Jocil Ltd Management Discussions

The Company is engaged in the manufacture of Stearic Acid, Fatty Acids, Refined Glycerine, Soap Noodles, Toilet Soap, Industrial Oxygen and in the generation of Power from biomass and wind. Non edible vegetable oils and Fat distillates, both indigenous and imported, are used as raw materials for the manufacture of the finished products. The products manufactured are marketed directly from the factory as well as through Depots and C&F Agents located in major cities across the country. The Company also undertakes to manufacture major portion of Soap Noodles and Toilet Soap on contract basis for reputed customers and some portion of Soap Noodles to other medium to small size customers on regular sale basis.

The Company is having 6 Mw Biomass Cogeneration Captive Power Plant located within the factory premises. It is also having four Wind Energy Generators (WEGs) of total 6.30 MW setup in Tamil Nadu and the power generated from these plants is sold to Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO).

Majority of the Fatty Acids produced in the industry are consumed as raw material in Toilet Soap industry for making Soap Noodles and Toilet Soap. Hence performance of that industry will also have its impact on the demand for fatty acids. Stearic Acid is used in rubber, plastic, metal polish, cosmetics, paints and number of other industries and any changes in demand by the major user industries may lead to fluctuations in demand. Glycerine and Industrial Oxygen are the by-products.

The country is short of both edible and non-edible vegetable oils. However, in India, refineries with huge capacities have been setup for processing Crude Vegetable Oils like Palm Oil mainly imported from Malaysia and Indonesia and some that is available domestically. By-products generated from these refineries viz., RBD Palm Stearin (RBDPS) and Palm Fatty Acid Distillate (PFAD) are the raw materials to the Company. As a result, the Company indirectly depends on imports of crude vegetable oils for refining. Consequently the supply and demand position in the international market for vegetable oils influence the domestic market.

The Malaysian and Indonesian Governments vary export duty from time to time on crude oil to encourage value addition within their country prior to exports. This turns out as additional cost to consumers in India. Further, fluctuation in crude oil (fossil) prices also have impact on edible and nonedible oils due to their usage in production of bio-fuels.

The fuels intended for running the biomass power plant are Rice Husk, fire wood like Cotton Stalk, Chili Stalk, Juliflora etc., available in the surrounding areas. Their availability is seasonal and also depends on availability of labour and farm works during the season. Transportation and storage of biomass fuels are the other problems due to their low bulk density. They are also more fire hazardous.

Scheduled maintenance activities are being carried out regularly for optimum capacity utilization of the power plant. Steam and power requirements of Process Plants are met from the Biomass Power Plant and surplus power after internal consumption is sold to Indian Energy Exchange through PTC India Ltd.

Continuous development efforts are being made to absorb the latest technologies and practices. Quality Management Systems (QMS) Standard ISO 9001:2015 obtained from a renowned certification agency, TUV SUD South Asia Pvt. Ltd., Mumbai is being followed by the Company, Det Norske Veritas (DNV) also confirmed ISO 22716:2007 on the Company for following GMP Guidelines of Standard in the manufacture of Stearic Acid and Glycerine.

Raw materials and semi-finished soap products are tested in Companys laboratory having Micro-organism Testing Equipment for reliable and consistent results. It also saves time involved in sending samples to outside laboratories situated far away from the Company. b. Opportunities and Threats:

Raw material cost is a major component in the cost of production of fatty acids and soap products. International market prices of edible and non-edible oils highly influence the raw material prices in the domestic market. Competitors having backward integration have an edge over the Company because of cheaper and secured source of raw materials. Volatility of raw material prices and demand by bulk consumers of fatty acids and soap products for contracts of large quantities for future delivery is a big challenge to the Company when similar facility for advance coverage of raw materials is not available to hedge the risks. Retention of high volume customers is considered very important and hence very competitive rates are having to be quoted with hidden risks.

GST refund/benefit is continuing for North-eastern states and Jammu & Kashmir and will be available upto 30 June 2027. However, these benefits may not be attractive enough to overcome the increased logistical costs for marketing in the south. As a result, the opportunities have improved for manufacturers in non-exempt areas especially for those catering to the Southern markets.

During the year under review, Company is unable to sustain reasonable volume of orders for soap products from major customers who it appears are facing intense competition from smaller manufacturers and unorganized sectors. Other competitors are offering credit period of 60-90 days to such smaller manufacturers whereas Company is not offering any credit period to them. Hence, Company is trying to acquire orders from those small manufacturers with reasonable success. However, getting more orders from them, who are able to source the products from others at longer credit period becomes difficult. As such Company is considering the possibility of offering products to them through agents for an advance/ immediate payment in order to get additional volumes.

Even though there is an opportunity for higher sale of Biomass Power to Indian Energy Exchange (IEX) through PTC India Limited by way of Open Access arrangement, it may not be viable due to increase in the cost of fuels used for generation of power without a commensurate increase in selling price as prices prevailing in the Exchange are very competitive.

The generation of power from Wind Energy Generators (WEGs) has declined to 95.96 lakh units as against 110.74 lakh units in the previous year mainly due to increase of grid failure from 7.77% to 13.12% and also due to failure of transformer in sub-station from 27 May 2022 and breakdown of one machine from 13 February 2023. As a result, revenue from sale of power from Wind Energy Generators decreased to 280.55 lakhs from 320.96 lakhs. Payments from TANGEDCO are being received as per Late Payment Surcharge (LPSC) Scheme opted by TANGEDCO.

c. Segment-wise or Product-wise performance:

Segment-wise performance of the Company is at Note No. 31 to the Accounts. d. Outlook:

The demand for Stearic Acid is expected to remain same as that of the year under review. However the demand for Toilet Soap, Soap Noodles and Glycerine may increase slightly from existing and new customers in the forthcoming period due to anticipated orders from new customers.

e. Risks and Concerns:

Inverted duty structure for imports (higher duty for raw materials and lower duty for finished products) is a major problem for manufacturers of Soap Noodles. There is no customs duty on Soap Noodles imported from Asian countries under Indian Free Trade Agreement. Whereas, Lauric Acid and PFAD, the major raw materials in the manufacture of Soap Noodles attracts basic customs duty at 7.5% and 5% respectively. As a result indigenous manufacturers are placed at a disadvantage in competing with import of Soap Noodles. The Company expects the Government to recognize the inverted duty structure for Soap Noodles and correct the anomaly to enable the industry to face the competition from import of soap noodles effectively.

The wide fluctuations in raw material prices in the international market affect the prices of final products which may result in conditions sometimes favourable or at other times unfavourable to the Company, in spite of taking precautions to avoid risks in price fluctuations.

Availability of Palm Fatty Acid Distillate (PFAD) and RBD Palm Stearin, the major raw materials for fatty acids production is a bit of concern as processing of Crude Palm Oil (from which PFAD & RBD Palm Stearin are derived as by products) has come down substantially at refineries due to lower demand in the market for Palm Olein as prices are equivalent to soya and sunflower oils. As a result, Company may have to import PFAD & RBD Palm Stearin at increased costs in case of shortage.

Generation of power by Biomass Power Plant depends on availability of biomass and its cost. Generation of power by windmills depends on wind velocity and the policy of TANGEDCO to prioritize evacuation over the other sources of energy available to it. The profitability of Wind Energy Generators largely depends upon the purchase price fixed by the Government for purchase of energy from renewable sources of energy as a promotional measure. f. Internal Control System and their adequacy:

The Company has proper and adequate internal control procedures commensurate with its size and nature of business. These internal control procedures ensure protection to the resources of the Company and compliance with the policies, procedures and statutes.

The internal controls are supplemented by internal audit by M/s. Mastanaiah& Co., Chartered Accountants, Guntur. The internal controls and internal audit ensure that appropriate financial records are available for preparing financial statements and other data for maintaining accountability of assets. The Report of the Auditors on Internal Financial Controls under Sec.143(3)(i) of the Act is provided as Annexure-B to the Independent Auditors Report.

g. Discussion on Financial Performance with respect to Operational Performance:

The operations of Fatty Acids increased by 3.35% and that of toilet soap & soap products decrease by 17.39%.The operation of Biomass Power Plant vastly improved by around 11% due to sale of power to Indian Energy Exchange (IEX) through PTC India Ltd throughout the year. However, the operations of Wind Power decreased by around 13%. The profit before interest & depreciation decreased by around 55% due to decrease in sales volume of Soap Noodles and more so due to increase in fuel costs of Biomass Power Plant. h. Material developments in Human Resources / Industrial Relations front, including number of people employed:

The Company employed 768 persons as on 31st March 2024 both in the factory and office. The Management of the Company maintains good relations with the employees. There have been no labour problems since the inception of the Company in 1980. i. Details of significant changes in Key Financial Ratios.

Ratio	Formula	2023-24	2022-23	Change % increase/ (decrease)	Explanation for change
Debtors	Net credit sales /Avg.	10.76	12.47	(13.68)	-
Turnover	Accounts receivable
Inventory	Net sales / Average	8.43	9.60	(12.25)	-
Turnover	Inventory
Interest Coverage Ratio	EBIT / Interest	138.84	19.22	622.37	Decrease in interest expense due to availability of surplus funds
Current	Current Assets /	3.48	4.64	(25.09)	Due to increase in
Ratio	Current Liabilities				Trade Payables
Debt Equity Ratio	Debt / Equity	0.03	0.01	245.52	Due to increase in utilization of working capital limits
Operating Profit Margin(%)	Operating Profit / Sales	0.36	1.47	(75.79)	Decrease in Operating Profit due to decrease in sales volume of Soap Noodles and more so due to increase in fuel costs of Biomass Power Plant.
Net Profit Margin (%)	Net Profit / Sales	0.23	1.09	(78.91)	Decrease in Profit after Tax due to decrease in sales volume of Soap Noodles and more so due to increase in fuel costs of Biomass Power Plant

j. Details of change in Return On Net Worth

Ratio	Formula	2023-24	2022-23	Change % increase/ (decrease)	Explanation for change
Return on Net Worth	Profit after tax/ Net worth	0.83	4.88	(83.01)	Decrease in Profit after Tax due to decrease in sales volume of Soap Noodles and more so due to increase in fuel costs of Biomass Power Plant