Sabero Organics Gujarat Ltd Merged Management Discussions

The statements in the "Management Discussion and Analysis Report" describe the Company’s objectives, projections, estimates and expectations which may be "forward looking statements" within the meaning of applicable laws and regulations.The actual results could differ materially from those expressed or implied, depending upon the economic and climatic conditions, government policies and other incidental factors.

BUSINESS ENVIRONMENT

The Agro chemicals industry has a strong linkage to Agriculture, which itself is heavily dependent on vagaries of monsoon. Various other critical factors impacting its robust growth include availability of credit, irrigation facilities and other needed agri inputs. Occurence of pests and plant diseases are perennial risk factors where the agro chemicals industry comes into play.

Global population dynamics especially in countries with limited arable land, and those with poor irrigation infrastructure find themselves confronting the challenge of feeding their millions of populace and ensuring food security year in and year out. Improving farm productivity across all agri and horticultural crops continually is the big challenge and taking timely and appropriate recourse to agro chemical applications is now universally accepted as a sine quo non.

For the Agro chemical Industry, the potential for robust and sustained growth against the backdrop of demand –production gap in agriculture sector year in and year out is loud and clear. The challenge for the industry lies in its capability to come up with safe and efficient products and applications for pest control and for eradication of plant diseases leading to maximizing yields from the available land under cultivation. For the Industry to grow exponentially, the challenge lies in developing new products through intensive R & D to innovate and come up from time to time with new products that are environmentally safe and efficient over the long term and are proven cost effective as well.

GLOBAL AGRO-CHEMICAL INDUSTRY OVERVIEW

Latin America , Europe and Asia account for more than 75% of the global market size and these regions taken together have been reporting consistent year on year growth. In 2013, the Industry reported a growth of 11.2% in nominal terms and 9% in real terms and has reached a size of $ 53 billion.

Latin America emerged as the largest market in terms of size in 2013 with a high growth of 26.9% over 2012. Europe recorded a growth of about 9.5% and Asia grew by a marginal 1.3% over 2012. The growth is largely facilitated by strong commodity prices and it is expected that the Industry will fare strongly over the next few years at an average rate of 5% annually reaching a size of $ 60 billion by 2017.

Indian agro-chemical Industry has been growing at the rate of about 8 to 9% over the past seven years and the Industry size is estimated at $ 3.8 billion with exports accounting for about 50%.

The Industry growth in recent years is largely driven on the back of increasing volumes in agricultural production and higher commodity prices. It is estimated that the Industry would continue to grow by about 9% annually in domestic brand business and at about 15% in exports from India reaching a size of $ 7 billion by 2017.

COMPANY PERFORMANCE

During the year 2013-14, the Company continued its focus on improving performance across all aspects of the business operations viz., enhance manufacturing capability and ensuring consistency in production, improving compliance to environmental regulations, improvement in yields and reduction in conversion costs, scaling up business in critical high value markets, leverage international product registrations and enhancing portfolio of product registrations for increasing market access in critical markets enabling profitable growth.

The measures implemented by the Company in recent years and continued in 2013-14 have led to significant progress in various critical areas of performance:

• Manufacturing capacity of key molecules enhanced with improved efficiencies

• Consistency in Propineb product quality established. The product gained good acceptance globally

• Plant reliability and safety improved with reconstruction of certain plants in Sarigam to ensure higher capacity and volumes in the coming years

• Leveraged existing portfolio of product registrations to scale up volumes across geographies

• Increased volumes and presence in Central America through subsidiary in Mexico

• Enhanced portfolio of product registrations

These initiatives contributed to the Sales Turnover increasing by 40% over 2012-13. The share of exports increased from 59% in 2012-13 to 62% in 2013-14 with greater focus on exports.

Outlook

The world’s population is expected to reach 9 billion by 2050. As population increases, natural resources will become scarcer, mainly due to insufficient arable land reserves, increasing urbanization and progressive climate change. The Agro-chemical Industry is expected to maintain its growth trend. With growing income levels and reduced labour availability, the industry growth will be led by fungicides and herbicides.

Despite relative competitive advantage of China, Indian industry continues to improve on its performance in Agro-chemicals largely owing to its superiority in select molecules and access to international markets through product registrations and marketing capabilities. This is likely to be maintained and the gap is expected to narrow down in the coming year(s) in view of the challenge from China getting whittled down as their costs are going upwards due to stricter environmental compliance requirements in China and their currency, Yuan, appreciating in recent times.

With an upsurge in confidence from the significantly improved performance in the year 2013-14, your Company is optimistic about further improving on its performance with ongoing and planned initiatives ahead.

Risks& Uncertainties

Besides strong linkage to agriculture which itself is dependent on monsoon vagaries, country specific regulatory risks, controls and periodic product registration reviews in overseas markets could put a temporary set-back and impact the business. Being a business with a significant share of exports and input imports, risks associated with volatility of foreign exchange and cross border transactions exist as well.

Internal Control Systems

The Company has appropriate internal control systems for business processes with regard to its operations, financial reporting and compliance with applicable laws and regulations.

Internal audits are conducted at regular intervals across various locations and processes in line with the approved Audit Plan. Audit observations and follow-up actions are discussed with the management of the Company as well as reviewed at the level of the Audit Committee of the Board, at regular intervals.

Human Resources

The Company appreciates the valuable contribution and initiatives on the part of employees towards achieving improved productivity and efficiency in operations and in overall performance of your Company. The management team comprises of professionals with proven track records.The Company remains focused and sensitive to the role of human resources in optimizing results in all areas of its working and the industrial relations are cordial.