Grasim Industries Ltd Management Discussions.

Macro-Economy & Industry Updates

Indias GDP growth slipped to 4.2% in FY2019-20, compared to 6.8% in FY2018-19. Primary factors responsible for growth deceleration are the global economic slowdown, subdued consumption and private investment, liquidity constraints and, finally, towards the end of the year, the COVID-19-induced nationwide lockdown.

According to data released by the National Statistical Office, the manufacturing sector grew merely by 0.03% in FY2019-20, compared to 5.7% in the previous year. The growth of the construction sector, which has a spillover effect on several other industries, declined to 1.3%.

During the year, fiscal deficit is said to have risen to 4.6% of the GDP, as against the revised estimate of

3.8% in the previous financial year. Stress in the banking sector and non-bank financial institutions constrained the supply of credit.

Countering the impact of the COVID-19 pandemic, our top priority is employee health and safety. This immensely difficult and unprecedented situation, like the one we are facing today, requires considerable resilience, positive energy, and new ideas to come back to normalcy in business operations, once the resumption of business activities is permitted by the authorities. We are confident that with the dedication and agility of our employees, we will tide over this crisis and emerge stronger.

The global textiles fibre market during the year witnessed moderate growth of ~2%-3%. The market sentiment was dampened by the trade war between the United States and China and escalation in geopolitical tension; it impacted demand and resulted in price weakness. The Global Viscose Staple Fibre demand grew at ~5.5% (CY19), higher than other natural fibres. The VSF supply went up because of the capacities commissioned in the past 12-18 months in China and Indonesia. The consequent rise in the production level led to excess supply situation and softening of prices.

VSF demand has grown well for the past few years, driven by the pull created by LIVA. Customer preference for LIVA-tagged garments received a further boost with the launch of the most traditional womens wear, LIVA saris.

However, the novel coronavirus outbreak and its impact on the world economy and consumption are expected to create headwinds for global VSF demand. The demand recovery for VSF and other natural fibres hinges on the outcome of fiscal and monetary stimulus packages, an uptick in global employment figures, and turnaround in the consumer sentiment.

The prices of VSF, Cotton and Polyester witnessed a double-digit decline in FY2019-20, because of the abovementioned factors. In line with that, the prices of dissolving grade pulp also declined. Caustic Soda prices and Sulphur prices saw a weakening trend, too.

Unit

FY2019-20

FY2018-19

Change

Standalone Performance
Installed Capacity – VSF KT 578 566 2%
Installed Capacity – VFY KT 48 47 2%
Production – VSF KT 567 541 5%
Production – VFY KT 42 46 -8%
Sales Volumes – VSF KT 554 541 2%
Sales Volumes – VFY KT 41 46 -11%
Revenue Rs in Crore 9,237 10,325 -11%
EBITDA Rs in Crore 1,339 2,052 -35%
EBITDA Margin % 14% 20%

During the year, the Company commissioned the third-generation 16 KTPA speciality fibre plant using in-house green technology at Kharach, Gujarat. This is a significant development, considering the Company would be able to enter newer end-use segments.

The business also achieved a breakthrough in manufacturing viscose fibre using pre-consumer waste – in this process, textile waste becomes an alternative raw material.

The Viscose Filament Yarn (VFY) operational and financial performance was impacted by the lack of demand for tyre cord due to the slowdown in the global automotive market, apart from the general economic slowdown leading to lower demand in the fashion industry.

Outlook

The economic uncertainty created by COVID-19 may impact global consumer spending going forward, in turn impacting the demand for textile products. VSF continues to be the fastest growing textile fibre globally. However, new capacities recently commissioned in Asia may continue to create temporary demand-supply mismatch and put pressure on prices. In India, through brand LIVA, we have been able to establish a customer connect and improve domestic sales.

Unit

FY2019-20

FY2018-19

Change

Standalone Performance
- Installed Capacity KT 1,147 1,147 0%
- Production KT 998 995 0%
- Sales Volume KT 991 1,003 -1%
Specialty Chemicals
(Chlorine Value-Added Products)
- Production KT 611 555 10%
- Sales Volume KT 605 549 10%
Chemicals Business
Revenue Rs in Crore 5,504 6,437 -14%
EBITDA Rs in Crore 1,008 1,827 -45%
EBITDA Margin % 18% 28%

Our Chemicals business comprises Chlor-Alkali and Epoxy Resin products, which are the most widely used chemicals across industries. In the Chlor-Alkali business, caustic soda is the main product and chlorine is the byproduct. The prices of caustic soda have been under pressure across the world mainly on account of demand-supply imbalance.

The Indian Chlor-Alkali industry started on a strong note. Caustic soda imports dropped considerably as the Government of India made it mandatory for caustic soda importers to have certification from the Bureau of Indian Standards (BIS). However, the prices of caustic soda maintained their downward trajectory taking a cue from the international prices and commissioning of new capacities by domestic player. The prices of Chlorine, which were in the positive territory in FY2018-19, turned negative in FY2019-20, due to weak demand from end-user industries, accentuated by excess supply in the domestic market.

The Companys production and sales fell short of touching the 1 Million Tonne mark in FY2019-20. However, because of the COVID-19 pandemic, the demand for chlorine-based value-added products, which are in turn used in health and hygiene products such as disinfectants witnessed a big spike in the last quarter of the financial year, helping this segment end FY2019-20 with a 10% YoY growth.

The Epoxy business maintained its leadership position in the domestic market by offering tailor-made solutions and market-leading products to customers. The financial performance for FY2019-20 was comparable to the previous year, and the business benefited from the easing of input costs.

Outlook

The demand for caustic soda will depend on the prospects of the end-user industries such as aluminium, textiles, paper etc. The ECU realisation may remain under pressure, given that global prices may take time to recover, in addition to the demand-supply imbalance in the domestic market. The chlorine derivative products (value-added products) are expected to perform better, given the increased demand in the health and hygiene segment.

The domestic production of urea improved to 24.5 MTPA in FY2019-20 from ~24 MTPA in FY2018-19, following better capacity utilisation. The sale of urea in the domestic market increased by 5% YoY to 33.6 MTPA in FY2019-20 from ~32 MTPA the year before. The import of urea increased by 22% from 7.56 MTPA to 9.20 MTPA to cater to the domestic sales.

The Fertiliser business achieved a sales revenue of Rs 2,680 Crore and EBITDA of Rs 198 Crore in FY2019-20. The EBITDA includes credit of fixed cost reimbursement pertaining to earlier years accrued during the year.

The Fertiliser business includes the non-urea business (referred to as PURAK), comprising agro solutions, seeds, crop protection products, and soil health products, sold to farmers through a common distribution channel. The sales volume and value of PURAK saw an improvement of 11% YoY and 16% YoY, respectively.

The operational performance of the business was marginally impacted by the maintenance shutdown undertaken during Q3 and Q4.

Grasims Textiles business has Linen and Wool as the popular product lines. For FY2019-20, this business reported a revenue of Rs 1,601 Crore and EBITDA of

Rs 41 Crore.

The demand for Linen fabric remained muted due to sluggish market conditions. Wool prices, which had weakened at the start of the year, witnessed some recovery during H2FY20. European fabric and garment makers are viewing COVID-19 as the major game-changer; this could mark the revival of the European industry as brands have to now look for sourcing beyond China, where the contagion began.

The retail arm of the Textiles business, under the brand ‘Linen Club, is one of the largest single brand franchise networks in India. It added 25 new ‘Linen Club exclusive brand outlets during FY2019-20, taking the total count to 200 EBOs. Besides fabrics, Linen Club stores also offer a wide range of linen apparel.

Grasim premium fabric segment markets products from the Companys wholly-owned subsidiary Grasim Premium Fabrics Private Ltd*. GPFPL is focussed on the premium cotton segment, with brands such as SKTAS, Excellence by Sktas, and Giza House, complementing Grasims linen business. The operational performance of the business during the year has been good, with GPFPL reporting revenue and EBITDA of Rs 165 Crore and

Rs 23 Crore during FY2019-20.

GPFPL is being merged with the Company and regulatory process for the same is in progress. The merger is expected to be completed in FY2020-21 upon receipt of requisite regulatory sanction.

*Grasim Premium Fabrics Private Ltd is using these brands under a licence from Soktas Tekstil Sanayi Ve Ticaret Anonim Sirketi

The demand growth for the Insulator business is being driven by power generation, transmission, and distribution. The business generated revenue of Rs 406 Crore and EBITDA of Rs 11 Crore for FY2019-20.

The Company has formed a Joint Venture with Maschinenfabrik Reinhausen GmbH (MR), foraying into the manufacture and sale of Composite Hollow Core Insulator (CHCI). The state-of-the-art CHCI manufacturing plant will be set up at Halol, Gujarat. The JV entity would manufacture and sell CHCI and serve the power transmission & distribution industry globally.

Known for its cutting-edge technology, MR is the global leader in power transformer automation and control solutions. Almost 50% of the electricity generated worldwide flows through MR products. Further, it is the leading global player for CHCI outside China.

Indias cement sector witnessed degrowth in FY219-20 after a double-digit growth in FY2018-19. The slowdown started after the general elections in April-May 2019, impacted by a lull in infrastructure and road spending, a prolonged monsoon, and weakness in the housing sector due to the NBFC crisis and liquidity crunch. While there were signs of cement demand revival from December 2019, the spread of COVID-19 in March 2020 and the March-end lockdown completely stopped all construction activities.

UltraTechs financial performance for FY2019-20 was: consolidated revenue at Rs 42,125 Crore; consolidated EBITDA rising 24% YoY to Rs 9,931 Crore; and normalised PAT increasing by 54% to Rs 3,703 Crore. The consolidated sales volume stood at ~82.33 MTPA.

The cement plants acquired from Century Textiles and Industries Ltd. (which had a cement division) ramped up production, touching a capacity utilisation of 80% in March 2020. Brand integration is underway — 65% of sales from the acquired Century plants during Q4 were under the UltraTech brand, which is expected to reach more than 80% by Q3FY21. The operating margin also witnessed a remarkable improvement.

Phase I of the Bara Grinding Unit, with capacity of 2 MTPA, has been commissioned. This was part of the 21.2 MTPA capacity acquired in June 2017 from Jaypee Cement.

Nathdwara Cement, which UltraTech acquired in FY19, has been fully integrated with UltraTech Systems and Processes. The Nathdwara plant has been able to achieve cost reduction through efficiency improvement and logistical synergies.

The consolidated net debt for FY2019-20 witnessed a YoY reduction of Rs 5,251 Crore to Rs 16,860 Crore. The net debt/EBITDA of Indian operations stood at 1.55x as on 31st March, 2020.

The COVID-19 pandemic, the lockdown, and the overall economic slowdown will all have a significant near-term impact on the cement industry. A sluggish economic recovery and weak real estate demand may be primary contributors to UltraTechs subdued performance in the current financial year.

FINANCIAL_SERVICES BUSINESS cADITYA_BIRLA_CAPITAL_LIMITED_

Aditya Birla Capital reported good financial performance despite the challenging economic environment. The revenue and net profit after minority interest for FY2019-20 improved by 11% and 6% YoY to Rs 16,792 Crore and Rs 920 Crore, respectively. The customer base of the company grew to ~20 Million.

The Company raised Rs 2,100 Crore of equity capital in FY20 through a preferential allotment to the Promoter/Promoter group and marquee investors. As a result, ABCL is a zero debt company with liquidity to fund growth.

The combined lending book of NBFC (Aditya Birla Finance Ltd) and HFC (Aditya Birla Housing Finance Limited) stood at Rs 59,159 Crore for FY2019-20.

The NBFC business has been able to trim its exposure/ disbursements to the large and mid-corporate segment in specific sectors; it is focussed on diversifying the loan book to high-margin segments like retail. The net interest margin expanded by 38 bps to 5.29% in FY20 and was driven by change in the product mix and repricing across the portfolio. The NBFC business, with its strong parentage and liquidity, is well-equipped to build future growth.

The HFC business has a loan book of Rs 12,102 Crore, growing at a CAGR of 22% over the past two years. The business has been aiming to build a scalable and profitable book through optimal product sourcing and customer mix. The company has raised long-term borrowing of over Rs 15,000 Crore for its lending business during the year.

Aditya Birla Sun Life AMC Limited is Indias fourth largest mutual fund (excluding exchange-traded funds) and it had reported domestic Average Assets Under Management (AAUM) of Rs 2,66,988 Crore in FY20, expanding at a CAGR of 19% in the past five years. The business continues to focus on growing high-margin retail assets and Equity AAUM.

The Asset Management business will continue to focus on increasing higher-margin AUM and expanding investor base.

The Life Insurance business reported a growth of 7% YoY in total gross premium to Rs 8,010 Crore. The first-year premium (FYP) at Rs 1,804 Crore ended with a flat growth curve, as sales were impacted in March 2020 due to the COVID-19 crisis. The group business degrew by 13% YoY to Rs 1,854 Crore, while the renewal premium grew by 21%YoY to Rs 4,353 Crore.

In FY20, the business maintained a gross margin of 33.8%, compared to 34.6% in FY19, with its improved product mix despite a fall in the interest rates. The embedded value of the business increased year-on-year to touch Rs 5,187 Crore from Rs 4,900 Crore in FY19.

The Life Insurance business will focus on growing faster than the industry and gaining market share with a balance of channel and product strategy.

The Health Insurance (Aditya Birla Health Insurance) business reported a growth of 76% in the gross written premium, which improved to Rs 872 Crore and covered 8.3 Million lives. The retail business contributed 72% of the overall revenue in FY20, against 65% in FY19.

The health insurance business will focus on three main growth drivers: customer acquisition and retention at scale; health risk management; and health management.

CONSOLIDATED FINANCIAL PERFORMANCE Revenue from Operations

The Consolidated Revenue from operations marginally increased to Rs 77,625 Crore in FY2019-20 from Rs 77,200 Crore in FY2018-19. The Companys performance was impacted due to reduction in realisation in the Viscose and Chemicals segment and overall on account of the countrywide lockdown announced towards the end of the year.

Operating Profit (EBITDA)

Consolidated EBITDA rose from Rs 13,404 Crore in FY2018-19 to Rs 13,846 Crore in FY2019-20, was majorly driven by the performance of the Cement and Financial services.

Finance Cost

The Finance Cost moved up from Rs 2,010 Crore in FY2018-19 to Rs 2,339 Crore in FY2019-20, mainly due to the higher borrowing cost of UltraTech. At the Standalone level, the Finance Cost increased from

Rs 199 Crore in FY2018-19 to Rs 304 Crore in FY2019-20, due to increase in the debt level to support brownfield expansion projects.

At the Standalone level, Net Debt position stood at

Rs 2,975 Crore as on 31st March, 2020, as against the Net Surplus (liquid investment over gross debt) of Rs 458 Crore as on 31st March, 2019.

At the Consolidated level, the Companys net debt was

Rs 20,682 Crore as on 31st March, 2020, compared to

Rs 22,171 Crore as on 31st March, 2019.

Depreciation

The Depreciation Charge increased from Rs 3,571 Crore in FY2018-19 to Rs 4,041 Crore in FY2019-20 on account of acquisition of assets and capitalisation of a new cement plant.

Tax Expenses

The total Tax Expenses were reduced significantly from Rs 2,419 Crore in FY2018-19 to Rs -31 Crore in FY2019-20 on account of one-time reversal of opening net deferred tax liability amounting to

Rs 2,334 Crore.

Profit after Tax (PAT)

The Profit after Tax (before exceptional items and one-time deferred tax benefit) was at Rs 5,315 Crore in FY2019-20 compared to Rs 5,159 Crore in FY2018-19.

During FY2019-20, exceptional item (net of tax) of

Rs 1,270 Crore represents the impairment loss of Aditya Birla Finance Limited and Aditya Birla Housing Finance Limited that has been charged to the Profit and Loss Statement.

Grasims Standalone Financial Performance

Revenue from operations stood at Rs 18,609 Crore in FY2019-20 from Rs 20,550 Crore in FY2018-19. Net Revenue of the Viscose business is down 11% YoY to Rs 9,237 Crore in FY2019-20 from

Rs 10,325 Crore in FY2018-19 due to lower realisation.

However, Sales Volume has improved YoY due to the commissioning of new capacity at Kharach, Gujarat. The Chemicals business reported Revenue of

Rs 5,504 Crore in FY2019-20 from Rs 6,437 Crore in FY2018-19, with a dip in the caustic soda and chlorine realisation.

Standalone EBITDA declined to Rs 2,836 Crore in FY2019-20 from Rs 4,639 Crore in FY2018-19.

PAT before exceptional items declined to Rs 1,507 Crore in FY2019-20 from Rs 2,574 Crore in FY2018-19. PAT after exceptional items increased to Rs 1,270 Crore in FY2019-20 from Rs 515 Crore for FY 2018-19.

Key Standalone ratios capturing our financial performance have been illustrated below:

S No. Particulars

FY20

FY19

Change

1 Debtors T/o Ratio (Net Sales/Average Debtors) 5.82 6.74 -14%
2 DebtorsT/o Ratio (Net Sales/Closing Debtors) 6.41 5.89 9%
3 InventoryT/o Ratio (Operating Cost i.e. Total Income - EBITDA/Average Inventory) 5.87 5.97 -2%
4 InventoryT/o Ratio (Operating Cost i.e. Total Income - EBITDA/Closing Inventory) 6.21 5.62 10%
5 Interest Coverage Ratio ((EBITDA - Current Tax)/Interest) 7.60 17.90 -58%
6 Current Ratio (Current Assets/Current Liabilities) 1.10 1.52 -28%
7 Debt Equity Ratio (Borrowings/Net Worth) 0.13 0.08 71%
8 Operating Profit Margin (%) (EBIT/Net Revenue from Operations) 10.69 18.87 -43%
9 Net Profit Margin (%) (PAT/Total Income) 6.64 2.44 172%

Risks and Concerns

Risk

Description

Mitigation Plan
Availability of natural resource-based inputs Scarcity of water may impact business operations in Viscose and Chemical businesses - Continuous reduction in freshwater consumption (40% and 10% reduction in water consumption achieved in VSF and Chemicals businesses, respectively, from FY17 levels) - Water recycling and zero liquid discharge plans under implementation across plants
Scarcity of coal driven by high consumption in key user industries may increase the prices - Creating new reservoirs closer to plant locations - Government taking various measures, such as auctioning of coal mines to private players, removing bottlenecks for coal mining, and transportation and soft demand for coal globally to improve supply of coal
- Entering into long-term contracts, securing coal supplies at competitive prices
- Optimising the fuel mix and energy efficiency as well as exploring the use of alternative fuels in Cement business
Non-availability of limestone may impact the growth plans of Cement business in long term - Cement business currently possesses sufficient limestone reserve
- Apart from preservation and elongation of existing reserves, a range of measures, including strategic sourcing and changing input mix, are adopted by the business
Price volatility of input materials and finished products High volatility in global prices for both raw material and finished products and demand for finished products VSF:
- Securing the supplies of key raw materials for the Viscose business by setting up captive caustic soda and pulp plants
- Exploring new markets and improving penetration in existing markets
- Continuous customer engagement
- Increasing speciality products portfolio
- Continuous focus on R&D and application development/New product development
- Focus on cost reduction and higher efficiency on continuous basis
Chemicals:
- Securing the supplies of key raw material (salt) for Chemicals business by improving the sourcing mix between captive and third party
- Minimising reliance on grid/energy exchange by setting up captive power plants in all businesses and long-term tie-ups
- Increasing portfolio of value-added products and speciality chemicals
Epoxy: Long-term tie-up for inputs with index-linked price contract with bulk manufacturers
Product dumping by overseas suppliers Dumping of products by overseas players/ rising imports in India leading to oversupply/ supply at uncompetitive rates Textile: Procurement of wool (imports) against confirmed customer orders, reducing inventory holding and price fluctuation risk - Focus on cost competitiveness, continuous improvement in product quality and customer service
- Other than these, representations are made for trade measures against dumping of products by overseas producers
Risk Description Mitigation Plan
Competent human resources availability risk Attrition and non- availability of the required talent can affect the performance of the Company - Continuous benchmarking of the best HR practices across the industry and carrying out necessary improvements to attract and retain the best talent
- Regular review, monitoring and engagement on personal development plans of high performers and high potential employees
- Proactive action to strengthen technical and other functional bench strength by mapping internal/external talent market and accelerated hiring
- Focussed talent development
Competition risk VSF and Chemicals are global commodities; thus, they are exposed to any change in the competition intensity in the global market. Further, capacities have been added by competitors in the domestic markets in Chemical business With expanding capacity of existing players and emergence of new entrants, competition is a sustained risk for Cement business - Strategic initiatives and continuous investments to enhance the brand equity of the Company by focussing on R&D, quality, cost, timely delivery and customer service
- Increasing level of customer engagement
- Customer connect initiatives to reach out to end-users (such as LIVA brand for VSF)
- Strategic initiatives to enhance brand equity through enhanced marketing activities, along with value-added products and services, have been the thrust areas of the Company. UltraTech is a leading brand in the cement industry.
Information technology/ cyber-security risk Risk of financial loss, disruption or damage to Company reputation, resulting from the failure of its information technology systems.There can be deliberate and unauthorised breaches of security to gain access to information systems - Implementation of a Group-level Information Security Policy - Grasim uses back-up procedures and stores information at two different locations. Systems are upgraded regularly with latest security standards. For critical applications, security policies and procedures are updated continually; users are educated on adherence to the policies so as to eliminate data leakage
- Ensuring end-user awareness (E-Learning Module and Classroom
Programme)
- Brand protection for keyword "Grasim"
- Disaster Recovery System is in place
Environmental and other regulatory risks Any default can attract penal provisions and may impact the Companys reputation. Further, increased activism by society - Adherence to current norms is being ensured
- Technology/equipment upgradation focussed on the environment is done on a continuous basis
- Continuous monitoring of regulatory changes to ensure compliance with all applicable statutes and regulations
- Implementation of various sustainability initiatives such as zero liquid discharge at different plants
- Commitment to comply with the sustainability roadmap to meet international norms
- Community engagement programmes along with NGOs, grievance management procedures, transparency in declaring our policy and performance and a series of Corporate Social Responsibility programmes are put in place to improve our relations with the community and for partnering with them for supply of materials and services
- Health management programmes and periodic monitoring are in place around the community. The best available technologies are installed at all the sites to minimise the impact of manufacturing operations as a preventive measure
Industrial safety, employee health and safety risk Manufacturing businesses are labour-intensive and people are exposed to health and injury risks due to machinery breakdown, human negligence etc. The Chemicals business has exposure to risk arising from the production and handling of hazardous chemicals - Association with DuPont Safety Resources to build a culture of safety and strengthen the Companys Safety Management System in Chemicals and Cement Businesses
- Development and implementation of critical safety standards across the units and project sites, establishing processes for training need identification at each employee level, introduction of ‘Life Saving Rules
- Continuous focus on building of safety culture across units covering entire workforce
- Adequate insurance coverage
Pandemic- Any pandemics and their - Crisis Management Teams formed at all locations
related risks recurrence may impact - Adequate policies, procedures, and infrastructure to enable Work
business operations and from Home to ensure business continuity
employee safety - Broad-basing supply chains
- Adequate insurance coverage
- Maintaining adequate financial liquidity for sustained operations
Climate change Climate change may lead to increase in frequency and severity of natural disasters (e.g. drought, floods, cyclones) - Identifying and implementing green technologies and sustainable products development e.g. Livaeco fibre
- Increased usage of renewable sources of energy for Companys operations as well as a third-party supplier of renewable energy for other Group companies in manufacturing sector and state grids
- Commitments to comply with the global environmental and sustainability norms
- Adequate insurance coverage for all natural calamities
- Vulnerability study conducted for natural calamities and required protective measures are initiated
- Necessary steps taken to reduce losses in case of calamity (e.g. raising of boundary wall at flood-prone sites)
Investments impairment risk Business performance of subsidiary companies and other investments could give rise to impairment charges in the future - Investments are reviewed regularly and corrective actions are supported
- Impairment testing being done periodically and wherever the impairment is noticed, it is being accounted for
Delayed recovery of subsidy from Government Litigation risk Working capital blockage due to delayed recovery of subsidy in Fertiliser business - Continuous monitoring and follow-up/representations being made to relevant authorities for recovery of subsidies
The Company faces various litigations. Any unfavourable outcome may have an adverse financial impact - Compliance with all laws, rules and regulations and contractual obligations
- Legal compliance monitoring system has been implemented
- Contesting case with relevant authorities following due legal course of action
- In-house legal experts as well as consultation with experts

Internal Control Systems

Your Company has well-established and robust internal control systems in place that are commensurate with the nature of its businesses, size & scale and complexity of its operations. Roles and responsibilities are clearly defined and assigned.

Standard operating procedures (SOPs) are in place and have been designed to provide reasonable assurance Your Company has carried out the evaluation of design and operating effectiveness of the internal controls to ensure adherence to the SOPs and noted no significant deficiencies/material weaknesses.

In addition to the above, Internal Audits are undertaken on a continuous basis by a reputable CA firm and Corporate Audit team of the Group, covering all units and business operations periodically, to independently validate the existing controls. The Internal Audit programme is reviewed by the Audit Committee to ensure that the coverage of the areas is adequate.

Internal Audit Reports are regularly reviewed by the management and corrective action is initiated to strengthen the controls and enhance the effectiveness of the existing systems. Significant audit observations are reviewed by the Audit Committee along with the status of management actions and the progress of implementation of recommendations.

The Audit Committee also reviews the adequacy and effectiveness of internal control systems and provides guidance for further strengthening them.