Grindwell Norton Ltd Management Discussions.

GENERAL REVIEW

Grindwell Norton Ltd ("GNO") is one of the subsidiaries of Compagnie de Saint-Gobain ("Saint-Gobain"), a transnational group with its headquarters in Paris and with sales of Euro 38.1 billion in 2020. Saint-Gobain has organized its businesses into two broad areas: Construction or Building related businesses that serve Regional markets and businesses that serve Global markets. The businesses that serve Global markets fall within the High Performance Solutions sector of Saint-Gobain. GNOs businesses are part of the High Performance Solutions sector. Within GNO, the businesses are divided into two major segments:

1. Abrasives

2. Ceramics & Plastics

BUSINESS ENVIRONMENT

The financialyear 2020-21 will be remembered as the year of COVID-19, the global pandemic.Itwas difficultyear not only for

India but also globally. The severe, nation-wide lockdown imposed to control the spread of COVID-19 had a huge and adverse impact on lives and livelihoods, especially during the April-June quarter, which witnessed a 24.4% contraction of GDP. As the economy opened up, growth recovered, moderately at first, but the revival gathered strength in the second half. The easing of supply side constraints and the revival of demand (first, pent-up demand and, then, festive season demand) contributed to the with a GDP contraction in the recoveryofgrowth.As range result,thefinancial of 7.5-8.0%. Industrial activity followed a similar pattern. After a massive contraction of 35.6% in the April-June quarter, the Index of Industrial Production (IIP), witnessed positive growth in the second half. The industrial recovery was fairly widespread. Despite this, the financial year has seen the IIP contracting by about 8.6%. Inflation, in general, and input costs, in particular, were subdued for most part of the year, but started increasing in the last quarter. After depreciating in the early part of the year, the INR appreciated against the USD in the second half. The RBI took early steps to ensure more than adequate liquidity and kept interest rates low (and unchanged) during the year. As the year, drew to an end, the second wave of COVID-19 started rising.

ABRASIVES SEGMENT REVIEW Products & Plants

Bonded Abrasives generally available in the form of wheels and other shapes such as segments, sticks etc., are used for various precision applications such as lapping, honing, super-finishing, race grinding, thread grinding, fluting, OD grinding, ID grinding & surface grinding etc. They are also used in rough applications such as snagging, cutting-off, burr removal and weld preparation etc. Bonded Abrasives are used by a very large number of Industries like Steel, Bearings, Auto Ancillaries, Auto OEMs, Cutting Tools, Needle, Razor, Food Processing, Aerospace and General Engineering etc. The variety of products are large and mainly consists of custom built, Made-to-Order products. GNO makes over 15,000 different products in a year. Thin Wheels are predominantly Cutting and Grinding Wheels used for cutting, deburring and weld-removing.

Super Abrasives are made of diamond (synthetic or natural) or Cubic Boron Nitride and are used in precision applications.

Coated Abrasives products are engineered composites comprising of a backing, a bond system and abrasive grains and are designed for material removal and surface preparation. Coated Abrasives products are available in various shapes like discs, belts, rolls etc. to suit a wide gamut of surface preparation and polishing applications. Non-Woven Abrasives, which are a part of Coated, also cater to the consumer market in scouring applications. In Industrial applications, Non-Woven products are used for a high level of finish.

GNO offers the widest range of cutting-edge Abrasive products to the Indian market. While the vast majority of these products are made by GNO in India, some are sourced from other plants of Saint-Gobain or from third parties. Saint-Gobain has a strong backward integration when it comes to Abrasives as the Ceramic Materials Division of Saint-Gobain manufactures high-end Abrasive grains.

Besides, Saint-Gobain has strong Research and Development capabilities and is uniquely positioned in the Abrasives industry. The Abrasives business has four manufacturing sites: Mora (near Mumbai), Bengaluru, Nagpur and Bated (Himachal Pradesh). All the sites are certified under ISO 9001, ISO 14001 and OHSAS 18001/ISO 45001. Besides, to augment its manufacturing capacity, GNO also has contract manufacturing facilities in India and extensive sourcing arrangements from countries outside of India.

Industry

The Abrasives industry in India currently has two major players offering a full range of Abrasives products, GNO has a leadership position in several product-market segments. Apart from these two major players, there are several

European, Korean and Japanese players present in the market through their agents or distributors. Also, there are several small local players present in a select range of products. Over the years, imports from China have significantly increased in the lower tiers of the market. Quality and performance levels of these products have also improved, thus offering a very good value proposition to the customers. Coupled with increased affordability and availability of Power Tools, the end-users have been shifting to more mechanized forms of work leading to a strong growth in the Right Angle Grinding products. Most of the major European, Japanese players have their offices and dedicated sales and in some cases, Application Engineering teams, in India. Many of them have moved to offering billing in INR from local ware-houses, post GST implementation.

In the case of Coated Abrasives, a few important international players have set up conversion facilities in India. Also, most of the

Power Tool players are now focusing on developing their accessories business which includes Thin Wheels and some Coated Abrasives. Besides, companies in related fields (e.g. Cutting Tools, Paints) have also entered the market. Thus, the market, over a period of time, has become highly price sensitive. The Key Success Factors for Abrasives in India are good, consistent quality, cost, right value proposition, innovation and differentiation, service and capability to provide total grinding solutions.

Development & Outlook

Saint-Gobain is a major player worldwide in Abrasives. It has a strong product portfolio, a strong R&D set-up with projects in both basic and applied areas and a global reach, with plants and marketing/sales organizations all over the world. GNO benefits from being a part of such an organization, in terms of access to all developments in products and process technology, sourcing of products and development of exports.

The year began in the midst of a complete and severe lockdown. Economic activity came to a near-standstill with markets being closed and all movement being stopped. Fortunately, industries categorized as ‘essential were exempted thus offering GNO a small window to resume operations on a limited scale to support a few customers. Throughout the year and, particularly in the first quarter, our priority was to ensure the safety and well-being of our employees, to support our small vendors and our channel partners and to serve our customers. From the end of the firstquarter, however, the easing of supply side restrictions and pent-up demand spurred a revival in growth. The revival startedfirstwith large accounts in Auto and Steel before extending to other sectors and channels like

Paint, Construction and the SMEs. Consumer sentiment continued to improve and domestic demand was robust before and during this and witnessed positive growth in the third quarter. Surprisingly, growth did not subside thefestiveseason.TheIIPreflected after the festive season, as demand remained buoyant with most sectors and channels reporting a strong inflow of orders. Similarly, during the financial exports also exports witnessed a significant revived as the yearunfoldedand, led by sales to affiliates, year. By responding quickly to the rapidly changing environment, the business gained market share. Consequently, overall sales increased by 0.9% over the previous year. With input costs being stable for much of the year, expenses being under control and prices holding firm, the operating margin saw a small improvement. Consequently, the operating profit increased by 5%. With strong control on working capital during the year, the business generated cash and resumed capital expenditure. An important project that was initiated and made good progress during the year was the construction of a new Coated Maker.

As the year was coming to a close, the second wave of COVID-19 struck. The transmissibility and severity of the second wave have taken everyone by surprise. It is clear that the existing medical infrastructure was not adequately prepared for this. The localized lockdowns across the country have adversely impacted supply and demand in April and will continue to do so in the first quarter of 2021-22, but, as was the case last year. Meanwhile, input and other costs have been rising since the January as global growth picked up. Under the circumstances, the business will continue to focus on keeping its operations running (while ensuring the safety of its employees), growing volumes (especially, exports) and meeting the needs of its customers, increasing prices while keeping costs under control and executing the capacity expansion projects. The business is well-placed to benefit from domestic industrial growth and from the growth opportunities that it has identified.

Risks & Concerns

COVID-19: This continues to pose the biggest risk to the recovery of the economy. The pace of vaccination and ability to contain the fast paced new mutants will play an important role. However, even as the fear of pandemic has reduced in the general public, the lingering uncertainty may have an adverse impact on consumer spending. We will keep a close watch on the developments, prioritise the safety and wellbeing of our employees while being agile to respond to the changing demand. We will continue to keep discretionary costs under check.

(i) Industry & Market: The Abrasives business caters to a number of industries such as Steel, Automobiles, Auto Components, General Metal Fabrication, Construction and Woodworking. The dependence on any single industry segment is less than 15% even as Automotive coupled with ancillaries and Automotive after, has a significant impact. getaffectedif all sub-segments of the industry performbadlyatthesametimeor significantdownturn happens in Auto industry that impacts Abrasives potential significantly, directly or indirectly. Normally, this happens in an economic slowdown. There are a number of large customers serviced directly and there are several dealers to service small and medium customers.

The largest customer accounts for less than 4% of the total sales and the largest dealer also accounts for less than 3% of the total sales. In order to minimize the impact of a domestic downturn, GNO has been putting in efforts to develop export markets and will continue to do so. Export sales are not concentrated in any single country, but are spread over several countries.

(ii) Technology: Abrasives have been used over a very long period of time and technological changes in terms of applications are gradual. GNO Abrasives is well positioned to anticipate and take advantage of these technological changes as Saint-Gobain is one of the Worlds Leading manufacturers of Abrasives with a very strong R&D Centre in the USA with regional R&D centers located elsewhere (including a Centre in India). Both basic and applied research takes place at these R&D centers. GNO has full access to all the research and technology developments.

(iii) Competition: The Abrasives Market has clearly been evolving from two major players to multi-players. The competitive landscape has become much more dynamic with players from Power Tools, Paints, Cutting Tools and other trading-houses actively entering into the market in the last few years. We have, on the one hand, competition from the high-end European manufacturers and on the other, from the low-end Chinese imports. Hence it is important to be differentiated as well as highly competitive to stay ahead in the market. To meet the growing challenges in the market, the business will have to continue to invest in technology, capacities and capabilities and provide superior solutions.

CERAMICS & PLASTICS SEGMENT REVIEW

The main businesses in this segment are:

(i) Silicon Carbide;

(ii) Performance Ceramics and Refractories (erstwhile, High Performance Refractories); (iii) Performance Plastics;

(i) SILICON CARBIDE ("SiC")

Products & Plants

Silicon Carbide grains are used primarily as raw material in the manufacture of Abrasives, Refractories and for stone polishing.

SiC is manufactured at the plant located at Tirupati in Andhra Pradesh. SiC is also manufactured by the Companys subsidiary, Saint-Gobain Ceramic Materials Bhutan Private Limited, at its plant near Phuentsholing in Bhutan. Both the plants are certified under ISO 9001: 2015, ISO 14001:2015 and ISO 45001:2018.

Industry

In the domestic market, there are three main players (including GNO) in the SiC business. GNO is the market leader. This market is also catered to by imports, mainly from China, Vietnam and Russia. The key requirements for success in the industry are quality and cost competitiveness. Entry barriers are high by way of capital investment and technology.

Development & Outlook

The Silicon Carbide business saw a drop in domestic demand over the previous year primarily due to the COVID 19 pandemic and in exports (primarily in SE Asia). As in the case of Abrasives, after the disastrous first quarter, business conditions saw a steady improvement. Despite price pressures from imports from China, Vietnam and Russia, the business was able to hold prices. However, during the last quarter of the year, we could see the price improvement in the global market benefitting us marginally. On the supply side, production at your Companys Tirupati Plant was higher than the previous year due to better electricity availability from APGPCL. During the year, GNO acquired an additional 1% of the equity of APGPCL; this entitled GNO to receive an additional 2.75 MW of electricity for the Silicon Carbide business. While supply from Tirupati increased, there was a big drop in production at GNO subsidiary . This was entirely due to the restrictions (on the movement of people and materials) imposed by the Government of Bhutan to control the spread of COVID-19. During the year, the cost of RPC, a key raw material, increased substantially and registered its historical high. Fortunately, during the last quarter, global prices for SiC firmed up and this enabled the business to partly offset the cost increase. Looking ahead, while the short term will be impacted by the second wave of COVID-19, the business is well-placed to benefit from a return to normalcy. The focus in 2021-22 will be on maximizing supply from both manufacturing locations and on price and cost management.

Risks & Concerns

With global Demand-Supply likely to come back to normal, the major short term risk is aggressive pricing by competitors from

China, Vietnam and Russia squeezing margins. In your Companys subsidiary in Bhutan, the local Environmental Commission has been insisting that we shift to lower Sulphur RPC in place of what we are using today. We are working with Indian

Oil Corporation to manage this shift, with support from Govt of Bhutan. While this change will help us to be in line with the Environmental requirement, this change comes with a structural change in our cost structure as this RPC is priced at substantially higher price than our conventional Petcoke.

(ii) PERFORMANCE CERAMICS AND REFRACTORIES ("PCR")

Products & Plants

GNOs PCR Business Unit makes Ceramic and Refractory products for a wide range of industrial applications. The products manufactured mainly include Silicon Carbide based "shaped" refractory and ceramic products. The range of "unshaped (monolithic)" products primarily include "dry ramming masses" and a few specialized "castables". PCR Business offers comprehensive solutions, based on deep expertise acquired over the years, in design, engineering and manufacturing of ceramic and refractory systems for addressable applications. In many cases, our offering includes installation support and training as part of the overall product-service package. PCR business unit has two manufacturing sites: one is located at Bengaluru, in Karnataka and the other at Halol, near Vadodara, in Gujarat. The plant in Bangalore is certified under ISO 9001 - 2015, ISO 14001 and OHSAS 1800. Halol is an ISO 45001 certified plant.

Industry

PCR Refractory products find use in applications across industry segments like Primary Iron & Steel, Primary Non Ferrous

Metals (Aluminum, Copper, Zinc etc.), Secondary Steel, Secondary Iron, Secondary Non Ferrous (Aluminum, Copper), Petrochemicals, Waste to Energy Systems etc. PCR Ceramic products are used in applications in industry segments like Sanitary-ware, Table-ware, Ballistic Armor Protection, Wear Resistance Systems, etc.

Development & Outlook

The nation-wide lockdown in the April-June 2020 quarter had a severe impact on supply and demand and the performance of the business. But the subsequent quarters witnessed a positive trend as industrial activity revived. Still, sales in 2020-21 remained flat. The business, however, continued to identify new growth opportunities and develop the opportunities identified during the last few years in the following segments: Foundry, Iron & Steel and Wear Resistance segments in the domestic market and Ceramic and Foundry segment in export markets. The operating profit and operating margin, however, increased substantially, mainly due to the deflation in raw material costs and the continued improvement in manufacturing efficiencies. The outlook for 2021-22 is positive, except for the short term uncertainty caused by the second wave of COVID-19.

Risks & Concerns

The second wave of COVID -9 is a cause for concern and increases short-term uncertainty. Ensuring the health and safety of our employees is going to be a key priority.

One other short term concern is the sharp rise in the prices of key raw materials in recent months. This needs to be mitigated primarily through price increase and cost reduction initiatives in the plants.

The medium term risks are as follows:

The business has a very high level of exposure to global supply chains - both for inputs and sales.

Continued low investment in new projects will adversely impact growth.

Product acceptance and competitive pricing and raw material availability and sourcing will continue to be critical in both domestic and export markets.

(iii) PERFORMANCE PLASTICS ("PPL") Product, Plant & Industry

The Performance Plastics business produces and markets more than 800 standard and custom-made polymer products through three business segments: Engineered Components ("ENC"), Life Sciences ("LS") and Composites ("CMP"). Each of the segments demonstrates innovation, responsiveness to customer needs and polymer expertise.

The major product lines in PPL are Bearings, Seals, Tubing & Hoses, Films, Fabrics and Foams. The major markets addressed are Automotive, Oil & Gas, Life Sciences, Construction, Energy and General Industrial.

GNO has a plant for ENC and FLS products situated at Bengaluru. This plant is certified under ISO 9001, ISO 14001, OHSAS 18001/ISO 45001 and TS 1694.

Development & Outlook

The major growth drivers are:

a. New products and new markets

b. Success in new applications

c. Broad-basing of existing applications and markets

d. Specification driven approvals at customers

2020-21 was an excellent year for the PPL business withbothsalesandprofits significantincreases . The Life registering

Sciences segment was by far the biggest contributor to this outstanding performance. The severe lockdown in Q1 led to significant volumes drop for all our business segments with the exception of Life Sciences, where demand (domestic and export) remained strong for the entire year. This was partly due to increased demand from domestic manufacturers of COVID vaccines and drugs and partly due to the conversion of new customers and applications. As global markets also witnessed strong growth, orders for tubings from our extrusion plants saw a good increase. There was a sharp revival in Automotive business in the second half of the year which helped Bearings to close the year better than expectations. Construction activity revival and industrial activity revival helped the Composites segment to do better. Looking ahead, the short term is clouded in uncertainty with imminent lockdowns threatening to disrupt industrial activity. The Life Sciences business continues to have a strong outlook both on the domestic and exports front. With Automotive expected to do well, Bearings too has a good outlook.

The main aim of the PPL business in 2021-22 would be to strengthen its position in existing markets, while accelerating growth in new markets in the industrial, life sciences and construction segments.

Presence of well-trained technical sales and application engineers with good market coverage is a key requirement to identify and develop new applications and deliver high growth. Building such teams and local expertise will continue to be a high priority for the business.

Risks & Concerns

Demand disruption in key markets like Automotive, Industrial and Oil & Gas is a major risk due to the pandemic. Depreciation of the Rupee is also a risk as the business is import-intensive.

IT- Services - Development & Outlook and Risk & Concerns

GNO has captive IT services unit which provides various IT services (e.g. Application development, infrastructure management, and cybersecurity) to the Saint-Gobain group globally. The IT services unit has around 660 people. The captive center follows the cost-plus model. The growth in this segment is limited and future growth can happen only on account of cost inflation.The financial performance of this segment may be impacted due to the foreign exchange fluctuation and hedging strategy. As the profit from this segment is more than 10% of the total profit of the Company during the current financial year, this segments results are separately provided. This may not be repeated in the subsequent years.

Risks & Concerns - Others

1. FINANCIAL

GNOs financial management has always been governed by prudent policies, based on conservative principles. Currently, GNO is a debt-free Company. All the commercial transactions entered into by GNO in foreign currencies are managed by hedging them appropriately to minimize the exchange risk. GNO has a well-defined and structured treasury operation, with the emphasis being on security.

2. LEGAL & STATUTORY

Contingent Liabilities: Details of Contingent Liabilities are in the Notes forming part of the financial statements. Statutory Compliance: GNO ensures statutory compliance of all applicable laws and is committed to the timely payment of statutory dues. The Company monitors compliance under various statutes periodically.

HUMAN RESOURCES

Confronted with a global pandemic and consequent lockdowns, GNO and its employees had to quickly adapt to a very uncertain and fast-changing environment. GNO attached the highest priority to ensuring the safety, security and well-being of its employees and took a variety of steps (e.g. changes in workplace design, flexible work from home policies, assistance and support to employees and their families for dealing with COVID-19 etc.). The employees, on their part, went out of their way to support their colleagues as also the Company. In this unique year, GNOs employees have been exceptional in every respect.

More generally, GNOs Human Resources Policy aims to create a work environment that is conducive for the professional and personal development of employees. GNO continued to invest in training people in Environment, Health and Safety and in World Class Manufacturing and to provide a work environment in which employees can give their best and realize their full potential. At the end of the year, there were 2006 employees.

OVERALL PERFORMANCE

The economic contraction during the financial year 2020-21 was entirely due to the actions taken to contain the COVID-19 pandemic. However, after the severe lockdown in the April-June quarter was lifted, the industrial economy witnessed a steady and sustained improvement. Consequently, after reporting disappointing results in Q1, the subsequent quarters saw a strong rebound. As a result, in 2020-21, your Companys standalone revenues and operating profit have increased by 5.2% and 32.5% respectively and consolidated revenue and operating profit increased by 3.7% and 29.8% respectively.

The significant change in consolidated operating profit margin (19.6% vs 15.6%) and net profit margin (14.6% vs 11.6%) was mainly due to a reduction in input cost and discretionary expenses. During the year, the Company generated a significant amount of cash, cash equivalent and the bank balance (including investments in mutual funds) as on March 31, 2021 was 643.48 crores. Return on Net Worth (standalone) for the financial year ended March 31,2021,17.8%ishigherthanofthepreviousfinancialyear (15.6%) year ended and ReturnonNetWorth(consolidated)forthefinancial March 31, 2021, 17.4% is higher than that of the previous financial year (15.5%).

INTERNAL CONTROL SYSTEMS

GNO has an effectiveinternal control environment which ensures that the businesses and operationsaremanagedefficiently regulatory requirements are complied with and transactions are recorded after appropriate authorisations. The efficacy of the internal control systems is validated by Internal as well as the Statutory Auditors. The strong independent internal audit function performsregularaudits.Everyquarterthesignificantaudit findings, the corrective steps recommended and their implementation status are presented to the Audit Committee.

SEGMENT FINANCIALS

For the current year, in line with the Accounting Standards on Segment reporting, GNO has identified three segments. These segments are Abrasives, Ceramics & Plastics and IT Services.

CAUTIONARY STATEMENT

The Management Discussion and Analysis Report contains a few forward looking statements based on the information and data available with the Company and assumptions with regard to the economic environment, the government policies etc. The Company cannot guarantee the validity of assumptions and performance of the Company in the future. Hence it is cautioned that the actual results may differ from those indicated, expressed, or implied in this report.