Kriti Industries (India) Ltd Management Discussions

Global economy review

In 2023, global economic growth slowed to 3.1% from 3.5% in 2022, with Asia contributing disproportionately despite challenges like a weak Chinese recovery, sustained weakness in the USA, higher energy costs in Europe, and global consumer sentiment dampened by conflicts like the Ukraine-Russia war and the Red Sea crisis. Monetary policy tightening led to increased policy and interest rates for new loans. Advanced economies saw growth slow from 2.6% in 2022 to 1.5% in 2023 and 14% in 2024 due to policy tightening. Emerging markets and developing economies also experienced a modest growth decline from 4.1% in 2022 to 4.0% in 2023 and 2024. Global inflation is projected to decrease steadily from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024, aided by tighter monetary policy and lower international commodity prices, though core inflation decline is expected to be gradual. The US Federal Reserve raised interest rates significantly, reaching the highest level in over 22 years. Global trade in goods declined by nearly US$

2 Trillion in 2023, while trade in services expanded by US$ 500 Billion. The cost of Brent crude oil averaged US$ 83 per barrel in 2023, down from US$ 101 in 2022, partly due to Russian crude oil finding new markets outside the EU and global demand falling short of expectations. Despite challenges, global equity markets ended 2023 positively, with major benchmarks delivering double-digit returns, driven by declining inflation, a slide in the dollar index, falling crude prices, and expectations of rate cuts by central banks.

Regional growth (%)	2023	2022
World output	3.1	3.5
Advanced economies	1.69	2.5
Emerging and developing economies	4.1	3.8

Outlook

Asia is expected to continue to account for the bulk of global growth in 2024-25. Inflation is expected to ease gradually as cost pressures moderate; headline inflation in G20 countries is expected to decline. The global economy has demonstrated resilience amid high inflation and monetary tightening, growth around previous levels for the next two years (Source: World Bank).

Indian economy review

Overview

The Indian economy was estimated to grow 7.6% in the 2023-24 fiscal against 7.2% in 2022-23 mainly on account of the improved performance in the mining and quarrying, manufacturing and certain segments of the services sector. India retained its position as the fifth largest economy. The Indian rupee displayed relative resilience compared to the previous year; the rupee opened at H82.66 against the US dollar on the first trading day of 2023 and on 27 December was H83.35 versus the greenback, a depreciation of 0.8%.

In the 11 months of FY 2023-24, the CPI inflation averaged 5.4% with rural inflation exceeding urban inflation. Lower production and erratic weather led to a spike in food inflation. In contrast, core inflation averaged at 4.5%, a sharp decline from 6.2% in FY 2022-23. The softening of global commodity prices led to a moderation in core inflation. The nations foreign exchange reserves achieved a historic milestone, reaching US$ 645.6 Billion. The credit quality of Indian companies remained strong between October 2023 and March 2024 following deleveraged Balance Sheets, sustained domestic demand and government-led capital expenditure. Rating upgrades continued to surpass rating downgrades in H2 FY 2023-24. UPI transactions in India posted a record 56% rise in volume and 43% rise in value in FY24.

Growth of the Indian economy

	FY 21	FY 22	FY23	FY24
Real GDP growth (%)	-6.6%	8.7	7.2	7.8 E

E: Estimated

Growth of the Indian economy quarter by quarter, FY 2023-24

	Q1FY24	Q2FY24	Q3FY24	Q4FY24E
Real GDP growth (%)	8.2	8.1	8.4	8 E

(Source: Budget FY24, Economy Projections, RBI projections, Deccan Herald)

In 2023, India faced a challenging monsoon, experiencing a five-year low in rainfall, with August being exceptionally dry, receiving only 94% of its long-term average rainfall. Despite this, wheat production was anticipated to reach a record 114 million tonnes in the 2023-24 crop year, while rice production was expected to decline to 106 million metric tonnes due to adverse weather. Kharif pulses production was estimated lower than the previous year due to climatic conditions.

Economically, India saw growth across various sectors. The manufacturing sector output was projected to grow by 6.5%, compared to 1.3% in the previous year, and the mining sector by 8.1%. Financial services, real estate, and professional services were estimated to grow by 8.9%. Real GDP was estimated at H171.79 Lakh Cr, with a growth rate of 7.3%, while nominal GDP was at H296.58 Lakh Cr. Nonperforming assets in scheduled commercial banks decreased to 3.2%.

Indias exports stood at US$ 778 Billion, with increases in direct tax and GST collections. Despite challenges, the agriculture sectors growth was projected at 1.8%. Other sectors, like trade, hotel, transport, communication, and broadcasting, were expected to grow at a slower pace compared to the previous year. (Source: Business Standard)

India achieved significant milestones, emerging as the fifth- largest economy with a GDP of US$ 3.6 Trillion and a nominal per capita income of INR 123,945. Its stock market grew, becoming the worlds fourth-largest, and foreign investment in Indian government bonds surged. India maintained its ease of doing business ranking and saw a decline in unemployment to 3.2% from 6.1% in 2018.

Outlook

India withstood global headwinds in 2023 and is likely to remain the worlds fastest-growing major economy on the back of growing demand, moderate inflation, stable interest rates and robust foreign exchange reserves. The Indian economy is anticipated to surpass US$ 4 Trillion in 2024-25.

Union Budget FY 2024-25

The Interim Union Budget 202425 retained its focus on capital expenditure spending, comprising investments in infrastructure, solar energy, tourism, medical ecosystem and technology. In 2024-25, the top 13 ministries in terms of allocations accounted for 54% of the estimated total expenditure. Of these, the Ministry of Defence reported the highest allocation at H6,21,541 Cr, accounting for 13% of the total budgeted expenditure of the central government. Other ministries with high allocation included Road transport and highways (5.8%), Railways (5.4%) and Consumer Affairs, food and public distribution (4.5%).

(Source: Times News Network, Economic Times, Business Standard, Times of India)

Indian PVC market review

The Indian plastic pipes market (including polyethylene, polypropylene, PVC, etc) is expected to grow at 11% by FY 2024-25 on account of economic growth. Pipes are expected to remain the largest end segment in India, accounting for 75% of all PVC demand. Indias PVC demand is expected to continue its acceleration in the future with volumes expected to reach 4 million tonnes in FY 2023-24. This is expected to increase to 6 million tonnes by the end of the current decade.

Indias PVC production capacity is expected to remain stagnant at 1.6 million tonnes until 2024-25 it is expected to ramp up reaching 4 million tonnes by 2029-30. Consequently, India is expected to face a supply deficit until the end of the current decade, comprising at least 33% of its demand compared to 58% in 2023-24. Owing to Indias increased emphasis on infrastructure development and its aspiration to become a developed economy by 2029-30, the demand for PVC demand is expected to sustain its growth trajectory in the future.

(Source: polymer update.com)

Growth drivers of the polymer pipes industry

Macro environment changes in India: The governments budgetary outlay for infrastructure increased from around INR 3.7 Lakh Cr in FY 2022-23 to INR 5 Lakh Cr in FY 2023-24 is expected to drive the demand for downstream sectors leading to plastic pipes offtake. (Source: Invest India)

Rural and semi urban India: Strong traction in rural and semi-urban India on the back of rising incomes and government spending is expected to catalyse the demand of plastic pipes and fittings.

Smart cities and hotel: Growing investments in smart cities and hotels is expected to drive the demand of plastic pipes and building materials in general.

Affordable housing: The Housing for All scheme aims to provide homes for 1.18 Cr families by December 2024. The increased number of houses developed will play a pivotal role to escalate plastic pipes demand. From inception till 2023-end, 65.9% of 118 Lakh commissioned houses were completed under PMAY-U. (Source: Newslaundry.in, The Wire)

Jal Jeevan Mission: The government plans to provide pipe water supply to every household by 2024 with an estimated spend of H6 Trillion. This initiative is expected to drive the demand of plastic pipes and fitting across the country. As of March 2024, the initiative has covered over three-fourths of the rural household, it intends to cover by 2024-end.

Water supply and sanitation: The governments investments towards water supply and sanitation (WSS) and urban infrastructure projects to grow by 70% over the next five years. Increased investments in these downstream sectors are expected to drive sectorial growth for the plastic pipes and fittings industry.

Macro factors leading to growth in the polymer pipes industry

Low per capita consumption in India

The per capita consumption of Indian plastics stood is much lower compared to the global average of 30 Kgs. The per capita plastic consumption of major global markets such as China, Brazil, Europe and USA stand wide apart compared to India, signifying a headroom for growth.

Substitution and replacement demand

Plastic pipes enjoy a longer life and are economical, anti-corrosive and leakage free compared to the GI pipes. These increased advantages of plastic pipes make it a preferred option compared to the GI pipes, catalysing plastic pipe demand.

Government policies

Irrigation

Growth potential: Out of the total investments in irrigation, construction expenditure is estimated at 75%. The rise in construction activity is expected to lend support to the pipes and fittings industry.

Select government schemes: Har khet ko pani, More crop per drop, Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), Accelerated Irrigation Benefits Programme (AIBP) and dedicated micro irrigation funds to be set up by NABARD.

Construction (includes water supply and sanitation)

Potential: The government aims to build 29.5 million houses in rural areas and the launch of Toilets 2.0 campaign is expected to create a growth potential for the sector.

Select government schemes and initiatives: Housing for All, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Jawaharlal Nehru National Urban Rejuvenation Mission.

Key end user polymer pipe segments

Irrigation: The governments focus on advancing irrigation infrastructure has significantly increased the need for these pipes. They are crucial for irrigation and water supply projects undertaken by major public sector companies. Government schemes like the Pradhan Mantri Krishi Sinchayee Yojana (PMKSY), Accelerated Irrigation Benefits Programme (AIBP), and Command Area Development and Water Management (CADWM) aim to improve irrigation infrastructure.

The PMKSY has been extended until 2025-26 with an allocation of H93,068.56 Cr. (Source: PIB)

Real estate: Real estate is a major downstream sector consuming plastic pipes in India. The Indian real estate sector is valued at US$ 477 Billion and contributes around 7.3% to the national GDP The Indian real estate sector is experiencing a remarkable transformation, with luxury housing emerging as the dominant force shaping the industry landscape. The surge in demand for high-end properties is evident across major cities, redefining the traditional dynamics of the real estate sector. The surge in demand for high- end properties, coupled with favourable government policies and investment trends has positioned luxury housing as the driving force. Government initiatives such as Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) is expected to catalyse real estate offtake. The governments vision to provide piped water access across urban and rural household is likely to increase growth opportunities. (Source: fact checker.in)

Urban infrastructure: India is the largest and fastest growing geography in the CVPC market with 55% market share in 2023 compared

to a previous market share of 30% in 2015. This demand growth is attributed to the increasing CVPC adoption in internal plumbing application in India including adoption of the BIS standard for CVPC pipes and fittings and the coming up of new CVPC capacities. In India CVPC is used for fire sprinkler systems, industrial piping systems among other applications. The government has largely focused on urban infrastructure in the Union Budget 2023-24The government continued to focus on the affordable housing segment by increasing the capital outlay. The allocation of the Pradhan Awas Yojana (PMAY) has been increased by 66% to H79,000 out of which H25,103 Cr has been allocated to PMAY Urban, expediting the Housing for ALL programme. The government is implementing the PMAY-U Housing for All mission intended to address a totaL housing shortage of two Cr. (Sources: prnewswire.com)

Telecom: In 2023, the Indian teLecoms sector marked a significant miLestone with one of the fastest 5G rollouts covering, covering 738 districts and around 100 miLLion users. Telecom service providers gross revenue surpassed H3 Lakh Cr for the first time. Strong mobiLe data consumption and monetisation through tariff Led revenue growth remained in the top trends. Besides, the announcement of 100 test Labs in March 2023, underscore a strategic focus on Leveraging 5G technoLogy for appLications Like smart cLassrooms, precision farming, intelligent transport systems and heaLthcare aLigning with the vision viksit Bharat. Moreover, the Launch of 5G fixed wireLess access services bode weLL for the proLiferation of high-speed internet across the country. (Source: teLecom. economic times.com)

Gas: According to the InternationaL Energy Agency (IEA), Indias naturaL gas demand is set to grow by 4% in 2023 and rise at an average annuaL rate of over 8% tiLL 2026. FoLLowing a steep 6% decLine in 2022, Liquefied naturaL gas (LNG) imports in India increased by 8% in the first eight months of 2023 compared to the same period of the previous year. Primary gas suppLy increased by 2%. India is set to add over 20 BiLLion cubic metres (bcm) of naturaL gas. The industry is set to remain the Largest contributor to this growth, accounting for cLose to 40% of the totaL increase. Besides, the widening city gas distribution network is expected to emerge as one of the most potent drivers of the poLymer pipes sector going ahead.

Company overview

Kriti Industries specialises in producing plastic polymer piping systems, molded plastic products and associated accessories. The company has earned a prominent position within the industry due to its unmatched quality and reputation. The Companys focus Lies in the polymer segment, catering to agriculture, building products, micro-irrigation and infrastructure sectors.

The applications of the companys products include the following sectors:

Agriculture: RPVC pipe and fittings, casing pipe, PE coils, sprinkler systems, submersible pipe, suction and garden pipe.

Building products: SWR and drainage pipe and fittings, CPVC and plumb pipe and fittings, garden pipe and water tank.

Micro-irrigation: Micro-irrigation Lateral (inline and online), sprinkler systems, RPVC pipes and fittings.

Infrastructure and datacom: RPVC ring fit pipe (elastomeric) and fittings, HDPE and MDPE (PE) pipes and fittings, PLB telecom duct and micro-ducts.

During FY 2023-24, the company increased its focus on the building products segment, clocking 68% growth on YoY basis. On the overall, the company achieved volume growth under all its verticals, averaging about 28% increase on YoY basis.

The companys venture into the housing sector offers several advantages in its rapidly evolving Landscape. The housing sector boasts minimal seasonality, enabling consistent rated capacity utilisation and incentivising capacity expansion, thus fostering incremental stakeholder value. Situated at the onset of a significant growth trajectory, driven by governmental incentives and a growing societal aspiration for improved Living standards, the housing business offers promising prospects. The market is relatively underserved by established nationaL brands, presenting an appealing opportunity for entry and growth. The Kasta brand remains highly regarded for ethical practices and providing value to consumers, serving as the cornerstone of the companys assets. By adeptly managing risks and seizing opportunities, the Company is poised to expand its distribution without sacrificing profitability. Given these factors, the Company is optimistic of prospects, generating sustainable growth moving forward.

Financial performance

Revenues: Revenue during the year stood at H870 Cr as against H736.00 Cr in FY 2022-23.

Interest and finance costs: Net interest and finance costs stood at H20.96 Cr in FY 2023-24.

Profit after tax: The Company reported a profit after tax of H21.41 Cr as against a loss of H23.41 Cr in the previous year

Key ratios

Particulars	FY 2023-24	FY 2022-23
Turnover	866.63	732 47
Debt-equity ratio	0.89	0.97
Return on equity (%)	15	-17.00
Book value per share (H)	30.32	26.08
Earnings per share (H)	4.32	(4.72)

Risk management

Economic risk: A possible economic slowdown might affect the companys operations.

Mitigation: India posted a GDP growth of 7.6% in FY 2023-24. The economic growth coupled with governments aim to enhance farmer incomes is expected to increase irrigation, translating into an increased demand for polymer pipes.

Product risk: Inability to produce a range of products might affect the demand of the companys products.

Mitigation: The Company produces polymer pipes, mainly Poly Vinyl Chloride (PVC) and Poly Ethylene (PE), suitable for portable water supply, irrigation, building construction and infrastructure. The Companys diverse product portfolio is expected to enhance visibility by serving different segments. The Companys geographical reach for existing and new products expanded. The new products, being the output of brownfield expansion, received a good market response. The Company plans to increase its building products range in the current financial year.

Competition risk: The Companys market share and profitability might be affected due to the entry of increased number of rival firms.

Mitigation: The Company is positioned among the most respected and credible companies across the world by offering quality products and services to the customers.

Information technology and digitalisation

The company has effectively integrated SAP HANA, enhancing its business analytics and overall efficiency, resulting in increased operational effectiveness. It continues to invest in Information Technology (IT), including SAP Enterprise Resource Planning System, CRM, HRM and Sales Force Mobility to bolster its infrastructure and operational capabilities. Ongoing technological advancements are expected to drive the companys growth in the foreseable future.

Internal control systems and their adequacy

The Company boasts a robust internal control system, meticulously designed to ensure optimal resource utilisation, safeguarding assets and compliance with policies, procedures, and legal mandates.

The Company established comprehensive guidelines and authorisation procedures, encompassing audits to maintain accountability. The Company has a well-defined internal audit framework, covering financial and operational controls across all units and functions. Besides, the company implemented an effective financial reporting system. Kritis internal audit team comprises seasoned members from diverse functional departments, some holding key managerial positions. They contribute to assessing and enhancing various company functions, including restaurant operations and support departments. Moreover, the Company possesses an Internal Audit cell supporting the Audit Committee, complementing external auditors independent assessments of internal controls and operating systems.

Human resources

The Company possesses 635 officers and workers as on 31st March, 2024. Investing in both individual and collective competencies has been instrumental in elevating the companys human capital value, aligning it with market demands. Through various initiatives focused on skill development and enhancing employee competencies, the company has fostered a workforce adept at staying abreast of market trends. Knowledge-sharing programs have been conducted, encouraging innovative ideas from employees. Many of these innovative ideas have been implemented, leading to improvements in quality, cost efficiency and overall productivity.

Cautionary statement

The statements in the management discussion and analysis section describing the Companys objectives, projections, estimates and prediction may be considered as forward-looking statements.

All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised.

The Companys actual results, performance or achievement may thus differ materially from those projected in such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forwardlooking statement on the basis of any subsequent developments, information or events.