Kamdhenu Ventures Ltd Management Discussions

Global Economy

The global economy perseveres on a trajectory of robust resilience, notwithstanding the formidable challenges it encountered, such as the aftermath of the Covid-19 pandemic and significant geopolitical tensions, including the Russia-

Ukraine conflict. Demonstrating robust fortitude, global inflation, which peaked in 2022, is now receding faster than expected, thus mitigating its impact on employment and economic activity.

This positive trend is attributed to improved supply-side dynamics, coupled with proactive interventions by central banks to stabilize

As further evidence of global economys enduring momentum, the anticipated growth slowdown for this year stands eliminated. The global real GDP forecasts for 2024 and 2025 have been revised upwards. Projections released in March 2024 indicate a growth rate of 3.2% in 2023, which is forecasted to continue at the same pace in both 2024 and 2025. The projection for 2024 is revised up by 0.1 percentage point from the January 2024 WEO update, and by 0.3 percentage point with respect to the October 2023 WEO forecast. This positive trajectory is primarily led by a resurgence of momentum in key emerging economies, particularly China and India, bolstered by favourable economic policies and robust growth dynamics.

Shifting attention to major economies, the projected real GDP growth is anticipated to persist below the pre-pandemic average of

2.1%, recorded prior to 2019. Forecasts suggest a modest uptick, with anticipated growth of 1.4% in 2024, holding steady from the preceding years 1.5%, with a minor uptick to 1.7% expected for 2025. This slight improvement is expected to stem from a reduction in inflation and prospective relaxation of monetary policy.

The forecast for growth in the US is expected to be upgraded to 2.7% in 2024 from the previous projection of 1.2%, alleviating concerns of a looming recession that prevailed last year, despite expectations of a mid-year slowdown.

Sustained strength in the labor market, resulting in employment gains and positive real income growth, is driving this improvement. Despite challenges posed by labor shortages, many firms have continued to retain their workforce, thereby contributing to economic stability. The forecast of the upward growth trajectory hinges on the assumption that the Federal Reserve will commence interest rate reduction starting in

June 2024 as the effects of keeping rates higher for longer are becoming apparent, and inflation approaches the Banks 2% target over the summer. This is likely to prompt a series of rate cuts aimed at bringing monetary policy rates closer to a more neutral level by 2025. The 2024 forecast for Europe signals a modest improvement following a narrow escape from recession in 2023, during which the Euro Area experienced a shallow downturn. Projected re-acceleration in the latter half of 2024 relies significantly on rate cuts by the European Central Bank (ECB) and a broader global economic recovery that boosts exports. While the Euro Areas Composite Purchasing Managers

Indices have shown some improvement recently, signaling contracting activity, they point to a more substantial rebound in the UK. Anticipated rate cuts by the Bank of England, expected by summer, are likely to support and sustain this momentum.

Other developed economies are poised to demonstrate a gradual upswing in growth momentum, with an increase from 1.5% in 2023 to 1.9% in 2024 and a further rise to 2.3% in 2025. The growth acceleration in 2024 is propelled by stronger momentum in countries like South Korea, Singapore, Taiwan, and New Zealand, which offsets slower growth in Canada, Australia, and Hong Kong.

Emerging Markets and Developing Economies

Shifting the spotlight to emerging markets and developing economies, a stable growth rate of

4.2% is anticipated for 2024 and 2025 as against a growth of 4.3% in 2023. Within an emerging and developing Asia, a slight decline in growth rate is foreseen, primarily attributed to Chinas economic performance. Chinas growth, propelled by increased government spending on capacity building against natural disasters, is projected to reach 4.6% in 2024, gradually tapering to 4.1% in 2025. In contrast, India is poised to maintain robust growth rate, registering 6.8% in 2024 and 6.5% in 2025. On the contrary, in Latin America and the Caribbean, growth is projected to decline in 2024, before rising in 2025, with varying trends being witnessed among major economies in the region. The Middle East and Central Asia are expected to see a spurt in growth in 2024 and 2025, buoyed significantly by Saudi Arabias robust economic landscape. Sub-Saharan Africa is also expected to witness an uptick in growth as the adverse effects of weather shocks diminish and supply constraints ease.

Inflation

Anticipated to decrease significantly in 2024 and 2025, inflation presents a stark contrast to the scenario in 2022, before beginning to decline. A multitude of factors were driving the inflation, including the repercussions of the Covid-19 pandemic, disruptions in supply chains, and rising energy prices. Cut to the present, continuing with the downward trend, headline inflation is forecasted to drop from 6.6% in 2024 to 3.8% in 2025. Furthermore, core inflation in advanced G20 economies is expected to ease to 2.5% in 2024 and further to 2.1% in 2025. This downturn can be attributed to positive developments on the supply side, the implementation of tighter monetary policies, and a decrease in inflation expectations.

However, despite these forecasts, concerns persist regarding the containment of underlying price pressures. Although labor market conditions have improved, elevated unit labor cost poses challenges to achieving medium-term inflation objectives.

Geopolitical tensions present significant near-term risks to both economic activity and inflation, with escalating conflicts in regions like the Middle East having the potential of disrupting energy markets. Moreover, persistent pressure on service prices may unexpectedly drive inflation higher, subsequently triggering adjustments in financial markets as expectations of monetary policy easing are re-evaluated. Additionally, if the impacts of previous increases in policy rates are stronger than expected, it could also result in weaker growth than what was projected.

Given these considerations, monetary policy must remain prudent to ensure sustained containment of inflationary pressures. there may be room to lower policy interest rates as inflation declines, a generally restrictive policy stance is likely to persist across major economies for the foreseeable future. This approach aims to strike a balance between supporting economic recovery and managing inflation risks effectively.

Outlook

The declining downside risks to growth in major global economies signal a more positive outlook.

This shift is fueled by improving growth prospects for key players such as the US, China, and India, which are expected to positively influence the global economy. While a slowdown is forecasted for the US in the middle quarters of 2024, a recession is not anticipated, and recent updates have moderated the severity of the expected slowdown. However, Europe, particularly the Euro Area, remains most vulnerable to potential setbacks that could prolong or deepen its recession.

The factors increasing the downside risks to global growth include higher interest rates compared to historical levels, ongoing labor shortages, trends toward de-globalization, and the financial costs associated with transitioning to cleaner energy sources. Moreover, housing supply constraints, potential financial crises stemming from global monetary policy tightening, risks related to sovereign debt levels, and persistent geopolitical uncertainties also elevate the propensity of a global economic slowdown.

The Indian Economy

The projection as announced by RBI Governor

Shaktikanta Das during the Monetary Policy Committee (MPC) meeting on 5th April, 2024, the forecast indicates expectations of sustained robust economic expansion for the Indian economy. The first quarter of FY 2024 anticipated to achieve a GDP growth rate of 7.1%, a slight adjustment from the previous estimate of 7.2% made in February, 2024. Subsequently, the GDP growth forecast stands at 6.9% for the second quarter, and 7% for both the third and fourth quarters. The second advance estimates (SAE) reveal that the real GDP growth for FY 2023-24 reached 7.6%, marking the third consecutive year of growth at

7% or higher. This robust economic performance stems from a host of factors, including a rebound in private consumption, increased investment activity, and a recovery in exports. Moreover, the revisions in GDP growth reflect enhanced

Government capital expenditure and strong manufacturing activity. The economy displays a balanced momentum in both demand and supply dynamics. While, positive trends in

GST collections, rising auto sales, consumer optimism, and strong credit growth, showcase resilient urban consumption demand, expanding manufacturing and services PMIs signal robust momentum on the supply side.

Turning to inflation, uncertainties in food prices continue to weigh on the inflation trajectory. Cost push pressures faced by firms are seeing an upward bias after a period of sustained25is moderation. Deflation in fuel is likely to deepen in the near term, following the cut in LPG prices in March, 2024. Notwithstanding the drop in petrol and diesel prices in mid-March, the recent uptick in crude oil prices needs to be closely monitored. Persisting geo-political tensions also pose upside risk to commodity prices and supply chains. Assuming a normal monsoon, CPI inflation for FY 2024-25 is projected at 4.5%, with first, second, third, and fourth quarter 4.9%, 3.8%, 4.6, and 4.5%, respectively.

The Indian economy is witnessing a traction in the investment cycle, aided by a sustained thrust on Government capex. Such efforts have led to an increase in capacity utilization, and flow of resources to the commercial sector, further aided by the support from the Production Linked Incentive (PLI) scheme, among others. As of September 2023, investments of nearly 95,000 Crores have materialized under the PLI schemes. These investments have resulted in the production of goods worth 7.80 Lakh Crores and the creation of direct and indirect employment for over 6.4 Lakhs. Additionally, the PLI schemes have led to exports surpassing 3.20 Lakh Crores.

The various sectors contributing to these exports include large-scale electronics manufacturing, pharmaceuticals, food processing, and telecom and networking products. A revival in private corporate investment is also underway, with both services and infrastructure firms being optimistic about the overall business conditions.

In addition, net external demand is on the rise, with narrowing merchandize trade deficit. Moreover, the Government has allocated a significant proportion toward infrastructure development in the interim Union Budget for

FY 2024-25, with a proposed infrastructure capital outlay of 11.11 Lakh Crores for FY 2024-25. This move aims to spur private investments across various sectors like railways, roads, and renewableenergy. ordable housing to all citizens, which aff

Outlook

Over the past three years, Indias economy has demonstrated remarkable resilience and sustained growth despite facing challenges in the global economic landscape. This robust trajectory is attributed to a combination of stringent policy and regulatory measures, as well as the gradual resurgence of the private sector. Positioned on the cusp of further economic advancement, the nation is propelled by significant investments in emerging sectors, ongoing government spending, and efficiency gains resulting from advancements in digitalization and infrastructure development. Looking ahead to the next fiscal year, a note of caution is warranted, with GDP growth expected to moderate to 6.8%. This anticipated slowdown reflects the impacts of elevated interest rates and constrainedfiscal policy the deficit to 5.1% of GDP. However, despite these challenges, the vibrancy of Indias economy remains intact, supported by factors such as the strengthening of consumer purchasing power due to disinflation, anticipated robust agricultural outputs, and a resurgence in private capital expenditure.

Furthermore, government initiatives aimed at bolstering rural incomes and increasing infrastructure spending further solidify Indias position as the fastest-growing major economy globally. Despite the anticipated moderation in growth, Indias economic outlook remains positive, underpinned by its strong fundamentals and ongoing efforts to promote sustainable and inclusive growth.

The Indian Paints Industry

The Indian paints industry, valued at USD 9.56 billion in 2024, continues on a promising trajectory. Primed for substantial growth in the forecasted period, with a projected Compound

Annual Growth Rate (CAGR) of 9.38% from 2024 to 2029, the paints industry is supported by key Government initiatives. For example, ‘Housing for All and ‘Make in India campaigns are driving urbanization, real estate, and infrastructure development across the country, boosting the prospect of the paints industry.

The ‘Housing for All initiative aims to provide has led to increased construction activities and demand for paints and coatings in the residential sector. Similarly, the ‘Make in India campaign encourages domestic manufacturing and investment in various sectors, including infrastructure, automotive, and consumer goods, further bolstering demand for paints and coatings used in these industries.

By stimulating construction and renovation activities, these Government initiatives cultivate advantageous conditions for the growth of the paint industry. With urbanization on the rise and disposable incomes increasing, there is a growing inclination toward aesthetically pleasing and durable paints, driving the demand for premium and specialized coatings in both residential and commercial segments.

Overall, the Indian paints industry is poised for significant growth on the back of favorable

Government policies, infrastructure development initiatives, and evolving consumer demands for sustainable and innovative paint solutions across various end-use sectors.

Outlook

The Covid-19 pandemic and its aftermath have played a major dampener for the Indian paint industry, with economic uncertainties and slowdowns in key sectors such as real estate, construction, and automotive leading to a stark decline in paints demand. Construction projects were either put on hold or delayed, adversely affecting the need for both decorative and industrial paints. However, with gradual resumption of economic activities and restarting of construction projects, a promising recovery in the demand for paints has been observed, particularly from the construction and real estate sectors.

Despite this recovery, several challenges persist in the market. Fluctuations in raw material prices pose a continuous threat, while stringent environmental regulations, continue to impact production processes and product formulations.

Notwithstanding these challenges, certain trends and opportunities are boosting the prospect of the Indian paints industry. The revival of demand from the construction industry, coupled with a recovering automotive sector, is bolstering growth. Additionally, technological advancements like the integration of nanotechnology in paints and coatings are opening up new avenues for innovation, while enhancing performance.

The adoption of nanotechnology allows for improved durability, anti-corrosive properties, and superior adhesion, thereby increasing the appeal of paints and allied products to various sectors. Another notable opportunity lies in the rising demand for eco-friendly paints. With growing awareness regarding environmental sustainability and health concerns, there is a shift toward paints that have lower VOC content and manufactured using sustainable practices. This trend aligns with regulatory efforts aimed at minimizing environmental impact.

Looking ahead, the Indian paints industry stands at a critical juncture, ready to overcome the hurdles that lie ahead, while harnessing the potential opportunities that emerge. With a strategic approach to leverage these opportunities, the industry charts a course toward robust growth and resilience in the years to come. This proactive positioning drives sustainable development, and ensures that the evolving needs of both consumers and industries are met with agility and innovation.

REAL ESTATE SECTOR GROWTH

The demand for paints is closely linked to the real estate sector, which commands a significant portion of the total market demand. Factors such as the growing housing sector, burgeoning demand for repainting, and increasing aspirations among people are major growth drivers for the paint industry.

INFRASTRUCTURE DEVELOPMENT

Government-led infrastructure projects and affordable housing initiatives, including the Pradhan Mantri Awas Yojana (PMAY), are fueling the demand for paint in both residential and commercial construction sectors. These initiatives provide substantial opportunities for the paint industry by improving housing conditions and creating new infrastructure across the country.

URBANIZATION AND CONSTRUCTION ACTIVITY

The booming construction sector in India propel the demand for paints and coatings. Growing urbanization and commensurate expansion in infrastructure projects drive a surge in construction activities, leading to increased demand for paints for both interior and exterior applications.

GOVERNMENT INITIATIVES AND POLICIES

Government incentives, tax benefits, and subsidies for the construction and real estate sectors indirectly assist the paints industry by stimulating construction activity. Policies promoting eco-friendly products and increased emphasis on minimizing environmental footprint of the paint industry have also influenced the market dynamics.

Company Overview

Kamdhenu Ventures Limited (hereon referred to as ‘Kamdhenu Ventures or ‘KVL or ‘The Company) is a newly formed entity branching out from the renowned business conglomerate

‘Kamdhenu Limited. Specializing in decorative paints, the Company offers a diverse range of products through its wholly owned subsidiary,

Kamdhenu Colour and Coatings Limited (KCCL), together referred to as ‘Kamdhenu Paints. Originating from North India, Kamdhenu Paints has rapidly ascended to prominence as one of the leading paints companies in the country.

Its products are widely accepted across various market segments, encompassing Tier-1, Tier-2, and Tier-3 cities, as well as urban areas, towns, and rural regions. The Companys cutting-edge production facility is located at Chopanki, Bhiwadi, in the state of Rajasthan, showcasing indigenous manufacturing excellence. Kamdhenu Paints hosts a wide array of offerings that include exterior & interior emulsions, water-based primers, wood finishes, textured & designer paints, and construction chemicals. Leveraging top notch equipment and state-of-the-art technologies in its production lines, it ensures premium quality paints. Offering a comprehensive suite of coloring solutions, promising unparalleled experience and satisfaction for customers, it strives to create their dream homes with the perfect color palate. Kamdhenu Paints has an in-house capacity of 36,000 KL p.a. with a sales potential of 450

Crores, including a range of premium and regular products. Additionally, it has an outsourcing capacity of 50,000 KL p.a with a sales potential of 150 Crores, that include a range of economy products. The Company has modern automation processes, advanced research and development laboratories, and strict quality control measures to unlock the full potential of its paint production, ensuring the delivery of high-quality products that consistently meet customer expectations. Kamdhenu Paints growth trajectory is on upward swing, boasting over 40 SKUs across more than 10 product categories and a vast network of over 4,300 dealers. Furthermore, a registered painter base exceeding 20,000, with over 5,000 actively procuring painters, supported by 34 sales depots across the nation, is consistently adding fuel to its growth endeavors. Kamdhenu Paints deployed a subtle entry strategy in initial years, concentrating on affordable variants like powder-based paints, putty, and distempers, among others, to establish trust and loyalty within its dealer and painter network. Having attained rapid growth and solidified relationships with dealers nationwide, the Company shifted its focus to prioritize premium offerings, gradually phasing out low-priced dealers in favor of premium ones. Through innovative ideas such as designer galleries, rewarding schemes & incentives and a refreshed branding & advertisement campaign, the

Company has successfully captured 43% share of the premium product market and expanded its dealer network to over 4,300.

The Company continues to emphasize on strategic planning to forge partnerships with numerous new dealers across India, augmenting its production capabilities. Stimulated by multiple growth drivers, Kamdhenu Paints stands poised to capitalize on its agility, innovation and scale, while serving existing and new customers with utmost efficacy.

Well-Entrenched and Highly Incentivized Dealer Network

Kamdhenu Paints capitalize on the potential of North and East India to amplify sales volume, tapping into the rich network of established dealers in these regions. The current distribution of dealers in other areas exceeds their revenue contribution, indicating substantial room for growth in sales volume with existing investments.

Better understanding of various mini-markets, presence in all key states and strong track record

Kamdhenu Paints maintains its persistent commitment to enhancing the premiumization of its product portfolio, with revenue from water-based products surging from 58% in FY 2014-15 to 85% in FY 2023-24. On the contrary, the Company has reduced its reliance on powder-based products which accounted for 20% of revenue in FY 2014-15, but comprised only 6% as of FY 2023-24.

The revenue breakup and average selling price in the diagram above for the FY 2014-15 is obtained from the paint segment of Kamdhenu Limited which got demerged into Kamdhenu Colour and Coatings Limited. Leveraging this strategic decision-making, Kamdhenu Paints effectively increased the average selling price per liter from

Rs. 58 in FY 2014-15 to Rs. 90 in FY 2023-24, registering a surge of more than 55%.

with existing dealers are going to propel the next phase of dealer addition. Kamdhenu Paints holds a prominent footprint in Indias Tier-1, Tier-2, and Tier-3 cities, facilitated by its 34 strategically located sales depots. This adept positioning enables Kamdhenu Paints to effectively majority of its customer base situated in these urban centres, encompassing approximately

70% of Indias urban population. Going forward, the Company aims to target the entire customer base within this region and extend its reach to rest of the country.

Robust Tinting Infrastructure

Kamdhenu Paints currently operates more than 1,400 active tinting machines, installed at dealer outlets. These machines efficiently blend colorant from technology-driven tinting systems with paint bases, thus enabling the creation of a diverse range of shades. The tinting infrastructure implemented by the Company has resulted in the optimal utilization of the existing capacity. The benefits of the tinting infrastructure include:

Slashing space for handling and storage of paint inventory Financial Performance

Kamdhenu Ventures financial during the year under review is as follows: The revenue of the Company on a consolidated basis for the FY 2023-24 stood at Rs. 29,171 Lakhs, while the Company made a profit ofRs. 1,385 Lakhs. The revenue of the Company on a standalone basis for the FY 2023-24 amounted to Nil, while the Company booked a loss of 32 Lakhs.

The net worth of the Company on the standalone basis was recorded at Rs. 15,576 Lakhs as on 31st March, 2024. The net worth of the Company on the consolidated basis attained Rs. 15,935 Lakhs as on 31st March, 2024.

Since the entire paint Business was transferred to Kamdhenu Colour and Coatings Limited, the wholly Owned Subsidiary Company pursuant to the Scheme of Amalgamation, the ratios on a consolidated basis are given below to give a clear understanding of the paint business:

Risk Management

Kamdhenu remains committed to adopting an extensive and transparent risk management framework, aimed at mitigating the impact of various risks faced by the Company. The establishment of a dedicated Risk Management Committee underscores this commitment, tasked with formulating and implementing a robust Risk Management Policy. This policy is designed to identify internal and external risks faced by KVL, encompassing financial, operational, sectoral, sustainability (particularly, ESG related risks), information, cybersecurity risks and any other risks deemed pertinent by the Committee. Additionally, the Risk Management Committee diligently ensures the adaptability and usage of appropriate methodology, processes and systems to monitor and evaluate risks associated with the Companys operations. The risk factors and the mitigation measures are listed below:

Human Resources

Pursuant to the Scheme of Arrangement, the entire paint Business was transferred from Kamdhenu

Limited to Kamdhenu Colour and Coatings Limited, the wholly Owned Subsidiary Company of Kamdhenu Ventures Limited. The Kamdhenu paints attributes its success to the talent, expertise, and dedication of its workforce. The Kamdhenu paints upholds Human Resource policies designed to improve employee job satisfaction and boost productivity. It values and honours each employee, offering opportunities that align with their skills. Kamdhenu paints strives to maintain a mutually beneficial relationship with its employees, fuelled by the synergy of its valued team members. Kamdhenu Paints recruitment strategy focuses on hiring qualified candidates with the required skill set and determination. Its employee-centric policies encompass industry benchmarked compensation, robust learning and career development opportunities, regular performance appraisals, and empathetic health and safety initiatives, fostering a culture where employees are motivated to excel. Through these measures, the Company positions itself to retain top talent in a fiercely competitive market. With a strong emphasis on work-life balance, Kamdhenu Paints enables employees to meet their commitments, while minimizing turnover and maximizing productivity. By prioritizing the need of the employees, the Company ensures a positive work culture across the organization, enabling employees to work comfortably, efficiently, and contribute effectively to the success of the business.

Internal Control System

Kamdhenu maintains a system of internal control, commensurate with the nature and size of the Companys operations, encompassing all aspects of its operational and functional areas. This includes a dedicated compliance management team, entrusted with establishing policies, norms, and practices, as well as the applicable statutes, rules, and regulations. Furthermore, the system includes checks and balances to promptly address any deviations from the standards and parameters, set. Periodic reviews of the effectiveness and efficiency of internal control systems are conducted, allowing for necessary adjustments to meet evolving business requirements. Additionally, the Company also continuously reviews its systems, processes, and controls to compare and align them with the industry best practices.

Cautionary Statement

The statement in the Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, and expectations may be forward-looking statements within the meaning, if applicable, of securities laws and regulations. Although the Company believes that its expectations are based on reasonable assumptions, these forward-looking statements may be influenced by numerous risks and uncertainties. This could cause actual outcomes and results to be materially different from given or implied details. Important factors that could influence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in Government regulations, tax laws, and other factors such as litigation and industrial relations. The Company is not responsible in respect of the forward-looking statements herein, which may undergo changes in the future based on subsequent development, information, or events, and holds no obligation to update these in the future.