Gulshan Polyols Ltd Management Discussions.

1. FORWARD-LOOKING STATEMENT

The report contains forward-looking statements, identified by words like expects, will, foresee, hopes, confident, competent, believes, projects, estimates and so on all statement that address expectations or projections about the future, but not limited to the Companys strategy for growth, product development, market position, expenditures and financial results, are forward-looking statements. Since these are based on certain assumptions and expectations of future events, the Company cannot guarantee that these are accurate or will be realized. The Companys actual results, performance or achievements could thus differ from those projected in any forward-looking statements.

Industry Structure & Development

Several industry specific reform initiatives taken by the Government since 2014 have significantly improved the overall business environment in the country. As a result of a host of measures undertaken by the government, including implementation of the Goods and Services Tax, Insolvency and Bankruptcy Code, introduction of inflation targeting regime, Make in India, Intellectual Property Rights (IPR) Policy, Start-up India and bank recapitalization, India has leapt 30 ranks over its previous rank of 130 in the World Banks latest Doing Business Report 2018.

The impact of demonetisation went beyond unaccounted money; the real gain came from digitization and formalization of the economy, accompanied by an unprecedented move from physical to financial assets. The recapitalization of public sector banks has been partly enabled by this tide of massive liquidity available with the banking system. Similarly, beyond efficiency transformation in taxation, the impact of the GST is bringing a shift in approach towards digitization, compliance and customer interaction. The GST is likely to have a positive impact by way of increase in competitiveness and productivity through improvement in quality of jobs, access to formal credit and significant reduction in the overall tax burden.

Indias economic growth (GDP growth) estimate for the fiscal year 2017-18 is at a four-year low at 6.5% in the current fiscal, the lowest under the Modi government, mainly due to the poor performance of agriculture and manufacturing sector, as against 7.1% in the last fiscal. However, even as the structural reforms — the GST and demonetisation — are expected to ease out over the next few quarters. Government will be required to work to improve purchasing power and create additional demand.

Indian agriculture is highly dependent on monsoon. Not surprising then, that two consecutive years (2016 and 2017) saw deficit rainfall which has been the single most important factor impacting the growth of the agriculture and other allied sectors for the period under review. The rising demand for maize for feed and starch industry, increased usage of hybrid seeds and rise in export demands has led to steady growth in production of maize. The Minimum Support Prices (MSP) for maize has significantly increased in the last few years to encourage farmers to enhance maize farming. This has resulted in improvement in ranking of Maize Cultivation in the Country from rank 3rd to 2nd in the year 2018 in overall Agricultural Productivity. With increased availability of maize in the Country, the Company is expected to benefit in achieving economies of scale.

Calcium Carbonate industry is dominated by the unorganized sector which is producing low grade of Calcium Carbonate. As against this, the Company is producing Premium grades of Calcium Carbonate, delivering better margins in revenue to the Company and is the market leader in the organized sector contributing almost 20% of national production of Calcium Carbonate.

The Company: Overview and recent developments

Gulshan Polyols Limited ("GPL") is a multi location, multi product manufacturing company and has become a market leader in most of its products in India with global presence in 42 countries, across 3 continents. Its business portfolio covers Starch Sugars, Calcium Carbonate; Alcohol business; Agro based Animal Feed, 8i On-site PCC plants with production facilities at Muzaffarnagar in Uttar Pradesh, Bharuch in Gujarat, Dh aula Kuan in Himachal Pradesh, Abu Road in Rajasthan, Patiala in Punjab, Tribeni in West Bengal and Amlai in Madhya Pradesh.

Gulshan Polyols Ltd. caters to wide range of industry 8i niche markets in core sector encompassing pharmaceuticals, personal care products, footwear, tyres, rubber 8i plastics, paints, alcohol, value added paper, agrochemicals, food and agro products. It caters to leading industrial units of the country such as Colgate Palmolive, Hindustan Unilever Ltd, Dabur, Asian Paints and ITC etc.

The Company has consistently been exporting its products and is recognized by Government of India as STAR EXPORT HOUSE.

During the year, the Company has commenced commercial production of of ENA and Rectified Spirit at the location of Borgaon industrial area in Chhindwara (M.P.)

2. COMPANYS PRODUCT CATEGORIES:

2.1 Starch Sugars Business: includes product of Sorbitol-70% solution, Liquid Glucose, Maltro-Dextrin Powder (MDP), Dextrose Mono-Hydrate (DMH), and planning to introduce Native Starch, High Fructose Rice Syrup (HFRS), Brown Rice Syrup and Rice Syrup Solids during the current FY.

The rice based Grain Processing Plant at Muzaffarnagar has achieved optimum level of capacity utilization during the year. In this year, Starch Powder is the main growth driver and will remain growth driver in future also.

Native Starch / Maize Starch: It is the main carbohydrate nutrient from different sources of vegetation. Maize or corn starch powder is white, odorless and tasteless, which is extracted from kernel of maize/ corn. It is widely used as a thickener and a stiffening agent with numerous industrial applications.

Your company makes different grades of maize starch, which cater to industries ranging from food, textile, paper, pharmaceutical, adhesive, etc. Starch powder is made from NON GMO Maize/ corn at the companys plant in Muzaffarnagar, UP, employing latest technology and best industry practices to ensure top quality of final product.

During the year, your Company invested resources to augment its manufacturing capacities to be in a position to support the increased future demand in a timely manner. Therefore, the Company has completed capacity expansion of Starch Sugar business at its Rice based Unit with grinding capacity of 45,000 TPA which includes the following products to be manufactured in our plant from Non-GMO rice using the latest technology:

High Fructose Rice Syrup (HFRS) which is naturally found in fruits, honey, corn syrup and molasses. Commercially, High Fructose Rice Syrup is used as a sweetener in flavored and unflavored syrups, energy drinks, processed food, bakery products.

Brown Rice Syrup, popularly known as Liquid Glucose. It is a preferred sweetener for natural/healthy foods. Rice syrup is used as base sweetener in edible sweet syrups (Flavored / Unflavored), blended honey, bakery foods, cakes, pastries, fillings, toppings, candies, canned fruits, health drinks, juices, soft drinks, Dairy products, ice-creams.

Rice Syrup Solids which is also known as dried glucose syrup or Glucose Powder. It is usually used as sweetener and stabilizers for moisture & texture in baked goods, confectionary (hard candy), dairy products, processed meats, seafood and also used by breweries to lighten beer color, add body, rice flavor and fermentable sugars. It is easily dispersed into water for ease of use in quick dissolving beverage mixes.

2.2 Agro based Animal Feed business: After extracting the starch sugars out of corn and rice as raw material, there are other key by-products such as Germ, Gluten, Animal feed. These high value added products contains high nutrition including proteins and fats and popularly used for cattle and poultry feed and corn oil extracting.

Indias feed industry is growing with poultry, cattle and aqua feed sectors emerging as major growth drivers. The demand for animal protein and dairy products in India will increase the compound feed consumption volumes. Consequently, cattle need to be developed, more requirement of nutritious food for them, which implies higher demand of grain by-products.

2.3 Calcium Carbonate business: Your Company also produces over 19 grades of Calcium Carbonate (Precipitated, Activated, Wet and Ground Natural Calcite Powder) used in various industries. The Company has four integrated facilities to manufacture Calcium Carbonate spread across the country.

The Calcium Carbonate is used in PVC irrigation and Cables, Paints, Dentifrice, Detergents, Rubbers, Plastics etc. Your company has imported technology from IVA Industrieberatung GmBH, Germany, for Ground Natural Calcite Powder. In order to make eco-friendly, all the plants of the company are well equipped with desired facilities.

In the Companys endeavor to add new products delivering value addition, the company is gradually shifting its focus from producing lower grade products to higher grade products which will increase the overall profitability of the Company in medium to long term perspective.

2.4 Onsite PCC/WGCC Plants: The Company is FIRST in the country to introduce the concept of On-site PCC manufacturing plant for Value Added Paper (VAP) industries. Companys achievement has been recorded in the Limca Book of Records in 2010. The Company has successfully installed six Onsite PCC plants for paper industry Companies.

During the year, the Company has entered into an agreement to set up 24000 MTPA Onsite PCC/WGCC with a silverton Paper Mill in Western U.P.

Further the Management hopes for the exponential growth in this segment in the country, in line with the developed nations, where on-site PCC has become an integral part of Value Added Paper such as printing, photo copier, tissue paper and writing paper.

Your company is the only Indian company which is offering such technology & providing plants to Indian and overseas companies engaged in manufacturing Value Added Paper.

2.5 Alcohol Business: The Company has started implementing potable alcohol manufacturing facility, which will enhance the revenue and profitability of the Company as well as strengthen the positioning of the existing IMFL and Country Liquor business.

3. OPPORTUNITIES & THREATS

Despite a challenging operating environment and heightened competitive intensity, your Company continued to drive volume growth, improve realizations and sustain its market standing during the year. This was achieved by focusing on identified end-use segments, investments in quality systems and processes, and optimizing the energy cost. The Business consolidated its clear market leadership position in supplying On-site PCC plants for leading VAP manufacturers in the country as well as in export market.

The Company is also foreseeing significant growth in the On-site PCC plant for its clients by adding the adequate manpower and enhancing competence and other capabilities required to be a leading player in the market. The company is confident of winning and executing large contracts against stiff competition.

Calcium carbonate (Activated Calcium Carbonate and Precipitated Calcium Carbonate) is linked to growth of PVC irrigation & Cables, Paints, Dentifrice, Detergents, Plastics etc. Since the per capita consumption of these products is regularly increasing in our country, the growth in this field is evidently perpetual. There are inherent opportunities available to the Company to which it is catering for many decades such as pharmaceuticals, personal care products, footwear, tyres, rubber & plastics, paints, alcohol, value added paper, agrochemicals, food and agro products.

Besides domestic growth, the Company has identified exports as a key future growth driver and is seeing untapped opportunity in export markets for starch sugars business. Your company is continuing to earn valuable foreign exchange by exporting starch sugar and is further gearing up to cater to the growing demand in international markets.

The company operates in commodity types markets. It is therefore important to manage its cost, to ensure it has an edge in pricing over its competitors and delivering value to its customers.

In 2017-18, the monsoon was below normal in maize growing area resulted in lower availability of maize. Due to this, prices were higher of maize as compared to previous years. The impact of increase in raw material cost was not fully passed on to the customers. Inability of the Company to pass on costs to customers has resulted in subdued margins.

The Company regularly diversifies its products portfolio and also develops new export markets. It is also investing in projects to strengthen cost competitiveness.

The general threat perception on the companys products is linked to vagaries of weather, shortfall in rain resulting increase in raw material prices, Government policies linked to Energy cost, Foreign exchange volatility, Import- export policies and competition from un-organized sectors to a certain extent in Calcium Carbonate business.

In this scenario, your Company is fully competent to counter such threat from time to time and gearing up to minimize the effect of these threat by improving the efficiency in terms of consumption and yield.

4. RISK AND CONCERNS

While there is a proper structure for risk management, which is regularly implemented across the organization, there are certain regular risks and concerns that surface in the business. Our primary raw material is "Corn and Rice" for Starch Sugar business as well as for Animal Feed & Alcohol business. Corn and rice are agricultural products and its supply and quality are subject to forces of nature. Being items of commodity market, their pricing is to be carefully managed in order to ensure that the company maintains an edge in pricing over its competitive. The Company is exposed to various risks such as rising competition, availability of better quality seeds and increase in supply of product options at lower costs may result in loss of market share for the Company. The main ones and the steps undertaken to mitigate these risks are mentioned below:

As a risk mitigating strategy, the company has diversified its product portfolio, and uses alternative raw material considering its viability in terms of prevailing market conditions. The other main raw material is lime stone for Calcium Carbonate business, which we source from the domestic market. The location of our plants is in close vicinity to the source of lime stone due to which we are able to maintain our edge effectively to manage our cost and quality of procuring lime stone.

Power and Fuel are the other major inputs of manufacturing cost. Increase in cost of Power and Fuel has negative impact on the profits of the company. Over the past year, tariff prices for power have been increasing. The Company has set up captive power plant for co-generation of energy to mitigate the adverse impact of rising cost of power. Advancement in technology may require us to make additional capital expenditure for upgrading our manufacturing facilities. Flowever, the Companys diversified product profile, quality approach, value-added segments, manufacturing flexibility, modern technology & strong marketing network has saddled the company to successfully counter the effect of such adversities.

The Management being well acquainted within business risks, is saddled to take care of the risks and concerns and takes appropriate and timely measures as and when the need arises.

5. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has proper and adequate internal control system commensurate with its size and complexity. The Company has a system of monthly physical verification of all types of stocks viz. finished goods, semi-finished goods and raw materials by Internal Auditor in addition to yearly verification of stores. The monthly monitoring and verification of these stocks helps the management to analyse and focus on the consumption and efficiency of raw materials viz. a viz. production output.

The remedial measures, as and when required, in any process or plant with respect to adverse variation in raw material consumption, etc is taken up immediately to avoid re-occurrence.

The financial statements are prepared in conformity with the established Accounting Standards and Principles. Regular Internal Audit is carried out to ensure that the systems are adequate.

The Company has appointed Internal Auditors to observe the Internal Controls to ensure that the work flow of organization is being done through the approved policies of the Company. In every Quarter during the approval of Financial Statements, Internal Auditors will present the Internal Audit Report and Management Comments on the Internal Audit observations.

The Board of Directors of the Company have adopted various policies such as Related Party Transactions Policy, Whistle Blower Policy, Policy to determine Material Subsidiaries and such other procedures for ensuring the orderly and efficient conduct of its business for safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information

6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The financial performance during the year under reference has been impressive in terms of sales. Even though there has been a decent increase in the turnover, the volume of profits has marginally decreased. The decrease in profitability is due to increase in depreciation and higher cost of raw material mainly Corn / Maize.

During the year under review, your company has achieved gross revenue from operations of Rs. 62403.80 lakhs as compared to Rs. 52681.57 lakhs in the previous year. Profit before tax stood at Rs. 2354.11 lakhs as compared to Rs. 3032.97 lakhs during the previous year. After providing for taxes and other adjustments Profit after tax is Rs. 1824.20 lakhs as compared to Rs. 2734.38 lakhs during the previous year

7. HUMAN RESOURCE DEVELOPMENT AND INDUSTRIAL RELATIONS

Fluman resources are the most valued assets of the Company. They work individually and collectively contributing to the achievement of the objectives of the business. The relation between the employees and the Company remained cordial throughout the year. Your Companys corporate culture and the vision and values help unite the workforce and provide standards for how your Company conducts the business.