P I Industries Ltd Management Discussions.

Economic overview

Global Economy

The global economy contracted by 3.3% in 2020 as all major economies barring China entered the recession with outbreak of COVID-19 pandemic. Lockdowns enforced across the globe led to severe demand destruction. Resilience of almost every socio-economic framework and operating model got exposed. At 4.7%, the contraction in Advanced Economies (AEs) was much steeper. Emerging Markets and Developing Economies (EMDEs) recorded a 2.2% contraction. With a 2.3% growth, China stood out as the sole economy to defy the global trend of economic contraction.

Several sectors have witnessed a growth during the pandemic and have successfully weathered the storm. Sectors like ITeS, E-Commerce, pharmaceuticals, chemicals, diagnostics, consumer goods and durables, agrochemicals and fertilizers have benefited owing to the pandemic. The crisis has increased the demand for medical supplies and care. GDP, in general, recovered stronger than expected in the second half of 2020, however, it remains significantly below pre-pandemic trends in most countries.

IMF expects a divergent recovery path for countries in the world, depending upon their efforts towards vaccination, and how

GDP Growth Trend (%)

2019 2020 (E) 2021 (P) 2022 (P)
World 2.8 -3.3 6.0 4.4
AE 1.6 -4.7 5.1 3.6
EMDE 3.6 -2.2 6.7 5.0
India 4 -8 12.5 6.9

Source: WEO April 2021, IMF

AE: Advanced economies, EDME: Emerging markets and developing economies effectively the various economic policies deployed under the highly uncertain situation can limit the damage from this unprecedented crisis. It estimates a 6% growth for the world economy, on the back of the US and China growing respectively by 6.4% and 8.4% in 2021. Governments and Central Banks are expected to maintain supportive policies until the recovery is firmly underway. The strength of recovery will depend on vaccine roll-out.

India Economy

The imposition of stringent lockdown in March 2020 reflected in a sharp contraction of 8% in Indias GDP for fiscal year 2020-21 (FY21). With industries, transport, shops, and malls shut down, the economic activity came to a grinding halt. The domestic consumption, which makes up around 57% of GDP, was almost wiped out.

After a sharp contraction, India is expected to lead the global recovery with a forecasted growth of 12.5% in FY22 and 6.9% in FY23. The country is witnessing a V-shaped recovery with supportive government policies and measures, fastest roll out of worlds largest vaccination drive, and consumption and industrial indicators turning positive. GST collections remain robust.

Digital shift has gathered momentum with increase in digital payments, adoption of digital media for work, education and other various activities. FDI and FII inflows to Indian economy were far higher driving the forex reserves to an all time high level. RBI and Government of India interventions such as moratorium on loans, easing out of financial obligations of states, direct benefit transfer (DBT) to farmers, and declaring agriculture and allied activities as essential services provided critical support to economy during the crisis.

Government of Indias initiatives such as Aatmanirbhar Bharat Abhiyan, Ease of Doing business and Make in India have helped the country consolidate its position as a potential growth market. India retained its 63rd rank in the ‘World Banks Ease of Doing Business Ranking 2020.

Industry Overview

Agriculture Sector

Global Scenario: Despite the COVID-19 uncertainties and challenges, the global agriculture market is expected to grow at by a healthy 6% to reach US$ 10,182 billion in 2021 from US$ 9,603 billion in 2020. The growth is predicted to be led by a healthy growth in demand of agricultural produce, favourable agro-climatic conditions and operational smoothening by the companies engaged across the entire agricultural value chain.

While the impact of pandemic continues to stress agricultural production, demand and supply chain, the sectors long-term prospects remain intact. The growing food demand worldwide with limited arable land and water resources puts the focus on the need for enhanced usage of technology and other agri inputs to increase crop yields per hectare.

World population is growing and is expected to reach 10 billion by 2050. Increase in population creates more demand for food. According to OECD-FAO Agricultural Outlook 2020-2029, the yield improvements through enhanced agri-inputs, production technology and cultivation practices are expected to account for nearly 85% of production growth over the next decade.

Strongest growth in agricultural production is expected to be witnessed in Asia Pacific, Latin America, Sub Saharan Africa and the Rest of Africa with their respective growth rates forecasted to be at 17%, 15%, 21% and 16%. Substantial growth in emerging and low-income countries is expected on account of better resource availability and larger investments in agri technology.

Indian Agriculture: Agriculture, along with its allied sectors, is the largest source of livelihood in India. With 82% of Indian farmers being small and marginal, 70% of countrys rural households still depend primarily on agriculture for their livelihood. India is the worlds largest producer of milk, pulses and jute and the second largest producer of rice, wheat, sugarcane, groundnut, vegetable, fruit and cotton. It also ranks as a leading producer of spices, fish, poultry, livestock and plantation corps.

The agricultural sector is expected to play a key role in Indias ambitious plan to touch a USD 5 trillion economy by 2025. The sector has been the bright spot despite the pandemic and the government through it various measures and programs have been emphasising on need to leapfrog into making agriculture a tech-embedded sector with significant focus on R&D and sustainable farming practices. Under the Aatmanirbhar Bharat Abhiyan, the Government has urged the agriculture and allied services sector to create a robust infrastructure and have a stronger hold in the world market. Some of the schemes and initiatives run by the Government for the sector include PM Kisan disbursement, Kisan Rail, Direct benefit transfers to farmers, Pradhan Mantri Fasal Bima Yojna, increased allocations under MGNREGA, enhanced agri credit schemes, formalization of Micro food enterprises, and developing market system with larger procurement under MSP (Minimum Support Price) for farm produce.

During the year, the country received healthy monsoon with good reservoir levels. This led to good Rabi and Kharif sowing season.

Annual growth in demand (%)

The cumulative rainfall has been 9% higher than Long Period Average (LPA) during the years southwest monsoon season up to 30th September, 2020. and farm prosperity. The government has been focusing on modernising and developing robust agri infrastructure with the aim to double farmer income by 2022. Fixing the minimum selling price (MSP) in a manner that supports a 50% margin over the production cost of crops is a pivotal step in this direction.

The various steps and policy measures taken by the government during the year include exemption of agriculture and allied sectors

Harvesting its fourth consecutive bumper crop, India produced a record 303.34 Mt (estimated) of food grain in the crop year 2020-21 (July-June). This highest ever production was fuelled by record outputs across rice (120.32 MT) and wheat (109.24 MT). Likewise, nutri/coarse cereals, oilseeds, maize, and cotton too reached record production levels with output being 49.36 Mt, 37.31 Mt, 28.98 Mt and 36.54 Mn bales respectively.

Despite achieving grain self-sufficiency, the production in India remains resource intensive, cereal centric and regionally biased. Access to world class agronomy practices and agri-inputs remains sparse. The stress on water resources remain a key challenge while raising farmers income by way of a holistic policy of enabling (instead of subsidizing) reforms can make farming sustainable and farmers prosperous.

While India leads on the agricultural output front, it needs to fast track adoption of agri technology solutions, smarter farming techniques and data driven agronomic practices to further improve yields, production quality from the nationwide lockdown imposed due to COVID-19 pandemic. Many schemes/ programmes were also launched to assist the farmers of the country during the lockdown period. These include fund transfers under PM-KISAN, running of special trains under Kisan Rail, financing facility under Agri Infrastructure Fund, concessional credit boost to 25 Mn farmers through Kisan Credit Card, etc.

During the year, the agricultural sector received significant policy impetus by the government in form of three pathbreaking bills that have the potential to transform agriculture sector inside out. Considered as the mother of major agricultural reforms of recent times, their key provisions include deregulation of agricultural commodities from the Essential Commodities Act, limiting stock limit only to emergencies, giving selling choice to farmers and allowing private sector participation in agriculture, and substantial fund allocation for development of agricultural and food processing infrastructure. These measures, when implemented in letter

Highlights: Union Budget 2020-21

Agricultural credit target increased to Rs 16.5 lakh Cr in FY2021-22

Rural Infrastructure Development Fund- Increased allocation to Rs 4,00,000 Mn (+33%)

Micro Irrigation Fund: Rs 1,00,000 Mn (+100%)

Operation Greens Scheme - Increased scope to 22 perishable products

Additional Mandis to be brought under eNAM: +1000

Revision in Custom Duty rates in Chemicals

APMCs to get access to the Agriculture Infrastructure Funds for augmenting infrastructure facilities

Increased Custom Duty on Agricultural products: Cotton, Prawn/ Fish feed, Maize/

Rice bran

Agriculture Infrastructure and Development Cess (AIDC) on a small number of items

Ensured MSP at minimum 1.5 times the cost of production across all commodities and spirit, can make Indian agriculture more competitive – profitable, diverse, tech-enabled and sustainable. The real benefits of these measures would take two-three years to become visible on the ground and lead to a lasting enablement of Indian farmers.

Crop protection chemicals (CPC) industry overview

Global scenario: Global agrochemicals sector is seeing an upward demand trend, primarily driven by crop protection chemicals. With the growing population to feed against shrinking arable land, crop yield has gained enormous importance in the current time.

World population is already approaching 8 billion and is pegged to cross 10 billion by 2050. In this background, crop protection chemicals would need to play a vital role in safeguarding the crops for fulfilling human food security needs. The rising population across the world, accompanied by rising afluence, is leading to a shift in consumption patterns. There is a need to not just increase production to meet demand but also to ensure that the nutritional needs of an increasingly a_uent population are met.

The global agrochemicals market was valued at US$ 62.5 billion in 2019 and is forecasted to reach US$ 86 billion by 2024, growing at a compound annual growth rate (CAGR) of 6.6 %.

COVID-19 inflicted restrictions and few allied factors have adversely impacted the production of crop protection chemicals. Since China is a major exporter of agrochemical products, its production plants located in Zhejiang, Jiangsu, Shandong, Hubei, Sichuan, Inner Mongolia, Shaanxi, Guangdong, Guangxi and other belts have witnessed temporary closure. Although the outbreak has disrupted supply of crop protection chemicals (mainly technical materials) from China, the speedy recovery and subsequent plant start-ups have resumed the production of pesticides in the recent past.

Major consumption markets like Brazil, the US, China, Japan and India have registered good demand for Agrochemicals. Higher cultivated area, favourable pricing environment and improved weather conditions favoured the key markets. In the last few years, the global CPC industry has seen significant consolidation with major investments in biological, smaller businesses and product lines. Moreover, the stringent regulatory environment and increased consumer scrutiny has led to the adoption of greener chemistries and growth of biological portfolio.

A key success factor for the crop protection chemicals in the market is extensive R&D capabilities of a company to develop new molecules satisfying the government norms and stringent environment regulations. Emergence of bio-pesticides are making a splash in the existing crop protection market, however product features in these green pesticides are so limited that it has not gained popularity as much as traditional crop protection chemicals. This essentially ensures a robust growth trajectory for traditional crop protection chemicals in high-volume-high-growth centres like India.

Key Insights into Global Crop Protection Chemicals Market (2021-2025)

(Source: ResearchandMarkets.com)

Herbicides expected to lead with a healthy growth rate of 5.5% in terms of value during the period

In value terms, fungicides and bactericides to grow fastest at 5.2% between 2021 and 2025

Latin America overtook Asia Pacific to become the largest consumer of crop protection chemicals and is expected to grow with 6.3% CAGR between 2021 and 2025

India crop protection industry overview:

India has been ranked fourth globally in the production of agrochemicals (crop protection chemicals/ pesticides) after USA, Japan and China, as per IBEF report 2019. Indian crop protection chemicals market is valued at US$ 2.1 billion which is anticipated to grow at 4 per cent in the next 5 years to reach US$ 2.6 billion by 2024.

India ranks 13th in the imports of pesticides globally with Brazil leading the imports of crop protection chemicals, having 7% market share in the world imports (2018, by volume). Brazil is

Exhibit - 3: Indian crop protection chemicals market by exports & domestic consumption (US$ Bn) followed by France (5%), Canada (5%), US (4%), Germany (4%), Thailand (4%), Australia (3%), Belgium (3%), UK (3%), Nigeria (3%), Spain (3%), Italy (3%) followed by India (2%).

India was worlds 3rd largest pesticide exporter by volume in 2018. China leads the exports of

Exhibit – 4: Indian crop protection chemicals domestic market (in US $ Bn) pesticides with 27% market share in the world exports followed by Germany (8.3%), India (8%), US, Belgium, France, etc.

India crop protection chemicals exports have grown with the CAGR of almost 9% during the

Exhibit – 6 : India crop protection market by product type (exports), 2014-24F

year 2015-19. The actual export contribution of crop protection chemicals was 50% of total domestic production (by value) in the year 2019. Exports are projected to grow to almost 55% in the year 2024 (by value). This means, US$ 2.1 billion was export from India and an equal amount of crop protection chemicals were meeting domestic demand in the year 2019. In the year 2024, exports will grow to US$ 3.1 billion contributing 55% of total domestic production which is valued at US$ 5.7 billion.

India is experiencing a slowdown in terms of economic growth due to on-going issues like Coronavirus outbreak, NBFC/liquidity crisis, etc. Although GDP growth has come down in past couple of years, domestic food demand

Exhibit -7: Indian crop protection chemicals market by exports & imports (in ‘000 MT) has soared along with increasing population. 100% foreign direct investment (FDI) is allowed in agriculture in India. Plus, increase in demand for food grains with high emphasis on food grain self-sufficiency is promoted by the government which will drive crop protection chemicals market in India positively.

Additionally, there is a clear shift in terms of reducing dependence on China all over the globe which will make India one of the most sought-after sourcing destination with its many advantages of regulatory compliance, R&D capability, IP protection and also Low-cost manufacturing. Government of India is proactively looking for measures to significantly improve the farmers income and a number of schemes have been launched in this regard.

Unlocking the growth potential of the agrochemicals sector will be dependent on three major growth drivers. Firstly, improvements in trade and marketing of agrochemicals would increase scientific usage of agrochemicals. This can be achieved by improving agrochemical trade and empowering consumers through increased awareness and technology interventions. Secondly, increasing focus on production would further strengthen the agrochemicals sector. Increased efforts towards R&D and capacity building, along with policy interventions, would help in positioning India as a global agrochemicals hub. Thirdly, a favourable policy environment for the agrochemicals sector would help in increasing agrochemical exports, attracting foreign investments in the sector and ensuring equal opportunities for all players. Therefore, it is important for key stakeholders to understand the role agrochemicals will play in propelling Indias economic growth and take necessary actions to enable the sector to achieve its potential.

Specialty Chemicals Overview

The global specialty chemicals industry has already been undergoing a tectonic shift for quite a longer time before the pandemic struck in 2020. Mega consolidation of the global leaders followed with regulatory tightening in China was already setting the stage for a new world order in specialty chemicals. The pandemic has triggered the acceleration of this reset.

The fallacy of a concentrated global supply chains did come to fore. The world has realised the need to diversify supply chains. The dependence on China is going to fast balance out. In terms of realignment, the specialty chemicals opportunities emanating out of China exit/containment would be heading towards those countries which have developed a strong paraphernalia of talent, infrastructure and industry ecosystem around innovation and capabilities in complex chemistries.

India is positioned as a shining bright spot to immensely benefit from these global shifts. Thanks to its continued evolution on the path of technology-led innovations and global partnerships, PI is positioned as the frontrunner among Indian players to benefit from evolving opportunities. Its recent ‘beyond agchem success testify the solidity of its platform.

Companys Business Overview

PI Industries is one of Indias leading agrochemical companies. Offering integrated and innovative products and solutions to its customers, PI enjoys tremendous brand recognition and a strong global presence built over the years on strong foundation of Trust, Integrity and Respect for IP. PI has exclusive rights from several global corporations for distribution of their products in India. It constantly evaluates prospects to further expand its product portfolio. The spectrum of services that PI provides to its customers are interwoven and spread across its value chain, ranging from research and development, product and application development, registration, manufacturing, marketing and distribution and customer connect initiatives.

Over the past several decades, PI has worked relentlessly to provide value-added solutions to millions of farmers in the country and across the globe, carving a niche for itself in the market, and leaving a lasting impact on the minds of the customers. The strategic, differentiated and partnership approach has enabled the Company to grow at a faster pace, delivering superior returns to all its stakeholders.

Discovery, Development and Scale-up

Research & Development is one of PIs key strengths and serves as a great enabler of Companys business model. The state-of-the-art R&D centre spread over an area of 130,000 square feet at Udaipur, Rajasthan, provides excellent infrastructure and lab facilities for research scientists to carry out activities and specialize in the discovery space, including library synthesis, molecule design, lead optimization, route synthesis, biological testing and greenhouse testing.

Some of the infrastructural developments at the R&D centre include advanced research and development labs for process and analytical development, workstations with complete online utilities, in-house library with a vast array of knowledge resources, kilo and pilot plants with NABL accreditation and GLP certification, and green houses for biological testing. The IT infrastructure at the R&D centre includes Electronic Lab Notes (ELN) and Centralized LIMS systems for data and information management providing access to diverse databases.

PIs strong team of 350+ research scientists includes more than 130 Doctorates specialized in process research and complex chemistries. The Companys research & product development capability forms the core of its partnership with global innovators when it comes to in-licensing arrangements for patented / proprietary products for commercializing. In-depth expertise in process research, process development and analytical references enable PI to provide integrated solutions to global customers. The Company continues its focus on new innovative chemistries and processes, cutting- edge technologies.

During the year, the R&D team successfully carried out synthesis of 46 new development molecules. Of which, 20 molecules were scaled up successfully for their next stage of development and 6 molecules are transferred to the next stage. Apart from synthesis and scale up of new products, the team also undertook process improvements for 9 projects in order to identify and implement cost improvement opportunities at the plant level. We crossed the milestone of having more than 100+ patents filed and commissioned our pharma lab at Udaipur (Rajasthan). Moreover, we also worked on technology scale up of novel catalysts, enzyme tech and green chemistry (ecoscale). The Companys R&D and manufacturing team are constantly working together to reduce environmental load, enhance safety and reduce cost.

Product Evaluation & Registration

PI has a world-class, highly competent product evaluation team, which is equipped with the best-in- class tools for data management, product characterization and knowledge generation to help the Indian farmers reap rich harvests by the use of these new age chemical ingredients.

The Company also has a highly knowledgeable, skilled and capable team of registration professionals with deep understanding of Indian regulatory system to register products in India and also facilitate the registration services for the innovators seeking registration in India. The team specializes in planning and coordinating studies with CROs related to bio-e_cacy, residue and toxicological studies in compliance with the applicable regulations for the purpose of quality data submission and regulatory approvals.

Manufacturing

PI has invested in state-of-the-art technologies in order to ensure the highest level of safety, product quality, productivity and consistency in the resulting products. The four integrated manufacturing facilities are cumulatively spread across 100+ acre land and include 14 multi-purpose plants. The manufacturing units are equipped with dedicated high-pressure reaction facilities with high level of futuristic automation. In addition, PIs 2 Formulation units at Panoli cater to domestic requirements of local as well as global clientele. The multi-purpose plants give PI the flexibility to produce new products in a short span of time and scale up to meet the demand of its clients. The manufacturing facilities are ISO 9001, ISO 14001, OHSAS 18001, ISO 50001 and ISO 17025 certified that conform to very high safety and environment management standards. The Companys formulation facilities process agrochemicals in WDG, WG, SC, E, EC, DP, GR, etc. and have a world-class warehousing facility. PIs manufacturing facilities are also equipped with the amenities that help recover, recycle, preserve and reduce water consumption, which in turn, boost its Green Initiatives.

Marketing & Distribution

PI has a rich legacy and track record in building strong brands and delivering on its customer promise by leveraging the strong marketing and distribution set up. The Companys marketing teams adopt a three-pronged approach in building powerful brands and creating strong recall value for its products. Pre-launch efforts include mapping the target users & markets, on-field training, generating testimonials, brand awareness and teaser campaigns. The product launch campaigns include theme, location and venue finalization, stakeholder involvement and press & media coverage. Whilst, the post launch efforts include extensive branding & promotional activities, channel handholding, demand generation activities, geographical & crop label expansion and product stewardship.

Some of PIs major brands such as NOMINEE GOLD, OSHEEN, BIOVITA, AWKIRA, ROKET, KEEFUN, ELITE, HUMESOL have a strong association with farmers and a strong recall value in the minds of the consumers. During the year under review, the Company has launched two new products namely ‘LONDAX POWER and ‘SHIELD which received positive feedback from farmers & channels alike. Inculcation of digital strategy to reach customer base efficiently and in time has added an edge to the marketing strength.

The digital strategy was ingenious in COVID-19 scenario when one-to-one farmer contact was limited. Live streaming of Awkira harvest Days, Live farmer meetings for key brands- Elite, Osheen & Nominee Gold, quizzes & online games for farmer engagement along with content marketing were some of the key initiatives taken. Also, focus on mass media tools- TVC telecast, FM-Radio also helped in gaining wider reach thus supporting the business.

In its endeavour to promote product stewardship as one of the key drivers of its Agchem business, PI celebrated product stewardship day on 16th March 2021. This spirit of stewardship was celebrated by organising 178 farmer meetings across the country through which 15,575 farmers were addressed and made aware about "Safe use of Pesticides" using different communication tools. Special emphasis was laid on use of appropriate personal protective equipment.

PI has a very strong and wide distribution network spanning across the length and breadth of the country. It deploys 28+ stock points including its own depots and C&F agents who work on hub-and spoke distribution model to ensure timely delivery of Company products. With 28+ depots, 1,500 experienced field force, 10,000 active dealer/distributors and more than 100,000 retailers spread across the country, PI reaches out to more than a million farmers. Its centralized SAP-based ERP system provides an efficient last mile connectivity.

Customer Connect

PI firmly believes that investing in an improved customerexperienceformsthecoreofitsbusiness model and leverages its extensive presence in the rural areas effectively by combining the use of latest technology in outreach programs. The Companys strategic business partners meets are held at regular intervals wherein the channel partners are informed and trained on the shifting paradigms in agriculture. Adapting to the COVID situation, in last FY, PI conducted "digital business partners meet" wherein channel partners from target geography participated and exchanged their thoughts and experiences.

The business partners are also provided with necessary trainings to enable them to be ready to deal with technological advancement in agriculture. PIs channel partners along with a strong and experienced field force visit the villages and farmers regularly, conduct group meetings, impart knowledge and train them on improved methods of agriculture to increase yield and productivity.

Financial Review

PI Industries Limited (PI) continued its growth story in FY2020-21 despite the challenges imposed by COVID-19. The proactive measures taken by the Company in supply chain and operations helped it limit the impact of the pandemic.

During FY2020-21, PIs revenue grew by 36% to Rs 45,770 Mn as compared to Rs 33,665 Mn in the previous year. The Company saw strong growth in export of 36% in FY21, contributing to the volume growth of existing products and commercialisation of five new products. Domestic demand was up by 39%, falling well in line with the Companys business plan.

PIs Net Profit for the year saw a healthy 62% growth to Rs 7,383 Mn from Rs 4,566 Mn in FY2020-21. EBITDA margin improved with strong control on fixed overheads and operating leverage. It stood at 22% for the year.

The Company saw significant improvement in its Free Cash Flow and Gross Cash Flow that stood at Rs 3,030 Mn and Rs 9,336 Mn during FY2020-21, respectively. This was backed by Companys measures to improve working capital management and contain capex plans during the year. Total CAPEX entailed in FY21 was Rs 4,589 Mn, order book position continues to stay strong at US$ 1.5 billion with high visibility growth for the next couple of years.

Net worth of PI almost doubled over last year to Rs 53,424 Mn in FY2020-21 due to increased operating profits and QIP fund raise. As on March 31st, 2021, the Surplus Cash net of Debt stood at Rs 20,700 Mn, including QIP net proceeds of Rs 19,751 Mn. Debt equity ratio was at 0.06 as compared to 0.16 in the previous year. The Board of Directors have recommended a final dividend of 200% which is Rs 2 per share. This, in addition to interim dividend of Rs 3 that was already declared in FY21, takes the total dividend to Rs 5 per share for the financial year.

As required under SEBI (LODR) Regulations, key financial ratios on the basis of standalone financials are enumerated below as compared to previous year:

Particulars FY 2020-21 FY 2019-20
Earnings per Share 48.57 32.04
(EPS)
Current Ratio 3.58 1.63
Debt Equity Ratio 0.06 0.20
Operating Profit 23.0% 21.1%
Margin (%)
Net Profit Margin (%) 16.8% 13.4%
Inventory Turnover 4.43 4.59
Particulars FY 2020-21 FY 2019-20
Debtors turnover 6.89 6.03
Interest Coverage 33.28 34.03
Ratio
Return on Net worth 18.2% 17.1%

Internal Controls Systems

PI Industries follows a well-designed internal controls system, incorporating policies and procedures covering all financial and operating functions. These controls enable the Company to maintain highest standards in terms of maintaining accounting records and ensure reliability of financial reporting, monitoring of operations, protecting assets from unauthorized use or losses and compliance with regulations.

All key process controls have been digitized via the ERP systems to maximize automated control transactions. The Company auditors verify IT-enabled controls as part of the review of functions and processes as part of the Internal Audit function. The Company has an Audit Committee Charter which defines the scope of work, requirements, accountability, independence and reporting responsibilities of the Internal Audit Function. This is headed by ‘Head – Internal Audit who reports functionally to the Chairman of the Audit Committee.

At the start of the fiscal year, the Audit Committee of the Board approves a risk-based internal audit plan, based on which the internal audit reviews are conducted. The Annual Audit Plan is aligned with the major risks identified by the businesses.

The scope of audits comprises review and reporting on key process risks, adherence to operating guidelines and statutory compliances. It also recommends improvements for monitoring and enhancing efficiency of operations and ensuring reliability of financial and operational information. The Audit Committee monitors and reviews significant internal audit observations. The Company has engaged Chartered Accountancy firm M/s KPMG LLP for conducting internal audit reviews. Their engagement also included review of existing design, tests of Internal Controls over Financial

Reporting controls (ICFR) for in scope audit areas and for other key processes/ functions to support/ enable the process of CEO-CFO certification and Directors certification under Section 134 of the Companies Act, 2013.

The Company possesses a suitable mechanism for internal controls. These controls have been developed and designed in a manner to properly maintain accounting records for ensuring reliability of financial reporting, monitoring of operations, protecting assets from unauthorized use or losses and compliance with regulations. The Company has digitalized all key processes with maker- checker functionality through the ERP systems to maximize automation and control on transactions that get recorded to the books of accounts.

Reporting: Select Indicators

Environment, Social and Governance (ESG) is at the core of PI. The report has been prepared in accordance with the Global Reporting Initiatives Standards and presents in-depth and transparent balanced disclosures on PIs material economic, environmental, social, and governance issues.

Having reported sustainability highlights as part of our annual report until now, we are releasing our maiden sustainability report for the year 2020-21 as a separate document. The same is available at our website. With an aim to aid the readers of this annual report with certain aspects of our sustainability initiatives, we are presenting select indicators as follows:

Genders Pay Indicators (As on 31-03-2021)

Level Name

30-50 Years

Less than 30

More than 50

Grand
Female Male Female Male Female Male Total
Director - 1 - - - 2 3
Top Management - 3 - - - 14 17
Sr. Management 2 55 - - 1 22 80
Middle Management 8 154 - - - 36 198
Junior Management 10 284 6 13 - 33 346
Executives 20 492 27 259 - 18 816
Officer and Associates 2 817 11 383 - 64 1,277
Worker - 27 - - - 18 45
Fixed Term - 78 - 95 1 7 181
Grand Total 42 1,911 44 750 2 214 2,963

Human Rights

Human rights remain at the forefront of all activities undertaken by the company. All PI Industries employees operations are carried out as per provisions of national & international laws which duly protect all human rights standards, including safety and wellbeing. The HR Commitment policy of the Company guides the employees on professional conduct towards non - discriminatory practices based on gender, ethnicity, religion, age, etc. We continually review, monitor and address risk of violation of human rights. We have onboarding process also wherein we do qualify vendors on their commitment towards the HR commitments and Supplier COC wherein such commitments are taken. HR Commitment policy for PI is available on following link https://www.piindustries.com/sustainability/ Governance/Human-Rights-Commitment

Risk Management

PI has continuously strived to promote culture of Adaptability, Trust, Speed and Innovation by adopting accountability, transparency and excel performance. PI follows a strict structure to identify, mitigate and monitor risks. All businesses, new projects and related activities go through a detailed feasibility study by internal or external teams to assess risks associated with them. At PI, paramount importance is given to the risk assessment exercises which are conducted at manufacturing units to ensure operations are conducted in the safest manner. Safety audits happen at regular intervals to ensure identification, mitigation and monitoring of the risks.

Risk Management is aimed at minimizing the adverse impact of these risks, thus, enabling the Company to leverage market opportunities effectively and enhance its long-term competitive advantage. The focus of risk management is to assess risks and deploy mitigation measures. This is done through periodic review meetings of the management.

PI has a CFT team under capital expenditure process wherein it identifies potential risks. The Companys top management conducts regular and periodic reviews on the high level projects. In addition, PI has a robust business continuity plan in place that keeps it ready to make necessary adjustments to ensure business continuity in case of any exigent event surfacing from its operating environment. The almost immediate reactivation of its business at the time of the sudden lockdown was a small testament of efficacy of its business continuity plan.

The Companys Risk Management Committee comprises of 5 members, majority being board members including one Independent Director. Risk Management Committee is continuously provided with risk-specific education through which they are informed about latest-risk management practices and are equipped to assess various forms of risks.

The primary responsibilities of the Committee shall include:

Formulate a Risk Management Framework and recommend the said framework and any amendments thereto to the Board for its approval.

Establish that appropriate methodology, process and systems are in place to monitor, evaluate and report risks associated with the business.

Review the adequacy of the existing measures to mitigate various risks.

Evaluate and approve new risks and mitigation measure that may be recommended by the Chief Risk Officer in respect of any function and review the action for its implementation on an ongoing basis.

Evaluate and direct that appropriate processes and systems are in place to monitor, evaluate and report cyber security risks associated with the business of the company and to review the adequacy of the existing measures to mitigate the said risk.

PI has adopted an integrated approach for ERM together with the Code of conduct, Standards

& Manuals, and Controls system which further involves periodic assessments of the total risk profile for the entire organization. PI aims to integrate risk management across the organization to support its vision and towards achieving its business objectives.

This is accomplished by:

i) Training employees to consider risks as part of their decision making process

ii) Risk identification, evaluation, prioritization, consolidation and monitoring

iii) Implementing risk management policy

The Company has appointed Ms. Shilpa Sachdeva Bhullar as Chief Risk Officer of the Company w.e.f March 20, 2021.

Human Resources

In support of the high growth strategies of Companys business, PI added 552 employees (gross) to its permanent workforce during the year across all levels. Continued focus on leveraging technology, social media tools and building employer brand helped the company complete its hiring program effectively and efficiently. The company also launched a revamped on boarding program called Project Aagman which helped in much faster assimilation of new talent in the company. The company also initiated the red carpet event for all new joiners giving a platform to new joiners for interaction with top management

In line with its compensation policy, PI closed the annual increment cycle and made market corrections where necessary with view to retaining high-performing talent as well as to ensure that pay levels and structure are competitive with market.

Employee well-being was central focus point for the company during the covid year. PI has always provided an encouraging and empowering environment to all employees. The Company provided a fully enabled and equipped work from home arrangement to office-based employees whilst also instituting COVID-appropriate protocols at all its manufacturing locations in no less time when disruption struck. Multiple initiatives like new Mediclaim policy; extending support for Corona victims were launched. The company partnered with hospitals and doctors to provide covid care support during the year.

Recognising the importance of identifying and developing high-performers as well as employees with potential for fast-track growth, PI completed comprehensive Talent Management programme – Project Udbhav. This project covers all managerial and leadership levels in the Company and consists of:

- Evaluating employees against behavioural and leadership competencies using a battery of proven tests

- Developing and implementing individual development plans for each employee through a mix of experiential learning, executive education, cross-functional teaming and coaching and mentoring

- Developing differentiated career paths for employees based on their performance and potential

- Establish a structured process for Talent Review to monitor the progress and development of employees in line with business needs

- Use the outcomes of the assessments to develop succession plans for critical role

- Integrate the outcomes of the above with career decisions

As on March 31, 2021, 230 employees had completed their assessments and subsequent talent review exercise was done where the leadership participated in curating the future career track for all high potential employees.

Employee Engagement continues to be in focus. Owing to COVID-19 most of the engagement initiatives were undertaken during the year virtually. Initiatives like Stepthalon, Dental Camp, International Yoga Day have been the highlights of attracting employees and bringing them closer to the culture of the organization.

Continuous improvements in HR Systems and Processes were made during the year, based on user feedback. Besides making the system user friendly, these improvements have also strengthened system controls. A comprehensive HR SOP has now been developed to act as a standalone document for process reference and compliance.

Total permanent workforce of the Company stood at 2,963 as on March 31, 2021.

The Company was recognised by world HRD congress with 2 awards

1. Award for Best HR Strategy in Line with Business - For our work in a challenging year of COVID-19 in driving Hiring, Aagaman, Engagement through Digital initiatives, Virtual Learning and Udbhav.

2. Award for Continuous Innovation in HR Strategy at Work – For our work in digitizing the Hire to retire processes with minimal manual intervention.

The various training programs were conducted during the financial year 2021-21. The average hours of training per year per employee is 15 hours.

Information Technology

The year 2020-21 was fraught with challenges related to Covid-19. There were issues with respect to lockdowns; the need to collaborate virtually, usage of tools and apps that were primarily accessible only from the office, the need to stabilize supply chains and work on the sales and distribution, keeping the production running whilst maintaining close but virtual contact with our customers and partners. PI was completely ahead of the curve and was able to handle the disruption due to Covid-19 smoothly by rolling out digital tools such as MS Teams, Zoom, WebEx etc. allowing our workforce to continue to deliver strongly whilst working from home. All-important applications were extended securely to employees to ensure work is not impacted. Needless to say, bandwidth across the sites was upgraded in quick time to cater for increased load of video calling and the use of collaboration software. This allowed smooth inter and intra team interactions. In addition, PI innovated digitally in this time of need and maximized its consumer and customer interactions through effective use of Facebook, YouTube and other social media platforms.

Whilst the digital strategy of PI is focussed on deliveringvaluetoourbusinessesandcustomers, the specific focus of the Digital Platforms and Tools rolled out this year have been centred around optimization of production, reduction in spends, maximizing sales, building customer loyalty and integrating inter and intra business processes via digital means.

PI had launched the mPower Platform for our Agri Business in the previous year duly connecting our Agri distribution business with consumers, customers, retailers and distributors. As an extension to the mPower platform, PI launched a customer loyalty application – ‘PI Mitra which allows customers to scan the QR Codes of our product boxes and earn loyalty points. This was a huge success and very popular with the channel. Accordingly, PI Mitra was downloaded by over 16,000 channel partners and over

Rs 30 Mn was redeemed for the loyalty points they earned by selling our products. We also moved out of the legacy Sales Platform which was only web based and over a decade old. We migrated to the Sales Order Module in the mPower app that allows our channel partners, sales force and depots to execute sales via the mPower app and is available on Web, Android and iOS platforms. This has been a grand success as users of the platform are able to order and see the current order status, delivery, inventory levels etc via the mobile - giving power to the users in the palm of their hands! PI also augmented mPower Spraying Services module and integrated it with our financial transaction system of our ERP software.

Bringing about innovation and reduction of operational costs whilst increasing output and enhancing quality is one of PIs key objectives. The Company had, in the previous year, embarked on implementation of the Golden Batch Project for one of its plants. This platform integrates with fully automated DCS plants and provides deep data driven insights into manufacturing processes. This year it has also been extended to three other plants. In addition, PI has significantly improved the security of the Plants by placing state-of-the-art cyber security systems for the protection of the plants from cyber-attacks.

As a strategy of standardizing and optimizing procurements, PI has successfully launched SAP ARIBA – Sourcing and Discovery Modules as well as Supplier Lifecycle Module. This ensures that the procure to pay process is fully automated right from vendor onboarding, vendor selection, online bidding to online reverse auctions that ensure that the Company acquires goods at the best and the most competitive rates. Launch of SAP Ariba will not only ensure standardization of the procurement process but will ensure that our logistics and procurement teams have access to global supply chains ensuring alternate pathways to procurements at the best costs in these challenging times.

PIs Research Platform, the Electronic Laboratory Notebooks (ELN) has been augmented to include a variety of protocols and workflows involving a number of trials and studies. In addition, the ELN platform has been enhanced with Signals – a cloud based ELN system for collaboration with our external partners and CROs.

In order to keep its employees motivated and trained, PI has launched the Percipio Platform that provides hundreds of e-Learning courses from a wide variety of professional topics for employees to indulge in via their laptops, desktops, mobiles or tablets.

The Companys Infrastructure and Digital Platforms are hosted in a state-of-the-art Tier 4 data centre in the Delhi NCR region. The deployed IT systems are robust, flexible and scalable with backup systems, replication and Disaster Recovery in place. PI has deployed a Business Continuity System in the South of the Country with all critical business systems having the capability of being operated from the alternate location. In addition, PI has invested in and implemented state of the art cyber security systems and processes in place. From threat protection devices to firewalls on one end of the spectrum to end point protection via robust anti-virus, anti-malware systems and data prevention systems with end users at the other end of the spectrum, PI, an ISO 27001 company is at the forefront of digital protection and cyber security.