refex industries ltd share price Management discussions

Global Economy

The global economy gradually recovered from the COVID-19 pandemic and geopolitical tensions caused by Russia-Ukraine conflict by mid-2022. As a result of pent-up demand, supply disruptions, and rising commodity prices, inflation in a number of economies reached multidecade highs during the year. In an effort to return inflation to target levels, central banks aggressively tightened monetary policies across major economies around the world. Such stringent measures are expected to result in moderate global economic growth over the medium term. As a result of elevated inflation, higher interest rates, decreased investment, and supply chain disruptions resulting from Russias invasion of Ukraine, the global economy is experiencing a significant slowdown in growth. In 2023 and 2024, the global economy has been projected to grow by 2.8% and 3.0%, respectively, compared to the 3.4% growth registered in 2022.

Through the end of 2022, developed nations labour markets exhibited high resilience due to historically low unemployment rates. In 2023 and 2024, the advanced economies are projected to experience a GDP growth rate of 1.3% and 1.4%, respectively, compared to 2.7% in 2022. The impact of the most recent liquidity issues following a string of global bank crises appears to have been contained by the swift intervention of central banks. Despite the ongoing Russia-Ukraine conflict, there are signs that the global macroeconomy is stabilising and could contribute to increasing growth momentum in 2024.

The emerging markets and developing economies have better economic prospects as compared to developed economies; however, growth will vary greatly across regions. Chinas reopening in 2022 and sustained global financial conditions have contributed to the promising start of emerging markets in 2023. The emerging markets are expected to register growth of 3.9% in 2023 and 4.2% in 2024, as compared to the 4.0% recorded in 2022. Going forward, the remarkable regional growth and strong economic development in India, China, and other ASEAN countries are expected to help emerging markets outperform global markets.

Indian Economy

India has emerged as a major global economy over the last decade, due to the governments efforts to encourage balanced growth and equitable development. India has been recognised internationally for major reforms like demonetisation, export growth, infrastructure improvement, manufacturing growth, free trade agreements, energy security, ease of business and trade, and fiscal deficit reduction.

According to the Second Advance Estimates Report from the National Statistical Office, Indias GDP has been estimated to witness a growth of 7.2% YoY (Year-over-Year) in FY 2022-23, making it the fastest growing economy in the world. Due to the consistent growth in the agriculture and services sectors, the Indian economy has remained resilient in the face of global uncertainty. Recent outperformance of Indias economy, its enormous and increasing population, and its rapid ascent as a manufacturing alternative to China have all attracted the interest of global investors. During FY 2022-23, international exports of products and services reached all-time highs, with robust demand for Indian services fuelling the countrys economic growth.

Indias economic growth has moderated under the weight of high inflation and monetary policy tightening. The SPF (Survey of Professional Forecasters) report by the RBI has projected real GDP growth of 6.0% for FY 2023-24 and 6.4% for FY 2024-25.

Moreover, it is anticipated that the Union Budgets emphasis on capital expenditure will stimulate private investment in the infrastructure sector, increase employment creation as well as overall consumer demand, and thereby boost Indias growth potential. The budget would also provide a push for the green energy sector as the country strives to accelerate decarbonisation and promote sustainable energy. A budget of ^ 19,700 Crores has been allocated to the National Green Hydrogen Mission to facilitate the transition from fossil fuels to renewable energy. By 2030, it is anticipated that the countrys carbon intensity will have decreased by less than 45%. Additionally, the government intends to achieve net-zero carbon emissions by 2070.

Industry Overview

The global refrigerant industry plays a pivotal role in refrigeration and cooling technologies. Refrigerants are essential substances used in various cooling systems, such as air conditioners, refrigerators, freezers, heat pumps, and industrial refrigeration equipment. The regulations and technologies in the refrigerant industry change rapidly due to environmental concerns and international agreements to phase out high-GWP (Global Warming Potential) refrigerants. According to the Montreal Protocol, India must completely phase out

HCFCs (Hydrochlorofluorocarbons) by 2030 and begin phasing down HFCs (Hydrofluorocarbons) by 2028. To replace the GWP refrigerants, many alternatives have been proposed. The new unsaturated fluorochemicals, referred to as hydrofluoroolefins (HFOs), particularly R1234yf, R1234ze, and R1233zd, have been among the most prominent refrigerants since their GWP levels are extremely low. Ammonia has been widely used as a natural refrigerant with excellent thermodynamic properties and zero GWP and ODP (Ozone Depletion Potential) and is commonly used in industrial refrigeration systems, cold storage, and large-scale air conditioning applications.

Performance of the Industry

Refrigerants are vital elements prominently used in the HVAC industry to facilitate air conditioning and refrigeration processes. The use of environmentally friendly alternatives, such as hydrofluorocarbons (HFCs) and ammonia with lower global warming potential, has gained traction in the HVAC industry, consisting of mobile air conditioners, room air conditioners, variable refrigerant flow (VRF), packaged direct expansion (DX), small refrigeration, and foam blowing agent sectors. Refrigerants such as R32, R134a, R290, R410a, and R290 are commonly used in the room air conditioning sector, the industrial cooling sector, and the mobile cooling sector, which includes public and private automobiles, jeeps, buses, and taxis.

The global HVAC systems market was valued at USD 136.3 billion in 2022. The residential segment dominated the HVAC systems market and accounted for the largest revenue share at 39.9%. A rise in the number of multifamily and single-family housing has been creating

opportunities for the residential HVAC market. Across the globe, Asia-Pacific dominated the HVAC systems market with a 46.3% revenue share. The global HVAC market and the Indian HVAC market are intertwined due to shared trends, regulations, technological advancements, and consumer preferences. The HVAC market in India has witnessed a CAGR of 9.16% in 2022. During the next decade, the Indian automotive industry will likely experience a greater penetration of electric vehicles, which will also drive the demand for refrigerants in the country.

Opportunities and Challenges of the Indian Refrigerant Industry

Refrigerants are widely used in the automotive industry as well as in residential, commercial, and industrial applications. A considerable rise in the commercial sector, mainly in the construction of numerous offices, shopping malls, and other infrastructures, has been witnessed around the world. These structures have a higher use of HVAC equipment. Since refrigerant is a crucial component of HVAC systems, the rapid expansion of the commercial sector drives the expansion of the refrigerant market. Besides, urbanisation and lifestyle improvements have also resulted in high demand for air conditioners, which further enhances the growth of the refrigerant market. Moreover, global warming has led to rising temperatures all over the world, thus fuelling demand for cooling and aiding in the growth of HVAC and refrigerant systems.

The refrigerant industry however faces several challenges, particularly related to environmental concerns, regulations, and technological advancements. Complex chemistry, high capex, highly focussed R&D, and meeting regulatory compliances in a stringent environment also pose threats to the refrigerant products. The Indian government had also imposed anti-dumping duties on imports of certain refrigerants, resulting in a significant price variance and thereby catapulted the entire refrigerant industry. Recent increases in the illegal blending of cheaper and unsafe refrigerants have posed obstacles to the development of genuine and safe refrigerant products in the country.

Future Outlook

The Indian HVAC industrys evolution is not only driven by environmental concerns but also by the need for energy-efficient solutions. With the governments initiatives to promote sustainable practices and reduce greenhouse gas emissions, theres an increasing focus on adopting energy-efficient refrigerants in the HVAC systems that utilise modern refrigerants. The HVAC systems market in India is anticipated to increase by USD 2.77 billion between 2022 and 2026, at a CAGR

of 9.97%, according to the research and markets report. The refrigerant gas market is shifting towards the development of safe technologies and processes for controlling systems, which will continue to create newer refrigerant options with considerably lower GWP than those already in use.

Coal has been Indias most important and abundant fossil fuel. Thermal power generation has contributed significantly to the increase in the countrys power capacity. The power consumption in India has been predicted to rise as a result of the countrys growing population, expanding economy, and desire for a better quality of life. Coal will continue to play an important role in Indias energy scenario due to environmental limits on hydroelectric projects and geopolitical perceptions of nuclear power.

Performance of Coal Industry

Coal is primarily used to support the sectors of power generation, steel production, and cement manufacturing.

Indias coal production reached an all-time high of 892.74 million metric tonnes (MMT) in FY 2022-23 on a provisional basis, aided by Coal Indias (CIL) record production as well as captive and commercial mines. Coal production growth was recorded at 14.72% on a YoY basis. The rising demand for power and industrial activity has resulted in an increase in coal consumption, which, in turn, has encouraged growth in coal production to meet the energy needs of industries and the general population. Since 2007, Indias coal consumption has doubled at an annual growth rate of 6%, and it will continue to be the growth engine of global coal demand. Coal demand for FY 2022-23 was 1,087 MMT as compared to 1,027.92 MMT recorded in FY 2021-22.

In FY 2022-23, Indias coal imports increased by 22% on an annual basis, following three years of consistent decline. Along with the increase in domestic coal production in the last five years, there has also been an increase in the import of coal in huge quantum. In FY 2022-23, coal imports increased to 254 MMT, compared to 208.9 MMT in FY 2021-22.

Opportunities and Challenges of the Coal Industry

The coal industry faces increasing environmental concerns due to greenhouse gas emissions and air pollution, which have resulted in regulatory pressures and a transition towards cleaner energy sources. The economic viability of coal has been impeded by competition from cheaper natural gas and the expanding adoption of renewable energy technologies. Financial constraints and declining coal consumption have additional adverse impacts on the industry, causing mine closures and job losses in coal-dependent regions. However, there are opportunities to mitigate emissions through the development of cleaner coal technologies such as carbon capture and storage (CCS). In addition, assisting affected communities during the transition and investigating new markets for coal products could provide potential avenues for the industrys long-term viability.

Future Outlook

The Coal Ministry has devised a strategy to increase domestic coal production and reduce reliance on imports of substitutable coal. The ministry aims to produce 1,012 MMT of coal in FY 2023-24. Despite strong domestic coal production, India continues to import coal due to factors such as high demand, specific coal quality requirements for certain industries, supply chain constraints, and the need to balance energy mix and environmental considerations. Imports too are predicted to rise in FY 2023-24, as electricity consumption has been expected to rise by significantly in the coming

months due to increased power demand. The peak demand for electricity has been expected to increase to 229 GW (Giga watts) by June 2023, compared to 215 GW in June of last year.

As a result of the privatisation of the coal mining industry, additional business opportunities have also been expected to be created as a result of increased efficiency, investment, and technology. As of May 3, 2023, 133 coal mines with a peak-rated capacity of 515 MMT have been awarded to private companies since 2015, and 27 of these mines have already begun production.

Presently, coal and lignite-based power generating stations contribute more than 69% of the total electricity generation in the country. Ash is produced when coal is burnt in thermal power plants, which is extremely hazardous to the environment if discharged into the atmosphere as is. Consequently, the Central and State Governments have collaboratively instituted a comprehensive framework that necessitates the proper disposal of ash from power plants. This includes the efficient transportation of Fly ash from silos within the plants to designated disposal sites, facilitated by a combination of trucks, bulkers, and rail rakes. In wet disposal, ash is transported as a slurry known as "pond ash" through a conduit, and disposed at an embankment (dyke) which is further disposed at appropriate disposal site as per the standard norms. This well-coordinated approach ensures the responsible management of ash, promoting both environmental sustainability and adherence to regulations. Moreover, stringent penalties have been put in place to deter any lapses in adherence to these protocols, underlining the commitment to maintaining a clean and eco-friendly energy production process.

The average ash content of domestically produced coal ranges from 30% to 60%, whereas the average ash content of imported coal ranges from 2% to 20%. As a result, thermal power plants that use domestic coal/ lignite generate a substantial quantity of ash. The ash collected in the thermal power plants has to be disposed of in an environmentally friendly manner. The states of Chhattisgarh, Odisha, Madhya Pradesh and Maharashtra account for the highest amount of ash production and disposal in the country.

According to the CEA (Central Electricity Authority of India), ash utilisation has increased from approximately 6.64 MMT in FY 1996-97 to 259.86 MMT in FY 2021-22, and approximately 96% of ash was utilised in FY 2021-22, compared to just 10% in FY 1996-97. In order for thermal power plants to utilise 100% of the ash, more efforts are required to identify environment-friendly disposal options. Ash is used in the manufacturing of cement blocks, bricks, tiles, ready mix concrete. The cement industry uses most of the ash, at 24.04% of the total, followed by the brick and tile industry at 7.37%. Ash can also be used in road construction, dams and embankment and for filling low lying areas and mines. Besides, about 32 abandoned mines and 82 non-coal mines (major and minor minerals) had been identified for the ash disposal requirement in the country as of April 2021.

Changes in Policy

The central government has introduced a penalty regime effective from April 2022, for non-compliance based on the polluter pays principle, prohibiting the dumping and disposal of ash discharged from coal or lignite-based thermal power plants on land or into water bodies, and mandating 100% utilisation of ash in an environmentally friendly manner. The central government formulated a new rule requiring thermal power plants to utilise 100% of their ash within three to five years.

Opportunities and Challenges of the Ash Industry

The ash industry offers opportunities for sustainable practises and resource conservation by utilising ash as a useful commodity in the construction, cement, and agriculture sectors. In addition, technological advancements allow for novel applications of ash, thereby expanding its market potential. Ash is being used to enhance concrete, boost soil fertility, replace traditional bricks, fortify roads, treat wastewater, bolster ceramics production, aid land reclamation, create synthetic aggregates, form environmental barriers, and contribute to artificial reef ecosystems. Moreover, ash is being utilised in National Highways Authority of India

(NHAI) initiatives, such as the Bharat Mala Pariyojana, to enhance road construction sustainability and durability. However, challenges include addressing environmental concerns and ensuring the safe disposal of ash to prevent contamination risks. The industry has been expected to navigate stringent regulations, develop consumer confidence in ash-based products, and diversify its application portfolio in order to compete with alternative materials.

Future Outlook

With a growing number of coal-fired power plants and industrial facilities, there is an increasing demand for effective and environmentally responsible ash handling solutions. As the Indian government emphasises cleaner energy practices and stricter environmental regulations, companies in the coal ash handling sector have opportunities to offer innovative technologies and services for efficient ash disposal and utilisation, fostering sustainable growth in the industry. According to the Mission Energy Foundation 2022 report, the annual ash production in 2030 will be approximately 437 MMT, up from 271 MMT in FY 2021-22. The overall ash utilisation will increase to 310 MMT by 2030 from 260 MMT in FY 2021-22, with cements proportion in the utilisation of ash increasing from 25% to 35% by 2030.

Power trading plays a crucial role in maintaining a stable and efficient electricity supply and driving innovation in the energy sector. It helps balance supply and demand, supports the integration of renewable energy sources, and contributes to a more sustainable and reliable power system. Power trading is intricately connected to power generation, transmission, and distribution, as it encompasses the exchange of electricity among the distinct components of the electricity supply chain through buying and selling activities.

Power Generation

Power generation is the process of converting various energy sources such as coal, natural gas, nuclear, hydro, wind, solar, etc. into electricity. The power generation in India stood at 120.08 BU (Billion Units) in March 2023, as compared to 123.92 BU recorded in March 2022. The thermal power generation has been the highest power generating segment all over the country, according to the CEA data. In March 2023, thermal power generation accounted for 108.3 BU, nuclear power generation accounted for 4.02 BU, and hydropower accounted for 7.73 BU.

According to CEA, as on March 31, 2023, the total installed capacity for power generation stood at 4,16,059 MW (megawatt). As of March 31, 2023, fossil fuels accounted for 57.0% of the total power generated, while RES (renewable energy sources) accounted for 30.1% and nuclear power accounted for 1.6%. The private sector in Indias power industry generated 36% of the nations thermal power, while the States and the Central government generated 32% and 32%, respectively, for the same period.

The renewable energy generation stood at 17,164.72 MU (million units) as of March 2023. In March 2023, wind power generation accounted for 4,141.1 MU, solar power for 10,244.3 MU, Biomass for 287.9 MU, Bagasse for 1683.7 MU, Small Hydro for 578.32 MU, and others for 229.41 MU.

Power Transmission

Power transmission entails the long-distance transport of electricity from power generation facilities to various delivery locations across various regions. In recent years, Indias transmission network has expanded consistently to support the energy transition to renewable energy. As of February 28, 2023, the Indian transmission network consists of 4,68,977 circuit kilometres (ckm) of transmission lines (220kV and above) and 11,58,875 MVA (Mega Volt Amp) of transformation capacity in substations (220kV and above). India has a robust National Grid that enables the reliable and secure transfer of power from resource-rich regions to the countrys major load centres. It would aid in transmitting power from surplus regions or states to deficit regions or states. National Grids capacity is being continuously expanded to keep pace with the increase in electricity generation and demand. The National Grids inter-regional power transmission capacity stood at 1,12,250 MW as on February 28, 2023.

Power Distribution

Power distribution involves the delivery of electricity from the power grid to end-users, including residential, commercial, and industrial consumers. The fundamental principle of Indias power industry has been to provide universal, sustainable access to affordable electricity. Establishing a single national grid, fortifying the distribution network, and achieving universal household electrification have been significant efforts made by the Ministry of Power over the past few years to transform a country with an energy deficit into one with a surplus. In recent years, Indias transmission network has expanded consistently to support the transition to renewable energy. Around 18,374 villages were electrified under the DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana), 2.86 Crore households were electrified under the Saubhagya programme as of February 28, 2023.

Opportunities and Challenges of the Power Industry

The evolving energy landscape presents both opportunities and challenges for the power industry. The industry has the opportunity to transition to cleaner energy sources such as renewables (solar, wind, and hydro) and invest in energy efficiency technologies as global awareness of climate change expands. Adoption of these opportunities can reduce greenhouse gas emissions, increase environmental sustainability, and also strengthen grid resilience. In addition, technological advancements in smart grids and energy storage provide opportunities to meet improving demand and renewable energy integration. However, the power industry faces challenges such as ageing infrastructure, high capital

costs for renewable projects, and the need to guarantee grid stability while integrating variable energy sources. In addition, the complex regulatory environment, geopolitical factors, and energy market fluctuations present additional challenges that necessitate strategic planning and cooperation among stakeholders.

Future Outlook

Under the Prime Ministers Gati Shakti Master Plan, the power transmission network will be expanded from 4,25,500 ckm as of May 31, 2020 to 4,54,200 ckm by FY 2024-25, adding roughly 28,700 ckm. In comparison to the projected addition of 28,700 ckm of transmission lines, the addition of approximately 27,000 ckm of transmission network is anticipated for 2024-25, with an anticipated cost of ^ 75,000. It is anticipated that the proposed Transmission projects under the PM Gati Shakti National Master Plan will further facilitate the transfer of power from generation projects while increasing the reliability of the countrys Power System Network.

Indias commitment to renewable energy reflects its determined efforts to boost solar expansion and ensure universal electricity access. Solar is a crucial sector that will substantially contribute to national objective of climate control. According to the IEA (International Energy Agency), about 231 gigawatts were installed globally in 2022, increasing the cumulative PV installations to 1.2 terawatts. Chinas annual PV installations grew by 57% year-over-year in 2022, representing 42% of total global demand. The United States ranked second in terms of cumulative and annual installations.

Solar power generation in India increased to 10,318.7 MU in April 2023, as compared to 8,334.3 MU recorded in April 2022, according to the CEA data. Solar power comprised 62% of the total renewable power generated in April 2023, as compared to its share of 55% recorded in April 2022. The solar power market share in India has been increasing as the cost of solar energy sources decreases. Previously, the high cost and intermittent nature of solar energy prevented its widespread adoption. In addition, the Indian government has been providing tax incentives to consumers, which reduces installation costs and ultimately reduces the total cost of solar energy.

Opportunities and Challenges of the Solar Energy Industry

The growth in the sector would be stable, led by strong policy support, healthy demand prospects, and superior tariff competitiveness. Adoption of renewable energy is encouraged by reduced carbon emissions from these sources, as well as rising environmental concerns, which

raised global investments in renewable energy. As a result of the increased emphasis on renewable energy sources, the countrys solar energy sector is attracting more investments, which will fuel the rise of the Indian solar power market.

In FY 2022-23, the solar power segments bidding activity slowed due to rising module prices, difficulties associated with the ALMM (Approved List of Models and Manufacturers), and the imposition of duties on imported modules. In order to satisfy the notified renewable purchase obligation (RPO) targets over the medium term, a substantial increase in bidding activity is required. The government has devised environmentally friendly solutions to address the challenges in the energy sector, particularly harnessing the immense potential of renewable energy on a large scale. The main challenges in installing solar power plants are the multiple reviews by regulatory authorities for land use in the airport operating area, the delay in the approval of DISCOMs (Distribution Companies) for grid connections, and the inability to extend the net metering system for ground-mounted solar power plants.

Future Outlook

India would secure affordable and sustainable energy to ensure high development and provide energy access to 1.4 billion people as it strives to become a USD 5 trillion economy in the near future. Renewable energy is anticipated to play a significant role in Indias efforts to meet its total energy demand. Indias total energy demand has been expected to reach 15,820 TWh (terawatt hours) by 2040. Moreover, ICRA anticipates India will add 16 GW of solar capacity, 2 GW of wind capacity, and 2 GW from hybrid projects in FY 2023-24.

Company Performance

Refex Industries Limited (hereafter referred to as Refex or the Company) started its business operations in 2002. The Company has been a specialist manufacturer and re-filler of refrigerant gases in India, specialising in environmentally friendly CFC and HCFC replacements. These are generally utilised as refrigerants, foam blowing agents, and aerosol propellants. Besides, the Company also carries out coal supply, ash handling and power trading business.

Refex has gained 21 years of brand recognition and a remarkable presence in the country developed over the years on a strong foundation of integrity, professionalism, diversity, dedication, commitment, and competitiveness. Refex is committed for being an exemplary player in terms of safety, health & environmental protection, and sustainable development and has also received the ISO 9001:2015 and ISO 14001:2015 certification.

The Company continually assesses market sentiment and future prospects in order to expand its business by delivering innovative solutions and diversifying its product line. Refex has been able to deliver to all of its stakeholders with innovative solutions, and positive financial sustainability. During FY 2022-23, the Company delivered exceptional revenues recording a 267% of YoY growth.

Refex Green Mobility Limited (RGML) is a wholly-owned subsidiary of Refex Industries Limited and began operations in Bengaluru on March 31, 2023. Refex Green Mobility Limited operates its 100% electric 4-wheeled vehicles. The Company offers a comprehensive package that includes 100% electric vehicles, drivers with training and verified backgrounds, a cutting-edge technology platform, and dedicated support teams.

Operational Performance Solar and Renewables Business

The Company has entered into a long-term power-purchase agreement with NTPC Vidyut Vyapar Nigam Limited in order to satisfy the futures constant energy needs, which will be clean, environmentally friendly, and sustainable. The Company has entered into a lease agreement on land with the Rajasthan government for a 5MW solar power facility and also entered into a lease agreement with Essel Mining Limited for the operation of solar energy equipment.

Ash & Coal Handling Business

Coal Supply refers to the buying and selling of coal as a commodity in the global marketplace. The Company sources quality coal from domestic and international players and offers it at competent prices to thermal power plants. The Companys heightened business engagements translated into a substantial increase in coal trading volumes during the reviewed period. Coal trading and coal handling are two interconnected aspects of the Company, each playing a critical role in the supply chain of coal from production to consumption.

The Company is involved in Coal Handling Plant (CHP) business, which refers to a comprehensive system or facility designed to handle coal efficiently at various stages, starting from unloading coal from incoming trains or trucks to its storage, processing, and onward supply to destinations like power plants or industrial facilities for energy generation or other purposes. The CHP works involve tasks such as coal unloading, storage, crushing, conveying, and sometimes washing or beneficiation to improve its quality. Proper functioning of the CHP works is essential for seamless operations, ensuring a steady and reliable supply of coal, adhering to safety and environmental standards, and meeting the energy demands of consumers.

The thermal power plants are required to dispose ash in an effective and environment-friendly approach. Along with the coal-handling activity, the Company had also been providing services for the handling and disposal of ash. The combustion of coal produces ash, which is used to generate steam to power the turbine. This ash is constantly produced and kept in silos. This ash is a raw material used in the manufacture of Portland Pozzolana Cement (PPC). The closed bulkers transfer ash to cement plants, while the undisposed ash is stored in an ash dyke and transferred to road contractors and mine fillers. Typically, ash is obtained from the main thermal power plants in Rajasthan, Maharashtra, and Chhattisgarh. In addition, the Company offers services for locating large cement manufacturers that intend to utilise this ash to produce cement, bricks, and other products. The Company won a major tender from NTPC for the ash disposal requirements during the year under review. Moreover, the Company has added six additional thermal power plants for its ash handling business during the year, which has also been reflected in their strong growth in revenues from its ash and coal businesses.

The Company desires to be a total solution partner for the power plants instead of an aggregator. The Company utilises a partnership model as opposed to an outsourcing model for its coal and ash handling business. In FY 2022-23, Refex made a positive transition by utilising its own fleet of vehicles to transport ash from the thermal power plants, leading to substantial cost savings and heightened profit margins. The Company is poised for further growth in the coming fiscal year, with plans to expand both its client network and its fleet of vehicles, ensuring revenue maximisation and cost optimisation in FY 2023-24.

Power Trading

Refex offers a wide range of power trading solutions, encompassing power exchange, bilateral agreements, power banking & swapping, and group captive models. The Companys expertise extends to both conventional and non-conventional sources of power, catering to diverse entities across India. Refex held a position among the top ten power traders (by volume of electricity traded bilaterally) in the country. The Company has been striving to improve its standing, expand its market share, or differentiate itself through various strategies to stay competitive in the dynamic energy market. The Company holds a CERC-approved Category-I licence for inter-state power trading, which allows it to conduct power trading activities with no upper limit on the volume of electricity it is permitted to trade. Refex generated a healthy revenue during the year under review from its power trading business.

Refrigerant Gases

Refex is primarily involved in the filling of HFCs under the brand name "Refex" which are substitutes for ozone-depleting CFCs and HCFCs. The Companys re-filling facility is situated in Thiruporur, 40 kilometres from Chennai, and has distribution outlets throughout India. The Company procures the HFC gases from China and India. These gases are mainly used in industrial refrigeration, air conditioning, aerosol propellants and blowing agents. The Company has also established a warehouse in Delhi, its major geography, where the consumption of refrigerants is highest and also forms the centre point for all the dealers and distributors of refrigerants. During FY 2022-23, the Company has started supplying refrigerants to notable OEMS including Carrier, TVS mobility, LG and Voltas. The Company has been catering to more than 450 dealers and distributors across India and despatched more than 1,300 MT of HFC gases across the country during the year.

The Company was one of the first to provide 450 ml refilling cans and to establish refilling facilities at the locations of vehicle original equipment manufacturers (OEMs), The Companys primary focus has always been innovation, which is also the reason why its product has been differentiated and commands a premium price over existing brands. The Company offers a comprehensive selection of HFC products to a variety of market segments, including R134A, R404A, R407C, R410A, R32, and R152A in cans.

The Company has a well-networked logistics department to ensure timely delivery to clients. The Company complies fully with all government regulations governing the refrigerant industry.

Financial Performance

The Company earned highest revenue and profits during FY 2022-23 with revenue crossing the ^ 1,000 Crores mark in FY 2022-23. The revenue from operations increased by 267%, from nearly ^ 444 Crores to nearly ^ 1,629 Crores, as a result of a significant upscale in the ash & coal handling business. During the year, the Company experienced significant cost savings in logistics as a result of switching from outsourcing vehicles from vendors to using their own vehicles for transporting ash. Refexs Profit after tax increased by 156%, from nearly ^ 45.4 Crores in FY 2021-22 to nearly ^ 116.06 Crores in FY 2022-23, as a result of robust control over fixed overheads and operating leverage and higher revenue generated during the year. The Companys profit before tax and profit after tax margins stood at 9.60% and 7.12% respectively, during FY 2022-23.

Segment-wise Performance

Particulars 2022-23 2021-22
Ash & Coal Handling Business 1,28,641.08 32,062.94
Solar Power - Generation and Related Activities 1,153.50 1,166.74
Refrigerant Gas - Manufacturing (Refilling) and Sales 6,441.47 3,772.16
Sale of Service 6,799.22 7,394.04
Others 1,124.47 -
Power Trading 18,755.22 -
Total Revenue 1,62,914.96 44,395.88

The Companys Net debt-to-equity ratio stood at 0.23x in FY 2022-23 from 0.08x in FY 2021-22.

In accordance with SEBI (LODR) Regulations, the following are the main financial ratios based on standalone financial statements compared to the previous year:

FY 2022-23 FY 2021-22 Change (% YoY) Reason for variations of more than 25% during FY 2022-23

Turnover (Times)

9.01 4.24 112.49 The deviation in the trade receivables turnover ratio is majorly due to the increase in revenue generated during the last quarter providing a higher credit period in comparison to the previous period.
Inventory Turnover (Times) 6.83 3.81 79.56 The deviation in Inventory turnover ratio is mainly on account of higher churning of inventory and better supply chain management leading to better procurement of materials.

Coverage Ratio (x)

7.06 6.02 17.23 The deviation in debt service coverage ratio is due to increase in the loans acquired for financing of own fleet of vehicles and additional working capital requirement, maintaining the ratio at desired levels.
Return on Net Worth - RoNW (%) 36.93 24.46 43.42 The return on net worth increased due to higher profits along with better deployment of shareholders funds.
Current Ratio (times) 1.59 1.67 -5.29 No material deviation
Debt Equity Ratio (times) 0.47 0.46 2.57 No material deviation
Operating Profit Margin (%) 10.72 13.71 -21. 81 No material deviation
Net Profit Margin (%) 7.12 10.22 -30.32 The decrease in net profit ratio (in percentage terms) is due to change in the product mix during the current year. However, in absolute value terms there is an increase in comparison to the previous period.

Human Resource Management

The Company advocates for a balanced, fair, and equitable human resource management system and promotes a positive and welcoming work environment. Refex believes that its employees are the greatest differentiators in providing its customers with superior services and products. Throughout the year, the Company has implemented a comprehensive employee life cycle management programme that seeks to provide a positive employee experience across the organisation. As of March 31, 2023, the number of permanent employees on the Companys payroll was 198. In addition, as of March 31, 2023, the Company had 22 personnel on an off-roll or contractual basis.

Employee Development: Refex has prioritised employee skill development along with evolving technologies and rapid process improvement. The appropriate human resource management policies have been structured by the Company and has formed career-oriented and growth-oriented plans. Refex has been modifying its approach by implementing a competency-based management system and multiple assessment centres. The Company provides a learning platform that provides self-nominated and manager-nominated learning programmes via a hybrid model that includes online classes and on-the-job trainings.

Employee Communication: Leader communication plays a key role in bringing the organisation closer together. The key to the Companys success has been the high level of engagement of each employee at every level.

Engagement Programme: Organising the Companys employee engagement programme was a bit of a challenge due to the Companys diverse business areas and geographical presence. Refex addresses these difficulties by fostering a culture of personal interaction, entrepreneurship, collaboration, and support.

Risk Mitigation

The Company is subjected to a variety of internal and external business risks. As the Company is involved in multiple business segments, Refex has implemented a comprehensive risk management framework (RMF) that is tailored to the specific needs of each business. The RMF aids the Company in identifying major and minor risks in advance and implementing necessary corrective measures. The Companys senior management plays a crucial role and proactively examines the risk management processes for effectiveness monitoring.

Any military or trade conflicts between India and China will affect raw material supply and the Companys cost structure and profitability, as the Company relies on

imports of HFC gases from China. In addition, fluctuations in the foreign exchange market are likely to worsen the situation. The customs imposing antidumping duties on HFCs and changing the import policy from free to restricted, subject to NOC from the relevant ministries, has made it harder for the Company to source the material on time due to multiple approvals.

Recent government restrictions on refrigerant imports, net-zero commitments, and "Make in India" regulations have made material sourcing from other countries harder. The Company plans to enhance its geographical footprint and add trending products due to the vast local and foreign demand for Indian products. The Company has been also improving its digital presence on an e-commerce portal to boost worldwide expansion.

In terms of the regulatory and compliance framework, Refex believes that it is crucial and necessary to have a responsibility for risk management vested with the legal function, rather than having it shared among other in-house departments and external lawyers.

Effective risk management has the potential to reduce the impact of risks, prepare the organisation to confront challenges, and strengthen processes. The Company is aware of the numerous inherent business risks. Refex Group comprises a strong leadership and experienced management team from a variety of industries, thereby largely focussing on the timely identification, evaluation, and prevention of potential risks.

Future Outlook

The Companys vision is to become the most preferred business partner by leveraging its innovative solutions, cutting-edge technology, and talented workforce. Refex also aspires to strive relentlessly by constantly improving its business, teams, products and services to become the best in the industry by repeating its excellence every year.

Refex has been concentrating on expanding its vendor network in India and entering new markets for its refrigerant business. The Company has intended to exceed customer expectations by providing exceptional products and services consistently & constantly. The Company has been highly focussed on capturing major opportunities and assisting its prospective clients in building a bright future. In addition, the primary objective of the Company is to secure large contracts from OEMs and the Indian government.

For its refrigerant business, the Company is steadily expanding its refrigerant refilling facilities around the

country, which is likely to lead to larger revenues in the future. The Company is planning on establishing refilling facilities in the western and eastern regions of the country.

Going forward, the Companys ash business is expected to be more concentrated and would continue to gain orders in upcoming period. In addition to Chhattisgarh, the Company intends to expand its ash distribution to Madhya Pradesh, Uttar Pradesh, Odisha, and Gujarat. Refex intends to participate in gaining tenders from NTPC for the ash disposal business. The Bharatmala Project under the NHAI (National Highways Authority of India) would create ample opportunities for the Company to increase its ash disposal services across the country.

Adoption of digital transformation in processes is one of Refexs top priorities for the foreseeable future, as it ensures sustainable growth and value creation for its stakeholders. The Company has started the phased implementation of advanced technology, which will further strengthen the Companys business operations.

The Company is also committed to the adoption of Environmental, Social, and Governance (ESG), and its determination to be ESG-compliant across all of its enterprises will be of utmost importance. The Company is evaluating its entire business processes with a view to the development and revision of ESG policies, process setting and enhancement, monitoring mechanisms, and

record keeping. The Companys mission is to accelerate the renewable energy transition in order to create a net carbon-free world.

Internal Control System

The Company requires a robust internal control system due to its substantial national presence and high business strength. The internal controls are intended to provide reasonable assurance regarding the recording and transmission of accurate financial and operational data, compliance with applicable laws, protection of assets from unauthorised use or loss, execution of transactions with proper authorisation, and adherence to corporate policies. The Companys stringent internal control systems and procedures are well-defined and proportional to the size and nature of the business.

The Company has ensured that it is in compliance with all of the required statutes, as well as its code of conduct and corporate standards. The Internal Audit Division examines the adequacy and efficacy of internal controls. The scope of the Audit activity is determined by the Boards Annual Audit Committee, which examines the Internal Auditors reports.

Cautionary Statement

The above statement is as perceived by the Directors based on the current scenario and the input available. Unforeseen external developments and force majeure conditions may have an impact on the above perception.