Indokem Ltd Management Discussions

OVERVIEW OF ECONOMY, INDUSTRY STRUCTURE AND DEVELOPMENTS: Business Environment

a. Global Economic Outlook

Global growth is forecasted to be range-bound between 2.6% and 3.1% in 2024. Growth is likely to increase at 3.2% in 2025. However, these projections are lower than historical average of 3.8% (2000-19) due to factors such as restrictive monetary policies, reduced fiscal support and low underlying productivity growth.

World trade growth is forecasted to be 3.3% in 2024 and increase to 3.6% in 2025. However, current trade growth is lower than historical average of 4.9% due to rising trade distortions and geo-economic fragmentation. Global inflation is predicted to be at 5.8% in 2024 as against 6.8% in 2023. It is expected to further decrease to 4.4% in 2025. Advanced economies are anticipated to lower inflation faster, coming down to 2.6% in 2024 from 4.6% in 2023. Inflation in emerging markets and developing economies is projected to remain at 8.1% in 2024, only a slight drop from 8.4% in 2023. Decreasing inflation in 2023 has prompted a sudden shift in the anticipated monetary policies of global central banks. It is likely that major central banks will implement quicker and earlier rate cuts.

Global chemical production (excluding pharmaceuticals) is forecasted to increase by 2.7% in 2024, surpassing the growth rate of the previous year (2023: +1.7%). Advanced economies are expected to see modest production growth following a significant decline in previous year (2024: +0.8%, 2023: 4.9%), while growth in emerging markets is anticipated to grow slightly (2024: +3.5%, 2023: +4.8%).

The size of the world Textile Dyestuff industry is estimated at US$ 6.6 billion and is expected to grow by about 3% in the coming years. China continues to be the largest manufacturer of dyes followed by India. The world market for high-performance pigments is estimated at US$ 5.9 billion (constitutes both organic and inorganic pigments) and is expected to grow at about 4% in the coming years.

Sizing Agents Market was valued at around US$ 3.99 billion in 2023 and is anticipated to register a Compound

Annual Growth Rate of over 4% between 2024 and 2032. The market is expected to attain a market value of over

US$ 5.7 billion by 2032. The Asia Pacific is anticipated to be the key region for the textile sizing chemical market – China and India are expected to account for a significant share throughout the forecast period and are also expected to grow relatively faster than any other countries of the region. North America and Western Europe are also expected to hold a considerable share in the global textile sizing chemical market. b. India Economic Outlook

Indian economy is projected to grow at 6.5% - 7% in F.Y. 25. Strong growth in India is supported by robust domestic demand and growth in the manufacturing and services sectors. Inflation Rate likely to decline from 5.4% in F.Y. 2024-25 to 4.5% in F.Y. 2025-26. Bank repo rate is maintained at 6.5% in 6^th consecutive meeting in February to bring down the inflation rate towards targeted 4%.

India is the 6^th largest producer of chemicals in the world and 3^rd in Asia, contributing 7% to Indias GDP. India holds a strong position in exports and imports of chemicals at a global level and ranks 14^th in exports and 8^th in imports at the global level (excluding pharmaceuticals). The Indian chemical industry stood at US$ 254 billion in 2023, and is expected to reach US$ 304 billion by 2025, registering a CAGR of 9%. The cumulative FDI equity inflow in the chemical industry reached US$ 21.71 billion from April 2000 to September 2023.

Sizing agents are crucial in textile manufacturing as they enhance the weaving efficiency, reduce fiber breakage, and improve the overall quality of the finished textile products. The demand for textiles continues to surge globally due to population growth, urbanization, and evolving fashion trends, amplifying the need for efficient sizing agents. Asia Pacific dominated the global market in 2023. It generated a revenue of USD 1.66 billion in 2023. The Asia Pacific region has witnessed substantial growth in the sizing agents market due to its thriving textile and manufacturing industries, coupled with rapid industrialization. Countries like China, India, and Southeast Asian nations are major contributors to the global textile production, creating a significant demand for sizing agents in textile processing.

OVERVIEW OF COMPANY: -

Indokem Limited is one of the leading manufacturing Company of Textiles Dyes and Chemicals and Exporter of related products. The manufacturing Index of the Company remained broadly positive, the Company has kept pace with the changes and there is tremendous potential for growth in future.

During the F.Y. 2023-24, your Company achieved a turnover of 140 Crores, which is decreased by 0.80% as compared to last year, which is mainly due to higher price level of both inputs and finished goods.

Refnol Resins and Chemicals Limited (Transferor Company) has been amalgamated with Indokem Limited (Transferee Company) by scheme of Amalgamation effective from 29^th September 2023. The Company is positive that as a result combined entity, will benefit hosting all products under the Transferee Company, thereby resulting in diversified portfolio of products, economies of scale, operational rationalization, efficiency of management and maximizing value for the shareholders.

The Company has taken possession of a 5,000 sq. mtr. industrial plot located at Additional MIDC, Pale, Ambernath, Dist. Thane, which was purchased from MIDC in 2015. The Company plans to construct a manufacturing plant for sizing chemicals on this plot, which will require a sizeable capital investment.

Company has invested in new machineries to manufacture new products range from Ambernath Units. Company has also invested in modernization of Effluent Treatment Plants of all the Ambernath Units.

Company is continuously investing in Quality Control machinery in Laboratory and has qualified staff to meet global standards.

IT system and infrastructure is being continuously monitored and enhanced with any required upgrades. Our major product has received Global Organic Textile Standard (GOTS) certification and successfully completed annual GOTS audit. GOTS is the worldwide leading textile processing standard for organic fibers, including ecological and social criteria, backed by independent certification of the entire textile supply chain. Company has successfully registered maximum of its products under Zero Discharge of Hazardous Chemicals (ZDHC) certification.

Company is continued as ISO 9001:2015 certified Company. Company is continued as ISO 45001:2008 certified Company.

Customers have shown great trust in our Reactive Dyes range of products and now we are focusing on Pigment Emulsions range for which there is less competition.

Company is regularly investing in new and attractive Packing Material for the products which has shown better effects.

Company is continuously investing in the registration and renewal of Trademarks to safeguard Intellectual Property Rights.

New Corporate clients have shown faith in our products since last couple of years.

Discussion on Financial Performance with respect to Operational Performance

( in Lakhs)

Particulars	Standalone		Consolidated
	F.Y. 2023-24	F.Y. 2022-23*	F.Y. 2023-24	F.Y. 2022-23*
Net Sales	13,895	14,008	16,424	16,003
Earnings before Interest, Depreciation and Tax	10	426	(60)	366
Profit before Tax	(522)	(52)	(619)	(132)
Profit/ (Loss) for the year	(526)	(52)	(623)	(132)

*Figures have been restated considering the appointed date of Scheme of Amalgamation being 1^st April, 2021.

Significant Changes in Key Financial Ratios:

Parameters	F.Y. 2023-24	F.Y. 2022-23	% change
Debtors Turnover (number of times)	5.46	5.51	-1
Inventory Turnover (number of times)	6.68	7.50	-11
Interest Coverage Ratio	-0.79	0.81	-197
Current Ratio	1.07	1.28	-17
Debt Equity Ratio	0.43	0.41	4
Operating Profit Margin (%)	-1.67%	1.62%	3
Net Profit Margin (%)	-3.77%	-0.37%	914
Return on Net Worth	-1.78%	-6.50%	-72.64

OPPORTUNITIES AND CHALLENGES:

The Indian specialty chemicals industry has significant potential due to the growing demand for specialty chemicals in various end-use industries, including pharmaceuticals, agrichemicals, and personal care. The Indian specialty chemical industry has significant export potential, given the high quality of products and low manufacturing costs. The slowdown in Chinese manufacturing has also created an opportunity for India to capture a larger share of the global market.

Collaboration and innovation can help Indian companies stay competitive in the global market by enhancing their product offerings. Public-private partnerships and collaborations between industry players can help spur innovation and research. The company has during the F.Y. 2023-24 incorporated a subsidiary in Bangladesh and through merger acquired two subsidiaries in UAE and Mauritius, thereby opening a door for footing step in Global markets. Challenges like availability and price of raw materials which have a significant impact on the profitability and competitiveness of the Indian specialty chemicals industry. The industry heavily relies on imports, making it vulnerable to global price fluctuations and supply disruptions.

The Indian specialty chemical industry must constantly innovate and upgrade its technology to keep pace with global competition and meet the changing needs of customers. This can be a challenge for smaller companies that do not have the resources to invest in research and development.

Company is increasingly investing in research and development to introduce sizing agents with reduced environmental impact and improved biodegradability. Company is working on technological advancements, leading to the development of innovative sizing agent formulations that enhance efficiency and reduce resource consumption in textile processing. Additionally, the market is witnessing an upsurge in demand for high-performance sizing agents catering to the non-woven fabric sector, as industries such as medical, automotive, and construction increasingly adopt these materials. The sizing agents industry is dynamically evolving to address sustainability concerns, embrace technological innovations, and cater to the diversified needs of end-user industries. The regions expanding population, rising disposable income, and evolving fashion trends further boost the demand for textiles, subsequently driving the need for efficient sizing agents and Dyes.

The industry is subject to stringent environmental regulations that can increase the cost of compliance and limit the ability to expand operations.

RISKS AND CONCERNS

The Company recognizes the potential threat from emerging risks, including sectoral risks, sustainability risks, operational risks, financial risks, and cyber/ information risks. Effective risk management, coupled with the capacity to capitalise on opportunities, are key components of the Companys risk management framework.

At Indokem, risk management is an ongoing procedure that entails identifying, evaluating, and prioritizing risks, as well as applying resources in a coordinated and economical way to lessen, monitor and control the likelihood and/ or impact of uncertain events or to maximise the realisation of opportunities. Additionally, risk management seeks to detect and control any potential dangers that could have severe consequences.

One potential pitfall for the chemical market is the increasing scrutiny and tightening of environmental regulations. The industry relies on chemical formulations, and regulatory changes aimed at reducing environmental impact may impose constraints on certain chemicals. Company need to proactively address environmental concerns, invest in sustainable alternatives, and stay compliant with evolving regulations to mitigate this potential pitfall.

Chemicals industry is a highly regulated industry with stringent environmental norms. Any change in policy by the Government may have an adverse impact on the performance of the Industry. However, Indokem Limited follows best in class process controls and systems, and hence we are always ready to adapt to any changes in the Government Regulations.

As part of the global policy, the relevant parameters for all manufacturing sites are analyzed to minimize the risk associated with protection of environment, safety of operations and health of people at work. These are then monitored regularly with reference to statutory regulations prescribed by government authorities and guidelines defined by Indokem. The Company fulfills its legal requirements concerning emission, waste water and waste disposal. Improving work place safety continues to be top priority at all manufacturing units.

The Company continues its focus on compliance in all areas of its business operations by rationalizing and strengthening controls. This is also an important component of Companys Code of Conduct. The Company has set in place the requisite mechanism for meeting with the compliance requirements and periodic monitoring to avoid any deviation. Company aims to set exemplary and sustainable standards, not only through products, services and performance, but also through integrity and behavior.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Indokem believes that Internal Control is one of the key pillars of governance, which provides freedom to the management within a framework of appropriate checks and balances. The Company has developed and put in place a robust internal control framework considering the nature, size and risks that could hinder them from achieving its objectives. Adequate internal control systems are in place along with reasonable assurances on authorising, recording and reporting transactions in its operations.

In order to supplement the internal control process, the Company has appointed an Internal Auditor who is authorised by the Audit Committee to assess the adequacy and compliance of internal control process and provide their report covering observations and recommendations. Based on the report of internal audit function, the Company undertakes corrective actions in their respective areas and thereby strengthens the controls. Significant audit observations and recommendations along with corrective actions thereon are presented to the Audit Committee of the Board.

Further, in compliance with the Companies Act, 2013, and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Company has laid down a system of internal financial controls over financial reporting and adequacy and operating effectiveness of such controls. These controls are designed to provide a reasonable assurance regarding:

Adherence to the Companys policies and procedures;

Safeguarding assets;

Prevention and detection of fraud and error;

Reliability, completeness and accuracy of accounts;

Timely reporting of information (financial, non-financial, internal and external).

QUALITY MANAGEMENT SYSTEM:

Your Company maintains its quality systems from lower level Management to higher level Management by imparting ethical standards in its approach and behavior and implementing the same in day to day business practices. The Company is complying with ISO, GOTS and ZDHC certification for its manufacturing units.

HUMAN RESOURCE MANAGEMENT:

People and culture are the cornerstones for building a company and for it to face the test of time. The Company took further initiatives to enhance i) its HR processes (particularly using technology) related to recruitment, performance management, learning and development, manpower planning and employee care and ii) work environment related to culture and code of conduct to manage a growing business.

The biggest asset of the Company are its people; it is promoting a culture that empowers its people to be the best version of themselves essential to foster high engagement and consistent improvement in performance. It is creating a learning organization and building end-to end capabilities to be future-ready as its businesses further evolve and expand – it is committed to pervade technology in all its HR processes.

Indokem is an equal opportunity employer and strives to create an inclusive workplace and work culture. The Company is committed to treating all people with respect, care, fairness, sensitivity, and dignity.

Industrial Relations remain cordial during the F.Y. 2023-24. The Board gives guidance to the Management ensuring that the implications of safety and sustainability are addressed properly in all the strategic initiatives. Company considers its committed and talented workforce as one of its most critical assets and key to driving sustainable performance, growth and developing competitive advantage. The number of employees increased from 122 as on 31^st March, 2023 to 193 as on 31^st March, 2024.

CAUTIONARY STATEMENT:

Statements in the Management Discussion and Analysis describing the Companys objectives, expectations or forecast may be forward looking within the meaning of applicable laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include global and domestic supply and demand conditions affecting selling prices of finished goods, input availability and prices, changes in Government regulations, tax laws, economic developments with the country and other factors such as litigations and industrial relations.

CONCLUSION:

Your Company has already turned around and expects future growth in its performance in coming year on account of several initiatives taken by the Company in improving plant efficiency, new product developments and focus on Research and Development. We have come a long way from where we had begun and we continue to set new benchmarks for ourselves in order to constantly improve our performance. To summarize, your Company is optimistic about the growth in the medium term in revenues as well as operating margins.