JHS Svendgaard Laboratories Ltd Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

Forward looking statement

Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company assumes no responsibility to publicly amend, modify or revise forward looking statements, on the basis of any subsequent developments, information or events. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include changes in government regulations, tax laws, economic developments within the country and such other factors globally. The financial statements are prepared under historical cost convention, on accrual basis of accounting, and in accordance with the provisions of the Companies Act, 2013 (the Act) and comply with the Accounting Standards. The management of JHS Svendgaard Laboratories Limited has used estimates and judgments relating to the financial statements on a prudent and reasonable basis, in order that the financial statements, reflect in a true and fair manner, the state of affairs and profit for the year. The following discussions on our financial condition and result of operations should be read together with our audited consolidated financial statements and the notes to these statements included in the annual report. Unless otherwise specified or the context otherwise requires, all references herein to "we", "us", "our", "the Company", "JHS", "JHS Svendgaard" are to JHS Svendgaard & Laboratories Ltd.

ECONOMIC OVERVIEW

Global Industry

The global oral care industry is set to experience robust growth in 2024, driven by increasing consumer awareness about oral hygiene and the introduction of innovative products. According to Mordor Intelligence, the market is projected to register a compound annual growth rate (CAGR) of 6.32% during the forecast period from 2024 to 2029. Key players such as Colgate- Palmolive, Procter & Gamble, Unilever, and GlaxoSmithKline are leading the market, focusing on technological advancements and product innovations to cater to the evolving consumer demands. The markets growth is also fuelled by the rising prevalence of dental diseases, which necessitates the use of effective oral care products.

Source: https://www.mordorintelligence.com/industry- reports/oral-care-market

The Asia-Pacific region continues to dominate the global oral care market, holding the largest market share in 2024. This regions dominance is attributed to the substantial elderly population in countries like India, Japan, and China, which leads to high consumption of oral care products. The Asia-Pacific oral care market was valued at USD 18.78 billion in 2023 and is expected to reach USD 33.12 billion by 2033, growing at a CAGR of 5.8% from 2024 to 2033. The increasing disposable incomes and improved standards of living in these regions further boost market growth. Additionally, the North American market is expected to be the fastest-growing segment, with a CAGR of 6.2% from 2024 to 2033, driven by the rising prevalence of oral disorders and a growing preference for herbal toothpaste products.

Source: https://www.precedenceresearch.com/oral-care- market

Technological innovations and product advancements are significant drivers of the global oral care market in 2024. Companies are focusing on developing user-friendly and technologically advanced products such as powered toothbrushes and recyclable toothpaste tubes. For instance, Procter & Gambles Crest, Oral-B, and Blend-a-med brands introduced the first-ever recyclable high-density polyethylene toothpaste tubes in Europe and North America in late 2020. These innovations not only cater to the growing consumer demand for sustainable products but also enhance the overall oral hygiene experience. The introduction of smart toothbrushes and personalized oral care solutions is also reshaping consumer habits and driving market growth.

Source: https://finance.yahoo.com/news/oral-care-market-size- share-143000372.html

Indian Industry

Indias oral care market was valued at $641 Million in 2022 and is estimated to expand at a CAGR of 9.2% from 2022 to 2030 and will reach $1295 Million in 2030. The oral care market in India is a large and rapidly growing market, driven by factors such as increasing awareness of oral hygiene, rising disposable incomes, and the growing prevalence of dental diseases. The toothpaste segment is the largest segment of the oral care market in India, accounting for more than 60% of the total market share. The toothbrush segment is the second-largest segment, followed by mouthwash and dental floss. Some key players in this market are Dabur India, Patanjali Ayurved, Colgate-Palmolive, Himalaya Wellness, Vicco Laboratories, Procter & Gamble, Baidyanath Ayurveda, and Unilever.

In India, approximately 85% to 90% of adults and 60 to 80% of children have dental cavities. Furthermore, approximately 30% of children have misaligned jaws and teeth. More than half of Indians with dental health problems seek treatment or advice from someone other than dentists.

Market Growth Drivers

The growing awareness of the importance of oral hygiene and dental health is driving demand for oral care products in India. According to a survey by the Indian Dental Association, only 50% of the Indian population brushes their teeth twice a day. This presents a significant opportunity for companies in the oral care market to increase their customer base. The increasing disposable incomes of the Indian middle class are driving demand for premium oral care products. According to the World Bank, Indias per capita income increased from $1,670 in 2010 to $2,020 in 2020. This has led to a growing demand for higher- quality oral care products and services. The growing prevalence of dental diseases in India, such as tooth decay and gum disease, is driving demand for oral care products and services.

According to a report by the Indian Council of Medical Research, dental diseases affect more than 80% of the Indian population. The increasing urbanization of India is also driving demand for oral care products and services. According to the United Nations, the urban population in India is expected to grow from 34% in 2018 to 56% by 2050. Urban areas have higher levels of awareness of oral hygiene and access to dental services, driving demand for oral care products and services. The Indian government has launched several initiatives to promote oral hygiene and improve access to dental care. For example, the National Oral Health Program was launched in 2014 to improve the oral health of the Indian population. Such initiatives are expected to drive demand for oral care products and services. Source: https://www.insights10.com/report/india-oral-care- market-analysis/

About JHS Svendgaard Laboratories limited

Started as a small-scale enterprise in August 1997, Sunehari Svendgaard Laboratories Limited moved at a brisk pace and was incorporated as JHS Svendgaard Laboratories Limited on October 8, 2004. By April 2005 the Company took over businesses from Sunehari Svendgaard Laboratories Limited, Sunehari Oral Care and Jai Hanuman Exports. Keeping up with the pace it reached new heights on October 21, 2006 when it was listed at BSE and NSE of India Limited at a price of Rs. 58.00.

Starting with manufacturing of only Toothbrushes the Company widened its scope to Toothpastes, Mouthwash and Denture Tablets and today is amongst leading oral care product manufacturers and exporters. The Company offers Contract Manufacturing Partnership to well-known domestic and international brands in India and international market. Some of the prominent brands with whom the Company has been associated with during its journey includes Amway India Enterprises Pvt. Ltd., Dabur India Limited, Patanjali Ayurved Limited, Hindustan Unilever Limited, Me N Moms Pvt. Ltd., Vestige Marketing Pvt. Ltd., Leeford, Reliance Retail Limited, Medplus, Vanesa, Spencer and many more recognized brands. Multiple production facilities of the Company are in Kala-Amb, Himachal Pradesh. The Company has over 60 highly qualified managers, engineers, officers and supervisors to manage and maintain the plants effectively. The Companys belief in Human Resource Development ensures the presence of all statutory welfare, recreational and emergency services within the plant. JHS team is a perfect blend of experienced professionals from technical, commercial and other fields. This combined with the Companys vision ensures in manufacturing of high-quality toothbrushes using the best raw materials and equipment from around the world. JHS has grown at a rapid pace to become one of the top Indian exporters and a leading supplier to MNC customers in the Indian market.

JHS well-established research and development department strives for constant innovation and high-quality oral products. This assures that the Company is well prepared for the future challenges of this vast and growing field. The Company also has complete in house process facilities from injection moulding to bristling and packaging to ensure strict quality control. The presence of a fully equipped Q.C. laboratory with latest gadgets combined with state of the art Vertical & Injection Moulding machines from Demag and Cincinnati, Tufting & Trimming machines from Zahoransky Gmbh, Germany and Blister Packing Machines from Boucherie, Belgium ensures international quality of products.

JHS is today a proxy for Indias oral care market being Indias largest integrated manufacturer of oral care products. JHS is a one-stop shop solution for oral care products (toothbrushes, toothpastes, mouthwash, whitening gels, and denture products.

JHS possesses a fully integrated oral care unit to manufacture toothpaste and toothbrushes in the same premises, reconciling completely different manufacturing competencies - mechanical and chemical under one roof.

The Company is an ISO 9001, GMP, SMETA certified and focuses on both export and domestic market. The company has earned various rewards and recognitions, some of them are listed below:

FINANCIAL OVERVIEW -

The performance of the Company for the financial year ended March 31st, 2024, is as follows:

		(In Lakhs)
Particulars	March 2024	March 2023
Sale to External Customers	189.87	83.9
Revenue with Other Operating Segment	0	0
Depreciation and Amortisation	634.58	601.67
Cost of Goods Sold	4282.73	5738.11
Income Tax Expenses	0	0
Total Assets	19,745.05	21,546.51
Total Liabilities	2,716.74	4,123.27

Resources and Liquidity

As on March 31, 2024, the net worth stood at Rs. 15475.18 lakhs and the debt was at Rs. 355.81 lakhs.

The cash and cash equivalents at the end of March 31, 2024 were Rs. 886.63 lakhs.

Segment wise Business Performance

The Company is into manufacturing toothpaste, toothbrushes, Talcum etc.

Revenue share broad segments are stated below:

Name of the product	% of total turnover of the Company
Toothbrushes	60%
Toothpastes	30%
Talcum	3%
Others	7%

RISKS AND CONCERNS

Like every business, the company faces risks, both internal and external, in the undertaking of its day-to-day operations and in pursuit of its longer-term objectives. A detailed policy drawn up and dedicated risk workshops are conducted for each business vertical and key support functions wherein risks are identified, assessed, analyzed and accepted / mitigated to an acceptable level within the risk appetite of the organization. The risk registers are also reviewed from time to time.

The Company faces the following Risks and Concerns:

Credit Risk

To manage its credit exposure, the company has determined a credit policy with credit limit requests and approval procedures. Company does its own research of clients financial health and project prospects before bidding for a project. Timely and rigorous process is followed up with clients for payments as per schedule. The company has suitably streamlined the process to develop a focused and aggressive receivables management system to ensure timely collections.

Interest Rate Risk

The Company has judiciously managed the debt-equity ratio. As on date, the company is relatively debt free with only few vehicle loans and thus the Company has been able to reduce its overall interest cost drastically.

Competition Risk

This risk arises from more players wanting a share in the same pie. Like in most other industries, opportunity brings with itself competition. We face different levels of competition in each segment, from domestic as well as multinational companies. The Company has created strong differentiators in project execution, quality and delivery which make it resilient to competition. Furthermore, the Company continues to invest in technology and its people to remain ahead of the curve. While the company is continuing to diversify into different product categories, a strong, stable client base consisting of large and mid-sized corporations further helps to insulate the Company from this risk. We counter this risk with the quality of our infrastructure, our customercentric approach and our ability to innovate customer specific solutions, timely and consistent delivery, focusing on pricing and aggressive marketing strategy, disciplined project executions, coupled with prudent financial and human resources management and better control over costs. Thus, we do not expect to be significantly affected by this risk.

Input Cost Risk

The profitability and cost effectiveness is relatively less affected due to change in the prices of raw materials, power and other input costs as most of the impact is passed over to the clients. Some of the risks that are potentially significant in nature and need careful monitoring are Manpower costs, Power costs, capacity utilization etc.

Liability Risk

This risk refers to the liability arising from any damage to equipment, life and third parties which may adversely affect business. The Company attempts to mitigate this risk through contractual obligations and insurance policies.

Inventory Risk

This risk refers to the problems with high and low inventory. In case of low inventory or out of stock situation customers would easily switch to use of competitor products. Contrary to the out- of-stock situation, high inventory shows that products are not consumed as expected.

OPPORTUNITIES

Growing awareness of maintaining high hygiene standards to prevent the spread of COVID-19 resulted in a spike in demand for personal care products, especially bar soap, liquid handwash and sanitizers, during March.

Multinationals such as Hindustan Unilever, ITC and Godrej Consumer Products have suspended the manufacturing of most product lines and enhanced the production of necessities, including hygiene products, to ensure there are no supply constraints. These companies are also working closely with the Indian government to provide price cuts for liquid soap, hand sanitizers and bar soap to ensure higher access and affordability. Changing consumer preferences and growing Industrial base

• With ever changing consumer needs and demands, today consumers are looking for a complete package with good quality product and design.

• With rising income and urbanization, consumers purchasing power.

• Online retailers are gradually being preferred over traditional distributors, retailers, and pharmacies. The successful sale of oral care products through e-commerce has prompted increasing investment towards these channels by major market players.

Nowadays, a large number of people are suffering from various oral related diseases such as tooth decay, oral cancer, oral-dental trauma, and others. The increasing condition of such diseases is likely to drive the demand for the oral care products. Additionally, recent government norms regarding the ban on usage of plastic materials for manufacturing oral care products have strongly motivated the market players to develop sustainable oral care products, thereby providing newer opportunities for the markets growth.

Apart from that, peoples unhealthy lifestyle and improper eating habits are likely to generate consequences of various oral infection problems, further resulting in high demand for such items. Further, some other major factors such as growing retail infrastructural facilities, increasing number of dental clinics and hospitals, and other commercial distribution channels are set to support the toothbrush market growth.

On the back of rising social media endorsements and growing importance of oral beauty, the demand for teeth whitening products has considerably increased which is anticipated to expand further and thereby impacting the oral care products market positively around the globe. The increasing demand for improving personal care aesthetics and rising availability of new attractive products offered through constant R&D of the major market players is estimated to increase the oral care products demand significantly.

Different companies are introducing innovative oral care items to provide effective oral hygiene solutions to people. This factor is likely to attract consumers towards purchasing such products, which would drive the market in a positive direction.

Source: https://www.fortunebusinessinsights.com/toothbrush- market-103880

Source: https://www.researchnester.com/reports/oral-care- products-market/1324

THREATS

• Competition from local and multinational players seffing up their inhouse manufacturing units due to higher liquidity

• Execution risk

• Regulatory changes

• Input Cost risk

• Attraction and retention of human capital

• Technological Advancements

• Dominance of various local and unorganized industry players.

• Competitive pricing will likely pose challenges to the major players in growing their oral care business.

• High cost of premium based oral care products would limit consumption among lower income group of people.

Source: https://www.fortunebusinessinsights.com/toothbrush- market-103880

INTERNAL CONTROL SYSTEMS AND ADEQUACY

The Company implemented proper and adequate systems of internal control to ensure that all assets are safeguarded and protected against loss from any unauthorized use or disposition and all transactions are authorized, recorded and reported correctly. The Company also implemented effective systems for achieving highest level of efficiency in operations, to achieve optimum and effective utilization of resources, monitoring thereof and the compliance with provisions all laws including the Companies Act, 2013, Listing Agreement, directions issued by the Securities and Exchange Board of India, labour laws, tax laws etc. It also aimed at improvement in financial management, and investment policy. The System ensures appropriate information flow to facilitate effective monitoring. The internal audit system also ensures formation and implementation of corporate policies for financial reporting, accounting, information security, project appraisal, and corporate governance. The Audit Committee of the Company also reviews the internal control system and its impacts on improvement of overall performance of the Company.

The Company has put in place internal control systems and a structured internal audit process vested with the task of safeguarding the assets of the organization and ensuring reliability and accuracy of the accounting and other operational data. The internal audit department reports to the Audit Committee of the company.

Similarly, the Company maintains a system of monthly review of the business as a key operational control, wherein the performance is reviewed and corrective action is initiated on timely basis. The Company also have in place a capital expenditure control system for authorizing spend on new assets and projects. Accountability is established for implementing the projects on time and within the approved budget.

The Audit Committee and the Senior Management Team are regularly apprised of the internal audit findings and regular updates are provided of the action taken on the internal audit reports. The Audit Committee reviews the quarterly, half yearly and the annual financial statements of the Company. A detailed note on the functioning of the Audit Committee and of the other committees of the Board forms part of the section on corporate governance in the Annual Report.

During the year, the Company carried out a detailed review of internal financial controls. The findings were satisfactory and suggestions for improvement have been taken up for implementation. Policy guidelines and Standard Operating Procedures (SOPs) continue to be updated where required, to keep pace with business requirements.

HUMAN RESOURCES

The Companys HR philosophy is to establish and build a high performing organization, where each individual is motivated to perform to the fullest capacity, to contribute to developing and achieving individual excellence and departmental objectives and continuously improve performance to realize the full potential of our personnel. As on March 31, 2024, Company is giving employment to 250 permanent employees. Industrial relations are cordial and satisfactory.

Employees are critical to our business. The Company internally assess its employees to periodically identify competency gaps and use development inputs (such as skill up gradation training) to address these gaps. The Company has implemented staff training policies and assessment procedures and intend to continue placing emphasis on attracting and retaining motivated employees.

The Company also plans to continue investing in training programmes and other resources that enhance employees skills and productivity which will continue to help our employees develop understanding of the customer-oriented corporate culture and service quality standards to enable them to continue to meet the customers changing needs and preferences.

Our deep understanding of local needs and our ability to adapt quickly to changing consumer preferences has helped our performance driven growth. Our robust IT systems have significantly aided this growth by simplifying complex processes throughout our operations.

Our IT systems are equipped with an array of data management tools specific to our business needs and support key aspects of our business. IT has enabled our cash management systems, instore systems, logistics systems, human resources, project management, maintenance and other administrative functions. This implementation has contributed positively towards minimizing product shortage, pilferage, out of stock situations etc. and has increased overall operational efficiency.

OUTLOOK

As we have stepped into the financial year 2024-2025, JHS Svendgaard Laboratories Limited aims to enhance the market presence, diversify our product portfolio, and expanding our global footprint. This fiscal year we are going to establish a new manufacturing facility in Jammu and Kashmir, which will increase our production capacity and to meet our client requirements.

To accelerate our growth trajectory, we are actively seeking strategic tie-ups with companies that complement our business model and enhance our market offerings. These collaborations will enable us to expand our presence in various parts of India and tap into new customer segments. By joining forces with industry leaders, we aim to drive synergies that will benefit our stakeholders and reinforce our market position.

We recognize the significant opportunities that lie in the international markets. Our strategy includes obtaining the necessary certifications and compliance to penetrate these new markets effectively and we are actively exploring different avenues to introduce our products to international consumers, thereby broadening our reach and increasing our revenue streams.

JHS Svendgaard Laboratories Limited is well-positioned to embark on a path of significant growth and expansion in the coming years. With focus on innovation and commitment to quality we are confident in our ability to deliver value and drive the business forward. We thank our shareholders, employees, and customers for their continued support and look forward to a prosperous year ahead.