Punjab Chemicals & Crop Protection Ltd Management Discussions.

1. BUSINESS REVIEW:

1.1. Business Segment- Agro Chemicals and other Chemicals a) Industry Structure and development:

The past year has been marked with major reforms in Infrastructure, Agriculture Sector, in doing business and indirect tax structure. These all reforms will help in "Make in India" programme of the Government. They are expected to boost Economy in 2018-19 and reinforce growth momentum.

The International Monetary Fund (IMF) remains bullish on Indias growth potential and in its World Economic Outlook Update, it has pegged that the Indian economy would grow by 7.8% in 2019, making the country worlds fastest growing economy in 2018 and 2019.

The Agro Chemicals and other Chemicals Industry is likely to be benefitted with this economic growth. The export from these sectors have increased being competitive in price and quality of material. b) Opportunities and threats:

Agriculture sector will remain the spine of the Indian economy providing employment to half of the total work-force in India; contributing importantly to the countrys GDP. Because of the measures undertaken in the current budget, Companies in the agri input and related segment stand to benefit directly in the near term. This is expected to give a boost to the agrochemical manufacturing, not only for domestic consumption but also for export of agro and other chemicals. The Company is well poised to take advantage of this favourable situation. Wherever required, the Company has augmented the capacities of the existing products by debottlenecking and additions.

There are more opportunities coming by way of contract manufacturing for Companies with good infrastructure, process knowledge and available capacity. Many Multinationals are looking towards Indian companies for contract manufacturing of specialty chemicals and other intermediates. PCCPL with its established market presence, customer relations and manufacturing strength is in advantageous position to avail this opportunity.

The only threat though minor is foreign exchange fluctuations. c) Outlook:

India is expected to achieve the ambitious goal of doubling farm income by 2022. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investment in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Furthermore, the growing use of genetically modified crops will likely to improve the yield for Indian farmers. In addition to this, Export demand of agrochemicals, other chemicals including specialty chemicals are likely to benefit the related industries.

Your Company, being both in domestic and export market is in a favourable position barring unforeseen circumstances. d) Risks and concerns:

Agrochemical manufacturing units remain under the constant scanner of Regulatory Agencies and Environmental activists. Despite all efforts to maintain the best ETP systems the company can be affected by random changes in rules which may slow down growth.

The Company is aware of all these risks concerning this sector and regularly monitors the need of the concerned departments. It will take adequate and timely steps to mitigate them to the extent possible.

2. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY:

The Company has appointed Internal Auditors who periodically audit the adequacy and effectiveness of the internal controls laid down by the Management. The risks in various departments have been identified. The controls have been established to mitigate those risks which are divided as key and non-key controls. Any deficiency in the controls is viewed seriously and corrective actions are taken to avoid repetition. The suggestions received from the Internal Auditor are implemented to the extent possible.

The Audit Committee of the Board periodically reviews key findings and provides strategic guidance. The Companys Operating Management closely monitors the internal control environment and ensures that the recommendations are effectively implemented.

Further, the Company has the Risk Assessment Policy of each manufacturing unit and the concerned Heads of Department are responsible to monitor the risks and take effective measures to mitigate them.

The financial statements are prepared in conformity with the established Accounting Standards and Principles.

3. FINANCIAL PERFORMANCE AND ANALYSIS:

The revenue from operations and other income of the Indian Operations (Standalone) during the financial year under review was Rs. 502 crore against Rs. 452 crore of last year with a profit before tax of Rs. 17.48 crore against loss of Rs. 1.37 crore for the previous year.

The consolidated accounts show the total revenue of Rs. 507crore with a profit before tax of Rs. 24.26 crore in the financial year 2017-18 against the total income of Rs. 549 crore and loss of Rs. 19.20 crore in the previous year.

The steps taken by the management in the earlier years to improve the liquidity position of the Company have yielded results. The Company has not raised any additional borrowing during the year except few Inter Corporate Deposits for meeting part of the working capital requirement and few assets on lease. The working capital requirement was met by taking advances or immediate payments from the customers.

Allahabad Bank, Union Bank of India and Export Import Bank of India have accepted the proposal for prepayment of the debts of the Company. The Company is in the process of completing all formalities in this regard.

As on 31st March, 2018, there were two overseas subsidiaries namely- SD AgChem (Europe) NV and STS Chemicals (UK) Ltd. During the year under review Sintesis Quimica, a step down subsidiary was disposed off for the reasons stated earlier. STS (UK) Ltd., having no business activity and investment has also been dissolved after 31st March, 2018.

The Consolidated results includes the results of SDAgChem (Europe) NV and STS (UK) Ltd. along with Standalone Indian Operations. As stated earlier, the financials of Sintesis Quimica (SQ) till the date of disposal were not available. Therefore, the consolidated results of this year are without the results of SQ.

The summary of operating results of the subsidiary companies have been given in the Directors Report. Some of the other details of Financial Statements are as follows: i) Shareholders Funds:

On Standalone basis, as on 31.03.2018, the shareholders fund has increased to Rs. 82.13 crore from Rs. 71.87 crore of 31.03.2017. The figures of March, 2017 have been adjusted under Ind AS.

On Consolidated basis, as on 31.03.2018, the shareholders fund has increased to Rs. 74.17 crore against Rs. 58.39 crore of 31.03.2017. The figures have been adjusted under Ind AS. ii) Borrowings:

In view of One Time Settlement (OTS) and repayment of debts, the long term borrowings have reduced to Rs. 48.19 crore in the year under review against Rs. 60.15 crore as on 31st March, 2017. Where as, the short term borrowings have been increased to Rs. 52.81 crore as on 31st March, 2018 as against Rs. 49.86 crore of 31st March, 2017. iii) Earning Per Equity Share:

The earning per equity share was Rs. 8.48 as on 31st March, 2018 against Rs. (1.71) of previous year, on standalone basis under Ind AS preparation. iv) Revenue from Operations:

During the year, the turnover of Derabassi unit was Rs. 371 crore against Rs. 312 crore of last year. The Lalru unit revenue increased to Rs. 92 crore from Rs. 80 crore. The turnover of Pune unit including phosphorous and its compounds was Rs. 27 crore against Rs. 31 crore of last year. The Companys exports was Rs. 291 crore (59% of sales) against Rs. 238 crore of last year, which is higher by 22%.

In consolidated accounts for the year under review, 97% of the revenue was from Indian operations and 3% from overseas subsidiaries.

4. HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS:

The Industrial relations in all divisions of the Company are cordial and harmonious. The employee strength of the Company as on 31st March, 2018 was 931.

The Company encourages the employees to upgrade their knowledge and skills. The training sessions on various working parameters are conducted in routine apart from allowing employees for outside specialized training, wherever required.

5. ACCOUNTING TREATMENT:

Audited Financial Statements for the year ended 31st March, 2018 are in compliance with the Indian Accounting Standards (Ind-AS) prescribed under section 133 of the Companies Act, 2013. Consequently erstwhile Indian Generally Accepted Accounting Principles (IGAAP) results for the year ended 31st March, 2017 have been restated to make them comparable.

6. CAUTIONARY STATEMENT:

Statements in "Management Discussion and Analysis" describing the Companys objectives, projections, estimates, expectations or predictions are forward looking statements within the meaning of applicable security laws or regulations. These statements are based on certain assumptions and expectations of future events. The actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, finished goods prices, raw materials cost and availability, foreign exchange market movements, changes in Governmental regulations and tax structure, economic and political developments within India and the countries with which the Company has business.

Therefore, the Company assumes no responsibility in respect of forward looking statements herein which may undergo change in future on the basis of subsequent developments, information or events.