Kanchi Karpooram Ltd Management Discussions

Annexure - 4

We, the Board of Directors, present its analysis covering performance of the Company for the financial year 2023 -24 and the business outlook for the future. The business outlook performance is based on the current business environment and do not include any economic variation.

Industry structure and developments

Camphor can be produced by natural and synthetic way. Natural camphor is produced from the Camphor tree oil which contains natural camphor, a white crystalline powder with a distinctive penetrating pungent and fragrant odor. With the growing known uses of camphor in chemical industries, the prices of the natural raw material source soared and this eventually led to the development of synthetic camphor.

Synthetic camphor is produced from alpha-pinene, which is abundant in the oils of coniferous trees and can be distilled from turpentine produced as a side product of chemical pulping. Synthetic camphor is often made from camphor tree concentrates and is produced by chemical combination through esterification, saponification, and oxidation process. Turpentine oil is a key raw ingredient used in the production of synthetic camphor.

Due to extensive usage of Camphor across various sectors like pharmaceuticals, personal care products, growing awareness of the benefits of natural ingredients, cosmetics, fine chemistry procedures and chemical industry, and industrial applications, the camphor market has witnessed steady growth over the years.

High consumption of camphor tablets for religious rituals in India is another factor boosting market growth for camphor tablets. In India, camphor is also used as an essence in some sweet dishes.

Demand for synthetic resin is growing fast due to its applications in flexible packaging and automotive sector Growth of Flavor & Fragrance (F&F) and nutraceutical sector is driving demand for aroma chemicals significantly.

The camphor market in the Asia-Pacific region is expected to grow the fastest from 2023 to 2032, with India being the fastest growing market in the region. The major market players are investing heavily in research and development in order to expand their product lines, which will help the camphor market grow even more.

In the future years, the pharmaceutical industrys steady grwowth is likely to generate numerous chances in the worldwide camphor market.

Opportunities and Threats

Camphor is a terpene that is commonly used in creams, ointments, and lotions. Camphor oil can be used topically to relieve pain, irritation, and itching. Camphor is also used to relieve chest congestion, cough-related remedial products and inflammatory conditions. Camphor market is also expected to occupy a major share due to increase in scope of applications of plastics in the production of celluloid and PVC plastics, repellent in agriculture, as a solvent in chemicals, and in rubber. Camphor is used in the production of cellulose nitrate, polyvinyl chloride, and polymers. It is also used as a medication, antiseptic, and bug powder. Synthetic camphor can also be used to improve ballistic qualities as a stabilizer and moderator in smokeless powder. Such a wide range of application provides the Company a wide opportunity to have a positive impact on global camphor market share growth. The Company is one of the pioneers in manufacturing synthetic camphor and among largest manufacturers of camphor in India.

Due to the factor that the extraction of oleoresin from pine trees is a very labor-intensive, the cost of turpentine has considerably been fluctuating. Hence, being the main raw material required for the production of synthetic camphor and needs to be imported, the price factor and the exchange variation may have adverse effect.

Various stringent regulations govern the production and usage of camphor and the industry is subject to regulatory and environmental considerations. Regulations on the sourcing of raw materials, production processes, and waste disposal have impacted the industrys operations. Various other factors like cheaper imports from China, competition from unorganized players, geopolitical tensions impacting export, lack of adequate research and development in the sector, raw material price volatility, FMCG slowdown poses as a challenge to the growth of the domestic camphor market in India. However, the Company has developed innovative product formulations, made technological advancements and strategic collaborations which presents opportunities to the Company to overcome these challenges and expand its market presence.

Product -wise Performance

Camphor

Camphor is the primary product of the Company which contributes to 76.88% of sales. Due to its varied domestic applications, it presents an opportunity to explore other modern trading means.

Dipentene

Dipentene is a byproduct in Camphor manufacturing and is used in paints industry as a solvent. It is used to dissolve rosin, waxes, and rubber. It can also be used as a dispersing agent for oils, resins, paints, lacquers, varnishes, floor waxes, and furniture polishes. It is often used as a flavoring and fragrance agent, and as a substitute for citrus D-limonene. As there is supply shortage of D-limonene, market for Dipentene has been increasing year on year.

Isoborneol

Isoborneol is commonly used as a fragrance and flavor agent and its usage across the world has led to accelerated consumption in aromatherapy and well-being.

The Company anticipates an increase in volume, revenue and profitability in other by products such as Gum rosin and Rosin Derivatives in the years ahead. The Company is confident to enhance the margin and volume in the coming years in other byproduct categories, both in domestic and international markets.

Outlook

The Company has strategically invested to augment the ever- growing demand for its products and is focused on efficient capacity utilization. Being a highly competitive industry, the Company has carved a strong market for its product with sustainability as its mantra where all the stakeholders are equally benefitted.

Risks and Concerns

No organization is risk free and a Company with a bigger market share has higher risks. Some of the key risk factors that are concerning to the Company are:

General risks:

The Foreign Exchange fluctuations may have adverse effects as your Company imports huge raw materials.

Operational risks:

Fluctuations in the price of the main raw material may have an impact in the demand and supply gap and may pose a challenge to the Companys competitive position.

Financial risks:

Your Company needs to import raw materials at appropriate time, which warrants sizable working capital with a conscious approach to the degree of risk in terms of procurement of raw material keeping in view of the finance available.

Regulatory and Legal risks:

Various regulations imposed by the Central, State, local bodies as applicable to the Company needs complied with at those prescribed time frame and non-compliances can result in substantial fines, sanctions etc.

Competition risks:

The Camphor industry is highly competitive and any loss in the market share would impact the financial results of the Company. The pioneering knowledge of the management in the Camphor industry averts this risk for the Company.

Risk management:

The Company monitors, analyses and assesses various parameters of these risks and has placed efficient strategic measures which are in line with normal industrial practice.

Internal Control Systems and their adequacy

The Company has established an efficient internal controls and audit procedures, commensurate with its size and nature of its operations. This is further strengthened by the Internal Audit done concurrently whose findings are discussed by the Board of Directors to address and act upon the observations made thereunder.

Besides, the Company has an Audit Committee, comprising Non-Executive Directors, to monitor its financial systems, controls, management and operations.

Discussion on financial performance with respect to operational performance

The financial year 2023-24 has been challenging, with the Company posting a reduced standalone revenue from operations of Rs. 12,712.41/- Lakhs compared to Rs. 20,535.15/- Lakhs during the financial year 2022-23. At consolidated level Revenue from operations for the financial year 2023-24 stood at Rs. 14,563.56 Lacs, as against Rs. 21,985.86 Lakhs in financial year 2022-23. Decreased revenue was due to continuous variations in sales price of camphor in in the financial year 2023-24 and increased competition in the domestic market.

Managerial Developments in Human Resources and Industrial Relation

The Company believes that the Employees are the vital assets and their active continuity with the Company during a dynamic, challenging and competitive environment is the objective that the Company focuses on. The Company aims to match the individual needs with those of the organization and provide internal support so both can accomplish their goals. This entails creating a growth culture with programs and policies that promote up-skilling and development.

Number of people employed and on the payrolls of the Company is 116 as on 31st March 2024.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore, including:

PARTICULARS	2023-24	2022-23
A: Profitability ratios
Operating Profit Margin	4.53%	10.77%
Net Profit Margin	1.14%	6.89%
Return on Equity	0.73%	7.39%
B. Ratio for Assessing Financial Health
Capital Turnover Ratio	0.99%	1.52
Fixed Assets Turnover Ratio	2.51%	3.87
Inventory Turnover Ratio	1.43%	2.58
Debtors Turnover Ratio	8.63%	10.01
Current Ratio	20.21%	31.11
D: Earnings and dividend ratio
Dividend percentage	10%	10%
Earnings per Share	3.34	32.57
Book Value Per share	476.52	455.96

In accordance with the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018, the Company is required to give details of significant changes (change of 25% and more as compared to the immediately previous financial year) in key financial ratios.

Ratios where there has been significant change from Financial Year 2022-23 to Financial Year 2023-24

(i) Current Ratio and Net capital turnover ratio:

The profits earned by the company during the year have been invested in short term fixed deposits with banks and financial institutions leading to increase in the current asset. Hence increase in the ratio.

(ii) Return on equity, Return on capital employed and Net profit Ratio:

Market driven fluctuations in camphor and raw material prices have affected the profitabitability adversely. Hence resulting in decrease in profitability ratios.

(iii) Inventory turnover ratio, Trade payable turnover ratio:

Reduction in inventory turnover ratio and trade payable turnover ratio is the combined effect of decrease in key raw material prices and inclusions of land held for real estate development purposes as part of inventory.

(iv) Return on Investment ratio:

Combined effect of increase in average maturity of the fixed deposit and investment into products of better yield.

(v) Trade receivable turnover ratio:

Combined effect of sales and trade receivables outstanding due to reduction in sales prices.

Any change in networth as compared to the immediately previous financial year along with a detailed thereof:

The networth of the Company as of 2022-23 was 7.94% as against 0.93% in the year under review. The reason for the change is due to market driven fluctuations in camphor & raw-material prices which has affected the profitability ratio and return in networth.

Cautionary Statement

The Management Discussion and Analysis Report contains forwarding looking statements based upon the data available with the Company, assumptions with regard to global economic conditions, the Government policies etc. The Company cannot guarantee the accuracy of assumptions and perceived performance of the Company in future. Therefore, it is cautioned that the actual results may materially differ from those expressed or implied in the report.

		For and on behalf of the Board of Directors
		KANCHI KARPOORAM LIMITED
	Dipesh S Jain	Suresh Veerchandji Shah
Place: Chennai	Managing Director	Managing Director
Date: 3rd September 2024	DIN:01659930	DIN: 01659809