oriental carbon Management discussions

Global economic overview

The global economy grew an estimated 5.9% in 2021 compared to a de-growth of 3.3% in 2020. This improvement was largely due to increased vaccination rollout the world over and a revival in economic activity based on catch-up consumption.

The global economic recovery is attributed to accelerated vaccine rollout across 4.4 Billion people, around 56% of the global population (single dose). The spot price of Brent crude oil increased 53.34% from USD 50.37 per barrel at the beginning of 2021 to USD 77.24 per barrel at the end of the calendar year, strengthening the performance of oil exporting countries and moderating growth in importing nations. Global FDI reported an increase from USD929 Billion in 2020 to an estimated USD1.65 trillion in 2021.

The global economy was affected by prohibitive shipping freight rates, a shortage of shipping containers and semiconductor chips in 2021, affecting global economic recovery. Inflation was at its highest since 2011, especially in the advanced economies, catalysed by a run up in commodity prices. Some emerging and developing economies were positioned to withdraw policy support to contain inflation even as the economic recovery was still incomplete.

The prominent feature of the global economic activity during the year under review was a sharp revival in commodity prices to record levels following the drop at the time of pandemic outbreak. The commodities that reported a sharp increase in prices comprised steel, coal, oil, copper, foodgrains, fertilisers and gold.

The global economy is projected to grow at a modest 2.6% in 2022 following the Russia-Ukraine crisis. A higher interest rate environment could affect emerging markets and developing economies with large foreign currency borrowings and external financing needs in 2022.

Regional growth (%)	2021	2020
World output	5.9	(3.3)
Advanced economies	5.0	(4.9)
Emerging and developing economies	6.3	(2.4)

Indian economic overview

The Indian economy reported an attractive recovery in FY 21-22, its GDP rebounding from a de-growth of 7.3% in FY 20-21 to a growth of 8.7% in FY 21-22.

Its economic growth rate was the fastest among major economies (save China), its market size at around 1.40 Billion the second most populous in the world and its rural under-consumed population arguably the largest in the world.

Y-o-Y growth of the Indian economy
	FY19	FY20	FY21	FY22
Real GDP growth (%)	6.1	4.2	(7.3)	8.7
E: Estimated by National Statistics Office
Growth of the Indian economy, FY 21-22
	Q1, FY22	Q2, FY22	Q3, FY22	Q4, FY22
Real GDP growth (%)	20.1	8.4	5.4	4.1

The Indian economy was affected by the second wave of the pandemic that affected economic growth towards the fag end of the previous financial year and across the first quarter of the financial year under review. Even then, after a growth of 1.6% in the last quarter of FY 20-21, the Indian economy grew 20.1% in the first quarter of FY 21-22 due to the degrowth in economy during the corresponding period of the previous year.

India received 99.32% of a normal monsoon in 20-21. Based on the spatial and temporal distribution of the 2021 monsoon rainfall, the agricultural gross value added (GVA) growth in FY22 is anticipated to be 3-3.5%. The country?s manufacturing sector grew an estimated 12.5%, the agriculture sector 3.9%, mining and quarrying by 14.3%, construction by 10.7% and electricity, gas and water supply by 8.5% in FY 21-22. There were positive features of the Indian economy during the year under review. India?s currency weakened 3.59% from RS 73.28 to RS 75.91 to a US dollar through FY 22. The consumer price index (CPI) of India stood at an estimated 5.3% in FY 21-22. India reported improving Goods and Services Tax (GST) collections month-on-month in the second half of FY 21-22 following the relaxation of the lockdown, validating the consumption-driven improvement in the economy. The country recorded its all-time highest GST collections in March 2022 at RS 1.42 Lakh Crore, which is 15% higher than the corresponding period in 2021.

India?s tax collections increased to a record RS 27.07 Lakh Crore in FY 21-22 compared with a budget estimate of RS 22.17 Lakh Crore. While direct taxes increased 49%, indirect tax collections increased 30%. The tax-to-GDP ratio jumped from 10.3% in FY21-22 to 11.7% in FY22, the highest since 1999.

India?s per capita income was estimated to have increased from RS 1.27 Lakh in FY 20-21 to RS 1.50 Lakh in FY 21-22 following a relaxation in lockdowns and increased vaccine rollout.

Retail inflation in March spiked to a 17-month high at 6.95% above the RBI?s tolerance level of 6%.

(Source: Economic Times, IMF, World Bank, EIU, Business Standard, McKinsey, SANDRP, Times of India, Livemint, InvestIndia.org, Indian Express, NDTV, Asian Development Bank)

Indian economic reforms and Budget 2022-23 provisions

The Budget 2022-23 seeks to lay the foundation of the Indian economy over the ‘Amrit Kaal? period of the next 25 years leading to 100 years of independence in 2047. The government is emphasising the role of PM GatiShakti, Inclusive Development, Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition and Climate Action, as well as Financing of Investments. The capital expenditure target of the Indian government expanded by 35.4% from RS 5.54 Lakh Crore to RS 7.50 Lakh Crore. The effective capital expenditure for FY23 is seen at RS 10.7 Lakh Crore. A boost was provided to India?s electric vehicle policy ‘Scheme for

Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle in India?. An announcement of nearly RS 20,000 Crore was made for the PM Gati Shakti National Master Plan to catalyse the infrastructure sector. An expansion of 25,000 Km was initiated for 2022-23 for the national highways network.

Outlook

The Indian economy is projected to grow by 7% in FY23, buoyed by tailwinds of consistent agricultural performance, flattening of the COVID-19 infection curve, increase in government spending, favourable reforms and an efficient roll-out of the vaccine leading to a revival in economic activity.

Across the next three years, capital expenditure in core sectors - cement, metal, oil refining and power - should be about RS 5 trillion. Besides, the government?s production linked incentives (PLI)–led capex should generate an incremental RS 1.4 trillion in sectors like consumer durables, pharmaceuticals and automobiles.

Speciality chemical sector

Global speciality chemicals industry

The global chemicals market is expected to grow from USD 4,241.18 Billion in 2021 to USD 4,620.17 Billion in 2022 at an 8.9% CAGR, of which 20% is accounted for by specialty chemicals, marked by extensive product R&D and innovation, low quantities, higher value and greater influence on the performance of the end-product.

The global specialty chemicals market is projected to grow from USD 641.2 Billion in 2021 to USD882.6 Billion in 2028 at a CAGR of 4.7% between 2021 and 2028. With a significant transition in the manufacturing of specialty chemicals from EU and North America to Asia. India?s chemicals industry, which stood at USD 180 Billion in 2019, represents one of the bright spots within the Indian manufacturing sector. India?s specialty chemicals market is expected to grow to USD 40 Billion by 2025 from 28 Billion in 2018, becoming the fastest growing major specialty chemicals market in the world. According to CRISIL, the Indian specialty chemicals industry will surpass its Chinese counterpart and double its share in the global market from 3-4% in FY 20-21 to 6% by 2026 India is emerging as an increasingly significant player in the global chemical supply chain, marked by scalable and competitive manufacturing ecosystem, strengthening ESG infrastructure and compliance framework.

Besides, global supply chains increasingly seek stable sourcing arrangements outside China to reduce their excessive one-country dependence. This presents Indian companies with core R&D expertise, scale and ability to offer products at attractive costs and grow significantly. (Source: IBEF)

The insoluble sulphur Industry

Insoluble sulphur is the polymeric form of sulphur, which has the property of being insoluble in all known solvents and rubber. It is the preferred agent for vulcanisation in the tyre industry. It prevents the blooming of rubber, scorching of bin and ensures uniform dispersion.

The insoluble sulphur market is anticipated to grow between 2021 and 2025 at a CAGR of about 3%.With increase in on-road vehicles, the demand for tyre replacements has risen, strengthening the market for insoluble sulphur.

Sectorial optimism

The Indian specialty chemicals industry was estimated at USD 64 Billion by 2025, accounting for 16% of the global market, indicating attractive headroom for the sector.

India is gradually emerging as a major player in the global chemicals supply chain with a low-cost manufacturing ecosystem on account of its strengthening infrastructure and ESG compliance. The country offers the benefits of a low cost of operations, availability of feedstock, trained talent, port access and strong intellectual property protection. Besides, Indian labour costs are emerging more competitive over China, strengthening India?s position within the global sector

Global supply chains are increasingly seeking stable sourcing arrangements outside China to reduce their dependence on that country, strengthening India?s case to carve away a share of exports from China. India?s share in the global specialty chemicals market is anticipated to double to

. USD 64 Billion by 2025. (Source: Forbes, Indianchemicalnews)

Tyre market growth

In 2020, the global tyre demand was an approximate 3,378.96 Million units, growing at a CAGR of 4% between 2016 and 2020. The market is anticipated to grow at a CAGR of 4%, attaining a volume of 4,111.02 Million units by 2026.

The increase in demand in the Asian market is expected to drive the global tyre industry, marked by competitive production costs and lower natural rubber content (more synthetic rubber content). Besides, the radial tyre segment is growing faster due to benefits of lower transverse slip, greater power transfer, fuel consumption reduction, lower ground damage and higher vehicle efficiency (Source: Expert Market Research).

Global tyre industry

Tyre production (Million units)

Yea Year	2006	2011	2016	2021	2027
Production (Million units)	1,431	1,691	1,788	2,268	2,665 (E)

(Source: expertmarketresearch.com, IMARC group)

Natural rubber consumption by the tyre industry (‘000 Tonnes)

Year a Year	FY 16-17	FY 17-18	FY 18-19	FY 19-20	FY 20-21
Consumption (‘000 Tonnes)	707,335	772,162	864,022	756,265	780,588

Insoluble sulphur demand (‘000 Tonnes)

Year	Quantity demanded in (‘000 Tonnes)
2006	178
2011	227
2012	228
2013	236
2014	250
2015	264
2016	258
2021	273
2022	295 (Est)

Indicative insoluble sulphur demand forecast by region

Asia excluding China	29%
China	31%
North America	14%
Europe	16%
Other	10%

(Source: expertmarketresearch.com, IMARC group)

>Radialisation effect

Year	2009	2014	2019
Insoluble sulphur-to-tyre rubber ratio	1.29	1.316	1.39

Indian tyre industry and growth drivers

While the industry revenues are supported by stable demand from the replacement and export segments, earnings of manufacturers have been affected by increased input prices. On the basis of vehicle type, the tyre market is categorised into heavy commercial vehicles, passenger cars, two-wheelers and light commercial vehicles. The growth in the Indian tyre sector is driven through the following realities:

Growing automobile industry: The Indian automobile industry is the fourth largest in the world and expected to become the third largest by 2026. Total vehicle sales stood at 1,75,13,596 units in FY 21-22. Sales of commercial vehicles increased by 26%. (Source: auto. economictimes, SIAM)

Rising incomes: India?s GDP growth was an estimated 8.7% in FY 21-22. The per capita income of the country was estimated at RS 1.50 Lakh in FY 21-22 as against RS 1.27 Lakh in FY 21-22. Rising levels of income could result in increased consumption. (Source: Business Standard, economictimes.indiatimes)

Radialisation of commercial vehicle tyres: The radial tyre is increasingly being preferred as it consumes less fuel and ensures longevity.

Safety awareness: Rising awareness makes it imperative to produce safer world-class tyres. Tyre customers have turned increasingly demanding, prompting producers to work with credible suppliers of insoluble sulphur.

Competition: Increased competition is driving tyre companies to launch better products.

Increasing roads and highways: India has the second largest road network in the world with a span of 5.89 Million Km. More than 64.5% of the goods in the country are transported through roads, while 90% of the total passenger traffic uses the road network for travel. Road freight movement is anticipated to increase, strengthening the offtake of commercial vehicles. (Source: IBEF.org)

Increase in tyre exports: The trend of shifting production out of China, along with a competitive and conducive environment, is making India a preferred global supplier of tyres.

Opportunities and threats

Opportunities

Tyre production is witnessing a shift to eco-friendly and lighter variants. This could increase the proportion of insoluble sulphur per tyre.

India is rapidly becoming a hub of tyre exports, especially with global manufacturers seeking to broadbase purchases away from China.

Increased radialisation of commercial vehicle tyres.

Threats

Chinese manufacturers of Insoluble Sulphur are also targeting export markets.

The Free Trade Agreement of India with other nations could impact domestic industries as there are higher concessions on the customs duty of finished tyres (though India imposed an anti-dumping duty on tyre imports from China).

Impact on margins of a spike in commodity and freight costs.

Outlook

Domestic tyre demand is expected to grow at 7-9% for the period between FY22 and FY25. The global demand for insoluble sulphur is anticipated to grow at around 2.5 to 3% year-over-year between 2021 and 2025. The Indian demand for insoluble sulphur of 14,500 MTPA is expected to grow on account of increasing radial and high performance and safety tyres growth. (Source: Economic

Times, Entrepreneurindia.co)

Sulphuric acid and oleum

Sulphuric acid, also known as ‘oil of vitriol?, a corrosive mineral acid, finds wide use in the chemical industry (in fertilisers, detergents and batteries). It helps catalyse and dehydrate petrochemical process and organic chemical manufacture. India is one of the largest consumers of sulphuric acid in the world. (Source: indianinfoline.com)

The global sulphuric acid market size is anticipated to reach USD 24 Billion by 2026, after growing at a CAGR of 4.4% during 2021-2026. The demand for sulphuric acid from the fertiliser industry is anticipated to rise due to good monsoons and a liberal subsidy on fertilisers declared by the Government of India. A steep rise in the international price of sulphuric acid on account of tight availability of feedstock sulphur ensures attractive realisations. Besides, the demand for oleum continues to be stable. (Source: Industryarc.com)

Risk management

Economy risk: The demand for insoluble sulphur may face a decline on account of a sustained economic slowdown.

Mitigation: Global growth is anticipated to continue in 2022 as Asia is expected to outperform the global average. Besides, growing radialisation is expected to enhance the offtake of insoluble sulphur. The global sulphur market is likely to grow at approximately 2.5 to 3% over the coming years. Increasing use of sulphur in tyres due to better quality will drive growth of the market. The Indian automobile industry, currently the fourth largest in the world, is expected to record faster growth than the global average.

Measure: The Company enjoys stable relationships with large tyre companies the world over, enhancing revenue visibility.

Debt service risk: Inability of servicing debt on schedule may have a negative impact on the credit rating of the Company.

Mitigation: The Company follows a policy of maintaining conservative leverage.

Measure: The Company?s gearing stood at 0.33 as on 31st March, 2022, while the interest coverage ratio declined from 16.23 in FY 20-21 to 10.67 in FY 21-22.

Employee risk: Disrupted industrial harmony may affect the retention of employees. The Company may be in a risk of underperformance due to lack of training and development of employees.

Mitigation: The Company implemented various policies covering recruitment, training, empowerment, job fulfillment and remuneration enhancing harmony of the industry. Moreover, the Company has a policy ensuring the skill sets of employees updated regularly through training to meet the needs of the Company. A programme has been put in place for training employees in new skills so that the changing requirements of the Company are met and employees are prepared for higher responsibilities.

Measure: The Company?s employee strength stood at 418 as on 31st March, 2022, while the retention stood at 87%.

Product acceptance risk: The product quality of the Company may prove to be irregular in a demanding marketplace.

Mitigation: The Company enjoys approvals from the largest global tyre companies, effectively transforming one-off transactions into enduring relationships. Moreover, OCCL has a policy to continuously streamline processes ensuring a consistent delivery of quality.

Measure: Over 90% of the Company?s revenues in FY 21-22 were derived from customers that have been associated for five years or more.

Geographic risk: An excessive dependence on a single location can have a negative effect on the Company?s financials in the event of a revenue decline from that market.

Mitigation: OCCL is serving customers in over 28 countries.

Measure: No country (except India) accounted for more than 10% of the Company?s revenues in FY 21-22.

Financial overview

Analysis of the profit and loss statement Revenues: Revenues from operations registered a 13% growth from RS 34,218.11 Lakh in FY 20-21 to RS 38,778.76 Lakh in FY 21-22. This included an Investment Income of RS 962.69 Lakh in FY 21-22 against RS 967.39 Lakh in FY 20-21.

Margins: EBITDA for the year was RS 8352.10 Lakh as against RS 12,397.84 Lakh in FY 20-21. EBITDA margin of the Company declined to 22% from 36% in FY 20-21. The net profit margin of the Company was RS 3,994.74 Lakh in FY 21-22 compared to RS 7,500.18 Lakh in FY 20-21. The margins for the year were impacted by an unprecedented increase in input costs.

Analysis of the Balance Sheet

Sources of funds: The capital employed by the Company increased to RS 68,944

Lakh as on 31st March,2022 from RS 67,876 Lakh as on 31st March, 2021 owing to internal accruals and term loans mobilised for capacity expansion. The net worth of the Company increased 5% to RS 55,709 Lakh as on 31st March, 2022 from RS 53,255 Lakh as on 31st March, 2021.

Long-term debt of the Company Including Current Maturities was RS 13,611 Lakh as on 31st March, 2022 as compared to 13,758 Lakh as on 31st March, 2021 on account of balance disbursement of Term loans taken for Dharuhera Expansion. The long-term debt-equity ratio of the Company stood at 0.24 in FY 21-22 compared to 0.26 in FY 20-21 and total Debt-Equity ratio (including working capital borrowings) of the Company stood at 0.33 in FY 21-22 compared to 0.34 in FY 20-21.

Applications of funds: Fixed assets (gross) of the Company increased 10% from RS 61,982 Lakh as on 31st March, 2021 to RS 67,902 Lakh as on 31st March, 2022, including capital work in progress for expansion.

Working capital management:

Total Current Assets of the Company decreased by 11% from RS 28,882 Lakh as on 31st March, 2021 to RS 25,604 Lakh as on 31st March, 2022. Current Assets included current investment and cash and bank balance of RS 11,259 Lakh in FY 21-22 compared to RS 15,485 Lakh in FY 20-21 due to the deployment of funds in to long term Investments.

Inventories, including raw materials, work-in-progress and finished goods, among others, increased to RS 5887 Lakh on 31st March, 2022 from RS 4,006 Lakh as on 31st March, 2021 due to higher costs. . Trade receivables as at 31st March, 2022 were RS 8,076 Lakh compared to RS 7,480 Lakh as at 31st March, 2021.

Key ratios and numbers

Particulars	FY 21-22	FY 20-21
EBITDA/ Turnover	21.5%	36.2%
Debtors/Turnover	4.86	4.66
Inventory/Turnover	2.72	2.13
Interest coverage ratio	10.67	16.23
Debt-equity ratio	0.33	0.34
Current ratio	1.8	2.6
Net profit margin (%)	10.14%	21.76%
Book value per share (H)	557.64	533.07
Earnings per share (H)	39.99	75.08
Return on net worth (%)	7.2%	14.1%

Risks management system

Risk, which is the manifestation of business uncertainty affecting corporate performance and prospects, is an integral part of business. The Company follows a defined and exhaustive risk management process, which is integrated with its operations. This enables the Company to identify, categorise and prioritise operational, financial and strategic business risks. To address the identified risks, the Company continues to spend significant time, effort and human resources to manage and mitigate such risks. The Company also has a Risk Management Committee to monitor likely risks to the business and a mitigation strategy.

Internal control systems and their adequacy

The Company has adequate internal control systems, which includes internal financial controls, the efficacy of which is continuously monitored and updated when required internally. The internal Auditors monitor the compliance of the same.

The Company?s internal control system ensures that assets are safeguarded, established regulations are complied with and pending issues are addressed promptly. The Audit Committee reviews reports presented by the internal auditors on a routine basis. The committee makes note of the audit observations and takes corrective actions, if necessary. It maintains constant dialogue with statutory and internal auditors to ensure that internal control systems are operating effectively.

Human resources

The Company employed 418 officers and workmen as on 31st March, 2022. Increase in the value of human capital through the development of individual and collective competencies helped the Company stay in step with market developments and requirements. The Company has a policy to regularly run programs and projects on skill development and upgradation of employee competence, however due to restricted mobility in FY 21-22 such development programs from external agencies could not be taken up. Programmes of knowledge sharing were conducted; employees are encouraged to attend external programs as required to enhance their perspective of emerging standards. A number of innovative ideas received from employees were implemented, resulting in enhance quality, cost optimisation and productivity.

Cautionary statement

This statement made in this section describes the Company?s objectives, projections, expectation and estimations which may be ‘forward looking statements? within the meaning of applicable Securities Laws and Regulations. Forward looking statements 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 by the Company. Actual results could differ materially from those expressed in the statements or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent development, information or events.