Smruthi Organics Ltd Management Discussions.

11.1 Business of the Company and Future Outlook:

The company clocked a healthy 42% growth in revenue mainly on the back of growth in the domestic market. The domestic business experienced a robust 57% increase due to strong volume growth in key products. Exports grew 21% to touch Rs 50.47 crore on account of better price realization in export markets. The company experienced upward pressure on raw material prices due to disruption in global supply chains attributes to adverse events in China. This has led to higher raw material costs in the current financial year. However, the growth rate of variable and semi variable costs was controlled, resulting in higher profit realization as compared to previous financial year.

The company is glad to have repaid all its long term loans with banks including a significant portion of Working Capital Term Loan (WCTL) that was not due in the current year. By managing better receivable and payable cycles, the working capital requirement was also kept in tight control, which resulted in lowering interest cost.

For FY 2019 - 20, the company sees top line growth coming through increased volumes of high value products, which were launched in the previous year. Although capacity utilization has increased in FY 2018 - 19, the companys existing capacity is enough to handle our projected growth in product volumes for FY 2019 - 20. Hence, there is no capital expenditure planned for increasing capacity. All capital expenditure planned in FY 2019 - 20 will be for debottlenecking and improving productivity. Owing to higher capacity utilization and better productivity, the company is expecting the profit growth to be robust in FY 2019 - 20.

The Company is registering its products in several countries directly and through our reputed customers. This will build a strong base for future export growth.

A state-of-the-art Research and Development center has started its operations in Hyderabad. A qualified and experienced team of scientists is currently working on developing API products for commercial launch in FY 2019 - 20.

11.2 Opportunities and Threats

The crackdown on chemical industry due to safety and pollution concerns in China has created a supply shortage of several feedstock and other chemicals globally. The current supply disruption of key raw materials for various API from China has created a lot of uncertainty for the industry. Firstly, there is uncertainty about prompt availability of raw materials. We are mitigating this risk by addition of newer vendors. We may have to marginally increase buffer stock of some materials. Secondly, there is an upward pressure on raw materials prices. However, some of this potential cost increase can be passed on to customers by revision of prices of finished goods.

The Chinese crackdown has created a lot of opportunities for Indian manufacturers including our company. We are manufacturing in house certain materials, which were earlier sourced from China. This backward integration has not only helped us secure supply of key raw materials, but also helped us reduce cost of finished products significantly. We are continuously working on manufacturing strategic raw materials.

12. Board of Directors

12.1 Directors

The Board of Directors is chaired by Executive Promoter Chairman and has an optimum combination of Executive, Non- Executive and Independent Directors.

The Board of Directors at its meeting held on 20th October, 2018 approved revision in remuneration of Mr. E. Purushotham, Managing Director of the Company from present Rs. 7 Lacs p.m. to Rs. 12 Lacs p.m. plus payment of allowances, benefits, perquisites, incentives and commission (as applicable) with effect from 01st October, 2018 during the remaining period of his appointment. The requisite resolution for his appointment is being proposed in the notice of the ensuing Annual General Meeting for the approval of the members.

Present term of Mr. Jayant. H. Ranade (DIN: 00004814), Dr. K. Ramaswamy (DIN: 05273930), and Mr. Kashinath. R. Dhole (DIN: 01076675) Independent Non-Executive Directors of the Company (not liable to retire by rotation) expires on completion of 5 years at the ensuing Annual General Meeting. Being eligible it is proposed to recommend their re-appointment for second term of five consecutive years with effect from the date of this Annual General Meeting. You are requested to consider their re-appointment.

Mrs. E. Vaishnavi (DIN: 00033669) is retiring by rotation and being eligible offers herself for reappointment. You are requested to appoint her.

As provided under Section 197 of the Companies Act, 2013 (as amended upto date) approval of the members is being sought for seeking waiver of excess remuneration paid to Mr. E Purushotham, Managing Director for the financial years from 2010-2011 to 2013-2014 in respect of applications remained pending with the Central Government on commencement of Companies (Amendment) Act, 2017.

As required under the SEBI Regulations, particulars of Directors seeking reappointment at the ensuing Annual General Meeting have been given under Corporate Governance Report.

None of the Directors are disqualified from being appointed as Directors, as specified in Section 164 of the Companies Act, 2013.

The composition of the Board, meetings of the Board held during the year and the attendance of the Directors thereat have been mentioned in the Report on Corporate Governance in the Annual Report.

12.2 Performance Evaluation of the Directors

Pursuant to the provisions of the Companies Act, 2013, the Board has carried out annual evaluation of the performance of the Board, its Committees and Individual Directors has been made on the basis of participation of directors, quality of information available, quality of discussions, contributions and decision making etc. The overall performance of the members of the Board was found satisfactory. The performance evaluation of Independent Directors was done by the entire Board of Directors and Directors subject to evaluation had not participated in the same. The Independent Directors evaluated performance of non independent Directors and board as a whole.

12.3 Declaration of Independence

Your Company has received declarations from all the Independent Directors confirming that they meet the criteria of independence as prescribed under the provisions of the Companies Act, 2013 read with the Schedules and Rules issued thereunder as well as Regulation 16(1) (b) of Listing Regulations (including any statutory modification(s) or re-enactment(s) for the time being in force).

12.4 Familiarization Programme for the Independent Directors

In compliance with the requirements of Listing Regulations, the Company has put in place a familiarization program for the Independent Directors to familiarize them with their role, rights and responsibilities as Directors, the working of the Company, nature of the industry in which the Company operates, business model etc. The details of the familiarization programme are explained in the Corporate Governance Report. The same is also available on the website of the company www.smruthiorganics.com.

12.5 Directors Responsibility Statement

Pursuant to the requirement under Section 134 (5) of the Companies Act, 2013 (the "Act") with respect to Directors Responsibility Statement, it is hereby confirmed that:

(a) In the preparation of the annual accounts for the financial year ended 31st March, 2019, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year ended 31st March, 2019 and of the profit of the company for the year ended on that date;

(c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) The Directors have prepared the annual accounts on a going concern basis; and

(e) The Directors, have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively.

(f) The Directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

12.6 Meetings of Board and Committees of Directors

During the year 4 Board Meetings and 4 Audit Committee Meetings were convened and held. The details of the same along with other Committees of Board are given in the Corporate Governance Report. The intervening gap between the Meetings was within the period prescribed under the Companies Act, 2013.

13. Audits

13.1 Statutory Audit

Pursuant to the provisions of Section 139 of the Companies Act, 2013 read with Companies (Audit and Auditors) Rules, 2014, in the 28th Annual General Meeting M/s. N. R. Waghchaure & Associates., Chartered Accountants, Solapur (Reg.No.: 114999W) were appointed as the Statutory Auditors of the Company for a term of five years. Company has however obtained confirmation from the said Auditors about their eligibility to continue to hold the office during the current financial year.

The Auditors Report to the members on the Standalone Financial Statements of the Company for the year ended 31st March, 2019 do not contain any qualifications, reservations or adverse remarks.

13.2 Audit Committee

The Company has an Audit Committee in place, constituted as per the provisions of Section 177 of the Companies Act, 2013. The members of the Audit Committee, its terms of reference, the meetings of the Audit Committee and attendance thereat of the members of the Committee is mentioned in the Corporate Governance Report under the appropriate heading.

13.3 Secretarial Audit

Mr. H. R. Thakur, Practicing Company Secretary, Mumbai was appointed as Secretarial Auditor for the financial year 2018-19 pursuant to Section 204 of the Companies Act, 2013. The Secretarial Audit Report submitted by them in the prescribed form MR-3 is attached as Annexure II and forms part of this report.

There are no qualifications or observations or adverse remarks or disclaimer of the Secretarial Auditors in the Report issued by them for the financial year 2018-19.

13.4 Reconciliation of Share Capital Audit

As directed by the Securities and Exchange Board of India (SEBI), Reconciliation of Share Capital Audit has been carried out at the specified period, by a Practicing Company Secretary.

13.5 Cost Audit

For Financial Year 2019-2020, the Company has re-appointed Shrinivas Diddi and Associates, Cost Accountants, Solapur for conducting cost audit of its cost records pertaining to the products falling under the product categories Drugs and pharmaceuticals. Shrinivas Diddi and Associates are appointed on a remuneration of Rs 30,000 plus GST and out of pocket expenses.

The Company is seeking the ratification of the Shareholders for the remuneration to be paid to the cost auditors vide Resolution No. 3 of the Notice of the Annual General Meeting.

14. Key Policies

14.1 Remuneration Policy

The Board has, on the recommendation of the Remuneration and Nomination Committee framed a policy for selection, appointment and remuneration of Directors and KMPs. The Remuneration Policy is stated in the Corporate Governance Report.

14.2 Corporate Social Responsibility (CSR)

The Company has constituted a CSR Committee as per provisions of Section 135 of the Act. The Board has also framed a CSR Policy for the Company on recommendation of CSR Committee.

In view of past losses, Company was not required to spend on CSR during the financial year.

The Report on CSR activities as required under Companies (Corporate Social Responsibility) Rules, 2014, including a brief outline of the Companys CSR Policy, total amount spent on CSR during the year are set out at Annexure I forming part of this Report.

Company will operate CSR Policy in the areas of education, healthcare, sanitation and hygiene. Arising from this the focus areas that have emerged are Education, Health care, Sustainable livelihood and espousing social causes, projects shall be identified and adopted as per the activities included and amended from time to time in Schedule VII of the Companies Act, 2013.

14.3 Whistle Blower Policy

The Company has a vigil mechanism named Whistle Blower Policy to deal with instances of fraud and mismanagement, if any. The objective of the Policy is to explain and encourage the directors and employees to raise any concern about the Companys operations and working environment, including possible breaches of Companys policies and standards or values or any laws within the country or elsewhere, without fear of adverse managerial action being taken against such employees.

14.4 Risk Management Policy

The Company is aware of the risks associated with the business. It regularly analyses and takes corrective actions for managing / mitigating the same. The requirements of Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, with regard to the constitution of a Risk Management Committee are not applicable to our Company as this Regulation is applicable only to top 500 listed entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year.

14.5 Prevention of Insider Trading

The Company has adopted a code of conduct for prevention of insider trading. All the Directors, senior management employees and other employees who have access to the unpublished price sensitive information of the Company are governed by this code. During the year under report, there has been due compliance with the said code of conduct for prevention of insider trading based on the SEBI (Prohibition of Insider Trading) Regulations 2015.

As envisaged under Regulation 9A of the SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time, company has adopted a policy named "Leak or suspected leak of unpublished price sensitive information" for inquiry in case of the leak or suspected leak or inadvertent disclosure of the Unpublished Price Sensitive Information.

The company has also adopted a policy named "Policy for determination of Legitimate Purposes"in view of amendment in under Regulation 2A of the SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended from time to time.

14.6 Prevention of Sexual Harassment at Workplace

The Company has adopted a policy on Prevention of Sexual Harassment at workplace.

The policy is applicable for all employees of the organization, which includes corporate office, branches, depots and manufacturing locations etc.

The policy is applicable to non-employees as well i.e. business associates, vendors, trainees etc.A Complaints Committee has also been set up to redress complaints received on sexual harassment as well as other forms of verbal, physical, written or visual harassment.

During the financial year under review, the Company has not received any complaints of sexual harassment.

15. Loans, Guarantees or Investments

Company did not give any loans, guarantees and make any Investment covered under the provisions of Section 186 of the Companies Act, 2013.

16. Related Party Transactions

All transactions entered into with the Related Parties in terms of Section 2(76) and Section 188 of the Companies Act, 2013 read with Regulation 2 (zc) and Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 during the financial year were in the ordinary course of business and on arms length basis and do not attract the provisions of Section 188 of the Companies Act, 2013. There were no material related Party transactions during the year. Accordingly, the disclosure of Related Party Transactions as required under Section 134 (3) (h) of the Companies Act 2013 in Form AOC-2 is not applicable to your Company.

All Related Party Transactions are placed before the Audit Committee as also the Board for approval. The details of transaction with related parties are provided in the accompanying financial statements.

The policy on related party transactions as approved by the Board is uploaded on the Companys website www.smruthiorganics.com.

17. Remuneration of Managerial Personnel

The information required pursuant to Section 197 read with Rule 5 (1) of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company forms part of this Report as Annexure III.

18. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

As required by the Companies (Accounts) Rules, 2014, the relevant information pertaining to conservation of energy, technology absorption, foreign exchange earnings and outgoings respectively, is given in the Annexure IV to this report.

19. Extract of the Annual Return

Pursuant to Section 92(3) of the Companies Act, 2013, the extract of the Annual Return in Form No. MGT-9 shall be uploaded on the companys website www.smruthiorganics.com and is enclosed as Annexure V to this report.

20. Investor Education and Protection Fund (IEPF)

20.1 The Company had transferred a sum of Rs 1,14,413 during the financial year to the Investor Education and Protection Fund established by the Central Government (IEPF). The said amount represents Unclaimed Dividend for the year 2010-2011 with the Company for a period of 7 years from their respective due dates of payment.

20.2 Transfer of Shares to IEPF: As required under Section 124 of the Companies Act, 2013, 6100 Equity shares, in respect of which dividend has not been claimed by the members for Seven (7) consecutive years have been transferred by the Company to IEPF during the financial year 2017- 18. Details of shares transferred have been uploaded on the website of IEPF as well as the Company.

21. General Shareholder Information

General Shareholder Information is given in Item No. 10 of the Report on Corporate Governance forming part of the Annual Report.

22. Secretarial Standards

Your Directors confirm that the Secretarial Standards issued by the Institute of Company Secretaries of India have been duly complied with.

23. Significant and Material Orders passed by the Regulators/ Courts, if any

No significant or material orders were passed by the regulators or courts which impact the going concern status of the Companys operations in future.

24. Acknowledgment

The Board wishes to place on record its appreciation of sincere efforts put in by the employees of the Company, in helping it reach its current growth levels. Your Directors place on record their appreciation for the support and assistance received from the investors, customers, vendors, bankers, financial institutions, business associates, regulatory and governmental authorities.

25. Disclaimer

Certain statements, estimates and expectations stated in this Management Discussion and Analysis are based on the current perceptions, data and information available with the Company and may be forward - looking statements within the meaning of applicable securities, laws and regulations.

They reflect the companys current views of future events which are subject to risks and uncertainties, Important factors such as change in the competition scenario in the Companys areas of operations, economic conditions affecting demand/supply and prices situation in the domestic and international market, changes in government regulations, tax laws and other incidental factors may cause actual results to be materially different. The company assumes no responsibility to publicly amend, modify or revise any forward looking statements on the basis of any subsequent development, information or events.

For & on behalf of the Board
Smruthi Organics Limited
(E. Purushotham)
Place : Solapur Chairman & Managing Director
Date : 27th April 2019 DIN:00033583