Pondy Oxides & Chemicals Ltd Management Discussions.

ECONOMIC OVERVIEW

- INDIAN OUTLOOK

India continues to be the fastest growing major economy in the world in 2018-19 with a marginally decreased GDP growth of 6.8% when compared to 7.2% in the year 2017-18. According to the Economic Survey 2018 -19, the size of the Indian Economy has grown to USD 2.75 trillion, even when the global economy has faltered. According to data from the World Bank, India is the sixth largest economy after UK and it is likely to overtake the UK in the worlds largest economic ratings in 2019.

INDUSTRY OUTLOOK

- Global Lead Industry

Lead is the only metal in the world which can be recycled number of times without diminishing its characteristics. One of the most recyclable and sustainable commodities, Lead is a highly corrosion resistant, ductile and malleable blue-grey metal. Lead prices were volatile during the year, rising and falling in response to developments in International Trade Dispute between the US and its trading partners. Lead price increased from about $ 2,040 per MT at the beginning of April 2018 and reached the highest / lowest of $ 2,545 per MT / $ 1,867 per MT respectively during the year and ended the year at $ 2,040 per MT in March, 2019. The average lead price was $ 2,121 per MT during the year down 11% from a year ago. Fundamentally, Lead was in a favorable position with stock dropping to record low and supply was in check. The squeeze in Chinese supply due to stricter environmental regulations pushed the price up briefly. However lead price tracked the US dollar for the most part, with price falling as dollar appreciated.

- Indian Lead Industry

India consumes about 1.1 million MT of Lead including primary and secondary Lead. The main use for Lead in India is Lead Acid Batteries is in automotive and telecom sector. The largest sector of Lead demand is automotive batteries. This decade may well mark the point at which electric vehicles (EVs) truly become common place. Governments worldwide have increasingly focused on promoting EVs and EVs still use Lead Batteries. The key difference is that EVs use smaller Lead Batteries than regular Internal Combustion Engine (ICE) vehicles. Thus, Lead consumption for batteries is reduced, but not fully substantiated, by EV.

FINANCIAL REVIEW

POCL recorded a strong operational and financial performance in the FY 2019, delivering growth year over year. Growth in volume resulted in EBITDA of Rs 6,829.41 lakhs, up 15% y-o-y (FY 2018: Rs 5,951.86 lakhs), even in unfavorable price environment. The strong volume performance and efficiency in operations contributed to an incremental EBITDA of Rs 877.55 lakhs, primarily driven by record volumes at our lead units.

Revenue

Revenue for the year was Rs 1,04,888.55 lakhs, up by 9.76% y-o-y.

Depreciation and Amortization

Depreciation for the year was Rs 519.26 lakhs compared to Rs 430.15 lakhs in the previous year and the increase in depreciation is mainly on account of addition of fixed assets during the current year in all units.

Net Interest

The average cost of borrowings has been retained at 8% for the FY 2019 Finance cost for the FY 2019 was

Rs 1,122.34 lakhs marginally decreased from Rs 1,124.40 lakhs in FY 2018 in spite of increase in turnover by about 10%.

Taxation

Tax expense for the year FY2019 was Rs 1,814.98 lakhs against Rs 1,479.38 lakhs for the FY 2018, showing average tax rate of 34.98% compared to 33.64% for the previous year.

Profit after Tax (before exceptional item)

The profit after tax before exceptional item was Rs 3,372.83 lakhs in FY2019 compared to Rs 2, 917.93 lakhs in FY2018 (up by 15.6% y-o-y).

EPS

Earnings Per Share for FY 2019 were Rs 60.49 per share compared to Rs 52.33 per share in year FY 2018 up by 15.59%.

Dividend

Considering the profits of the Company for the year, the Board recommends a Dividend of 40% of equity shares of Rs 10/- each. The total Dividend payout (inclusive of Dividend Distribution Tax) for the FY 2019 will be Rs 269.00 lakhs.

Shareholders fund

Total Shareholders fund as on March 31, 2019 aggregated Rs 13,040.03 lakhs as compared to Rs 9,867.07 lakhs as at March 31, 2018. The increase in the shareholders fund was primarily on account of profits made during the year.

Net Fixed Assets

The net fixed assets as on March 31, 2019 was Rs 3,262.46 lakhs compared to Rs 3,015.69 lakhs for the previous year. The capital work in progress for the year as on March 31, 2019 is Rs 88.48 lakhs.

OPERATIONAL REVIEW

- Lead & Lead Alloys

During the year 2018-19, the Company increased its overall production capacity and significant improvements have been done in capacity utilisation. The company increased its annual production of Lead Metal and Alloys from 53,148 MT in the year 2017-18 to 58,863 MT in 2018-19 in all its units, showing an increase of 11% over the previous year with an average capacity utilization of 89%. During the year the Company increased its installed capacity in its Andhra Pradesh plant from 24,000 MT to 36,000 MT and obtained consent for operations for the same. Further your Company received consent for establishment from Tamil Nadu Pollution Control Board to increase the plant capacity from 36,000 MT to 48,000 MT and in the process of installing Machineries at higher capacity thereby overall Lead manufacturing capacity of all units together will reach 84,000 MT per annum in the current year. Further, your Company targets to reach a total capacity of 1,20,000 MT per annum by 2020-2021 after completing the restructuring operation during the year 2019-20.

- Zinc and Zinc Oxides

During the year, your Company achieved the production of 1,225 MT against the installed capacity of 12,600 MT per annum. As informed in the previous annual report the Company obtained vendor approval from various Tyre manufacturers and started supplying materials to them. Based on the commercial viability, the Company is slowly increasing the capacity utilisation in Zinc and Zinc Oxide plant.

RISKS, OPPORTUNITY AND THREATS

The Metal Industry has been on an uptick, underpinned by supply-demand deficit, backed by bullish global growth indicators and supply related reforms. The long-term trends in the industry, the demand for the metals and our strong balance sheet provides us many opportunities to create value for stakeholders. POCLs success as an organasation depends on our ability to identify opportunities and leverage them while mitigating the risks that arise while conducting our business.

Pricing, growing demand and ongoing market volatility are the major challenges faced by the Company. POCL seeks to maintain balance sheet liquidity and implement plans to boost operational cash flow for long-term profitability. Cash generation and preservation remain a key focus.

The Company is subject to the risk that changes in foreign currency values impact the Companys export revenues and import of raw materials. The Company is exposed to foreign exchange risk arising from currency exposures, primarily with respect to US Dollars. POCL has in place a robust risk management framework for identification and monitoring and mitigation of commodity price and foreign exchange risks. The risks are tracked and monitored on a regular basis and mitigation strategies are adopted in line with the risk management framework. POCL primarily use forward exchange contracts to hedge the effects of movement in exchange rates.

INTERNAL FINANCIAL CONTROLS

Your Board has devised systems, policies and procedures / frameworks, which are currently operational within your Company for ensuring the orderly and efficient conduct of its business, which includes adherence to policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information. In line with best practices, the Audit Committee and the Board reviews these internal control systems to ensure they remain effective and are achieving their intended purpose. Where weaknesses, if any, are identified as a result of the reviews, new procedures are put in place to strengthen controls. These controls are in turn reviewed at regular intervals.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS

Human resources play a significant role in your Companys growth strategy. Your Company emphasized on talent nurturing, retention and engaging in a constructive relationship with employees with a focus on productivity and efficiency and underlining safe working practices. As on March 31, 2019 your Company has a total strength of 432 permanent employees.

CAUTIONARY STATEMENT

Statements made herein describing the Companys expectations or predictions are "forward-looking statements". The actual results may differ materially from those expected or predicted depending on market conditions, input costs, economic development, Government policies and other incidental factors.

For and on behalf of the Board of Directors
Pondy Oxides and Chemicals Limited
Anil Kumar Bansal Ashish Bansal
Date : 12.08.2019 Executive Chairman Managing Director
Place : Chennai DIN: 00232223 DIN: 01543967