Ion Exchange (India) Ltd Management Discussions

A. INDUSTRY STRUCTURE AND DEVELOPMENT

Overview:

Ion Exchanges strategy is based on the purpose of its business i.e. to conserve the planets most precious resources through total water and environment management solutions. To this end, the Company for 59 years has been providing state-of-the-art sustainable technologies and solutions for managing liquid, solid and gaseous waste generated by industries, institutions, homes and communities – both urban and rural. Thus, eliminating contributors, which lead to adverse climate changes and help create a positive impact on peoples lives and the environment.

To meet the rising demand for water and to conserve natural resources, it is imperative that the water and environment sector expands scientific knowledge and technology applications to change the way water and waste is managed and reused by applying the concept of Circular Economy and advance AI/ IOT enabled digital solutions for meeting human, economic and environmental needs. At Ion Exchange we also nurture sustainable and inclusive growth along with EESG (Environmental, Economic, Social and Governance) goals which are essential for creating a positive impact on society, industry, the economy and environment. By integrating EESG principles with process and digital technologies that promote the concept of Circular Economy, we help our customers in industries, institutions, homes and communities reduce their inefficiencies in water management, environmental footprint and help promote responsible and ethical behaviour while conducting their business. This benefits all stakeholders and contributes to a more sustainable future even as the world continues to recover from the effects of the pandemic and geopolitical tensions that have muted its growth whilst increasing demand for safe, pure water and other natural resources.

Global Economy

The Global Economy recovery was well on track until the Russia-Ukraine conflict broke out in February 2022.

It disrupted the restoration of supply chains disrupted earlier by lockdowns and limited trade traffic. The conflict caused the prices of critical commodities such as crude oil, natural gas, fertilizers and wheat to soar strengthening inflationary pressures that the global economy had triggered, backed by massive fiscalstimuli undertaken during the Pandemic years. This resulted in hardening of bond yields across economies and resulted in outflow of equity capital from most of the economies around the world into traditionally safe haven market of the US. It led to the strengthening of US Dollar against other currencies whose depreciation widened the current account deficit and increasing inflationary pressures in the under importing economies, including India.

Rising inflation and monetary tightening also led to slowdown in global output as evidenced by the global

PMI Composite Index remaining in contradictory zone since August 2022, while the yearly growth rates of global trade and industrial production significantly declined in the second half of the year 2022. These global economy challenges led to downward revision in growth forecast of global economies. IMF predicts the advanced economies and USA to grow at 1 percent and global growth projection at 2.7 percent in the FY 2023.

Indian Economy

During the FY 2022-23 Indian Economy has proven to be remarkably resilient. It withstood the challenge of renewed threat from Omicron variant of the Corona virus, external imbalances caused by Russias invasion of Ukraine leading to disruptions and volatility in global supply chain and ripple effect of the policy tightening measures announced by several major central banks, especially the US Federal Reserve. Indias inflation rate did not creep too far above RBIs upper tolerability of 6% and was curtailed below 6.7% during the year. The current account deficit also narrowed to an estimated 3 percent on the back of strong growth in service exports and easing of crude and global commodity prices in the latter half of FY 2023. Further, aided by strong consumption rebound, robust revenue collection, sustained capex, both in the public and private sector, growing employment levels in the urban as well as the rural areas has made Indian Economy the fastest growing major economy in the year

(7 percent), the third largest economy in the world in PPP terms.

Indian Water and Environment Industry

Water and Wastewater management is a promising subsector in Indias environment technology segment. Indias demand for water is projected twice as much as the available supply by 2030. According to Frost &

Sullivan report, the Indian water and wastewater treatment market will likely reach $2.08 billion by 2025 from $1.31 billion in 2020, registering growth at a compound annual growth rate (CAGR) of 9 percent. The report also ranked India as the sixth largest market for environmental technologies in the world, with subsector rankings of second for water/wastewater management.

Robust governmental initiatives, such as the Atal

Mission for Rejuvenation and Urban Transformation, National Mission for Clean Ganga, Jal Jeevan Mission, and Community Drinking Water Schemes will contribute to the growth of the Indian water and wastewater treatment market.

Government agencies are implementing regulatory and funding mechanisms to open up the water and wastewater market for private investments providing an opportunity for market to achieve significant growth as the industry shifts toward deriving more project value-based (total cost of ownership) and utilizing government expenditure efficiently.

Further, the growing regulations by the regional

Government to prevent pollution of naturally occurring water bodies and illegal wastewater discharge have boosted the market growth. To maintain a balance between the population and freshwater supply, wastewater treatment facilities are planned with private sector participation in large Indian cities where the urban population is constantly growing.

Industrial sectors Power, Food and Beverages, Chemicals, Pharmaceuticals, Steel, Refineries and

Textile industries prefer advanced treatment technological systems such as reverse osmosis membranes for treating their wastewater. The concept of wastewater recycling and zero discharge systems is becoming more widely accepted as newer technologies such as membrane bioreactor (MBR) based treatment gain in adoption. As examples, some power plants, oil refineries, plants and fertilizer plants are pursuing the principle of Reuse, Recycle and Zero Liquid Discharge to better manage water usage and improve their environmental footprint.

Industries are also setting up sea water desalination plants to meet process water requirements. The coastal states of Tamil Nadu and Gujarat are frontrunners in setting up desalination plants to bolster drinking water supply. Rapid industrialization, deteriorating quality of surface and ground water has increased the demand for pure and safe water in residential, institutional and community segments.

The home water purifier market continues to exhibit good growth rate (CAGR of 9%) and thereby remaining the largest in the South-East Asian region. Moreover, with growing awareness amongst consumers about safe water consumption and its health effects, aided by advancements in technology, industry participants are introducing higher end models at the top of the pyramid whilst increasing the penetration at the bottom rungs with quality value-added products.

High tariffs, particularly in the area of monitoring and instrumentation, and fragmented structure are market challenges for the sector.

B. Highlights of Performance: Standalone

? Total Income: INR 1939 crores registering a growth of 24.7% annually??? EBITDA: INR 280 crores??? EBITDA Margin: 14.4%??? Net ProfitAfter Tax: 185 crores??? PAT Margin: 9.5%??? Diluted EPS: 150.26 (Face value INR 10 each)

Consolidated

??? Total Income: 2031 crores registering a growth of 25.4% annually??? EBITDA: 296 crores registering a growth of

16.1% annually

??? EBITDA Margin: 14.6%

??? Net Profit After Tax: 195 crores registering a growth of 20.4% annually??? PAT Margin: 9.6%??? Diluted EPS: 165.95 (Face value INR 10 each)

C. Segment wise Operational Performance:

The business of your company can be segmented into:

1. Engineering

2. Chemicals

3. Consumer Products

Engineering

The year has seen increase in sales profitability, order inflow from both domestic and international markets. It also has a healthy order backlog and bid pipeline from core industries like Oil & Refining, Steel, Infrastructure & Chemicals and OEMs in renewable energy domain, apart from Food & Beverages, Pharmaceuticals, Automobile & Components, to name a few. The service business also reported a healthy growth in the post

Pandemic period. With these the segment has visibility for sustaining growth in the next 2-3 years.

On a standalone basis, the Engineering segment achieved a turnover of INR 1179 crores compared to INR 900 crores for the previous year. The profit from Engineering Operations stood at INR 101 crores.

The execution of Sri Lanka project remained significantly affected and the company has engaged in discussions for expediting the project closure on a mutually acceptable terms. On the other hand, execution of UP Jal Nigam project progressed satisfactorily and revenue has been recognized based on work completion. The Membrane Division continued to deliver a double-digit growth in its top line with proportional growth in the EBITA margins. The success of its range of world-class membranes (RO, NF) and earlier than planned capacity expansion during the year, will help to further increase our market share in India and increase export of membranes to geographies where we have global presence.

Chemical Segment

The sales in the domestic segment continued to record steady growth while the export volume remained muted due to geo-political issues and recessionary trends in global markets, particularly US and Europe.

However, the segment witnessed improved margins aided by softening and stability of input costs. During the period, the company successfully introduced its range of "Green Chemistry" products to enhance sustainability footprint of its customers. Several new ion exchange resins, adsorbents were introduced in local and export markets.

On standalone basis, the segment achieved sales turnover of INR 583 crores compared to INR 526 crores of the previous year.

Consistent with increased demand for ion exchange resins, we have announced a greenfield expansion project for manufacturing world-class ion exchange resins in Roha, Maharashtra. The state-of-the-art manufacturing facility will also be aligned with internal sustainability goals and environment quality management practices.

Consumer Products

The Consumer Products segment comprises of Home growth to the Divisions top

Water Solutions, Institutional, Commercial Water Solutions and Rural Sales Division. Together these verticals achieved a turnover of INR 193 crores It was a path-breaking year for Zero B Home Water Solutions which had significant and profits. Sustained product innovations, commercial success of its Zero B Hydrolife range of top end product and Smart Digital initiatives in sales and services contributed to the growth. It also launched innovative products like Bathroom Softeners, low-cost value-added purifiers and extended range of domestic Softeners and sand filters. With focus on quality and speed of response, the vertical greatly improved customer experience and preference for its brands with its after-sales service.

The Institutional segment which caters to the requirement of Realty, Hospitals, Hospitality, etc. also registered good growth in its topline as compared to the previous year. High and differentiated product solutions like INDION HEMO (High Purity Water for Dialysis system), INDION QUENCHER (System for packaged drinking water in glass bottles with an aim to eliminate single-use plastics) and a wide range of Sewage

Treatment Plants, contributed to the verticals performance. In the Commercial Water segment the new Water Cooler models with unique features of purified water dispensed at three temperature variants (normal/warm/cold) received good response contributing to this segments growth. The LAB Q "Ultra Plus", and High Purity Water systems for research laboratories and institutes requiring ASTM type-1 water registered good growth.

In the Rural Segment your Company continues to grow through its participation in various Government initiatives such as the Jal Jeevan Mission as well as with its association and support to non-government organizations and companies under their CSR activities.

Exports

Your Company has posted export turnover of INR 394 crores for the year 2022-23.

Having built a favourable position as a reliable exporter of quality ion exchange resins, two of its important markets, namely North America and Europe continued to be constrained due to economic and geopolitical reasons. However, it is expected that these markets will recover in coming years. Basis this pragmatic optimism we have formed a European subsidiary for penetrating the European market as part of our sustainable growth strategy for resins and chemicals.

On the Engineering front, the company witnessed steady order flow in the international market. It includes a 40 MLD Seawater Desalination project for a leading EPC company in North Africa and other significant orders from customers and global EPC companies resulting in a significant bottom line.

Digital Initiatives

Your Company continued to extend its digital adoption for optimizing its business activities and enhancing its customers satisfaction in FY 2022-23. This included multiple Omni-channel digital campaigns for enhancing product awareness and promotion during the year resulting in enhanced digital engagement and increase in business leads. Product and industry specific campaigns were successfully executed on various social media platforms further increasing customer engagements.

In addition to this, your Company launched their new Corporate (www.ionexchangeglobal.com) and Hydramem (www.hydramem.com) websites which were stronger in functionality, appearance and navigation. Development of the new regional websites for Asia

Pacific, Africa, Europe, India, Middle East and North America widened our marketing and sales reach to global customers.

In a step ahead towards our aim of being a paperless organization, Ion Exchange equipped our exhibition booths with QR Codes which linked our customers to customized landing pages and E-catalogues thereby significantly reducing distribution of paper catalogues.

Digitalization played a very vital role in increasing your Companys Consumer Care Business (Zero B) brand footprint in FY 2022-23. Considering the high percentage of users accessing website and related content on mobile phones, Zero B website was revamped and modified as per the mobile interface. The new, simplified and user-friendly interface helped the brand to acquire a higher number of new and repeat visitors on the website.

Lead generation campaigns were fine-tuned on social media where regular content posting resulted in higher engagement which helped in gaining additional followers and subscribers for the brand. The Consumer Care business initiated integration of the website & CRM for smooth functioning of the service vertical. Other digital initiatives include launch of mobile application for service partners & leaders and enabling scan based payment authentication to enhance and ease customer experience.

Risks, Threats, Concerns & Risk Mitigation

Pre-empting risks and robust mitigation strategy has been a priority on the managements agenda. Your Company has a comprehensive risk management framework that identifies risks arising out of internal as well as external factors, assesses, reports and mitigates impact of these risks. The multi-layered risk management framework adopted by your Company is aimed at achieving the strategic objective of increasing market share, optimal utilization of assets to increase productivity, comprehensive financial reporting and compliance to regulatory and social obligations.

On the global front, the conflict between Russia and Ukraine has overshadowed the world economic scenario. In the first half of FY 2022-23, the war had its effect on economies in Europe with energy cost and thereby creating inflationary pressure. The outlook remained fragile in the major part of second half. Global growth slowed in 2022 to 3.2%, which is one percentage point weaker than what was expected at the end of 2021. In early 2023, signs of improvement are visible and decline in energy prices have improved the sentiments and resulted in decline in food prices thus boosting the purchasing power. After the surge in Covid numbers, early re-opening of China had a positive impact on the supply chain and helped boost international tourism. On one hand, commodity price inflation has shown signs of easing but on the other hand strong increase in service price and cost pressures from a tight labour market have negated the benefit of inflation moderation.

Majority of global agencies have projected growth to further downslide in 2023 on account of the ongoing war in Ukraine, and growing geo-economic fragmentation. Policymakers in various countries have taken forceful actions to stabilize the banking system as the other major forces that shaped the world economy in 2022 seem set to continue into this year, but with changed intensities.

During 2022-23, your Company continued with its reassessment of short-term and long-term impacts on the economies of countries of interest. Geopolitical tensions due to the war between Russia and Ukraine, surge of covid cases in China and slowdown in most

European countries compelled most countries to rethink about their manufacturing strategies and focus shifted to strengthening of domestic manufacturing capabilities. To tap the business opportunities in these international markets, to ward off the threat on the price front from other countries and to deliver as per the quality standards and prices in the export market, your company resorted to building capabilities in the countries of interest by investing in business and manpower abroad.

The Indian economy post the pandemic shocks, moved on and staged a full recovery in FY 2022 ahead of many countries and positioned itself to ascend the pre-pandemic growth path in FY 2023. The ripples created by global economy scenarios had an impact on the Indian economy too. India has also faced the challenge of reining in inflation created by these global scenarios and the Indian Government and RBI had to resort to credit control policy decisions. The depreciating rupee on account of US Fed interest rate hike and growth momentum of Indian market led to increase in CAD gap. The overall growth for 2022-23 is estimated at 7%. The current account deficit narrowed in Q3 due to strong growth in service exports and easing of global commodity prices. Despite strong global headwinds and tighter domestic monetary policy, Indias GDP growth is expected to be 6% in FY 2023-24.

In order to cash in on the growth opportunities in the

Indian markets and to offset the impact of uncertainties, your Company continued to build a good order bank of of the profitablebusinesses. The emerging opportunities were evaluated for the risk appetite they carry and unprofitable or highly volatile opportunities were declined. Your

Company continued to maintain a healthy mix of profitable and relatively stable stream of revenues from the engineering, chemical and home segment along with a good opening order bank. Given the global scenario and its impact on the Indian economy, margins were under pressure. However, your company maintained an apt mix of large and small businesses, ensured steady stream of revenue by maintaining the quality of its products and services in domestic as well as the international market and proactively adjusted to the price sensitive scenarios.

For large EPC jobs your Company has built in a robust and dynamic risk identification and mitigation framework through provision of proper infrastructure, tight operational and internal controls and an extensive monitoring mechanism. For other large jobs matching the companys business profile, your Company is very selective and cautious evaluation is done with respect to various risks. Other risk mitigating measures include robust screening of customers for ensuring business with only credit worthy customers, prime focus on liquidity and positive operational cash flow and a cut discretionary spend. Your Company continues to reassess and realign its strategies in the wake of the changes in market dynamics and business uncertainties brought about by the international uncertainties.

Human Resources and Training Developing & Managing Talent

Promoting an environment that encourages the growth and development of your Companys personnel is critical to the success of its business. Employees are encouraged to channel their potential and gain success throughout their career lifecycle with the Company.

Your Company has established an integrated performance management system that evaluates employee achievements on a periodic basis, in an objective and structured manner. Employees are provided with opportunities to discuss their performance as well as their personal and professional ambitions with their managers across all functions and levels.

In FY 2022-23 through your Companys robust performance review system, 100% of the eligible employees have undergone performance and career growth and talent mobility.

Your Company is slowly moving towards Performance Enabler. At your company, learning is integral to work, and therefore along with their performance review, your company provides employees with learning and upskilling opportunities for capability building, to enable them to undertake leadership roles effectively. Training imparted to employees cover a wide range of subjects through internal and external programmes which include technical, non-technical, skill upgradation, prevention of sexual harassment, etc.

Comprehensive Leadership Development Programmes and Leadership Engagement Sessions were conducted on a regular basis for all critical roles in your Company.

Training programmes were also undertaken for first time managers to enhance their leadership skills and orientation sessions were undertaken to familiarize them with their new roles and responsibilities.

Your Company has a structured, well-documented Leadership Competency Framework as well as a Functional Capability Framework, which defines key competencies and forms the bedrock for various talent processes in your Company.

In the year under review a Mentor-Mentee program also called the ‘Sarathi – Viraathi program was launched in which the senior management team volunteered to mentor 39 grass root leaders to develop and strengthen their supervisory skills. New Mentor-Mentee are identified for 2023-24.

Succession planning in an integral part of your Company, which measures the depth of leadership bench at the senior leadership levels. Your company has a strong succession bench for most of the key positions and successors are identified prior to senior management positions falling vacant, to ensure a smooth and seamless transition.

Internal controls

Your Company maintains a robust internal control framework to ensure that there is reasonable assurance with respect to all information within the business and for that which is available for external publication is correct and adequate. The existing governance and policy framework implemented by your Company provides reasonable assurance of the efficacy of the internal control operating within the Company.

The Company has a well-qualified Internal Audit Department. The internal audits are planned from risk perspective. In preparing the Annual Audit Plan, reference is made to past audit experience, current economic and business environment, the groups risk matrix, directives from senior management and audit committee members. Major observations are periodically highlighted to the audit committee members, corrective steps are taken and are also reviewed by the statutory auditors.

Social Responsibility Initiatives

Your company has been undertaking social investments largely through its CSR wing ‘Ion Foundation working with NGOs and partners, as well as employee volunteers, to assist in the implementation of various sustainable development programmes.

The core philosophy of the Companys social intervention programmes is to work closely with communities living near its operations, and beyond. The CSR interventions are wholly based on the needs assessed through community engagement, backed with a definitive structure arising from the identification of needs of the local area and the existing systemic gaps.

Your company has deployed a strategic inclusive development approach that valets and cab drivers. Theyencompasses preserving and building drinking water resources for sustainable water resource management, ensuring access to safe drinking water, implementing long-term plans and enabling water security for domestic and agriculture usage in communities, constructing better sanitation facilities, conserving environment, providing health and nutrition amenities, providing quality education, creating platforms for skill-building and community empowerment. Your company continued to make a positive difference in more than eight states during FY 2022-23, aligned with Ion Foundations vision ‘To empower the economically disadvantaged towards social equality and to refresh our environment.

Some of the major interventions undertaken during FY 2022-23 were: l Solar powered farming and irrigation systems:

Your Company assisted two villages in Palghar, Maharashtra by installing a new solar powered water pumping irrigation system of 20 KWp Solar PV. The project had many positive outcomes for the development of the community. It provided an opportunity to the farmers to cultivate multiple seasonal crops, which enabled them to boost their average yearly income by 60%. This resulted in significantly reducing the migration of the farmers to other locations in search of jobs. Children were also able to continue their primary education in their native village. l Your Company collaborated with an NGO to support a driving training course in partnership with a driving school for 25 underprivileged women. The women received their driving licenses and badges for driving commercial vehicles after this 6-month initiative. This helped the women to achieve financially independence whilst balancing their family life with secured jobs as chauffeurs, able to provide better education for their children as well as support their families. l Besides the various education initiatives, which your Company has undertaken over the years, the new focus in FY 2022-23 was to help bridge the gap in the field of education by compensating the teachers who take extra classes for needy students.

During FY 2022-23 employees were encouraged to volunteer by forming specific interest groups and join volunteering programmes with different institutions/

NGOs planned throughout the year.

Cautionary Statement

The statements or explanations given in this report may contain some forward looking statements based on assumptions having regard to the government policies, economic conditions, etc. The management cannot guarantee the accuracy of the assumptions and expected performance of the Company in future.

Hence, the actual results may substantially differ from those expressed or implied herein.

	On behalf of the Board of Directors
	Sd/-
	Rajesh Sharma
	Chairman & Managing Director
Mumbai
Date: 26th May, 2023