Kothari Petrochemicals Ltd Management Discussions

<dhhead-MANAGEMENT DISCUSSION AND ANALYSIS</dhhead-

Industry Structure & Development :

Polyisobutylene (PIB) is a liquid Polymer made from Isobutylene, this polymer is used in many applications such as Lubricant additive, Transmission & Internal Combustion Engines, Adhesives, Sealants, Rubber Chemicals, Explosives & Personal Care / Cosmetics. The automotive segment uses PIB as a fuel additive as well as a lubricant additive, either directly or in formulation packages, this category generally demands large volumes of PIB. This Polymer helps to complete the combustion of the fuel when it is added, leaving behind less unburnt hydrocarbons. It improves the performance of dispersants when used in their formulations. Our product is well placed in the adhesive and sealant segment, we have established ourselves with a broad number of customers both locally and abroad. The plastic master batch segment and cosmetic / personal care segment are high growth segments and will be in a key focus for your Company to establish a leadership position in a fragmented & unchanged market. Our product offers a competitive alternative to silicone & paraben formulations in the personal care and cosmetic segments which is an emerging trend in this space.

PIB is an inert polymer in nature but will react with other chemicals under certain conditions to give various derivatives to target specific end usages. PIB is available in many variants and molecular weights around the world our company is focused on specific band of product offerings which would classify your Company as a Low Molecular Weight PIB producer.

Due to various geopolitical issues across the globe, your company has found opportunities in foreign markets, which we have aggressively targeted. Certain competitors have had issues running their plants due to situations that pertaining to their geography. Thier inability to supply has given our company a strong customer driven growth for expansion with some pricing power. These instances have given your company a great opportunity to capture a significant share ofthe market.

Outlook :

Kothari Petrochemicals Limited (KPL) remains the sole manufacturer of PIB in India for the year 2023-2024, satisfying approximately 91% of the domestic demand for conventional PIB. There was a substantial increase in consumption of PIB in India by 15% in FY23-24, which was also fulfilled by KPL. This is set to continue for the near future.

Continuing to serve as a dependable PIB supplier, KPL has established its presence in China and the Southeast Asian market through its well-established supply chain management. With increased production capacity and enhanced product quality, KPL has significantly expanded its customer base overseas. Additionally, the company is exploring the feasibility of establishing stock points in select regions to ensure consistent product availability.

Opportunities :

Anticipating a rise in demand for higher molecular weight PIB as a viscosity modifier, KPL is committed to leveraging this opportunity. Insights gathered from discussions with customers, end consumers, and stakeholders indicate substantial growth potential for PIB demand in the sealant and adhesive segment going forward.

The master batch segment has experienced notable market response, with year-on-year exponential growth facilitated by efforts to establish a robust distribution network PAN - India through our dealers.

Numerous derivatives of PIB enjoy widespread global use, and our company remains dedicated to developing application-based products tailored to these segments.

The advancement in automation & robotics in industrial usage indicates a rise in demand for lubricant oils for their operations, which will drive PIB demand.

Risks, Concerns & Threats :

KPL currently relies on nearby refineries and another source on the western coast for raw materials. While a lack of proprietary raw material sources poses a risk, existing supply arrangements are supported by long-term contracts.

Quality inconsistencies in refinery supplies and extended payment terms from overseas customers pose concerns, particularly regarding foreign exchange risks tied to monthly fluctuations in raw material pricing.

Despite KPLs presence in Chinese and Asian markets, stiff competition persists from manufacturers in Korea, Japan, and China.

Global PIB demand has remained steady, driven partly by uncertainties in the availability of specific grades of refinery base oil. Logistics challenges such as vessel availability and fluctuations in ocean freight rates have eased compared to previous years. Lessons learned during the pandemic have enabled us to collaborate closely with key customers to navigate supply chain bottlenecks, implement robust business continuity plans, and ensure customer satisfaction and product reliability.

While electric vehicle adoption has surged, direct or indirect usage of PIB in automotive segments has remained stagnant. However, PIB continues to be vital in the lubricant segment, essential for electric vehicles, heavy motors, railways, marine engines, and metal working fluids, with further growth anticipated.

Despite global economic instability, the relatively strong position of the Indian economy prompted us to hedge exports against currency fluctuation risks.

Tensions between Russia and Ukraine have disrupted the global oil market, leading to volatility in prices and impacting supply-demand dynamics in the European region. Additionally, Europes decision to raise import duties by 3% for supplies from India has further affected sales realization in the region.

Internal Control Systems and their adequacy :

The Company has established a system of internal control across all its business operations and to safeguard its assets. Periodic Auditing of all key areas are taking place and the Audit report is being thoroughly reviewed by the Audit Committee / Board and the Management to ensure that the internal control system operates effectively.

Clear policies have been laid down for approval and control of expenditure. Investment decisions involving capital expenditures are subjected to detailed appraisal and review. Capital and revenue expenditures are monitored and controlled with reference to approved budgets.

Human Resources / Industrial Relations :

Our team is our most important resource and needs to be grown, managed and challenged correctly for success, stability and growth of our organization.

During the year, employees attended various in-house trainings - Technical and Soft skills as part of Employee Development Program.

During the year, industrial relations continued to be cordial, conducive, and mutually productive. The Companys Industrial Relations policy has been benchmarked to the manufacturing sector. This has helped to build a healthy relationship and resolve issues through mutual dialogue.

Total number of employees as on 31^st March 2024 was 177 in respect of petrochemical operations.

Operational Performance :

Financial Performance :

The Company has reported total Revenue from operations of Rs 60,313.72 lakhs for the year ended 31.03.2024 as compared to Rs 48,214.70 lakhs forthe year ended 31.03.2023. The Companys profit aftertax (PAT) forthe financial year 2023 - 2024 is Rs 6,378.41 lakhs as against Rs 3,917.69 lakhs in 2022 - 2023.

Key Ratios