Patel Chem Specialities Ltd Management Discussions

You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in this Red Herring Prospectus. You should also read the section entitled "Risk Factors" on page 28 which discusses a number of factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and is based on our restated financial statements, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources.

Our financial statements have been prepared in accordance with Indian GAAP, the Companies Act and the ICDR Regulations and restated as described in the report of Peer Reviewed Auditor dated May 19, 2025 which is included in this Red Herring Prospectus under "Financial Statements". The Restated Financial Information has been prepared on a basis that differs in certain material respects from generally accepted accounting principles in other jurisdictions, including US GAAP and IFRS. Our financial year ends on March 31 of each year, and all references to a particular financial year are to the twelve-month year ended March 31 of that year.

Overview of the Company

Our Company operates in the field of specialty chemicals, particularly focusing on the production of cellulose-based excipients. We manufacture a diverse range of products that are critical to various industries, including pharmaceuticals, food & beverages, cosmetics, and numerous industrial applications. These chemicals are fundamental in the formulation of essential products such as tablets, food additives, personal care items, and industrial formulations. Our products play vital roles as binders, disintegrants, thickeners, stabilizers, and gelling agents, each serving a specialized function across multiple sectors.

Since inception, our Company manufactures Sodium Monochloro Acetate (SMCA), Sodium Starch Glycolate (SSG), Croscaremellose Sodium (CCS), Carboxymethyl Cellulose Calcium (Calcium CMC), Sodium Carboxymethyl Cellulose (CMC Sodium), Microcrystalline Cellulose (MCC)). With a commitment to quality and innovation, we have successfully established a strong global presence, exporting our products to over 15 countries, including the USA, Germany, UK, Japan, China, Australia, and many more. Our expertise in producing high-quality excipients has enabled us to carve out a niche in the cellulose-based chemicals market, driven by our adherence to international quality standards such as US-DMF, GMP, ISO 9001:2015 etc.

For more information on our Companys business, please refer to chapter titled "Our Business" on page 133 of this Red Herring Prospectus.

Significant Developments Subsequent to the period ending March 31, 2025

After the date of last audited accounts i.e. March 31, 2025 the Directors of our Company confirm that, there have not been any significant material developments which materially and adversely affect or is likely to affect within the next twelve months for the trading or profitability of the Company, the value of its assets or its ability to pay its liability.

Key factors affecting our results of operations

The business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factor" beginning on page 28 of this Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

(i) We do not have long-term agreements with our suppliers for raw materials and an inability to procure the desired quality, quantity of our raw materials in a timely manner and at reasonable costs, or at all, may have a negative impact on our business, results of operations, financial condition and cash flows.

(ii) Majority of our domestic purchases and imports for the last 3 Financial Years is dependent on few states and single country. Any loss of business from any of these states and country may adversely affect our ability to procure our raw materials in time to meet our customers needs.

(iii) Majority of our domestic sales for the last 3 Financial Years is dependent on few states. Any loss of business from any of these states may adversely affect our revenues and profitability.

(iv) The restated financial statements have been provided by peer reviewed auditor who is not statutory auditor of our Company.

(v) Our Major Exports are to Egypt, United States, Russia, South Korea, United Kingdom, Japan and Germany. Any loss of business from any of these countries may adversely affect our revenues and profitability.

Our Significant Accounting Policies:

For Significant accounting policies please refer Significant Accounting Policies, beginning under "Restated Financial Statements" on page 200 of this Red Herring Prospectus.

Discussion on Results of Operations:

The following discussion on results of operations should be read in conjunction with the restated financial results of our Company for the financial years ended March 31, 2025, March 31, 2024 and March 31, 2023.

Main Components of our Profit and Loss Account

Income - Our total income comprises of revenue from operations and other income.

Revenue from Operations- Our revenue from operation includes Domestic sale of goods and export sale of goods.

Other Income Other income includes Interest Income from long term investments, Exchange fluctuation gain and Duty drawback.

Expenditure- Our total expenditure primarily consists of Cost of Material Consumed, Changes in inventories of finished goods and Stock in trade, employee benefit expenses, Depreciation, finance costs and Other Expenses.

Cost of material consumed - Cost of material consumed are primarily in relation to purchases raw material for manufacturing.

Changes in Inventory of finished goods & work- in progress - Changes in Inventory of finished goods & work- in progress primarily consist of difference between inventories at end of the year and beginning of the year.

Employee Benefit Expenses- Our employee benefits expense comprises of Salaries and direct wages, Director Remuneration & Staff Welfare Expenses.

Finance costs- Our Finance cost expenses comprise of Interest Expenses & other related borrowing costs.

Other Expenses- Other expenses primarily include Manufacturing Expenses, Transportation Administrative & Selling Expenses, etc.

Provision for Tax- The provision for current taxation is computed in accordance with relevant tax regulations. Deferred tax is recognized on timing differences between the accounting and the taxable income for the year and quantified using the tax rates and laws enacted or subsequently enacted as on balance sheet date. Deferred tax assets are recognized and carried forward to the extent that there is a virtual certainly that sufficient future taxable income will be available against which such deferred tax assets can be realized in future.

Our Results of Operation

The Overall Industrial growth also Impact the profit margins, because we increase the high margin sales and use our production plant accordingly to reduce the production loss time.

RESULTS OF KEY OPERATIONS

The following table sets forth select financial data from our restated financial statement of profit and loss for the financial years ended March 31, 2025, March 31, 2024 and March 31, 2023 the components of which are also expressed as a percentage of total revenue for such period and financial years.

						( in lakhs)
Particulars			For the year ended on
	March 31, 2025	% of Total Income	March 31, 2024	% of Total Income	March 31, 2023	% of Total Income
Revenue from operation	10,508.78	99.56	8,236.16	99.57	6,939.60	99.45
Other income	46.40	0.44	35.45	0.43	35.15	0.50
Total Revenue	10,555.19	100.00	8,271.61	100.00	6,974.75	100.00
Cost of material Consumed	7,552.05	71.55	5,894.98	71.27	5,509.36	78.99
Changes in inventories of Finished Goods and Stock - in- process	(150.10)	-1.42	(199.24)	(2.41)	(46.01)	(0.66)
Employee Benefits Expenses	482.28	4.57	379.98	4.59	293.14	4.20
Finance Cost	98.49	0.93	99.11	1.20	111.79	1.60
Depreciation and Amortisation Cost	71.65	0.68	66.29	0.80	56.02	0.80
Other Expenses	1091.26	10.34	993.71	12.01	635.62	9.11
Total Expenses	9,145.65	86.65	7,234.82	87.47	6,559.92	94.05
Profit Before Tax	1409.54	13.35	1,036.78	12.53	414.83	5.95
Tax Expenses	353.01	3.34	271.16	3.28	126.22	1.81
Profit (Loss) for the Year	1,056.54	10.01	765.62	9.26	288.61	4.14

COMPARISON OF FY 2025 WITH FY 2024

Revenue from Operations

During the FY 2025, the revenue from operations was 10,508.78 lakhs as compared to 8,236.16 lakhs in FY 2024. The increase operational revenue can be attributed to the better capacity utilization as a result of the additional demand for our products. The exports of our company increased by 58.57 % in FY 2025 as compared to FY 2024 and domestic sale increased by 22.61 % in FY 2025 as compared to FY 2024.

Revenue Other Income

During FY 2025, the other income was 46.40 lakhs as compared to 35.85 lakhs in FY 2024. The other income increased by 29.42% in FY 2025 as compared to FY 2024 aided by higher interest income, subsidy and duty drawback income.

Cost of material consumed

Our cost of materials consumed for the FY 2025 was 7,552.05 lakhs as compared to 5894.98 lakhs for FY 2024. This was primarily due to increase in purchase of raw materials and consumables to compensate for increase in production.

Changes in inventory of finished goods, stock-in-trade, and work-in-progress

Changes in inventory of finished goods, stock-in-trade, and work-in-progress for the FY 2025 was (150.10) lakhs as compared to (199.24) lakhs for FY 2024.

Employee Benefits Expenses

Employee benefit expenses in the FY 25 increased by 26.92%, reaching 482.28 lakhs in comparison to the 379.98 lakhs incurred in the FY 24. This rise in employee expenses stemmed from increases in salaries and wages which went up by 50 lakhs, directors remuneration by 32.04 lakhs, Contribution to PF and other funds increased by 18 lakhs and Leave encashment which went up by 35.84 lakhs.

Finance Cost

Finance cost in the FY 25 was stagnant at around 1 crore.

Depreciation and Amortisation Expenses

Depreciation and amortization in the FY 25 surged by 8.09%, reaching 71.65 lakhs in comparison to the 66.29 lakhs incurred in the FY 24. This increase in depreciation was as a result of acquiring fixed assets.

Other Expenses

Other expenses in the FY 25 increased by 9.82%, reaching 1,091.26 lakhs in comparison to the 993.71 lakhs incurred in the FY

24. This rise in other expenses was primarily attributed to several factors, including 44.16 lakhs increase in Power & Fuel, 23.42 lakhs increase in freight & forwarding, 46.65 lakhs in Advertisement expenses and 69.06 lakhs in Commission.

Tax Expenses:

Tax expenses increased by 30.19%, reaching a total of 353.01 lakhs in the FY 2025, in contrast to the 271.16 lakhs in the FY 2024. This notable increase in tax expenses can be primarily attributed to increase in profit after tax.

Profit after Tax (PAT)

Due to the aforementioned factors, the profit experienced a increase, primarily driven by the decrease in Other expenses as a percentage of total income. The Profit After Tax (PAT) for the FY 25 reached 1,056.54 lakhs, marking an increase from 765.62 lakhs in the FY 24. In the FY 24, PAT constituted 10.01% of the total revenue, in contrast to 9.26% in the FY 24.

COMPARISON OF FY 2024 WITH FY 2023

Revenue from Operations

During the FY 2024, the revenue from operations was 8,236.16 lakhs as compared to 6,936.60 lakhs in FY 2023. The increase operational revenue can be attributed to the better capacity utilization as a result of the additional demand for our products. The exports of our company increased by 62.23% in FY 2024 as compared to FY 2023 and domestic sale increased by 13.78% in FY 2024 as compared to FY 2023.

Revenue Other Income

During FY 2024, the other income was 35.45 lakhs as compared to 35.15 lakhs in FY 2023. The other income remained flat with nominal increase of 0.30 lakhs in FY 2024 as compared to FY 2023.

Cost of material consumed

Our cost of materials consumed for the FY 2024 was 5,894.98 lakhs as compared to 5,509.36 lakhs for FY 2023, representing an increase of 7.00%. This was primarily due to increase in purchase of raw materials and consumables to compensate for increase in production. The overall usage of raw materials improved in FY 2024 as compared to FY 2023 leading to increase in margin and overall profitability by 7.72%.

Changes in inventory of finished goods, stock-in-trade, and work-in-progress

Changes in inventory of finished goods, stock-in-trade, and work-in-progress for the FY 2024 was (199.24) lakhs as compared to (46.01) lakhs for FY 2023, representing an increase of 333.04%.

Employee Benefits Expenses

Employee benefit expenses in the FY 24 increased by 29.62%, reaching 379.98 lakhs in comparison to the 293.14 lakhs incurred in the FY 2022-23. This rise in employee expenses stemmed from increases in salaries and wages which went up by 47.84 lakhs and Gratuity which went up by 43.98 lakhs.

Finance Cost

Finance cost in the FY 24 decreased by 11.34%, reaching 99.11 lakhs in comparison to the 111.79 lakhs incurred in the FY 23. The decrease in Finance Charges is on account decrease in interest costs.

Depreciation and Amortisation Expenses

Depreciation and amortization in the FY 24 surged by 18.33%, reaching 66.29 lakhs in comparison to the 56.02 lakhs incurred in the FY 23. This increase in depreciation was as a result of acquiring fixed assets.

Other Expenses

Other expenses in the FY 24 increased by 56.34%, reaching 993.71 lakhs in comparison to the 635.62 lakhs incurred in the FY 23. This rise in other expenses was primarily attributed to several factors, including 101.29 lakhs increase in Power & Fuel, 14.11 lakhs increase in freight & forwarding, 6.28 lakhs in Laboratory expenses, 23.10 lakhs in other expenses, and 87.72 lakhs in direct expenses.

Tax Expenses:

Tax expenses increased by 114.11%, reaching a total of 33.85 lakhs in the financial year 2023-24, in contrast to the 15.81 lakhs in the financial year 2022-23. This notable increase in tax expenses can be primarily attributed to 18.96 lakhs rise in current tax payments.

Profit after Tax (PAT)

Due to the aforementioned factors, the profit experienced a increase, primarily driven by the decrease in cost of material consumed as a percentage of total income. The Profit After Tax (PAT) for the FY 24 reached 765.62 lakhs, marking an increase from 288.61 lakhs in the FY 23. In the FY 24, PAT constituted 9.26% of the total revenue, in contrast to 4.14% in the FY 23.

Cash Flow

The table below summaries our cash flows from our Restated Financial Information for the financial years ended in 2025, 2024, and 2023: ( in lakhs)

			( in lakhs)
Particulars	For the year ended March 31, 2025	For the year ended March 31, 2024	For the year ended March 31,
			2023
Net cash (used in)/ Generated from operating activities	189.89	608.02	196.73
Net cash (used in)/ Generated from investing activities	(719.68)	(594.45)	(327.37)
Net cash (used in)/ Generated from finance activities	542.12	32.16	80.95
Net increase/ (decrease) in cash and cash equivalents	12.33	45.73	(49.70)
Cash and Cash Equivalents at the beginning of the period	51.73	6.00	55.70
Cash and Cash Equivalents at the end of period	64.06	51.73	6.00

Cash Flow from/(used in) Operating Activities

Net cash generated from operating activities in the FY 2025 was 189.89 lakhs and our profit before tax that period was 1,409.53 lakhs. The difference was primarily attributable to depreciation of 71.65 lakhs, Interest paid of 91.85 lakhs, interest and other income of (46.40) lakhs and thereafter change in working capital of (1,336.74) lakhs respectively, resulting in gross cash generated from operations at 196.53 lakhs.

Net cash generated from operating activities in the FY 2024 was 608.02 lakhs and our profit before tax that period was 1,036.78 lakhs. The difference was primarily attributable to depreciation of 66.29 lakhs, Interest paid of 99.11 lakhs, interest and other income of (35.45) lakhs and thereafter change in working capital of (558.71) lakhs respectively, resulting in gross cash generated from operations at 608.02 lakhs.

Net cash generated from operating activities in the FY 2023 was 196.73 lakhs and our profit before tax that period was 414.83 lakhs. The difference was primarily attributable to depreciation of 56.02 lakhs, Interest paid of 111.79 lakhs, Interest and other income of (35.15) lakhs and thereafter change in working capital of (350.76) lakhs respectively, resulting in gross cash generated from operations at 196.73 lakhs.

Cash Flow from/(used in) Investing Activities

In the FY 2025, our net cash used in investing activities was (719.62) lakhs, which was primarily for Purchase of fixed assets of (1,062.58).

In the FY 2024, our net cash used in investing activities was (594.45) lakhs, which was primarily for Purchase of fixed assets and non current assets of (336.83) lakhs and (293.07) lakhs and Income from interest and other income of 35.45 lakhs during the said period.

In the FY 2023, our net cash used in investing activities was (327.37) lakhs, which was primarily for Purchase of fixed assets of (391.88) lakhs, increase in non-current investments of (27.64) lakhs, receipt of long term loans and advances of 57.00 lakhs and Income from interest and other income of 35.15 lakhs during the said period.

Cash Flow from/(used in) Financing Activities

In the FY 2024, our net cash generated from financing activities was 542.12 lakhs. This was primarily due to increase in long term borrowings of 103.27 lakhs, proceeds received from issuance of shares of 530.70 and Interest Paid of (91.85) lakhs.

In the FY 2024, our net cash generated from financing activities was 32.16 lakhs. This was primarily due to increase in long term borrowings of 131.27 lakhs and Interest Paid of (99.11) lakhs.

In the FY 2023, our net cash used in financing activities was 80.95 lakhs. This was primarily due to increase in long term borrowings of 192.74 lakhs and Interest Paid of (111.79) lakhs.

Information required as per Item 11 (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

1. Unusual or infrequent events or transactions

To our knowledge there have been no unusual or infrequent events or transactions that have taken place during the last three years other than shut down of business due to COVID-19.

2. Significant economic changes that materially affected or are likely to affect income from continuing operations.

Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the section entitled "Risk Factors" beginning on page 28 of this Red Herring Prospectus. To our knowledge, except as we have described in this Red Herring Prospectus, there are no known factors which we expect to bring about significant economic changes.

3. Income and Sales on account of major product/main activities

Income and sales of our Company mainly consists of sale of products such as Carboxymethyl Cellulose Sodium (Sodium CMC), Microcrystalline Cellulose (MCC), Carboxymethyl Cellulose Calcium (Calcium CMC), Croscarmellose Sodium (CCS), Sodium Starch Glycollate (SSG) and Sodium Monochloro Acetate.

4. Whether the company has followed any unorthodox procedure for recording sales and revenues

Our Company has not followed any unorthodox procedure for recording sales and revenues.

5. Future changes in relationship between costs and revenues, in case of events such as future increase in labour or material costs or prices that will cause a material change are known.

Other than as described in "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial Position and

Results of Operations" on pages 28, 133 and 205, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.

6. Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue, or income from continuing operations.

Apart from the risks as disclosed under Section titled "Risk Factors" beginning on page 28 in this Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

7. Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices.

Increases in revenues are by and large linked to increases in volume of business.

8. Total turnover of each major industry services in which the Issuer Company operated.

The Company is in the business of, the relevant industry data, as available, has been included in the chapter titled "Industry Overview" beginning on page 107 of this Red Herring Prospectus.

9. Segment Reporting

The Company is operating in a single segment, i.e. Chemical division, hence segment reporting is not applicable.

10. Status of any publicly announced new products or business services.

Our Company has not announced any new services or business services.

11. The extent to which business is seasonal.

Our Companys business is not seasonal.

12. Any significant dependence on a single or few suppliers or customers.

The % of contribution of our Companys suppliers vis-?-vis the total purchases from operations respectively as of for the year ended March 31, 2025, March 31, 2024 and March 31, 2023 is as follows:

( in lakhs)

	For the year ended on March 31, 2025		For the Year Ended March 31, 2024		For the Year Ended March 31, 2023
Customers	Purchase	% of Purchase#	Purchase	% of Purchase#	Purchase	% of Purchase#
Top 1	1,753.12	22.95	1,448.22	24.10	1,389.18	23.24
Top 3	2,755.68	36.07	2,313.74	38.51	2,284.74	38.22
Top 5	3,358.63	43.97	2,968.94	49.41	2,840.17	47.51
Top 10	4,412.43	57.76	3,993.56	66.47	3,731.75	62.42

#as a percentage of Purchases from Restated Financial Statements.

The % of contribution of our Companys customers vis-?-vis the total revenue from operations respectively as of for the year ended March 31, 2025, March 31, 2024 and March 31, 2023 is as follows:

( in lakhs)

	For the year ended on March 31, 2025		For the Year Ended March 31, 2024		For the Year Ended March 31, 2023
Customers	Revenue	% of Revenue#	Revenue	% of Revenue#	Revenue	% of Revenue#
Top 1	338.77	3.66	641.96	7.79	511.26	7.37
Top 3	1226.7	13.25	1164.88	14.14	1260.66	18.17
Top 5	1795.73	19.4	1624.89	19.73	1740.2	25.08
Top 10	2758.57	29.8	2575.63	31.27	2693.08	38.81

#as a percentage of revenue from operation from Restated Financial Statements.

13. Competitive conditions.

Competitive conditions are as described under the Chapters titled "Industry Overview" and "Our Business" beginning on pages 107 and 133, respectively of this Red Herring Prospectus.