Sikko Industries Ltd Management Discussions

The discussion hereunder covers Company?s performance and its business outlook for the future. This outlook is based on assessment of the current business environment and Government policies. The change in future economic and other developments are likely to cause variation in this outlook.

GLOBAL ECONOMY:

As per the World Bank, global economic growth is estimated at 3.2% for 2023 and projected to remain same for 2024 and 2025. Advanced economies are expected to see slight increase in growth from 1.7% in 2024 followed by 1.8% in 2025. Emerging and developing economies are overall expected to experience stable growth of 4.2% in 2024 and 2025.

Expecting steady decline of inflation from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Stronger global growth can be expected in case of faster deflation, slower withdrawal of fiscal support, faster economic recovery in China and artificial intelligence driven supply-side reforms. The down-side risk to the growth are commodity price spikes amid geopolitical and weather shocks, slower than expected decline in core inflation requiring tighter monetary policy stance, faltering growth in China and disruptive action on fiscal consolidation. On the policy front, central banks focus will be on managing the decline of inflation and carrying out calibrated fiscal consolidation to support durable medium-term growth.

Global economies which were impacted by uncertainties and volatility on account of Covid-19 fallout, prolonged geopolitical conflicts and monetary tightening by central banks amidst inflationary trends are witnessing gradual resurgence, marked by waning fears of recession and rebounding growth in major economies. However, there are some regional incongruences, with some regions experiencing subdued economic activity on account of geopolitical tensions. Globally, inflation management continues to remain a key priority. Despite these challenges, leading indicators suggest an overall expansion in economic activity driven by both manufacturing and service sectors.

India remains a bright spot in the revival of the global economy. The Indian economy continued to exhibit robust economic performance with broad-based growth across sectors. RBI also, in its recent MPC meeting, noted the strong growth momentum in the economy and projected real GDP growth for 2024-25 at 7 percent, driven by a pickup in rural demand and sustained momentum in the manufacturing sector. In its April 2024 WEO, IMF revised upwards its estimate of India?s GDP growth for FY 2023-24 to 7.8 percent and of estimated a growth rate 6.8 percent in 2024-25 based on its assessment of strength in domestic demand and demographic advantage. In March 2024, India witnessed a surge across multiple economic indicators, reflecting robust and resilient business activity. The month marked significant milestones, from record-breaking performances in the stock market to remarkable advancements in tax revenue collection. The buoyancy extended to the manufacturing and services sectors, as evidenced by the soaring HSBC India Manufacturing PMI and Services PMI. The gross GST collections for the month of April 2024 hit a record high of 2.10 lakh crore which is a growth of 12.4 per cent year-on-year. In March 2024, the HSBC India Manufacturing PMI surged to an impressive 59.2, a notable increase from the final figure of 56.9 recorded in the previous month. This marks the fastest growth in factory activity since February 2008.

Global inflation is predicted to be at 5.8% in 2024 as against 6.8% in 2023. It is expected to further decrease to 4.4% in 2025. Advanced economies are anticipated to lower inflation faster, coming down to 2.6% in 2024 from 4.6% in 2023. Inflation in emerging market and developing economies is projected to remain at 8.1% in 2024, only a slight drop from 8.4% in 2023.

In March, India?s services sector hit a peak, with exports surging to a fiscal year high. The HSBC India Services PMI soared to 61.2, marking one of the sector?s most significant expansions in sales and business activity in nearly 14 years.

The Index of Industrial Production (IIP) for February 2024 brought forth encouraging insights into India?s industrial landscape.

INDIAN ECONOMY:

Domestic GDP growth is estimated at 7.6% for FY 2023-24 compared to 7.0% in 2022-23. RBI is out looking FY 2024-25 GDP growth of 7.0% and India will continue to remain the fastest growing large economy. RBI views that recovery of Rabi sowing, sustained profitability in manufacturing and underlying resilience of services should support economic activity in 2024-25. Inflation is expected to moderate in 2024-25 to 4.5% compared to the estimated 5.5% in 2023-24 and 6.7% recorded in 2022-23. On the policy front RBI is expected to continue its focus on aligning inflation towards its target. Geopolitical, climate change, global indebtedness and technology disruptions are the biggest risks which may impact India?s growth momentum. Agriculture sector growth estimated at 1.8% in 2023-24 compared to 4.0% recorded in 2022-23 as the country witnessed the hottest and driest August ever recorded over the century.

India?s large domestic economy coupled with the government?s enormous public spending, both in the form of planned outlays and direct benefit transfers, led to liquidity infusion into the economy, and helped the country consistently grow. India?s inflation trajectory is expected to be significantly impacted by extreme weather conditions like heat waves and the potential for an El Ni?o year, volatility in international commodity prices and the possibility of a pass-through of input costs to output prices.

Despite these challenges, India?s economic fundamentals remain strong. The Government?s commitment to increase capital expenditure in the coming year signifies its dedication to sustaining growth. The next few months will be critical in determining the future trajectory of the Indian.

OUTLOOK:

India?s economy recovered quickly from the pandemic and further growth is expected to be supported by solid domestic demand and increase in capital investments. The global economy is expected to witness a synchronous rebound in 2025 as major election uncertainties are out of the way and central banks in the West are likely announce a couple of rate cuts later in 2024. India will likely see improved capital flows boosting private investment and a rebound in exports. Inflation concerns remain, however, which we believe may ease only in the latter half of the next fiscal year barring any surprises from rising oil or food prices The International Monetary Fund (IMF) and Reserve Bank of India (RBI) estimate real GDP growth of 6.8% in 2022-23 and 6.1% in 2023-24. The agriculture sector has been growing at an average annual rate of 4.6% over the past six years, and the industrial sector is estimated to grow at 4.5% in FY 2022-23. The services sector saw quick recovery in FY 2021-22, growing 8.4% Y-o-Y, and continued to grow in FY 2022-23.

Global agro chemical market after two consecutive years of record growth is estimated to have degrown in 2023 driven by prolonged destocking and heightened pricing pressure. Crop commodity prices have declined from the recent peak levels though remains high by historical standards. High channel inventory level impacted North and South American markets. Chinese agrochemical industry witnessed over capacity and price drop during 2023. Declining agrochemical prices and variable weather conditions dented agrochemical demand in most of the Asia Pacific countries. Agrochemical prices and demand were stable in Europe, though adverse weather conditions in some of the countries impacted overall consumption. Currency crunch also impacted supplies to certain African and Asian countries.

RBI?s enterprise surveys point to some softening of input cost and output price pressures in manufacturing. Considering these factors, and assuming an average crude oil price (Indian basket) of US$ 95 per barrel, inflation is projected at 6.5% in FY 2022-23, with Q4 at 5.7%. On the assumption of a normal monsoon, CPI inflation is projected at 5.3% for FY 2023-24, with Q1 at 5.0%, Q2 at 5.4%, Q3 at 5.4% and Q4 at 5.6%, and the risks evenly balanced. Indian government has accelerated its reforms initiatives like Production Linked Incentives (PLI) schemes and increased infrastructure spending to support the industry. This will provide resilient demand in economy and its ripple effect on other aspects of the economy, such as employment and productivity, will bring India back on track in its medium- to long-term economic objective.

INDIAN AGROCHEMICAL SECTOR:

The Indian chemical industry is the 6^th largest producer of agrochemicals in the world globally and 3^rd in Asia, contributing 7% to India?s GDP. India is the 4th largest producer and 2^nd largest exporter of Agrochemicals globally. In FY 2024-25, agrochemicals exports from India reached US$ 4.2 billion, dropped by 22% from FY 2022-23. India is fast emerging as major global manufacturing hub for agrochemicals due to low manufacturing cost, low labour cost, technically trained manpower, and high production capacity. India ranks 14^th in chemical products? exports and 8^th in imports. India is fast emerging as major global manufacturing hub for agrochemicals due to low manufacturing cost, low labour cost, technically trained manpower, and high production capacity. The agrochemical market is currently estimated around 40,000 Crore. The Indian chemical industry stood at US$ 254 billion in 2023, and is expected to reach US$ 304 billion by 2025, registering a CAGR of 9%. The cumulative FDI equity inflow in the chemical industry reached US$ 21.71 billion from April 2000 to September 2023.

India saw no table improvement in its chemical trade balance (Chapters 28 to 38 excl. 37), with deficit dropping from US$15 billion in FY 2022-23 to US$2 billion in FY 2023-24. This is largely driven by 15% decrease in import volumes, falling from US$74 billion in FY 2022- 23 to US$63 billion in FY 2023-24. Meanwhile, exports marginally increased from US$60 billion in FY 2022-23 to US$61 billion in FY 2023-24.

Availability of technically trained manpower, seasonal domestic demand and production capacities for generics built to cater to overseas markets are the other reasons for strong exports. India has been attracting multinationals due to good domestic growth opportunities. Domestic segment has been witnessing a steady increase in market acceptance of new generation molecules.

Interim Union Budget 2024-25, focusses on key trends like EV ecosystem adoption, scaling up renewable power installations, promoting chemical manufacturing for import substitution, fostering green chemical production, and encouraging decarbonisation. Tax reforms, PLI initiatives, and government expenditure align with these goals. (Source: Interim Union Budget 2024-25, IBEF, Ministry of Commerce, Expert Market Research)

INDUSTRY DRIVERS:

The key factors of driving the agrochemical industry are:

With the growing population there is an increase in the need to fulfil the demand for food sufficiency and food security. This continues to drive the growth of agrochemicals industry.

With fewer arable acres per capita, agrochemicals are becoming more important in maximizing farmer yields; arable land is projected to shrink from half an acre per person now to less than one-third of an acre per person by 2050.

Plant diseases and pests have become more common as a result of changing environmental conditions. Also, climate fluctuations have a substantial impact on crop productivity

COMPANY OVERVIEW:

Established in 2000, Sikko Industries Limited ("SIL" or the Company) is a leading Agrochemical Company in India. The Companys strength lies in manufacturing formulations. The Company has two manufacturing unit i.e. Fertilizer and Pesticide unit is located at the outskirts of the Ahmedabad city on Sanand Highway and thus enjoys the good connectivity with different parts of the states, which makes the movements of the raw-material as well as our products easy and comfortable. Thus, it helps in procurement of raw material and dispatch of our products to the various clients. We have well equipped research and Development facility to improve quality of the products and to produce high performance growth promoters, pesticides and fertilizer. Company has in house sound R&D Department backed by technical expertise of our Managing Director Mr. Jayantibhai Kumbhani which helps the company to enhance our product range. We offer special and exclusive range of agrochemicals including organic pesticides, organic fertilizers and others. Such diverse product mix helps us to cater the diverse customer segments and to various sectors of Industry. The product mix helps us to sustain the growth level. Over the years we have developed various products which is used by farmer in agriculture. All products that dispatch from the factory premises are inspected by the packing and dispatch department. Further, quality check is done at every stage of manufacturing to ensure the adherence to desired specifications. Since, our Company is dedicated towards quality of products, processes and inputs; we get repetitive orders from our buyers, as we are capable of meeting their quality standards, which enables them to maintain their brand image in the market.

Opportunities:

- Government initiative to promote agriculture industry will help our industry to grow

- Continues development in R&D work resulting into yielding of new product

- Abundant water, electricity and subsidies to farmer by government will help the agriculture industry to grow

Threats:

- Change in Government policies o New entrants in the market and intense competition by existing players

- Technology may become obsolete due to Innovation in Technology

The generic threat of economic slowdown exits, which may subdue the domestic demand for the products

- Fluctuations in Raw Material prices

- Unfavourable weather conditions

RISK AND CONCERNS:

A well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential impact and risk mitigation process is in place. The objective of the mechanism is to minimize the impact of risks identified and taking advance actions to mitigate it. The mechanism works on the principles of probability of occurrence and impact, if triggered. A detailed exercise is being carried out to identify, evaluate, monitor and manage both business and non-business risks.

SEGMENT WISE OR PRODUCT-WISE PERFORMANCE:

The Company?s operation predominantly comprises of only one segment. In view of the same, separate segmental information is not required to be disclosed as per the requirement of Indian Accounting Standard 108 Operating Segment.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

During the year under review, the Company has earned total income of 6,470.59 Lakhs as against the total income of 4,992.51 Lakhs of previous year which states 29.61% increase in the total income as compared to previous year. The profit before tax in the financial year 2023-24 stood at 605.81 Lakhs as compared to profit of 405.30 Lakhs for last year and net profit after tax stood at 406.43 Lakhs as compared to profit of 289.25 Lakhs for the previous year which state 55.28% increase in profit of the Company.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has a proper and adequate system of Internal Controls to commensurate with the size and nature of its operations to ensure that all assets are safeguarded against unauthorized use or disposal, safeguarding true and fair reporting and compliance with all applicable regulatory laws and company policies. Internal Audit Reports are reviewed by the Audit Committee of the Board.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS:

The Company believes that human resource is the most important assets of the organization. It is not shown in the corporate balance sheet, but influences appreciably the growth, progress, profits and the shareholders? values. During the year your company continued its efforts aimed at improving the HR policies and processes to enhance its performance. The vision and mission of the company is to create culture and value system and behavioral skills to insure achievement of its short- and long-term objectives. As on March 31, 2024, the Company had total 85 full time employees. The industrial relations have remained harmonious throughout the year.

KEY FINANCIAL RATIO:

Details of key financial ratios of the Company, changes therein as compared to previous financial year along with explanations for those ratios where change is 25% or more are as under:

CAUTIONARY STATEMENT:

Statement made in the Management Discussion and Analysis Report describing the Company?s objectives, projections, estimates, expectations may be "Forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied. Important factors that could make a difference to the Company?s operations include economic conditions affecting demand supply and price conditions in the markets in which the company operates changes in the government regulations, tax laws & other statutes and other incidental factors.