Insilco Ltd Management Discussions.

Overall Review

Production and sales during the year were 16,946 MT and 16,537 MT as compared to 14,857 MT and 15,207 MT respectively in the previous year. The Company achieved the sales turnover of Rs. 951 million during the year as compared to Rs. 888 million in the previous year. The sales turnover grew by 7% as compared to previous year.

The Company has a world class manufacturing plant at Gajraula based on technology from its parent Company Evonik Degussa GmbH, Germany. This gives us an edge over the competitors as we can offer high quality and innovative products to customers. However our costs are higher than other local players as we are dependent on Diesel for fuel and have to incur significant expenditure in treatment of effluents before discharging it.

Industry Structure and Developments

Precipitated Silica is used for rubber and specialty applications. The rubber applications include - Tyre, Footwear and Mechanical Rubber Goods. The specialty applications include - Agrochemicals, Feed, Food, Toothpaste, Detergents, Battery Separators, Cosmetics and Defoamer. All end-user segments are showing good growth.

Opportunity, Threats, Outlook, Risks and Concerns

Evonik Degussa GmbH, Germany is providing us all necessary technical and marketing support to promote our higher value added product portfolio. Your Company continues to be amongst the leading manufacturers of Precipitated Silica in India. We consistently supply international quality products and also provide our customers with technical assistance for application solutions with the technical back-up from Evonik Degussa GmbH, Germany. Our strengths include* Capability to introduce new and high quality products.

* Products manufactured to International standards with consistent quality.

* Access to the International Sales & Marketing Network of our parent Company, Evonik Degussa GmbH, Germany.

* Local technical assistance to our valued customers from the Application Technology Lab operated by our parent Company as part of its international network.

* Environment friendly production site.

* Commitment to a high standard code of conduct and ethics.

Our operations in general are susceptible to possible changes in fiscal, monetary and economic policies of the Government especially with regard to fuel, power and freight costs. The major challenge for our industry is that it is energy intensive and any fluctuation in energy prices has a significant impact on our performance, e.g. the change in Government policy to remove subsidies on diesel had seriously impacted our profitability and it became an issue of concern. The future growth of the Company depends upon willingness of customers to pay premium for our high quality products, our efficiency improvement like cost reduction, higher capacity utilization, supply chain performance, lower energy consumption and higher yield.

With prudent business and risk management practices, the Company is continuously looking at ways to minimize the impact of the cost increases on the profitability by passing partially these on to customers in highly competitive market situation, judicious buying, adequate stocking, developing alternate vendors, exploring alternative sources of energy, etc.

The risks of fire, flood and accident are common risks attached to the working of any plant/Company. The Management has taken reasonable steps to counter the risk by maintaining the industrial all-risk insurance policy for its manufacturing facility as per guidance of our parent Company.

The Company has also following risks:

1. Risk of HSD (Diesel) prices going up substantially.

2. Loss of Market Share if our selling prices are significantly higher than competitors.

3. Environmental Risk if more stringent norms are introduced by government for chemical industries near the Ganga River.

Above risks have been explained in detail at clause no. 14 of the Directors Report.

The Board believes that the Company has a strong case in its favour as the Company continues to comply with all the current pollutions norms applicable to it as per consent letter. However, it is possible that the pollution authorities may come up with fresh requirement(s) for compliance in the conditions of consent letter, which will then have to be examined and considered.

Segment-wise or Product-wise Performance

The Company is engaged in the manufacture of a single product i.e. Precipitated Silica and hence there is only one primary segment.

Outlook

There has been lot of uncertainty in all over the world including India during the financial year 2018-19. The uncertainty leads to many challenges and opportunities. There were made structural changes in the indirect tax system by the introduction of Goods and Service Tax (GST) with effect from 1st July 2017. The financial year 2018-19 is the first complete year with the annual impact of these structural changes. The organized players like us would be long term beneficiaries of the same. The GDP growth for financial year 2019-20 is expected to be 7.5% approximately. The Indian economy is improving and showing potential for further growth.

The cost of production of your company is high as compared to competitors and we are putting our best efforts to put it down. The Board of directors has already approved the installation of "Propane LPG" to reduce energy cost. The company has already obtained approvals from most of the statutory authorities for the installation of a "Propane LPG project" and it is in the process of obtaining approval from few other government authorities for the same. Besides this, the company is pursuing all growth opportunities to recover from the financial losses. The Company is actively trying its best to maintain and increase the customer base. However, the customer retention is a big challenge considering competitive market situation. The future growth of the Company will depend upon our ability to optimize our costs by making our products more competitive, increasing capacity utilization, optimal product mix, efficiency improvement and the willingness of customers to pay a premium for our high quality products. There are inherent opportunities available for the Company in the target industries such as Tyres, Automotive Components, Mechanical Rubber Goods, Footwear, Battery Separators, Agrochemicals, Food and Feed. The Company is continuously improving the plant conditions to ensure the safety of its employees and the environment. The Company is actively pushing growth opportunities to use the unutilized production capacity and improve product mix.

Internal Control Systems and their adequacy

The Company has an adequate system of internal controls to provide reasonable assurance:

* Assets are safeguarded and protected against loss from unauthorized use or disposition.

* Transactions are authorized, recorded and reported properly.

* Accounting records are properly maintained and financial statements are reliable.

* Statutory requirements are duly complied.

The key elements of internal control system are as follows:

* System based automated controls to the extent possible so as to minimize chances of error and fraud.

* Well defined authorization system and Periodical review of the controls with respect to IT systems and authorization to ensure that users have access only to the required transactions.

* Clearly defined organization structure.

* Revenue and capital budgeting monitoring system.

* Management control through monthly MIS system.

* Whistle Blower Mechanism.

* Policies and procedures adopted by the Company for ensuring orderly and efficient conduct.

* Adherence to Companys policy.

* Prevention and detection of fraud and errors, if any.

* The accuracy and completeness of the accounting records.

* Timely preparation of reliable financial information.

The Company has appointed a firm of independent and reputed Chartered Accountants to conduct on-going internal audits. The Auditors have access to all records and information of the Company. Internal auditors conduct audit as per the audit charter approved by Audit committee. Internal auditors give presentations to Audit Committee. The findings along with management response are shared with Audit Committee. The Audit Committee periodically reviews the findings and recommendations of the auditors and the measures taken by management to ensure that adequate Internal Financial Control systems exist.

The Audit Committee also reviews the performance of Internal Auditors, adequacy of Internal Control Systems and ensures compliance of Internal Control Systems. The Audit Committee and Board recognize 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 company is committed to comply with all the laws and regulations as applicable from time to time. We have introduced during the year online compliance management system for legal and statutory compliance management. The companys compliance status is periodically updated to Board of Directors.

Digitalization

The company has taken the initiatives for regular monitoring of IT controls and IT infrastructure such as:

- e Desk client

- AVTS WAN solution

- Plant maintenance software

- Legal compliance management software

- Business continuity plan and Disaster recovery systems

- Alarm for temperature / intrusion from rittal rack housing SAP servers.

- Review of Segregation of Duties (SOD) conflicts and initiated the process of monitoring it through Evonik global GRC mechanism.

- Smoke detectors in critical areas at plant to improve protection from fire.

- Digital Control System for various areas of operations to improve consistency in product quality.

Risk Management

Risk Management is the identification and measurement of risks, which can affect the organization and implementation of strategy for monitoring, controlling and mitigation of these risks by systematic actions in a planned manner. The Board of the Company monitor and review the risk management activities of the Company on regular basis. There is also a Sub-Committee of the Company on risk management, which report to the Board on matters related to Risk Management of the Company. This SubCommittee comprises various senior management personnel including Managing Director. The framework for risk assessment and minimization thereto is being evaluated from time to time and the Company takes adequate measures for mitigating such assessed risk.

Material Developments in Human Resources/Industrial Relations Front including number of people employed

Industrial Relations remained cordial and the annual wage settlement was concluded peacefully during the year.

Insilco continued the high attention to the adherence by employees to our Code of Conduct. We are striving to build not only a competent workforce but also highly engaged and committed employees. Most of our employees have continued their long term association with the company. During the year 2018-19, 2 employees were awarded for 10 years long service award. There were 108 employees as on 31st March 2019 on the rolls of the Company excluding trainees. Out of 108 employees, 74 employees (68.5%) have completed 20 years of service and 11 employees (10.2%) have completed 10 years of service with the Company.

We are also evaluating our existing processes and policies periodically and upgrading our policies and procedures, wherever required. We have provided several internal and external trainings on different topics during the year to the employees to update their knowledge, skills and behaviour. We review and evaluate the need for replacement for each vacant position. Our focus during the year was again in building competencies of human resources along with a policy of job re-definition and job rotation. These organizational changes are implemented in line with the business situation and strategy. We contribute to the growth and development of the employees and offer them the opportunity to develop new job skills and obtain wider exposures. This has also resulted in reduction in Head Count and better efficiency during the year.

During the year, company organized the training sessions for middle management team on the topics like Evonik Competency model, Communication skills, Performance management System, Interviewing skills etc. under Evoniks learning programme. We have evaluated the job description of our managers to align the gaps in line with our global practices.

Company has participated in Evoniks Employee survey held in November 2018. It was a global initiative from our parent company. The employee participation rate for Insilco was 99%. The survey results depicted that the key indicators like Commitment Index, Leadership Index and Agility Index were significantly above the global averages.

During the year, company has awarded 18 suggestions under our ongoing Suggestion Scheme for technicians. This is an effort to inculcate the spirit of participation and creativity on shop floor employees.

For employees engagement, regular social and sporting activities are being organized at the colony campus under the aegis of the Employees Social Club. Various regional and national festivals are being celebrated in the campus including sports day. These activities involve the employees and their families and are a good forum for overall development of community living.

The Company is also continuing with a quarterly in house newsletter covering all the major activities of the Company, its employees and their families to strengthen the communication among the employees and their families.

Prohibition of Insider Trading

The Company has implemented a policy prohibiting Insider trading in conformity with applicable regulations of the Securities and Exchange Board of India. Necessary procedures have been laid down for prohibition of Insider Trading. The policy and the procedures have been communicated to directors and the employees. The trading window closures are intimated to Stock Exchange, all employees and directors in advance as per policy of the Company.

Environment, Safety, Health and Quality (ESHQ)

We are committed to conserve and protect the environment through continuous support and participation of all employees. Our plant at Gajraula is certified under the Environment Management Standard ISO 14001-2015 and Quality Management Standard ISO 9001-2015. We have renewed HALAL and KOSHER certificates during the year for Food Safety Management System. Apart from this, we are also HACCP and FSSAI certified Company for the Food Safety Management System.

We are following global best EHS practices. The company is continuously investing in systems for treatment of effluents and emission. We have done improvements during the year in the areas of reduction in power consumption.

To adhere the ESHQ Policy, Company focused on pollution abatement, resource optimization and waste minimization, which leads to sustainable development. ESHQ is a core value of the Company. The Company is committed to continuously improve its ESHQ performance by targeting Zero Harm through world class safety practices. For exclusive oversight on ESHQ aspect, ESHQ implications are properly addressed in all new strategic initiatives, budgets, audit actions and improvement plans. The senior leadership plays a vital role in encouraging positive attitudes towards safety and help in creating an environment that fosters safety culture, by establishing clear and transparent ESHQ Policy. The company is following strict incident reporting system. During the year, there have been displayed hazardous signs wherever required in the plant.

Your Company is having state of art effluent treatment system as per International standards. Water is a critical input for manufacturing of Precipitated Silica. We are conscious of its dependence on Water and striving to optimize our water consumption. We have also implemented some water recharge initiatives.

The Company gives priority and attention to the health of its employees and trains the employees to work as per prescribed procedures designed to meet all ESHQ requirements.

We take our responsibility to the field of safety particularly seriously. Our objective is to protect our employees, local residents and the environment against any potential negative impact of our activities. The Company has set up elaborate safety system to ensure a proper safe work environment. We are taking proactive measures and give emphasis on prevention of any possible accident. We are pleased to report that Financial Year 2018-19 is a Zero man- day loss accident year. Insilcos ESHQ commitment is to continue as "zero incidents site" in all activities and operations.

We continue to endeavor the same by:

- Strictly adhering to the defined procedures set for the organization.

- Committing to process safety in all operations.

- Reinforcing the belief that all incidents are preventable.

- Believing in proactive measures to ensure workmen safety.

To achieve this, we involve all employees, contractors, suppliers and sub-contractors in ESHQ initiatives through brainstorming, inspection, detection and correction. During the year 2018-2019, we also performed various work/ activities including mainly:

- Celebration of World Environment Day

- National Safety Week Celebration

- Plantation of approx. 400 Trees

- Regular Safety Trainings and Safety Video display to employees

- Display of safety visual boards at various sections of the plant.

- Annual Medical Health Check-ups of all the employees.

- Replace Monkey Ladder from Step Ladders used for Emergency purpose in Spray dryer.

- Installed Sprinkler system in new warehouse, Store, Workshop area and Down comer in Admin Building & VN3 Building and HVW system in both the Transformers.

- Modified the Hazardous waste storage area.

- Replaced the 80 KLD STP with 120 KLD new STP for better treatment of domestic Sewage.

- Installed the On Line water flowmeter & online BOD/ COD/TSS/pH/O&G monitors, to monitor the discharge effluent flow & and other parameters.

- The Asbestos sheets of warehouse roof is replaced with GI coated Sheets.

- Display of List of Personal Protection Equipments (PPEs) required at each operational location clearly at all sections of plant.

- Steps taken to reduce dust generation and better hygiene in plant.

- Invested in processes and practices to enhance operational safety and to reduce chances of accident.

Social Responsibility

Insilco participated in Tigri Mela occasion at Gajraula during18th November 2018 to 24th November 2018 and arranged 75 temporary toilets at the mela site in association of other industries. This was to support hygienic sanitation for millions of devotees and to avoid Open Defecation near bank of river Ganga. The activity was a gesture towards national campaign - "Swachh Bharat Abhiyan (Clean India Mission)".

Discussion on financial performance with respect to operational performance

The Company adopted Indian Accounting Standards (IND AS) from April 1, 2017 for the first time with a transition date of April 1, 2016. Accordingly, these financials have been prepared in accordance with Indian Accounting Standards

A. Financial Position

1. Non-Current Assets:

(i) Property, Plant and Equipment (PPE) & Other Intangible Assets

Additions of Rs. 67.88 Million were made to PPE during the current year and this includes Rs. 52.50 Million towards Plant and Machinery, Rs.14.68 Million towards Building and Rs. 0.7 Million towards Computers, Office Equipment & Electrical Installation. There are no addition to Intangible assets during the year.

(ii) Capital work-in-progress

The capital work-in-progress is of Rs. 9.60 Million this represents advances paid towards acquisition of PPE and the cost of assets not put to use. Capital work-in-progress mainly comprises of expenditure towards the Propane LPG Project at Gajraula plant and Recharge Shaft to charge the rain water as per Central Ground Water Authorities guidelines.

(iii) Investment properties

As per requirement of IND AS-40, freehold land has been classified as investment property. The carrying amount of investment property is Rs.

0.10 Million and fair value as on March 31,2019 is Rs. 2.1 Million.

(iv) Financial Assets

Loans and other financial assets amount to Rs. 8.54 Million as of March 31,2019 as compared to Rs. 8.35 Million as on March 31, 2018. It includes Rs. 7.16 Million towards security deposit, Rs. 1.0 Million towards long term deposits with bank.

(v) Other Non-Current Assets

Other non-current assets amounts to Rs. 2.51 Million as on March 31, 2019 as compared to 3.40 Million as on March 31, 2018. It includes capital advances, deferred employee cost and balance with Govt. authorities.

(vi) Income Tax Assets (Net)

It represents advance income taxes paid net of provisions.

2. Current Assets

(i) Inventories

Inventories amount to Rs. 105.50 Million as on March 31,2019 as compared to Rs. 98.78 Million as on March 31, 2018. The inventory has increased by Rs. 6.72 Million during the year. The level of inventory in relation to sales has increased by 0.71%.

(ii) Financial Assets Investments

Investments of Rs. 193.29 Million represents the fair value of investments in Mutual Funds as on March 31, 2019 as compared to fair value of Rs. 259.74 Million as on March 31, 2018. All investments have been classified as current investments. Investments as on March 31,2019 represent investments in Mutual funds having exposure to Government securities which are considered as safest securities with low risk of default.

Trade Receivables

Trade Receivables amount to Rs. 165.77 Million (net of provisions of Rs. 0.24 Million) as of March 31,2019 as compared to Rs. 179.94 Million (net of provisions of Rs. 0.69 Million) as on March 31, 2018. These trade receivables are considered to be good and realizable. The need for provisions is assessed based on various factors including collectability of specific dues, risk perception of the industry in which the customer operates and other general factors. Provisions are made for trade receivables when the counterparty fails to make contractual payments within 180 days when they fall due. Trade Receivables are 18% of revenue for the year ended March 31, 2019 as compared to 17% of revenue for the year ended March 31, 2018. This represents an average outstanding of 67 days of revenue for the year as compared to 60 days in the previous year.

Cash and Cash Equivalents and Other Bank Balances

As at March 31,2019, the Company had a Cash and Cash Equivalents and Other Bank Balances of Rs. 305.52 Million. This represents 29.08% of total assets and 32.11% of the revenue of the current year.

Loan and Other Financial Assets

Loan and Other Financial Assets amount to Rs. 14.63 Million as on March 31,2019 as compared to Rs. 16.16 Million as on March 31, 2018. It includes Rs. 10.92 Million towards Interest accrued on fixed deposits, Rs. 2.14 Million for Government grant receivables, etc.

(iii) Other Current Assets

Other current assets amount to Rs. 7.07 Million as compared to Rs.10.59 Million as on March 31, 2018. Other current assets include Rs. 3.01 Million towards advance to suppliers and prepayments of Rs. 3.99 Million.

3. Equity Share Capital

The Company has one class of shares - equity shares of par value of Rs. 10/- each. The authorized share capital of the Company is Rs. 657.15 Million divided into 65,715,000 equity shares of Rs. 10/- each. The issued, subscribed and paid-up share capital stood at Rs. 627.15 Million as on year ended March 31,2019.

During the year, there is no change in share capital of the Company.

4. Other equity Reserves and Surplus

The balance retained in the Profit & Loss Account as on March 31,2019 is Rs. 322.22 Million as compared to Rs. 385.03 Million as on March 31,2018. The book value per share at the end of the year is Rs. 15.14 as compared to Rs. 16.14 at the end of previous year.

5. Non Current Liabilities

(i) Financial Liabilities Borrowings

Borrowings as at March 31, 2019 are Rs. 0.09 Million. This represents obligation under finance lease.

(ii) Employee benefit obligations

Employee benefit obligations as at the year end are Rs. 0.99 Million as compared to Rs. 0.81 Million as on March 31, 2018. This represents liabilities provided for Long Service Award.

(iii) Deferred Tax Liabilities (Net)

The deferred tax liabilities as at the year end are Nil as compared to Rs 0.77 Million as on March 31, 2018. The Deferred tax liabilities represents tax impact on the financial assets measured at fair value through profit and loss & carry forward capital losses.

6. Current Liabilities

(i) Financial Liabilities

The Company owes an amount of Rs. 100.07 Million as compared to Rs. 83.80 Million as on March 31, 2018. This represents 9.73% of total expenditure for the year ended March 31, 2019 as compared to 9.23% of previous year. These liabilities include the following:

Particulars As of March 31, 2019 (Rs. in Million)
Trade Payables 68.13
Other Financial Liabilities
Employee related liabilities 4.16
Capital creditors 4.66
Security deposits from customers and Vendors 2.04
Employee benefit obligations
Compensated absences 6.56
Long service award 0.17
Gratuity 4.55
Provisions 0.50
Other Current Liabilities:
Advance from customers 0.20
Statutory dues 6.60
Advance received against disposal of fixed assets 2.50
Total 100.07

B. Results of Operations

1. Turnover

The detail of turnover of the Company is as per table given below:

Particulars Year ended 31.03.2019 Year ended 31.03.2018
Revenue from Operations 951 888
Less: Excise Duty - 2
Net Turnover 951 866

2. Net Profit/Loss After Tax

The total comprehensive loss for the year ended March 31,2019 is Rs. 62.82 Million as compared to income of Rs. 5.30 Million in previous year.

3. Earnings Per Share

The basic EPS during the year is Rs. (0.96) per share as against Rs. 0.06 per share in the previous year.

4. Raw Material Consumption

The raw material consumption for current year is Rs. 415 Million as compared to Rs. 334 Million for previous year. The Company continued to follow the procurement model of cullet instead of producing in house cullet.

5. Changes in inventories of Finished Goods & Work in progress

The increase in inventory of finished goods & work in progress during the year is Rs. 26.75 Million.

6. Employee Benefits Expense

The employees remuneration and benefits for the year ended March 31, 2019 are Rs. 84.99 Million as compared to Rs. 80.35 Million for the year ended March 31, 2018. The Company has 108 permanent employees as on March 31,2019 on its rolls.

7. Depreciation and Amortization Expense

There has been provided a sum of Rs. 24.64 Million towards depreciation for the year ended March 31,

2019. The depreciation for the year ended March 31, 2019 represents 2.59% of sales.

8. Other Expenses

Other expenses for the year ended March 31, 2019 are Rs. 551.89 Million as compared to Rs. 452.77 Million for the year ended March 31,2018. The other expenses includes power & fuel expenses, repairs & maintenance expenses, freight & forwarding charges, maintenance charges to UPSIDC, packing expenses, rent, insurance, selling & marketing expenses, travelling and conveyance expenses, etc.

FINANCIAL DATA FOR THE YEAR ENDED MARCH 31, 2019 [Rs. in Million except per share data and other information]

Description March 2019 March 2018 March 2017* March 2016 March 2015
Financial Performance
Sales 951.47 888.04 957.85 803.48 631.75
Less: Excise duty - (22.17) (91.43) (74.71) (62.00)
Turnover (net of excise duty) 951.47 865.87 866.42 728.77 569.75
Profit before Interest, Investment Income, Depreciation, Exceptional Items and Tax (70.89) (14.49) 14.84 9.38 (15.33)
Other Income
(i) Income from Interest & Investment 37.61 34.25 62.90 25.84 41.25
(ii) Other income (other than income from interest and Investment) 2.87 5.52 4.00 2.01 4.42
Interest Expenses (3.24) (0.18) (0.10) (3.12) (0.07)
Depreciation and Amortization (24.64) (19.16) (17.17) (13.29) (11.61)
Exceptional Items - - - - -
Profit/(Loss) Before tax (61.17) 0.42 56.31 18.81 14.24
Taxation charge / (Release) (0.77) (3.22) 7.24 4.04 0.00
Profit/(Loss) after Tax (60.41) 3.64 49.07 14.77 14.24
Other comprehensive income (2.41) 1.65 (2.63) 0.00 0.00
Total comprehensive income for the year (62.82) 5.29 46.44 14.77 14.24
Balance Sheet
Share Capital 627.15 627.15 627.15 627.15 627.15
Reserves and Surpluses (including other reserves) 322.22 385.03 379.33 281.26 268.20
Net Worth 949.37 1012.18 1006.48 908.41 895.35
Non-Current Liabilities 1.09 1.67 1.54 0.67 1.20
Non-Current Assets 258.75 228.24 201.31 206.08 204.17
Net Current Assets 691.71 785.61 806.70 703.00 692.38
Total Assets 1050.53 1097.65 1069.17 972.67 955.02
Per Share Data
Basic EPS (Rs.) (0.96) 0.06 0.78 0.24 0.23
Book Value per share (Rs.) 15.14 16.14 16.05 14.48 14.28
Other Information
Number of Shareholders 38124 39360 40521 41405 41909

‘Figures from 2017 onwards are stated as per Ind AS

RATIO ANALYSIS FOR THE YEAR ENDED MARCH 31, 2019

Description March 2019 March 2018 March 2017 March 2016 March 2015
Ratios-Financial Performance
Gross Profit/ Total Sales [%] 18% 23% 22% 22% 21%
Profit /(Loss) Before Interest, Investment Income, Depreciation, Exceptional Item & Tax/ Total Sales [%] -7% -2% 2% 1% -2%
Profit/(Loss) Before Interest, Investment Income, Depreciation & Tax/Total Sales [%] -7% -2% 2% 1% -2%
Ratios-Balance Sheet
Debt Equity Ratio (Long Term Debt : Equity)

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-

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Current Ratio 7.91 10.37 14.19 12.06 12.84
Days Sales Outstanding (DSO) 67 60 65 72 59