The Indian Wood Products Company Ltd Management Discussions.

FY2021 represents fiscal year 2020-21, from 1 April 2020 to 31 March 2021, and analogously for FY2020 and previously such labeled years.

Global Economic

The COVID-19 viral pandemic continues to be a highly personal, individual experience that is also an unprecedented globally-shared phenomenon with wide- ranging repercussions. The pandemic has disrupted lives across all countries and communities and negatively affected global economic growth in 2020 beyond anything experienced in nearly a century. Estimates indicate the virus reduced global economic growth in 2020 to an annualized rate of -3.4% to -7.6%, with a recovery of 4.2% to 5.6% projected for 2021. Global trade is estimated to have fallen by 5.3% in 2020, but is projected to grow by 8.0% in 2021. According to a consensus of forecasts, the economic downturn in 2020 was not as negative as initially estimated, due in part to the fiscal and monetary policies governments adopted in 2020. Generally, economic growth forecasts captured the decline and subsequent rebound in economic growth over the second and third quarters of 2020, but have been challenged since by the prolonged nature of the health crisis and its continuing impact on the global economy.

The U.S. and European economies experienced the beginnings of a recovery in the third quarter of 2020 with the U.S. economy growing by 33.4%, or at an annual rate of 5.0%, largely matching an equally sharp decline in growth in the second quarter. The Euro zone economy grew by 12.5% during the quarter and -7.4% at an annual rate. During the third quarter of 2020, however, the recovery was weakened by renewed quarantines and business lockdowns in response to a resurgence of infectious cases and the emergence of more contagious variants of the virus that began in September. The annual U.S. economic growth rate slipped to -3.5% in 2020, but was estimated to have grown at an annualized rate of growth of 6.4% during the first quarter of 2021.

Through various key economic and financial indicators

had rebounded from the depths of the pandemic-related economic recession, although not all parts of the global economy had recovered to the levels that preceded the COVID-19 pandemic. Over the long run, however, damage to labour markets could be more problematic with a large share of the labour force unable to return to pre-pandemic jobs. In some cases, workers who were unemployed during the crisis reportedly are reconsidered returning to their previous jobs and exploring other options, which potentially could affect the pace of the economic recovery. Similarly, economies could face long-term costs as a result of children who were held out of in-person education for over a year that could result in lower academic performance and graduation rates and delayed entry into the labour market.

In a report prepared for the January 25-29, 2021, World Economic Forum, the International Labour Organization (ILO) estimated that 93% of the worlds workers at that time were living under some form of workplace restrictions as a result of the global pandemic and that 8.8% of global working hours were lost in 2020 relative to the fourth quarter of 2019, an amount equivalent to 255 million full-time jobs. The ILO estimated that the loss in working hours was comprised of (1) workers who were unemployed, but actively seeking employment, (2) workers who were employed, but had their working hours reduced, and (3) workers who were unemployed and not actively seeking employment. Based on this approach, the ILO estimated that unemployment globally was equivalent to 0.9% of total working hours lost in 2020, while inactivity and reduced hours accounted for 7.9% of total working hours lost.

According to the April 2021 World Economic Outlook prepared by the International Monetary Fund (IMF), the global economy is projected to experience a stronger recovery in 2021 and 2022 than indicated in previous forecasts, with global growth projected to increase at a rate of 6% in 2021 and 4.4% in 2022. The IMF also concluded the global economic recovery would occur at different speeds across and within individual countries,

reflecting differences in the pace of vaccinations, the extent of policy support, and various structural conditions, such as the role of tourism in the economy. Within countries, the employment and earnings of youth, women, and the relatively lower-skilled workers has been affected the most.

In addition to the asynchronous recovery, the IMF concluded that support provided by central banks may have unintended consequences of supporting equity valuations that at times are misaligned with their model- estimated fundamentals and by increasing financial risks overall that could become problematic should interest rates start rising.

The IMF urged G-20 leaders to maintain monetary and fiscal policies to lessen the economic impact of the global recession, In particular, the IMF recommended a combination of accommodative monetary policies characterized by low interest rates and central bank programs to facilitate credit availability, a continuation of fiscal support for individuals and firms, and engagement in a synchronized infrastructure investment program to promote growth. According to an IMF analysis, all other things being equal, an increase in infrastructure spending by G-20 countries of one-half percent of their GDP in 2021 and 1% in 2022 through 2025 would increase global GDP by 2% in 2025, compared with under 1.2% growth for an unsynchronized approach.

Indian Economic

In line with the global economy, India witnessed major economic disruptions in Financial Year 2020-21, as the outbreak of COVID-19 perversely impacted human health and safety of the countrys inhabitants. This prompted the government to undertake one of the worlds tightest lockdowns, bringing manufacturing and trade activities to a screeching halt. Prolonged lockdown exacerbated existing vulnerabilities of the country including the weakened financial sector, private investments, liquidity constraints and consumption demand. Mobility restrictions and social distancing led to unparalleled supply-chain disruptions and consumer demand fallout. This forced the Indian GDP to contract

by 8.0% in FY 2020-21 as against a growth of 4.0% in FY 2019-20, marking a recession since 1980.

After March 25, 2020, when a national lockdown was implemented, economic activity slowed sharply. As a result, output fell by a whopping 25 percent (year on year) between April and June, the first quarter of the FY2021 fiscal year.

The informal sector, where the vast majority of Indias labour force is employed, has been particularly affected. As in most countries, the pandemic has exacerbated vulnerabilities for traditionally excluded groups, such as youth, women, and migrants.

After the 2020 huge GDP contraction, economic growth is projected to bounce back in 2021, driven by pent up demand for consumer and investment goods, before declining in 2022. The dramatic infections upsurge since February has weakened the nascent recovery and may compound financial woes of corporate and banks. As public anxiety over the virus spreads and lockdowns multiply, high-frequency indicators suggest that a marked slowdown may have taken place in the April- June quarter, although the overall annual impact is likely to be muted. Wholesale and retail inflation rates remain elevated, but within the target range of the central bank.

After a contraction in FY 2021, it is expected that the economy to grow at a modest pace in the first half of FY 2022. Growth is projected to reach 11.7% in FY 2022 in our baseline scenario. That said, slow recovery in a couple of quarters will likely have an impact on next years numbers as well. In FY 2023, growth of 6.9% is foreseen. In addition to the low base effect in FY 2021 and Milton Friedmans plucking theory playing out, it is believed five drivers will steer growth over the next two years:

• The rapid pace of vaccination and low death rates despite high infection

• Strong growth in private investment, and its rebound stimulated by reforms and schemes

• Pent-up demand backed by savings made by high- and mid-income consumers who are waiting to spend

• Fiscal spending on building assets and infrastructure

(that have a high multiplier effect on income, jobs, and private investments) that will likely start gaining momentum on the ground

• Global economic rebound in late 2021, especially driven by the United States, as predicted by our US economists

Indian Katha Industry

The root of usages of Katha in India goes back to ancient time. Katha was in use even before Morya Dynasty as Ayurvedic medicine. However, initial the manufacturing of Katha was carried by unorganized sector. Only in British era manufacturing of Katha with scientific method started. However, unorganized sector is still in operation and leads in the industry with maximum share. The size of the Katha industry (B to B) is about 2000 crores p.a. with the organized segment being approx. 30%. It has also been estimated that the (B to C) Katha market is approx. 2500 crores per annum, which is mainly consumption in Paan etc. Katha is obtained by crystallization in cold from the water extractives of the heartwood of Acacia Catechu, commonly known as Khair tree. Acacia Catechu is widely distributed in India, from the northwest plains to eastwards in Assam and throughout the country, particularly in drier and deciduous regions. The process of Katha making is a long and arduous process, which takes upto 45 days. Each step in the production process is closely monitored and proper climatic conditions are maintained for optimum colour and quality. Katha (Catechu) is one of the principal ingredients used in the preparation of PAAN from betel leaves, for chewing purposes when, in combination with lime, it gives the characteristic red coloration. With the advent of Paan- Masala and its ever-growing popularity among masses, the usages of katha have increased many folds during the last 4 decades. Katha is extracted from Khair tree and while producing Katha Cutch is also produced as bio-product Acacia is the botanical name of this tree and it has different varieties like Acacia Sundra, Acacia Catechuoides & Acacia Catechu. These species of tree are mainly concentrated in Uttarakhand, U.P, Assam, Gujarat, Maharashtra, J&K, Punjab and Himachal Pradesh. Katha manufacturing is an important forest- based traditional industry in India.

Katha is being produced in the country since long and it is a mass consumption item as it is used in preparation of paan all over the country. Katha has also got medicinal values as well and is used in ayurvedic preparations as it cures itching, indigestion and is effective in skin disorder, ulcer, boils, piles, throat diseases and diabetic Therapy etc. On the other hand, cutch has various industrial applications. It is one of the important sources of vegetable tanning materials, used extensively as an additive to the drilling mud used for oil drilling and for preservation of sailing rods, fishing nets, mail bags etc. Thus, both products are versatile with varied application.

The demand for Premium quality Katha is growing significantly with consumers disposable income on a steady rise. Our company continues to be leading player in Katha industry.

The restriction on the movement on the goods and labour crisis caused by the national lockdown implemented on March 25, 2020, resulted in economic activity slowed sharply. As Katha industry mostly dominated by the unorganized section had been hit significantly. The first quarter witnessed surge in stock of finished goods resulting in the sharp fall in price realization and excess supply. In the third quarter with the ease in restrictions, the market started recovering and production and Demand got better but not to the pre Covid level. In FY2022, the price and supply is expected to be improve by 2nd half once situation normalizes post 2nd Covid wave.

Indian Spice Industry

Indian spices have a rich legacy. They have been in great demand since the 12th century. Even before the Christian era, the Greek merchants flooded the markets of south India to buy spices, which were considered a luxury item. The Indian spices were the main lure for crusaders during their expeditions to the country. India being the home of spices, boasts a long history of trading with the ancient civilizations of Rome and China.

Today in the present era Indian spices are the most sought-after globally, given their exquisite aroma, texture, taste and medicinal value. India has the largest domestic market for spices in the world. Traditionally, spices in India have been grown in small land holdings,

with organic farming gaining prominence in recent times. India is the worlds largest producer, consumer and exporter of spices; the country produces about 75 of the 109 varieties listed by the International Organization for Standardization (ISO) and accounts for half of the global trading in spices.

India has the largest domestic market of spices in the world. Indian spices include a variety of spices grown across the Indian subcontinent (a sub-region of South Asia). With different climates in different parts of the country, India produces a variety of spices, many of which are native to the subcontinent. Others were imported from similar climates and have since been cultivated locally for centuries. Pepper, turmeric, cardamom, and cumin are some example of Indian spices. Spices are used for different religious ceremonies and in medicines apart from cooking in India. Spices are the most rapidly growing category in food and demand for spices with high quality, safely packaged and containing natural colours is expanding robustly. The increasing demand for innovative flavors, authentic cuisines, and ethnic tastes in foods and snacks is augmenting the market for spices in India. Additionally, a significant growth in the food processing industry along with hectic work schedules and sedentary lifestyles of the consumers are also propelling the demand for convenient food options. As a result, the growing utilization of spices in processed and ready-to-eat food products is further driving the market growth in the country. Apart from this, the expanding HoReCa sector in India is also bolstering the market growth. Moreover, the increasing penetration of western food trends is further catalyzing the demand for a variety of newer spices. Additionally, the Indian government has introduced stringent regulations to curb the adulteration of spices, thereby inducing the production of safer product variants. Furthermore, the rising consumer concerns towards the negative health impact of synthetic additives in spices are augmenting the demand for natural and organic spices in the country. Looking forward, IMARC Group expects the India spices market to continue its strong growth during the next five years

The market is largely unorganized and the branded segment makes up about 15%. The branded market

is dominated by players such as MTR, MDH, Catch, Everest, Ramdev etc. Recently, Tata Chemicals has launched its spices brand Tata Sampann Spices. The old culture of buying loose spices and grinding them in old fashioned equipment called "Chakki" is still dominant, But its reducing Year on Year which opens up the market to organized players .

The year 2020 has turned out to be a challenging one for spices. The price data of top four exchanged- traded spices including cumin seed (jeera), coriander (dhaniya), turmeric and cardamom indicate a sharp fall in the range 8 per cent to as high as 56 per cent during the year making the complex the worst performing agricommodity segment this year.

The reasons for the spice crops losing their flavour are many including changed trade dynamics hurt spices. The bulk investors or stockiest kept their inventories low due to uncertainties caused by the pandemic. The prices of spices took a hit because of poor demand. The market was well-supplied all through this year as the previous monsoon was also good. But as the Covid-19 hit the world, demand took a beating. Because of the economic and business uncertainty, investors and financial players were absent from the market. No buyer was willing to hold the stock, and as a result demand took a hit and impacted prices.

The worlds spices sector, with its value chain stretching from the main production hubs in developing countries to the international spice trade network spread across the world, has also been severely affected by the pandemic. Some of the main challenges that the sector faces are:

• Raw material shortages: Many of the locations in developing countries across the world which are major production hubs for spices have been severely affected, causing raw material shortages to the spice industry.

• Labour shortages: In the wake of the lockdown measures implemented by national governments to curb the spread of the virus, there have been labour shortages caused by the migration of the workforce.

• Infrastructure and support structure disruptions: The preventive measures implemented for COVID-19

have meant that many key government offices in the trade support structure are understaffed, resulting in government approvals getting delayed, and completion of physical documentation posing problems, etc.

• Ensuring quality of products: The control measures have reduced the availability of third-party laboratories for testing product / raw material quality and safety, and small-scale production units without their own in-house testing facilities are finding this challenges.

• Marketing issues: Primary producers across the world have been hit by withdrawal of marketing facilities due to lockdown measures, like suspension of auctions, closing wholesale markets etc. For export business, COVID-19 has posed challenges with additional border controls and established export supply lines being disrupted.

• Economic situation: Although the entire sector has been hit by the economic disruptions, the small- scale spice producers and processors will be most severely affected.

The stakeholders in the spice sector spread across the world are waking up to fact that the post-COVID period will have new rules of operation that have emerged naturally out of the chaos caused by the pandemic. Like in all other sectors, leveraging technology and introducing procedural changes will be key to adjusting the operations to these new rules

With the revival of operation and growing demand, it is expected that the demand and price will recover.

Operations

Katha

Our company is a strong player in the organized section of Katha Industry in India with a market share of approx. 35~38%. Post launch of GST and E-Way bill, the market share of the unorganized sector was expected to shrink drastically, but unfortunately still rampant tax evasion continues. But we remain hopeful in the coming financial year the implementation would improve. We also expect our market share to further increase in the coming years in view of the new plant in J&K now in operations.

The Catechin extraction unit set up in Indonesia through our Joint Venture Company in Singapore is fully operational and 100% of the Catechin extraction is imported in India and used in the production of the Katha by the Company. Moreover efforts are being made to debottleneck and increase capacity by minimum 50% within Quarter 4 of FY22.

Achieving ultimate customer satisfaction is the prime outlook of the Company. To materialize this, the organization has adopted stringent quality control tests from intermediate stages of input of raw materials till output of finished products. To achieve this, we have qualified team of 20 engineers & chemists who monitor the operation and the quality.

We are well equipped with laboratory facilities and modern equipments such as HPTLC, GLC, Polarimeters, TLC, Spectrophotometer, Moisture meter, Hygroscopes besides Kjeldahl extractor etc.

The Company also owns a research lab having plant & equipments for Pilot Plant scale research for improving quality & research.

The financial year FY2021 has witnessed a turbulent time effecting industries across segment, your Company also cautiously managed its operations. IWP Katha division has witnessed significant challenges in terms of the cost of raw material, production results and revenue growth during the FY2021.

During the FY2021, Companys manufacturing unit of Katha & Cutch in union territory of Jammu & Kashmir, has successfully started commercial production w.e.f. June 27, 2020 and the unit has achieved 90% capacity utilization in August, 2020.

During the year under review, the Company has achieved sales volume of 13,034.26 MT Katha in FY 2021 as compared to 17,378.53 MT in FY 2020. However the sales of Cutch (by-product) increased from 433.96 MT in FY2020 to 466.34 MT in FY2021. The decline in the sale volume is on account of nationwide lockdown and complete suspension of economic activities during the first quarter. This has also resulted in lower demand for our products and lower price realization of Katha. The

Company has faced significant challenges in getting adequate supply of the quality raw material. The price of the raw material has also been higher during FY2021.

Spices

The IWPs Spices is now being the one of the most preferred spices in the markets it operates. Presently, IWP Spices are available in the State of Uttar Pradesh, Assam,, Delhi NCR. The IWP Spices demand is growing rapidly, however, the Company is facing stiff competition from the established brands. The strong brand awareness of IWP Katha amongst the distributors, super stockiest of spices including Kirana, has edged the Company to venture successfully into the Spice segment.

The Company is focused on the mass consumption segment customers and customers who are moving from buying higher quantity of raw spices to packed spices on a weekly basis. The Companys spices have been well accepted by the customers. The Company in order to build its brand is trying to capitalize on the existing retailer and distributor network and planning to launch other categories of packaged food in the current financial year.

Our Company is using highly advanced technologies and our packaging units maintain the FSSAI standard. For considerable production, the high capacity machines are engaged. The machines are user-friendly and do not affect the production efficacy. One of the equipment is used to produce superior quality spices and is used as colour and size detector

The Spice Division has recorded a turnover of Rs 1,283.46 lakhs in FY2021 as compared to Rs.1093.40 lakhs in FY2020, thereby registering a healthy growth of 14.81%. Spice Division is growing rapidly, but due to initial period of brand awareness and with various sales promotion activities, this division is still incurring losses. The management is taking appropriate steps to achieve breakeven in upcoming quarters.

Opportunities:

• Growing and untapped market

• Absence of large player in organized Katha Industry

• Largely unorganized market of Spices with only ~15% market share held by branded players

• Strong acceptability of IWP brand amongst the mass consumption segment customers

• Strong demand for the small packet spices in the mass consumption segment customers with lower disposable income

Threats:

• Impact of Covid-19 Pandemic

• Growing competition from the other similar manufacturers in informal sector

• Changes in Government Policy

• Strong presence of large branded spices manufacturers

Future Outlook

• Increasing demand for Premium quality Katha

• Increasing awareness amongst the consumers about the quality of packed spice leading to growing demand for branded packed spices.

• Market expansion of IWP Spices by introducing other product categories.

Financial and operational Performance:

Production Performance:

At present, the Company has two business segments viz. Katha and Spices. Our Company is one of the leading manufacturers of Katha in India. Our company has recorded total revenue from operation of Rs. 13032.31 Lakhs, being 82.78 % of the total turnover from the sale of Katha and Rs. 1143.00 Lakhs being 7.26% of the total turnover from Spices.

During FY20-21, the Company has produced 3210.8 MT of Katha as compared to 3934.837 MT in FY 19-20.

The operational performance of the Company during the period under review was stable. We intend to achieve sustainable and profitable growth through our consistent efforts.

Operating Results:

Key highlights of financial performance for the Company

for FY2021 on standalone basis are tabulated below:

(Rs. in Lacs)

Particulars FY2021 FY2020 FY2019
Sales and Other Income 15,790.36 19,491.15 20,159.40
Earnings before interest, tax, depreciation and amortisation 1,129.60 2,080.09 3,387.37
Profit before Tax 50.77 1,047.64 2,563.28
Profit after Tax 32.74 758.98 1,784.40
EPS 0.05 1.19 2.79

However on consolidated basis, revenue from operations for FY2021 at Rs15790.36 Lakhs. Profit after tax ("PAT") for the year was Rs. 208.20 Lakhs.

Risks and Concern

Risk and its Management: Risk accompanies prospects. As a responsible corporate, it is the endeavor of the management to minimize the risks inherent in the business with the view to maximize returns from business situations.

The architecture: At the heart of the Companys risk mitigation strategy is a comprehensive and integrated risk management framework that comprises prudential norms, structured reporting and control. This approach ensures that the risk management discipline is centrally initiated by the senior management but prudently decentralized across the organization, percolating to managers at various organizational levels helping them mitigate risks at the transactional level.

The discipline: The Company has clearly identified and segregated its risks into separate components, namely operational, financial, strategic and growth execution. All the identified risks are inter-linked with the Annual Business Plans of the Company, so as to facilitate Company-wide reviews.

The review: A Risk Management Committee of the Board of Directors, comprising Board Members, has been constituted to review periodically updates on identified

risks, implementation of mitigation plans and adequacy thereof, identification of new risk areas etc.

The Board of Directors also reviews the Risk identification process and mitigation plans regularly. A senior executive has been entrusted at all the levels of business operation in the Company whose role is not only to identify the Risk but also to educate about the identified risk and to develop Risk Management culture within the business.

Key counter measures: The Company has institutionalized certain risk mitigation procedures outline as under:

• Roles and responsibilities of the various entities in relation to risk management have been clearly laid down. A range of responsibilities, from the strategic to the operational, is specified therein. These role definitions, inter alia, are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation, independent monitoring and reporting by internal audit.

• Appropriate structures are in place to proactively monitor and manage the inherent risks in businesses with proper risk profiling.

• Wherever possible and necessary, appropriate insurance cover is taken for financial risk mitigation. Confirmation of compliance with applicable statutory requirements are obtained from the respective unit/ divisions and subjected to an elaborate verification process.

• Quarterly reports on statutory compliances, duly certified, are submitted to the Audit Committee as well as the Board of Directors for review.

• Status of Demand/Notices on the Company, under various Acts and Rules, as well as status of litigations are reported to the Board of Directors every quarter.

Internal Control Systems

The Company has both external and internal audit systems in place. Auditors have access to all records and information of the Company. The Board recognizes the work of the auditors as an independent check on the information received from the management on the operations and performance of the Company. The Board

and the management periodically review the findings and recommendations of the statutory and internal auditors and takes corrective actions whenever necessary.

The Company maintains a system of internal controls designed to provide reasonable assurance regarding:

• Effectiveness and efficiency of operations.

• Adequacy of safeguards for assets.

• Reliability of financial controls.

• Compliance with applicable laws and regulations.

Corporate Social Responsibility

Companys CSR policy covers activities in the field of eradication of extreme hunger and poverty, promotion of education, promotion of gender equality, empowerment of women, improvement of mental health, slum area development and rural development projects, employment enhancing vocational skills, ensuring environmental sustainability, sanitation including contribution to Swachh Bharat Kosh set up by the Central Government, ensuring animal welfare, contribution to the Prime Ministers National Relief Fund or any other project set up by the Central Government.

The Company has created a trust in the name of IWP CSR Trust for undertaking CSR activities for and on behalf of the Company.

During FY2021, in compliance with Section 135 of the Act, an amount of Rs.87.71 Lakhs (including unspent amount of Rs 45.88 Lakhs) is required to be spent by the Company in CSR activities. The Company has spent Rs.4.65 Lakhs as CSR activities towards distribution of food to the migrant workers under Pandemic COVID -19 and Rs.11.00 Lakhs to Prime Minister Cares Fund and balance Rs.72.06 Lakhs was contributed to the IWP CSR Trust for Animal Welfare, Covid-19 help, women empowerment and upliftment of people with disability. There is no unspent CSR amount as on March 31,2021.

Human Resources and Industrial Relations

Our employees are our core resource and the Company has continuously evolved policies to strengthen its employee value proposition. Your Company was able to attract and retain best talent in the market and the same can be felt in the past growth of the Company.

The Company is constantly working on providing the best working environment to its Human Resources with a view to inculcate leadership, autonomy and towards this objective; your company spends large efforts on training. Your Company shall always place all necessary emphasis on continuous development of its Human Resources. The belief "great people create great organization" has been at the core of the Companys approach to its people.

Key Ratios

Particulars FY 2020 FY 2021
Revenue (Rs. In lacs) 19,491.15 15790.36
Net Profit After Tax (Rs. In lacs) 758.98 32.74
Earnings per share (in Rs.) 1.19 0.05
Operating Profit Margin (%) 8.74% 4.66%
Net Profit Margin (%) 3.89% 0.21%
Return on Net worth 2.14% 0.09%
Current Ratio (times) 1.33 1.43
Debtors Turnover(times) 4.42 3.37
Debt-equity (times) 0.49 0.49
Interest Coverage Ratio (times) 2.60 1.02

Cautionary Statement

Statements in this Management Discussion and Analysis report detailing the Companys objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand supply conditions, raw material prices, finished goods prices, cyclical demand and pricing in the Companys products and their principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries with which the Company conducts business and other factors such as litigation and / or labour negotiations.