Panama Petrochem Ltd Management Discussions

The management of Panama Petrochem Ltd. presents the analysis of the Company for the year ended MarcRs.31, 2024 and its outlook for the future. This outlook is based on assessment of the current business environment. It may vary due to future economic and other developments both in India and abroad.

This Management Discussion and Analysis ("MD&A") Report of Panama Petrochem Ltd. for the year ended MarcRs.31, 2024 contains financial highlights but does not contain the complete financial statements of the Company. It should be read in conjunction with the Companys audited financial statements for the year ended MarcRs.31, 2024.

GLOBAL ECONOMY

The global economy is expected to sustain its resilience in 2024. The IMF forecasts a global growth of 3.1% in 2024, with a slight uptick to 3.2% in 2025. Asia is expected to again contribute significantly to global growth in 2024, echoing its impact in 2023.

Global headline inflation is expected to decrease to 5.8% in 2024 and 4.4% in 2025. The global economic outlook for 2024 will be impacted by higher interest rates, carrying the risk of a resurgence in inflation and shifts in the anticipated monetary stance. Furthermore, the ongoing Russia-Ukraine conflict has the potential to dampen the overall economic outlook of the EU.

The escalation of geopolitical conflict in the Middle East and the Red Sea route could elevate logistics costs, energy and commodity prices, raise the risks of supply disruptions, and pose downside risks to the global economy. However, with faster disinflation and steady growth, the possibility of a severe economic downturn has decreased. Positive factors, such as stronger-than-expected economic performance of the US and several large emerging market and developing economies, economic stimulus measures in China, and the resilience of Europe, are poised to bolster the outlook of the global economy. On the policy front, central banks focus will be on managing the decline of inflation and carrying out calibrated fiscal consolidation to support durable medium-term growth.

INDIAN ECONOMY

Amid the volatile global economic environment, India emerges as a symbol of optimism, maintaining its position as the worlds fifth-largest economy and expected to continue leading as the fastest-growing major economy. As per the Second Advance Estimates of National Income, 2023-24, Indias GDP growth remained strong at 7.6% in FY 2024 as against 7% in FY 2023, supported by buoyant domestic demand, moderate inflation, a stable interest rate environment, and strong foreign exchange reserves. Additionally, a double-digit growth rate of 10.7% in the construction sector and an 8.5% growth rate in the Manufacturing sector have contributed to the GDP growth in FY 2024. The Index of Industrial Production (IIP) shows that the output of Indias industry grew by 6.1% in the first three quarters of FY 2024 compared to 5.5% in the corresponding period of last year.

According to the IMF, the Indian economy is anticipated to progress steadily at 6.7% in FY 2024 and 6.5% in FY 2025. However, the RBIs forecast is more optimistic, projecting a higher GDP growth of 7.6% for FY 2024 and 7.0% for FY 2025. Indias economic outlook remains positive, supported by stronger consumer demand, increased capital expenditure, and enhancements in both physical and digital infrastructure. Private and government investments are expected to be the primary drivers of economic growth in 2024, backed by improving prospects of rural consumption due to the easing of inflation, increased spending in an election year, and proactive government policy measures. The Interim Budget 2024-25 reflects the Governments continued focus on infrastructure development, economic stability, sector-specific developments, environmental sustainability and strategic global positioning.

INDUSTRY OVERVIEW

The petrochemical industry is a dynamic and essential part of the global economy, characterized by significant technological advancements and facing both opportunities and challenges. With a focus on sustainability and innovation, the industry is poised to continue playing a critical role in supporting diverse economic sectors and addressing global needs.

Today, petrochemicals play a vital role in numerous sectors including manufacturing, agriculture, and healthcare, among others. In India, they are pivotal in driving the nations economic growth towards becoming a superpower. The sectors growth trajectory is expected to remain upward due to evolving consumer preferences, ongoing innovations, and increasing consumer demand.

Indias chemical and petrochemical industry is forecasted to reach approximately USD 300 billion by 2025. The Ministry of Petroleum estimates that demand for petrochemicals will triple by 2040, reaching USD 1 trillion.

Factors such as population growth, technological advancements, and rising awareness are driving the demand for petrochemical products, especially in developing nations like India.

Indias petroleum sector is poised to be a key economic driver, with both public and private oil companies increasing investments in refineries to meet the rising demands and reduce import dependency.

The availability of resources and a favorable geopolitical environment in India are attracting investments from global oil companies into the petroleum sector.

The governments focus on research and development in the petrochemical industry, along with initiatives like expanding gas pipelines and refining capacity, is driving growth. Tax concessions on petrochemical products further stimulate the industrys expansion, particularly in polymers, synthetic fibers, and plastics.

BUSINESS OVERVIEW

Established in 1982, Panama Petrochem Ltd. is one of the leading manufacturers & exporters of nearly 80 variants of petroleum specialty products.

The products are vital for various industries like inks and resins, textiles, rubber, pharmaceuticals, cosmetics and other industrial purposes. With an object to continue its expansion, the Company has established a subsidiary in UAE i.e. Panol Industries RMC FZE, in order to cater the markets of Middle East and African Continent. Your Company exports to more than 75 countries with overseas revenue contribution of around 38% of the total turnover of the company in F.Y. 2023-24.

Given the pace at which the investments are happening in this sector and how the government is shaping its policies to give a push to petrochemical products, it comes as no surprise that Indias petrochemical sector provides lucrative opportunities to investors, and there is huge potential that still needs to be tapped, Panama Petrochem Limited is working towards creating a difference in Indias petrochemical industry by continuously creating products that are safe and drive the nation to become self-reliant.

MANUFACTURING FACILITIES

The Company has four manufacturing units, all located in western India, namely in Ankleshwar (Gujarat), Daman (Union Territory), Taloja (Raigadh, Maharashtra) and Dahej (Bharuch, Gujarat). The Companys products are exported to more than 75 countries globally. Additionally, the Company has been certified as a Star Export House with a fully equipped state-of-the-art Research and Development Centre at its Ankleshwar unit where it formulates new and value-added products. The Company manufactures nearly 80 product variants used across 6-7 broad industry segments and is accredited as ISO 9001:2015; ISO 14001:2015; ISO 45001:2018 certification by Benchmark.

The Company also develops customized products as per client specifications in the field of petroleum and feeds to various industries like Printing Ink, Resin, Cosmetics, Rubber products, Pharmaceuticals, Engineering, and Chemicals including Petro Chemicals.

With the vision to fuel growth and meet the rising needs of our clients, the Company has made a significant expansion by acquiring approximately 4.5 acre (approx.18,000 sq. meters) land in Thane, Maharashtra, to boost its manufacturing capacity and effectively address the growing demands of the market.

Moreover, the Wholly-Owned Subsidiary of the Company namely, Panol Industries RMC FZE incorporated in UAE has also initiated an expansion project by securing an additional property located at RAK Maritime City Free Zone, thereby enhancing its operational capacities and positioning itself to provide even greater service and achieve newer heights.

Over the years, the Company has formed strong relations with its clientele, comprising of leading names across sectors. Its ability to offer customized products complying with global quality standards has enabled to generate business not only from existing clients, but has also added new clients through business referral.

PRODUCT WISE SALES BREAK-UP FOR THE FINANCIAL YEAR 2023-24

Panoil is the key product of the Company, it has various variants depending upon its end use application.

FUTURE OUTLOOK

The launch of Make in India initiative by the government and investments in smart cities are strengthening the industrial sector which is driving the demand for petroleum speciality products. The government is concentrating on infrastructure, mining, and road development which will witness recovery with increased demand for our products. As a result, the aggregate demand of all the key segments in the petrochemical industry is likely to regain a sharp positive trajectory, with key players aiming to ramp up scale.

Increased automobile production, Investments in distribution and branding, demand for advanced lubricants and manufacturers focus on expanding production capacities are expected to further drive the growth of Indias industrial lubricant market.

Panama Petrochem Limited being a provider of various petroleum specialty products across multiple industries is well- positioned to capitalize on growth.

Furthermore, the Company is actively expanding its manufacturing facilities and operations to cater to the growing demands globally and withstand against the negative market forces. Simultaneously, it remains optimistic about mitigating the impacts of price fluctuations in the petroleum industry.

In the managements view the Company will continue to strengthen its financial position and is poised for a promising business growth, with a bright outlook for the coming year. The robust GDP growth, coupled with Panama Petrochem Limiteds diverse product offerings and focus on innovation, creates a highly favorable environment for the Company to thrive and succeed in the market.

OPPORTUNITIES

The recent positive signs emerging from the western world, augur weft for our international business particularly for some of the specialized products strategically earmarked for export markets.

With increasing industrialization, focus on infrastructural development and outsourcing boom, the demand for the petroleum products manufactured by the Company is likely to further improve in the coming years. Demand for intermediates, specialty chemicals etc. will increase the demand for petroleum specialty products. This will result in a significant growth in this industry. Growing demand from the rubber industry, personal care industry, and power sector will lead to a strong demand in petroleum products. The relationship established by the Company with the clientele would help in further growth in its business. Moreover, the Company has been increasing its presence in the export markets like USA, Africa, Europe and Asia.

THREATS

Changes in Government policies, especially regarding import of Base Oil will have an adverse impact on the performance of the Company. However, considering the multifarious purposes for which it is used, the domestic supplies are not adequate to meet such domestic demands, hence, the possibilities for any extreme changes in Government policies appear to be remote.

RISKS AND CONCERNS

Strategic and Commercial Risks

Companys financial performance is subject to the fluctuating prices of crude oil and downstream petroleum products. Prices of products are affected by supply and demand, both globally and regionally. Factors that influence fluctuations in crude prices and crude availability include operational issues, natural disasters, political instability, economic conditions and Government pricing policy of petroleum products among others.

Environmental

Risks

AH phases of the oil business present environmental risks and hazards. As a result, they are subject to environmental regulation pursuant to a complex blend of federal, provincial, and municipal laws and regulations. The Company is in compliance with current applicable environmental rules and regulations.

I Financial Risks

Financial risks associated with the petroleum industry include fluctuation in commodity prices, interest rates, and currency exchange rates and profitability of the Company depends on the prices and availability of the base oils. Foreign exchange risk is tracked and managed within the risk management framework. The interest rate risk is managed by the Company through various financial instruments available to convert floating rate liabilities into fixed rate liabilities or vice-versa.

Operational

Risks

Operational risks include competitive environmental factors, reservoir performance uncertainties and dependence upon third parties for commodity transportation & processing and a complex regulatory environment. The Company closely follows the applicable Government regulations. The Company carries insurance coverage to protect itself against those potential losses that could be economically insured.

Cyber Security Risks

The use of information and telecommunication technologies is increasing, resulting in greater security threats to its digital infrastructure. A breach of the digital security or disruptions to the digital infrastructure of the Company, due to intentional actions, such as cyber-attacks or human error could lead to serious impacts to its businesses. These impacts may include injury to staff, loss of control, impact on continuity or damage to assets and services, harm to the environment, the loss of sensitive data or information, legal and regulatory breaches and reputational damage. But the Company continues to strengthen its responses to cyber security threats through proactive and reactive risk mitigations.

Safety Risks

Safety is an ever-evolving journey. The Companys manufacturing facilities have adopted Safety Management System. Regular audits are conducted to assess the on-ground implementation of various processes prescribed by Safety Management System. Critical safety incidents are studied by the senior leadership.

Regulatory

Risk

The Company operates in a highly regulated industry and is subject to laws and regulations any violations of applicable laws, regulations, and procedures would adversely affect the Companys business, reputation, and market share. The Company closely monitors the regulatory requirements and their implications on the business operations. It strictly adheres to the regulations and implements controls and procedures to ensure that it complies with the applicable laws and regulations.

Competition

Risk

The petrochemical industry is highly competitive. The Companys comprehensive portfolio coupled with its extensive global presence, scale capacity, and longstanding client relationships differentiate it from competitors and empower it to successfully compete in the industry.

Human Resource Risk

The Companys success largely depends on the strength of its skilled professionals and management team. Shortage of skilled workforce, high attrition rates, underutilization of personnel, or lack of the right skills may disrupt the Companys operations, productivity, and growth prospects. The Company undertakes numerous initiatives to attract and retain its talented workforce and improve employee engagement. The Company ensures the availability of the right skills in the right quantity through capability development and capacity augmentation activities.

PERFORMANCE

• Earnings before Interest, Depreciation, and Tax & Amortization (EBIDTA) on a standalone basis for F.Y. 2023-24 was Rs. 200.22 Crore, which has resulted in a decrease of 22.50% in comparison with the previous years EBIDTA.

• The Net profit after tax for F.Y.2023-24 was RS.131.25 Cr., as against RS.180.57 Cr. in the previous year, resulting in 27.31 % decrease.

• The Companys standalone revenue from operations for F.Y. 2023-24 was RS.1,724.92 Crore which is an increase of 0.98% over the previous years revenue.

• The consolidated revenue from operations of the Company for the year ended MarcRs.31, 2024 was RS.2356.74 Crore which has increased by 4.80% on a Year on Year basis.

• Net Profit of the Company on a consolidated basis was RS.195.15 Crore which has decreased by 16.23% as that of the previous year.

• EPS on standalone basis is RS.21.70 as against RS.29.85 in the previous year.

• EPS on consolidated basis is RS.32.26 from RS.38.51.

KEY FINANCIAL RATIOS

Ratio Analysis	Units	Standalone		Consolidated
		F.Y 2024	F.Y 2023	F.Y 2024	F.Y 2023
Trade Receivable/Debtors Turnover Ratio	Times	4.99	5.91	6.25	6.75
Inventory Turnover Ratio	Times	5.41	4.78	5.78	5.52
Current Ratio	Times	3.15	3.00	3.81	3.56
Debt Equity Ratio	Times	0.03	0	0.02	0
Operating Profit Margin	%	11.54	14.77	11.33	13.61
Net Profit Margin	%	7.61	10.60	8.28	10.36
Return on Networth	%	22.63	25.49	23.46	27.08
Debt Service/Interest Coverage Ratio	Times	11.97	25.58	14.95	27.27
Return On Equity Ratio	%	22.63	25.49	18.99	27.08
Trade Payables Turnover Ratio	Times	6.42	3.50	8.44	4.62
Net Capital Turnover Ratio	Times	3.05	3.29	2.86	3.23
Return on Capital Employed	%	22.63	32.73	23.46	32.15

HUMAN RESOURCE/INDUSTRIAL RELATIONS

The Company considers its employees as the most important asset and integral to its growth and continued success. Over the past years, the Company has increased its focus on its employee engagement and development, launching various new initiatives with the goal of attracting, engaging, retaining, and fostering key talent and diversity across the organization. The Company has increased its investments in learning and skill development initiatives.

The Company recognizes the importance and contribution of human resources in its growth & development and values their talent, integrity and dedication. The Company offers a highly entrepreneurial culture with a team based approach that we believe encourages growth and motivates its employees. The Company has been successful in attracting and retaining key professionals and intends to continue seeking fresh talent to further enhance and grow its business.

It is the people that make an organization. With human resources department being the custodian of all people related processes, it becomes a critical factor in organisational success. The HR works with an objective of aligning the aspirational needs of the people with the organizational objectives of sustained growth, market leadership and cost competitiveness. Its sole aim is to build the Company an exemplary organisation that inspires excellence every day. People development has been a constant focus of HR.

SUSTAINABILITY

It has been a constant endeavor of the Organization to formulate, adopt and improve its business model, embracing both sustainability and growth agenda. This model helps us build efficiencies to achieve sustainable business performance. As part of our sustainability agenda, we focus on conservation of environment, natural resources and energy efficiency. Our operational strategy is built on a long term commitment to experiment and implement new ideas for improving efficiencies and minimizing the use of input resources. Our continued endeavours towards improving productivity and efficiency of all processes, equipments and systems as well as optimization measures have made the Company as one of the most efficient players in terms of energy consumption and resource utilization.

Additionally, the Company has a robust ESG Risk Analysis and monitoring framework which is directly overseen by the Risk Management Committee of the Company.

Moreover, focus on renewable energy continues to remain a thrust area in our sustainability agenda. This has helped the Company in conserving precious natural resources.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has a robust internal control mechanism in place commensurate with the size and nature of its business. The internal control systems comprising policies and procedures are designed to ensure that operations are efficiently managed and aligned with the strategic objectives of the Company and address various aspects of governance, compliance, audit, control, and reporting. The internal controls are responsible for complying with the regulatory requirements, preventing fraud and errors, safeguarding the Companys assets and finances, and preserving the accuracy and reliability of financial transactions and reporting.

The Company has an effective internal audit and control system. The Internal audits are conducted by a firm of Chartered Accountants, ably supported by an internal team staffed with qualified and experienced people. All operational activities are subject to internal audits at frequent intervals. The existing audit and inspection procedures are reviewed periodically to enhance their effectiveness, usefulness and timeliness.

The Audit Committee of the Board of Directors, regularly reviews the findings of the internal auditors, adequacy of internal controls, financial controls, compliance with the accounting standards, as well as recommends to the Board, the adoption of the quarterly and annual results of the Company and appointment of auditors. The Audit Committee also reviews the related party transactions, entered into by the Company during each quarter.

CAUTIONARY STATEMENT

Readers are cautioned that this Management Discussion an Analysis Report may contain certain forward looking statement based on various assumptions on the Companys presen and future business strategies and the environment in whic it operates. The Companys actual performance may diffe materially from those expressed or implied in the statement a important factors could influence Companys operations suc as effect of political conditions in India and abroad, economi development, new regulations, Government policies and suc other factors which are beyond the control of the Company an may impact the businesses as well as its ability to implemen the strategies.

	By Order of the Board of Directors
	For Panama Petrochem Ltd.
	Amirali E. Rayani
Date: May 27, 2024	Chairman
Place: Mumbai	DIN:00002616