Kushal Ltd Management Discussions

(a) Global Economic Overview

Global economic overview Even after more than a year into the pandemic, the global economy still remains on highly uncertain ground. COVID cases are accelerating in many countries, new virus strains are emerging and death toll rising continuously even as WHO warns that the pandemic will be more deadly this year than 2020. Although vaccination has started, the disproportionate distribution is a cause for worry, with only the US, China, Europe, UK and Canada accounting for over 70% of all vaccine doses administered vis-a-vis only 0.3% of going to low-income countries. Even though the economic recovery has taken hold, they are hugely divergent across countries and sectors. The policy action, although quite swift, provided about $16 trillion in fiscal support worldwide and yet there was a huge variation in policy support across nations. Global growth is projected at 6% in 2021, led primarily by the smart recovery in the US, which is expected to grow by 6.4%, making it the only large economy projected to surpass the pre-pandemic level of GDP. Other advanced economies, including the euro area, will also rebound this year but at a slower pace, after witnessing a double-dip recession in Q1 due to slower vaccination drive and tougher restrictions/ lockdowns. Among the emerging economies, China is projected to grow 8.4% this year. However, many other emerging countries are not expected to return to prepandemic GDP until 2023.

(b) Indian Economy

The Indian economy after witnessing record contraction in first half of last fiscal, made a stronger- than-expected recovery in the second half of 2020 following the easing of lockdowns. Going into the new year 2021, the economic activity seemed to be gathering momentum at a sustainable pace with people demonstrating greater confidence in stepping out and spending. This was reflected in the significant recovery in the auto manufacturing and construction sectors, the two major segments with almost 350 upstream and downstream linkages, and especially with the MSME sector. IMF projected in January 2021 that India would be the only major economy in the world likely to witness double-digit growth in 2021. But as India entered the second wave of the pandemic, new cases started to rise with cases in the last two months more than double than the cumulative case load during the previous 12 months, accompanied by 5-6 times rise in the death toll. This, along with renewed lockdowns and containment measures, put a big dent on consumer sentiment, increasing the likelihood of medium-term scarring effects on the potential output. Already the double digit growth forecasts for India made before the second wave has been scaled back considerably. Even with the aid of low base of last year, growth level would only be able to manage to reach the prepandemic level by end of 2021 or early next year, effectively meaning a loss of two years of growth. Rapid vaccinations and continued fiscal and monetary support measures are the only means to the path of recovery as exemplified by the US and China. Otherwise it is likely to take a while for the growth trajectory of Indian economy to reach the potential.

(c) Outlook for 2021-22

By the end of calendar year 2020, there was a sharp revival of economic activity and there were predictions of a V-shaped recovery. The International Monetary Fund’s (IMF) projections showed India to be the fastest growing for the year 2021-22 at 11.5% real growth. But by mid-March 2021 all those rosy recovery projections seem once again in jeopardy due to the arrival of the second wave. The COVID-19 had been replaced by a much more virulent and faster spreading and more deadly Indian Variant (B.1.617). This has once again placed huge uncertainties on the speed of recovery, the ability of Government to take incremental economic impact from one more wave of the pandemic and the dent on consumption habits of people twice hit by loss of income in a short time. The Reserve Bank of India has been at the forefront of creating and maintaining liquidity in the systems so that businesses faced the least disruption. While RBI had announced several high impact measures, the percolation of these measures was rather tepid given the risk aversion of key lenders - banks and NBFCs. The stimulus package especially the Production Linked Incentives scheme has revived some sectors faster while other unsupported sectors continue to face uncertain times. The Company believes that it can manage the extreme event with its cash balances, liquid investments and undrawn bank limits.

(c) Indian paper and packaging industry overview

India accounts for 4% share of the global paper demand and is the fastest growing paper and packaging board market, globally. The Indian paper and packaging board market was estimated to be growing at a CAGR of 6.2% pre-Covid. In terms of volume, the market stood at 20 Million tonnes in 2019-20. However, in 2020-21, the Indian paper and paperboard market is estimated to have contracted by 15%, year-on-year, led by a massive contraction in demand for printing & writing paper grades.

The Indian paper industry was severely impacted due to Covid pandemic and ensuing lockdown. Around 80% of the domestic manufacturing capacity is clustered in 7 states, namely Uttar Pradesh, Uttarakhand, Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra and Gujarat. These 7 states are also major demand centers as they constitute nearly 50% of India’s GDP.

However during Covid lockdown, 80-90% of Paper Mills in these 7 states were in ‘red’ or ‘orange’ zones at some point in time and were operationally affected. The long-term outlook of the Indian paper and packaging board market remains positive with

(f) Performance & Outlook:

growth expected to be driven by the packaging segment. Rising imports, due to surplus capacity globally, remain a concern for domestic manufacturers. [Source: IPMA, Crisil, Internal Analysis]

(d) Strengths and Weakness Strengths:

1. Fastest growing paper market

2. Production of a wide paper variety range

3. Enhancing farmer incomes

4. High employability

5. Recyclability of waste paper

Weakness:

1. Low capacity utilization

2. High water requirement

3. Capital-intensive

4. Most plants funded through higher debt

5. Growing requirement of scale to survive

(e) Opportunities and Threats Opportunities:

1. Huge growth headroom from per capita consumption perspective and literacy rate

2. Increase in consumption of packaging paper/board in food and pharma sector post Covid (due to permanent shift in consumption pattern)

3. Room for socioeconomic development 5. Innovative product create possibilities

7. Ban on single-use plastic, creating an alternative paper market

Threats:

1. Increasing raw material costs

2. Rising competition from Imports

3. Trends like- Work from home, Online education accelerating the pace of digitalisation

4. Technological obsolescence

5. Intermittent closures and lockdowns due to COVID-19 pandemic outbreak affecting demand

The details have already been covered in the Board’s Report.

(g) Risk and concerns:

Your Company identified various risks and implemented its Mitigation Plans. Risk Policy and monitored frameworks has been approved by the Audit Committee and the Board of Directors of the Company. Risk reporting and monitoring is being conducted regularly by Governance Risk and Compliance Committee (GRCC) at all the operation levels and reporting directly to the Audit Committee and the Board on half-yearly basis

(h) Internal control systems and their adequacy:

The company views internal control as a tool for improving operational performance and ensuring reliability of reporting mechanism. The company is equipped with adequate internal control systems for its business operations which determine the efficiency of its operational strengths in financial reporting and ensure compliance with applicable laws and regulations. The company continuously monitors the effectiveness of the internal controls with an objective to provide to the audit committee and the board of directors, an independent, objective and reasonable assurance on the adequacy and effectiveness of the organizations risk management, control and governance processes. The company also assesses opportunities for improvement in business processes, systems and controls to add value to the organization and follows up on the implementation of corrective actions and improvements in business processes after review by the audit committee and the senior management. The internal control systems are supplemented by extensive audits conducted by the internal auditors. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies.

(i) Discussion on financial performance with respect to operational performance.

Financial Performance has been detailed in the Board’s Report.

(j) Material developments in Human Resources / Industrial Relations front, including number of people employed.

Employees are vital and valuable assets for any organization. They have always been part of success stories experienced by the organizations. The company recognizes people as the primary source of its competitiveness and continues to focus on people development by leveraging technology and developing a continuously learning human resource base to unleash their potential and fulfil their aspirations. It believes in creating a favourable work environment which can lead to innovative ideas. The company has an optimum process of recruitment and awarding its human resource which leads to attraction and retention of productive individuals in the organization. The Company believes in offering full opportunity for growth to employees demonstrating positive attitude and initiative to accept challenge and responsibility. The total number of employees in the company stands at 8 as at March 31,2021.

(k) Cautionary Statement

Statements in this Report, particularly those which relate to Management Discussion and Analysis, describing the Company’s objectives, projections, estimates and expectations may constitute "forward looking statements" within the meaning of applicable laws and regulations. The Company’s actual results, achievement might differ materially from those projected in any such forward looking statement.

For and on Behalf of the Board

Yogeshkumar Patel

Managing Director)

(DIN: 03504954)

Place: Ahmedabad

Date: November 9, 2021