a comprehensive review of its risk management process. The review involved understanding the existing risk management initiatives, zero-based identification and assessment of risks in our business 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 business 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 Chemicals 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 Report 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.