Shaily Engineering Plastics Ltd Management Discussions.

GLOBAL ECONOMY:

The global economy has been facing challenges since the beginning of 2019, and all the international and regional crises were aggravated by the Covid-19 pandemic in March 2020. Trade tensions between the United States and China, which had eased briefly in early 2019, worsened again later in the year as both the countries imposed more tariff barriers on each other. This affected investor sentiment globally and led to lower manufacturing activity. Service sector activity, however, remained relatively stable. Monetary policy updates in major economies cushioned, to a degree, the impact of trade tensions. According to IMF World Economic Outlook (WEO), April, estimated that the global economy will see a degrowth of 3% in 2020. IMF further said that the Covid-19 pandemic will shrink the world output by 3% in 2020. It is of the opinion that the global economy will face the worst recession since the Great Depression and far worse than the Global Financial Crisis. As per IMF, the cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars even after various stimulus declared by major economies.

The emerging economies are expected to witness a degrowth of 1% in 2020 and for 2021 it expects a recovery in growth and pegs the developing economies to grow by 6.6%. IMF also said that India and China would be the only two major economies likely to register growth in 2020, with all others contracting.

The IMF said that the recovery forecast for 2021 depends critically on the pandemic being controlled by the second half of 2020, allowing containment efforts to be gradually scaled back and restoring consumer and investor confidence.

INDIAN ECONOMY:

During FY 2019-20, Indias economic growth decelerated continuously as the year progressed. As per provisional estimates, real GDP growth for the first two quarters of FY 2019-20 came in at 5.2% and 4.4% respectively. The factors responsible for this muted growth was on account of continued slowdown in manufacturing and weak private consumption. While there were hopes of a turnaround in second of FY 2019-20, the economys performance slid further in Q3 FY 2019-20 as real GDP growth plunged to 4.1% on the back of broad-based deceleration in industry and services. The Covid-19 pandemic and the subsequent lockdown weighed heavily on the economy in the last quarter of FY 2020 and real GDP growth plunged to just 3.1%, taking full year growth to 4.2%. However, this was partially offset by higher revenue spending by the Government, cut in corporate tax rate, initiatives for easing funding, and liquidity issues. In addition, the Government announced the ‘Atmanirbhar Bharat Abhiyan to revive every sphere of the economy from demand, supply to manufacturing, and make India self-reliant. Headline retail inflation, as measured by Consumer Price Index (CPI), was benign in the beginning of FY 2019-20. CPI started inching up sharply from September-October 2019 due to higher food prices. However, towards the end of FY 2019-20, normalisation of food prices and easing oil prices led to easing of inflation.

Despite the weak near-term outlook, the outbreak of Covid-19 presents an opportunity for India to emerge as a credible manufacturing alternative. Indias long-term economic fundamentals remain intact with favourable demographics, continuing policy reforms. IMF estimates Indias GDP to grow at 1.9% during FY21. RBI governor called it a positive sign as it still is one of the highest among G20 countries.

NFLATION:

Inflation, as measured by the Consumer Price Index (CPI), remained well under the RBIs medium-term target of 4.0% until September 2019. However, post September 2019, it overshot for the next five months straight to hit a six-year high of 7.6% in January 2020, before cooling off to 6.27% in May 2020. Overall, for most part of the previous year, CPI inflation was primarily driven by elevated prices of food articles. Wholesale Price Index (WPI) inflation too remained in low single digits in FY 2019-20.

The Reserve Bank of India (RBI) expects Retail inflation to fall below its targeted 4% in the first half of the fiscal 2020-21. The Monetary Policy Committee (MPC) has set its mid- to long-term inflation target at 4% with a 2% point bias on either side. This will provide some policy space to address the risks arising due to the spread of the pandemic.

Source: https://www.bloombergquint.com/economy-finance/rbi-sees-indias-inflation-rate-falling-below-4-as-lockdown-threatens-demand

NTERESTI RATE:

The RBI on 27th March 2020 announced a stimulus worth 3.2% of GDP to respond to the economic impact of the coronavirus outbreak. In second off-cycle Monetary Policy Committee (MPC) meeting, the repo rate was reduced by 40 basis points (bps) to 4% which is lowest till now, reserve repo rate at 3.35% and Cash Reserve Ratio (CRR) by 100bps to 3%. One of the main reasons behind the rate cut is to boost the economy by increasing the cash flow in the market as a decrease in the Reverse repo rate will push the banks to take out their money parked with RBI and use it for lending purposes. The Marginal Standing Facility rate currently stands at 4.25%.

This was followed byRs 21 lakh Cr economic package announced by the Government, in the wake of the ongoing Covid-19 pandemic. The RBI in addition to reducing rates has also announced various liquidity and monetary measures, totalling an economic value worth Rs 8 lakh Cr.

Source: https://www.bloomberg.com/news/articles/2020-03-27/ india-s-central-bank-cuts-interest-rate-in-emergency-meeting https://www.bloomberg.com/news/articles/2020-04-17/indian-central-bank-boosts-liquidity-to-offset-virus-hit https://www.bankbazaar.com/finance-tools/emi-calculator/ current-rbi-bank-interest-rates.html https://www.financialexpress.com/economy/rbi-governor-shaktikanta-das-press-conference-live-updates-reverse-repo-rate-crr-t-ltro-liquidity-monetary-easing/1967031/

CRUDE OIL:

The mitigation measures undertaken to prevent the spread of Covid-19 has caused an unprecedented collapse in economic activity and transport, resulting in widespread declines in commodity prices.

The crude oil market has been affected most by the pandemic. The current drop in oil demand outpaces previous global recessions.

Following is a chart depicting a percentage drop in oil demand during recession periods historically:

As can be seen from the chart above the demand for oil is expected to witness the highest slump during 2020 due to the slowdown in economic activity globally.

Since January 2020, the oil prices started to decline due to the Covid-19 outbreak in China which led to travel restrictions. Further, the OPEC and non-OPEC members could not arrive at an agreement to cut oil production which led to an increase in supply of cheap oil from Saudi Arabia & Russia leading to a price war. This coupled with the spread of the Covid-19 across the globe, resulted in oil prices to touch historical lows. Later, in April the OPEC+ countries agreed to cut oil production by 9.7 Million barrel per day during May and June. Furthermore, in May Saudi Arabia stated beginning from June 1, it would voluntarily cut an additional 1 million bpd, in addition to its portion of the cuts agreed to by OPEC+.

As per the US Energy Information Administration (EIA) the Brent crude prices are expected to average US$ 33.04 per barrel in 2020

& US$ 45.62 per barrel in 2021. The 2019 average stood at US$ 64.36 per barrel. As per the IMF it expects the Brent crude prices to be at US$ 36.9 per barrel in 2020 and US$ 39.5 in 2021.

Source: https://blogs.worldbank.org/voices/outlook-commodity-markets-and-e_ects-coronavirus-six-charts https://knoema.com/yxptpab/crude-oil-price-forecast-2020-2021-and-long-term-to-2030

GLOBAL PLASTICS INDUSTRY:

The Global Plastics Industry is expected to become a ~US$ 754 Billion market by 2027 from ~US$ 569 Billion in 2019, depicting a CAGR of 3.5%.

The factor that will drive the growth in this market are as follows:

The demand for plastic products as a replacement for metals and alloys has increased significantly across various industries such as Consumer goods, Automotive, Industrials, etc. For example, plastics can be used in various home furnishing products like tables chairs, etc., under hood components in the automotive industry, in electronics and consumer durables

Availability issues with respect to conventional materials such as metal and wood

Ease of use for consumers. For example, simple and easy to install, durable, etc.

Cost effectiveness as compared to metals and wood

Source: https://www.grandviewresearch.com/press-release/ global-plastics-market-analysis https://www.grandviewresearch.com/industry-analysis/global-plastics-market

I N DIAN PLASTICS INDUSTRY:

The Indian plastic industry has taken great strides. The industry has grown to the status of a leading sector in the country with a sizable base. The per capita consumption of plastics is increasing at a fast pace in the country. Continuous advancements and developments in technology, processing machineries, expertise, and cost-effective manufacturing is fast replacing the typical materials in different segments with plastics. The immense potential of Indian plastic industry has motivated Indian manufacturers to acquire technical expertise, achieve superior quality standards and build capacities in different facets of the booming plastic industry.

In FY 2018-19, plastics export from India stood at ~US$ 111 Billion. Top five importers of Indian plastic products were US (~$ 1,314 Million), China (~$ 1,282 Million), UAE (~$ 580 Million), Italy (~$ 451 Million) and Germany (~$ 407 Million). During April 2019-January 2020, plastic exports stood at ~$ 7 Billion.

The Indian plastics industry produces and exports a wide range of products like plastic-moulded extruded goods, packaging, consumer goods, electrical accessories, moulded or soft luggage items etc.

Source: http://www.india-exports.com/plastic.html https://www.ibef.org/exports/plastic-industry-india.aspx

CONSUMER SEGMENT:

Home Furnishings Business:

The Global Home Furnishing Market is expected to grow at ~5% CAGR and reach ~US$793 Billion by 2025.

Few reasons propelling growth to the Home furnishing market are as follows:

Awareness related to home fashion trends

Inclination towards brands to provide a more customised furnishing solution

Growing urban population

Increasing disposable incomes

Increasing cost of raw materials like wood, metals, etc. is expected to boost demand for furnishing products made from plastics

Growing trend of online shopping through various E-commerce websites

Source: https://www.prnewswire.com/news-releases/the-global-home-decor-market-size-is-expected-to-reach-792-6-Billion-by-2025--rising-at-a-market-growth-of-4-9-cagr-during-the-forecast-period-300869523.html https://www.alliedmarketresearch.com/home-decor-furnishing-market

We currently have two clients in this segment and are looking at cementing our relationship with these customers.

Our association with the Home Furnishings major dates back to 2004. Over the years we have grown our business mutlifold with this client and today we are trusted global suppliers for them. To serve the client we have a dedicated EOU facility with more than 40 machines. With the Home Furnishing Majors entry into the Indian market and also opening of its online shopping website for selected cities in India, we see huge prospects of growth with this client in the times to come.

Toys Business:

The Global Toys market is expected to reach revenues of US$120 Billion by 2023.

The top toy companies are focusing on developing new products, mergers and acquisitions, as well as partnering with local or regional players, to optimise their offerings.

Few reasons propelling growth to the Toys market are as follows:

The growing number of websites offering a wide range of toys and games has increased the demand for these products, especially among working parents who seek easy accessibility and convenience.

Increasing childrens programs and TV channels are expected to drive demand for toys.

Rising income levels in the emerging markets.

Baby toys becoming smarter designed specifically for learning purposes.

China + 1 strategy is further giving impetus to the growth opportunities for Indian manufacturers. Many brands are increasingly looking to create a 2nd line of outsourced manufacturing base which will deepen the manufacturing capabilities of Indian manufacturers.

Source: https://www.playmr.com.au/blog/toys-and-gaming-trends-2020

We received our first order in the Toys business during the first quarter of the current fiscal from one of the leading brands which is global, diversified, multi-platform and highly innovative childrens entertainment company. It is counted amongst the top toy companies in the world. Shaily Engineering Plastics made initial shipments in the third quarter of the financial year. We expect to ramp up this business in the financial year 2020-21 and further in 2021-22. We foresee huge growth potential in this business going ahead as many global toy companies are now planning to diversify their sourcing and are looking at India as a potential manufacturing destination.

PHarma Segment:

Our Pharma segment can be broadly classified into Pharma Devices and Pharma Packaging businesses.

Pharma Devices Business:

The Global Pharma Devices Market is expected to become ~US$ 613 Billion market by 2025, thereby expected to grow at a CAGR of 5.4% from ~US$ 426 Billion in 2018. Medical Devices help improve the patients quality of life. Rising geriatric population, growing chronic diseases, are projected to boost demand for medical devices.

Source: https://www.fortunebusinessinsights.com/industry-reports/medical-devices-market-100085

the global Pharmaceutical Drug Delivery Devices

Market is estimated to reach ~US$ 1,695 Billion by 2023 from ~US$ 1,244 Billion in 2018, depicting a CAGR of 6.4%. Rising prevalence of chronic diseases, growth in the biologics market, technological advancements and new product launches are the factors that will lead to the growth of the market.

Source: https://www.marketsandmarkets.com/drug-delivery-devices-market-research-76.html

Pharma Packaging Segment:

The Pharmaceutical Packaging Market is estimated to grow from ~US$84 Billion in 2019 to ~US$ 112 Billion by 2024, growing at a CAGR of 6.0%.The reasons leading to growth in this market are: increase in healthcare coverage, growing aging population, ease in handling, increase in non-communicable disease such as diabetes, etc.

Plastics & polymers are the major raw material type used for pharmaceutical packaging. Cost-effectiveness, excellent shatter resistance makes plastic an effective raw material for pharma packaging. Plastic can be easily converted in the required shapes such as vials, bottles, applicators, etc.

Source: https://www.marketsandmarkets.com/Market-Reports/pharmaceutical-packaging-market-890.html

We are one of the Indias leading injection molding companies in the Pharma Devices & Packaging field. We are not just converters, we believe in providing total solutions to our clients, right from manufacturing to also assisting them in obtaining regulatory approvals. Shaily Engineering Plastics Limited has carved a niche for itself in the Pharma Devices and Packaging market. We have been able to build up a strong pipeline in this segment which gives us confidence that it will become a major growth driver for the company in the near future. We are expected to complete exhibit supplies of major medical devices in FY21 and creating strong pipeline for years to come for their commercial supplies.

AUTOMOTIVE SEGMENT:

Global economic slowdown particularly in 2019 coupled with domestic slackness in the Auto industry led to Auto industry reporting a significant drop in performance in 2019-20. Further with the onset of the Pandemic, auto supply chain originating from SEA and ASEAN countries have seen production cuts further aggravating the market. At Shaily our efforts in the automotive segment is geared towards light weighting the vehicle. This involves deep understanding of raw material and its performance aspects which are required to not only light-weight the vehicle but also maintain if not improve the performance. In this category our capabilities lie towards metal to plastic conversion.

We continue to develop products and address the new age requirements of auto companies in their bid to enhance their performance. We witnessed muted business in 2019-20 on account of slow moving Auto business in international markets coupled with deferment of orders from our large customers based in USA.

PERSONAL CARE SEGMENT:

The personal care Segment, considered relatively immune to economic recessions, in India is now expected to shrink 1% in the worst-case scenario as per Industry reports. At best, it will grow 1% in 2020 as the Covid-19 lockdown has crimped demand and severely disrupted trade channels.

Festive season is expected to boost demand and help personal care companies report growth in the December quarter. But the outlook for these companies remains dim as widespread unemployment and a depressed economy may weaken consumer demand. However, some early green shoots were visible in June when India eased lockdown restrictions. Personal care sales registered 4.5% year-on-year value growth in June, suggesting that shoppers stepped out to buy more goods. https://www.hindustantimes.com/business-news/fmcg-industry-growth-may-remain-flat-in-2020-nielsen/story-FV4iwDNk3OgJUZHVD6VuiO.html

In the personal care segment, we provide end-to-end solutions that include Vacuum Metalizing, High Speed Pad Printing, Hot Stamping & Hot Foiling, Ultrasonic Welding and Painting. We have an injection Molding facility & Secondary operation facilities with high level of engineering skills. In the appliances and lighting segment, we supply critical components for the needs of various kinds of knob assemblies for different appliances.

Financial PerFormance oF tHe comPany For Fy

2019_20

The company reported Revenue of Rs 33,703.30 lacs in

FY 2019-20 as compared to Rs 34,012.14 lacs in FY19. Revenue from sale of products and services stood at Rs 32,133.72 lacs in FY 2019-20 as compared to Rs 32,054.02 lacs in FY19.

The company reported EBITDA of Rs 5,908.99 lacs in

FY 2019-20, up from Rs 5440.03 lacs in the last year, i.e. a growth of 8.62% YoY. EBITDA margins improved by 154 bps and reached to 17.53% in FY 2019-20.

Profit before tax (PBT) came in at Rs 3,069.77 lacs during the year, up from Rs 2,995.45 lacs in the last year, i.e. a 2.48%.

The company reported Profit after Tax of Rs 2,359.02 lacs in FY 2019-20, up from Rs 1,928.07 lacs in the last year, i.e. a growth of 22.35% YoY.

The revenue mix for exports to imports stands at 69:31. The revenue mix continue to skew towards exports

Our Debt to Equity ratio stands at 0.84 times

Total Capex spend (including work in progress) during FY 2019-20 is Rs 6928.06 lacs The major capex has been towards the Steel furniture business and ongoing acquisition for design and patent for some of our medical devices.

Looking at the expansion projects on hand, Shaily wishes to conserve cash for internal accrual purpose and hence do not propose any dividend.

Our performance for FY 2019-20 remained soft on account of various factors as enumerated below:

Delay in commissioning of the Steel furniture business due to the outbreak of Covid-19.

Loss of revenue for the month of March 2020 owing to the nation-wide lockdown imposed by the central government.

However, during the year, we were able to improve our quarterly revenue run rate from Rs 7735.91 lacs in Q4FY19 to Rs 7961.48 lacs in Q4 FY 2019-20.

We have also been able to improve our EBITDA Margins by 154 bps to 17.53% in FY 2019-20, on YoY basis, on account of better product mix, economies of scale with respect to raw materials and improvement in operational efficiencies.

The Company expects to exercise the option permitted u/s 115BAA of the Income Tax Act, 1961 as introduced by the Taxation Laws (Amendment) Ordinance, 2019 in FY22. Accordingly, the Company has re-measured its defined tax assets(net) positions and has taken full effect to the Statement of Profit and Loss during the quarter and year ended on 31st March 2020.

Tax Expense for the quarter and year ended on 31st March 2020 includes tax benefit of Rs 104.71 lacs on account of re-measurement of deferred tax assets (net).

We have continued to build a strong order pipeline in different segments and also successfully added new clients in existing as well as new segments. This gives us confidence of a better performance in the coming periods.

KEY DEVELOPmentS During tHe year

Q1

Pharma :

- Received Business for 1 new drug delivery device from a large domestic company

- Total number of drug delivery devices under development – 12.

Toys :

- Business confirmation received from a large Toy company for manufacture & supply of two products.

Q2

Pharma :

- Confirmation of Business for Bottles & Caps received from a Japanese entity.

FMCG:

- New business under negotiation with a large MNC in personal care segment Automotive.

- Additional business confirmed from an automotive customer for Rod.

Q3

Pharma:

- Submission of trial batches of 4 different pens done to customer in Q3.

Toys:

- Initial shipments made to a global toy manufacturer.

- Ramp up expected in Q1 FY21.

Q4

Pharma:

- Made commercial supplies of CRC caps to two companies during the previous quarter.

Automotive:

- Additional business confirmed from an automotive customer for 2 parts.

SigniFicant cHanGES IN KEY FINANCIAL RATIOS DURING FY 2019_20

The key financial ratios have not witnessed a significant change i.e. a change of 25% or more as compared to FY19.

The key financial ratios during FY20 vis--vis FY19 are as below:

Key Financial Ratios As at 31st As at 31st Variance
March March (%)
2020 2019
Debtors Turnover Ratio 5.52 5.71 3.21
Inventory Turnover Ratio 6.78 7.89 14.06
Interest Coverage Ratio 3.92 4.14 -5.30
Current Ratio 1.14 1.15 -1.06
Debt Equity Ratio 0.84 0.88 4.66
Operating Profit Margin (%) 17.53 15.99 1.54
Return on Net Worth (%) 14.80 14.16 0.64

Note : Debtors and Inventory Turnover ratio is considered in number of times.

PARTICIPATION AT GLOBAL EVENTS

The Company, in this year, participated at Global Events namely:

CpHI Worldwide at Germany, one of the largest global pharmaceutical trade fairs, held in November 2019.

CpHI India at New Delhi, one of the Indias leading pharmaceutical fair, held in November 2019.

Pharmapack Expo 2020 at Paris held at Paris in February 2020.

Pharmapack Expo is a European event for Pharmaceutical Packaging, Drug Delivery, Medical Devices and Machinery.

ANALYST & INVESTOR MEETS / CONFERENCE CALLS

The Company, hosts Earnings Call to discuss the financial, operational and business performance with Investors/ Analysts, every quarter, after declaration of the results. Result presentations and transcripts of the earnings call held till date is available on the website of the Company at https://shaily.com/investors/investor-presentation-updates . The Company also participated in various Institutional Investor/Analyst meets during the year. The details of the participation(s) are available on the website of the Company www.shaily.com.

QUALITY ACCREDITATIONS

The Company continues to focus on quality and strives to exceed customer expectations at all times Shaily is certified under various standards to meet client demands and enhance value delivery.

SEPL is accredited with the following certifications :

1. TUV Rheinland - ISO 9001:2015

Design, Development and manufacturing of Plastic Moulded Components and Assemblies.

2. Automotive – TUV Rheinland - IATF 16949:2016

Manufacture of Plastic Molded Components for interiors, seating systems,lightning systems, radiator tanks and guide brush for the automotive industry without product design and development.

3. Primary Packaging – TUV SUD - ISO 15378:2015 certification

Design, Development and manufacturing of plastic molded components and assemblies used as Primary Packaging Material for Medicinal Products.

4. Medical devices – TUV Rheinland - ISO 13485:2016

Manufacturing for plastic molded components and assemblies used in Medical devices.

5. MDSAP - Medical Devices Single Audit Program

Contract Design, Contract and Manufacturing of Re-usable and Disposable Pen Injectors, Rectal applicators, Dry Powder Inhalers, Vaginal Tablet Applicators, Plastic Bottle Applicator with Brush, Underarm Applicator and Vaginal speculum with LED Illuminator for Drug Delivery and Medical Examination under ISO 13485:2016.

Certification on Social Accountability Management System

The Company continues to be responsible for its social accountability policies. After due process of audit, Shaily has been accorded with Social Accountability certification as below : SA 8000:2014 - Certification for organizations Social Accountability Management System.

Business Responsibility Audits :

SEPLs business being a customer driven business is audited periodically based on internationally accepted standards. The Company continues to be accorded with high satisfactory global audits certifications. Below are few global audits conducted across the companys various facilities

1. Responsible Business Alliance (RBA)

Audit in respect of compliance under Electronic Industries Code of Conduct (EICC/RBA version 6.0) and compliance with state, regional, national and international laws.

2. URSA – Understanding Responsible Sourcing Audit

Independent Assessment of a suppliers compliance against all applicable laws, regulations and additional requirements of Unilever Responsible Social Policy.

3. Intertek – Global Security Verification

Audit in respect of international supply chain security standards to secure trade, protection against terrorist acts and to combat illegal trafficking

RECOGNITIONS

The Company is also recognized by the Government with the following recognitions :

1. Authorised Economic Operator

Recognition & appreciation of companys commitment to secure the international supply chain and in compliance with the WOCs SAFE framework Authorized Economic Operator (AEO) programme under CBIC Circular Number 33/2016 dtd 22.07.2016.

2. Recognition of In-house R& D Unit

Government recognized R & D facility, recognized by Department of Scientific Research and Industrial Research Technology Bhavan, New Delhi established under Ministry of Science and Technology vide their letter # F.No. TU/IV-RS/4055/2016 dtd 18th October 2016, as renewed vide their letter # F.No.TU/IV-RD/4055/2019 dtd 27th June, 2019.

3. Two Star Export House

The Companys 100% EOU Plant has been accorded with the status of two -Star Export House under provisions of Foreign Trade Policy 2015-20 by the Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry.

Human reSourceS

With a total workforce of 1,200+ employees, which includes staff, permanent employees and contract workers, the prime objective of Human Resource function is employee development. To achieve success and profitability, Company relies on its greatest assets – its intellectual capital. SEPLs culture fosters continuous learning. Inhouse trainings programmes for employees at all levels are conducted on a regular basis. New employees are educated about the Company with "Induction training". Under this programme, new recruits undergo an induction training by departmental heads, which offer a broad overview of the Companys varied functions, processes, strategy and growth objectives. This allows the new incumbent to fit seamlessly within the organization structure, culture and environment.

EMPLOYEE ENGAGEMENT INITIATIVES

The Company periodically carries out various employee motivation and engagement activities which include various festival celebrations, birthday celebrations, sports and competition events.

INTERNAL CONTROL SYSTEM

The Company has a system of Internal Controls over financial reporting ensuring the accuracy of the accounting system and related financial reporting. The Internal Control System adheres to local statutory requirements for orderly and efficient conduct of business. The efficacy of the internal checks and control systems are validated by Internal as well as Statutory Auditors. The Audit Committee reviews the adequacy and effectiveness of the Internal control systems, significant audit observations and monitors the sustainability of remedial measures.

imPact oF coviD-19 PanDemic on tHe BuSineSS oF tHe comPany

The spread of Covid-19 has severely impacted business around the globe. In many countries including India, there has been severe disruption to regular business operations die to lock-down, disruptions in transportation, supply chain, travel bans, quarantines, social distancing and other emergency measures. The lockdowns and restrictions imposed on various activities due to Covid-19 pandemic, while being a necessary measure to contain its spread, have also posed unprecedented challenges to all business and the business operations at Shaily Engineering Plastics Limited have been no exception to this.

Below are the brief details relating to the impact of the Covid-19 pandemic and the resultant lockdown, on the operations of the Company:

1. Impact of the Covid-19 pandemic, schedule, if any, for restarting the operations and steps taken to ensure smooth functioning of operations: a. Impact on Business Operations: The Government of India in order to contain the spread of the Covid-19 pandemic announced a nationwide Lockdown in March 2020. Accordingly, we suspended operations at all our facilities viz. Rania and Halol. This had a significant impact on our operations during the last 10 days of March 2020 and upto 22nd April 2020 until our operations partially resumed at both the facilities. Production and supply of goods commenced on

22nd March at our Pharma facility on limited basis, located Rania, Vadodara, Gujarat and rest of the plants started from 23rd April 2020, also on limited basis after obtaining for necessary permissions.

The lockdown also affected our ability to complete the Carbon Steel Plant commission and manufacturing. With ease in lockdown restrictions, manufacturing operations resumed in May 2020 with strict safety and hygiene protocols. Our facilities are currently operating at partial capacity, keeping in view of the government regulations and production will be enhanced in a phased manner.

We have undertaken all safety measures to ensure health, safety and wellbeing of all our employees as well as put in place SOPs and guidelines as per state government directives to prevent the spread of Covid-19 and are following increased protocols to ensure our people are safe and secure. b. Office in India: Our registered office at Vadodara, Gujarat and all other locations were closed as per the lockdown directives issued by the Government authorities. Safety and well-being of our employees has always been paramount to us. During the Covid-19 pandemic, company undertook several measures to ensure their well-being. Most of our staff have been working from home. Digital medium of communication has been used extensively and the organization has evolved to work under this new normal. c. Labour availability: Companys labour force constitutes of local labours hailing from neighbouring villages. d. Raw Materials: Company has been closely working with all the vendors to resume & align production schedules and de-bottleneck supply chain concerns. We foresee no major impact on manufacturing on-account of non-availability of raw materials e. Financial resources, profitability and liquidity position:

The Company has made detailed assessment of its liquidity position for the next one year and of the recoverability and carrying values of its assets comprising Property, Plant and Equipment, Intangible Assets, Finance Lease Receivables, Trade Receivables and Inventory as at the balance sheet date and has concluded that there is no material adjustments required in the Financial Statements.

The assessment includes checking and monitoring sales forecast for all major clients, reassessing internal capabilities to meet the forecast and also making sensitivity analysis on operating cashflow for adverse impact assumptions on Covid-19.

Management believes that it has considered all the possible impact of known events arising from Covid-19 pandemic in the preparation of the financial Statements. However, the impact assessment of Covid-19 is a continuing process given the uncertainties associated with its nature and duration. The Company will continue to monitor any material changes to future economic conditions.

The Company is currently in a comfortable liquidity position to meet its financial and other commitments. Company will continuously evaluate the liquidity situation and take appropriate steps to ensure a stable financial position. Due to the suspension of operations there had been significant reduction in revenues and which in turn has adversely impacted profitability. Company has undertaken various cost savings initiatives to conserve cash in such critical times. f. Impact of Covid-19 on Q4 FY2020 performance :

Covid-19 began impacting our normal business Operations on 14th March 2020 by affecting our supply chain and our ability to ship. As a result, we lost sizable revenue due to disruption leading to lower profits for the quarter as compared to forecasted. The carbon Steel project which was to have been commissioned in Mar 20 was delayed due to Covid-19. The plant was expected to be start trial production in Q4 FY20 is now scheduled in Q1 FY20.

2. Estimation of the future impact of Covid-19 on its operations: The company is not in a position, to gauge with certainty, the future impact of Covid-19 on its operations. However, our business model is built on various customers, across product segments and geographies and therefore we remain optimistic to sustain the near-term challenges.

3. Existing contracts/agreements where non-fulfilment of the obligations by any party will have significant impact on the listed entitys business: The Company is well positioned to fulfil its obligations and existing contracts/ arrangements.

This update is dynamic and may change as the situation changes. The company will provide an update on the situation in case of any major change.

outlook on oPPortunitieS aS well aS tHreatS,

RISKS AND CONCERNS:

consumer Segment:

Home Furnishings Major:

We take pride in being supplier of choice for one of the worlds most reputed & largest Swedish home furnishing major (HFM).

With the Swedish home furnishing major planning to expand its presence in the country, Shaily Engineering Plastics stands to gain. Also, Home Furnishings Majors commitment to procure more and more domestically augurs well for us. We plan to further leverage our longstanding relationship to drive incremental growth in our business with the client.

Toys Segment:

We successfully executed an order in this segment for one of the top toy company globally.

We foresee huge potential in this business and believe that it can become as large as our existing top customer, in the years to come.

Pharma Packaging & Devices:

Expansion of the generic market, technological advancement & strict government regulations for conventional packaging are major factors that are expected to drive growth in this segment

Also, low competitive intensity due to higher compliance costs, longer gestation periods and zero tolerance towards any errors creates entry barriers for this business

Your company has built varied capabilities in this segment ranging from Child resistant caps, to applicators to drug delivery devices, etc.

Steel Furniture Business :

Our largest client, the Swedish Home furnishings major entrusted us with a new line of product into the Carbon Steel segment. This indicates the confidence laid by them on our execution capabilities. The Estimated

Sales value of the order received is Rs 100 Cr p.a. for 6 new products, which has a scope to increase in the future

We have set up a New plant at Halol for this project and expect to commercialise the order in Q2FY21. We have built the requisite capabilities for the new project and remain confident of delivering as per the expected standards.

other Business Segments:

In the automotive segment your company has been successful to garner incremental business from existing clients like Honeywell.

As the Indian as well as world economy continue to struggle to come out of Covid-19 pandemic impact, it is important to consider threats associated with Covid-19 impact.

Delay in execution due to external factors out of companys control as well as adverse changes in the International business environment may impact business as company derives large portion of Revenues from Export Sales. Due to Covid-19 situation, major lockdown is expected to hit performance in Q1 FY21. While scalling up is expected in Q2 FY21, a lot depends upon various external factors. We have heavy reliance on export markets and therefore how other countries are releasing and scaling up the economy will be guiding factor for us.

Client concentration risk is high as a large portion of the total revenue is derived from a single client. We have been working to penetrate into new clients and thereby gradually reducing risk of high reliance on single client. With growth in Toy and Pharma Business, we will have this risk to be reduced over a period of time.

RISK MANAGEMENT

As we transform our business and expand our product portfolio, understanding and managing our principal risks becomes more important than ever. We set out below the risks that are most material to our business and performance at this time. We also explain some of the mitigating actions that we believe help us to manage these risks.

Risks Mitigation Strategies
Revenue growth: We are a B2B player and are dependent on the success of our customers products in end market. Also, exposed to global market forces, fluctuations in national economies, geopolitical uncertainty and natural crises, among others We have diversified our business model. Presence across multiple business segments along with comprehensive range of product portfolio enables us to cater evolving customer requirements.
Labour and manpower availability: Production schedules gets impacted owing to challenges in terms of manpower availability Raw material price volatility: Volatility in prices of raw materials can impact margins We have increased the mix of permanent labour and manpower in all our facilities. Further, we have hired technical manpower from ITI We have a raw material price pass with all our customers. The price pass through mechanism is varied across customers
For and on behalf of the Board of Directors
Place : Vadodara Mahendra Sanghvi
Date : 29th May 2020 Executive Chairman