Snehaa Organics Ltd Management Discussions

OF FINANCIAL CONDITION AND RESULTS

OF OPERATION

The following discussion is intended to convey managements perspective on our financial condition and results of operations for the financial year ended March 31, 2025, March 31, 2024 and March 31, 2023. One should read the following discussion and analysis of our financial condition and results of operations in conjunction with our section titled “Financial Statements ” and the chapter titled “Financial Information ” on page 282 of the Red Herring Prospectus. This discussion contains forward-looking statements and reflects our current views with respect to future events and our financial performance and involves numerous risks and uncertainties, including, but not limited to, those described in the section entitled “Risk Factors” on page 37 of this Red Herring Prospectus. Actual results could differ materially from those contained in any forward- looking statements and for further details regarding forward-looking statements, kindly refer the chapter titled “Forward-Looking Statements ” on page 24 of this Red Herring Prospectus. Unless otherwise stated, the financial information of our Company used in this section has been derived from the Restated Financial Information. Our financial year ends on March 31 of each year. Accordingly, unless otherwise stated, all references to a particular financial year are to the 12-month period ended March 31 of that year.

In this section, unless the context otherwise requires, any reference to “we”, “us” or “our” refers to Snehaa Organics Limited, our Company. Unless otherwise indicated, financial information included herein are based on our Restated Financial Statements for Financial Years 2025, 2024 & 2023 included in this Red Herring Prospectus beginning on page 282 of this Red Herring Prospectus.

OVERVIEW

Snehaa Organics Limited was originally formed as partnership firm under the Indian Partnership Act, 1932 in the name and style of “M/s. Snehaa Pharma Chemicals”, pursuant to a deed of partnership dated October 26, 2017. Our Promoter has made a strategic investment by acquiring M/s Snehaa Pharma Chemicals, with a vision to revolutionize the solvent recovery industry.

As part of this transition, a Partnership Deed for Reconstitution was executed on June 21, 2019, marking a significant change in ownership. Under this agreement, the existing partner retired, and the firm welcomed new partners Mr. Ramasubba Reddy Nandigala, Mrs. Venkata Lakshmi Nandigala, Mr. Nandigala Venkata Sai Harish & Rama Subba Reddy HUF.

Further, “M/s Snehaa Pharma Chemicals” was converted from partnership firm to a Private Limited Company in the name of “Snehaa Organics Private Limited” vide Certificate of Incorporation dated July 05, 2022 issued by Registrar of Companies, Central Registration Centre bearing CIN U24290TG2022PTC164443.

Thereafter, our Company was converted into a Public Limited Company in pursuance of a special resolution passed by the members of our Company at the Extra Ordinary General Meeting held on December 18, 2024.

A fresh Certificate of Incorporation consequent to conversion was issued on January 07, 2025 by the Registrar of Companies, CPC Manesar Haryana and consequently the name of our Company was changed from “Snehaa Organics Private Limited” to “Snehaa Organics Limited”. The Companys Corporate Identification Number is U24290TG2022PLC164443.

KEY PERFORMANCE INDICATORS OF OUR COMPANY

(In lakhs)

Key Financial Performance	March 31, 2025	March 31, 2024	March 31, 2023
Revenue from operations (1)	2,622.33	2,371.79	2,010.25
EBITDA (2)	1,141.24	583.04	510.86
EBITDA Margin (3)	43.52%	24.58%	25.41%
PAT (4)	733.82	365.98	324.66
PAT Margin (5)	27.98%	15.43%	16.15%
Net Worth (6)	1,477.63	743.81	377.83
Return on Net Worth (7)	49.66%	49.20%	85.93%
ROCE (8)	50.38%	46.70%	59.90%

Notes:

(1) Revenue from operations is the revenue generated from operations by our Company.

(2) EBITDA is calculated as Profit before tax + Depreciation + Interest Expenses - Other Income.

(3) EBITDA Margin is calculated as EBITDA divided by Revenue from Operations

(4) PAT is mentioned as profit after tax for the period.

(5) PAT Margin is calculated as PATfor the period/year divided by revenue from operations.

(6) Net Worth means the aggregate value of the paid-up share capital and reserves and surplus of the company.

(7) ROE/RONW: Return on Equity is calculated as PAT divided by closing shareholders equity

(8) ROCE: Return on Capital Employed is calculated as EBIT divided by capital employed, which is defined as total Assets minus current liabilities.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST FINANCIAL YEAR

As per mutual discussion between the Board of the Company and Book Running Lead Manager, in the opinion of the Board of the Company there have not arisen any circumstances since the date of the last financial statements as disclosed in the Red Herring Prospectus and which materially and adversely affect or is likely to affect within the next twelve months except as follows:

• The board of directors in its meeting held on November 23, 2024 appointed Mr. Sarath Chandra Bhojanapalli as Chief Financial Officer of the Company.

• The shareholders of our Company appointed Mrs. Khushbu Kachhawa as Independent Director in the Extra- Ordinary General Meeting held on December 17, 2024.

• The shareholders of our Company appointed Mrs. Gurprit Kaur as Independent Director in the Extra- Ordinary General Meeting held on January 21, 2025.

• The board of directors in its meeting held on January 21, 2025 appointed Ms. Poonam Jain as Company Secretary & Compliance officer of the Company.

• The Board of Directors of our Company has approved and passed resolution on February 24, 2025 to authorize the Board of Directors to raise the funds by way of Initial Public Offering.

• The shareholder of our Company has approved and passed resolution on February 26, 2025 to authorize the Board of Directors to raise the funds by way of Initial Public Offering.

SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business is subjected to various risks and uncertainties, including those discussed in the section titled “RiskFactor” beginning on page 37 of this Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

• Changes, if any, in the regulations / regulatory framework / economic policies in India and / or in foreign countries, which affect national & international finance.

• Substantial portion of our revenues has been dependent upon few customers. The loss of any one or more of our major customers would have a material adverse effect on our business, cash flows, results of operations and financial condition.

• Dealing in hazardous material has significant risk and may cause some extraordinary losses.

• Failure to comply with regulations prescribed by authorities of the jurisdiction in pharmaceutical sector and chemical sector.

• We generally do business with our customers on purchase order basis and do not enter into long term contracts with them. Our inability to maintain relationships with our customers could have an adverse effect on our business, prospects, results of operations and financial condition.

• Failure to adapt to the changing needs of industry may adversely affect our business and financial condition;

• Inflation, deflation, unanticipated turbulence in interest rates and fluctuation in price.

• Our dependence on our key personnel, including our directors and senior management;

• Our ability to successfully implement our business strategy and plans;

• The occurrence of natural disasters or calamities;

• Other factors beyond our control.

DISCUSSION ON RESULT OF OPERATION

(Amount in Lakhs)

Particulars	For the year ended 31 March, 2025	%age of Total Income	For the year ended 31 March, 2024	%age of Total Income	For the year ended 31 March, 2023	%age of Total Income
Income
Revenue from Operations	2,622.33	99.73	2,371.79	99.64	2,010.25	98.47
Other Income	7.12	0.27	8.53	0.36	31.17	1.53
Total Income (I + II)	2,629.45	100	2,380.31	100	2,041.42	100
Expenditure
Purchases of Stock in Trade	491.02	18.67	320.11	13.45	142.53	6.98
Changes in inventories	-309.23	-11.76	56.08	2.36	-10.89	-0.53
Cost of Material Consumed	731.24	27.81	805.42	33.84	838.31	41.07
Employee benefits expenses	214.48	8.16	149.88	6.30	172.29	8.44
Financial Charges (Finance cost)	53.34	2.03	9.27	0.39	18.57	0.91
Depreciation &	121.44	4.62	80.04	3.36	67.06	3.28
Amortization Expenses
Other expenses	345.87	13.15	457.20	19.21	357.15	17.50
Total expenses	1,648.16	62.68	1,878.00	78.90	1,585.02	77.64
Profit before Taxation & Exceptional Item	981.29	37.32	502.32	21.10	456.39	22.36
Exceptional Items	-	-	-	-	-	-
Profit Before Taxation	981.29	37.32	502.32	21.10	456.39	22.36
Current Tax	237.36	9.03	128.18	5.39	128.01	6.27
Deferred Tax	10.11	0.38	8.16	0.34	3.72	0.18
Earlier Years Tax Expense	-	-	-	-	-	-
Total tax expense	247.47	9.41	136.34	5.73	131.73	6.45
Profit After Tax but Before Extra- ordinary Items	733.82	27.91	365.98	15.38	324.66	15.90
Extraordinary Items	-	-	-	-	-	-
Profit Attributable to Minority Shareholders	-	-	-	-	-	-
Net Profit after adjustments	-	-	-	-	-	-
Net Profit Transferred to Balance Sheet	733.82	27.91	365.98	15.38	324.66	15.90

Our Significant Accounting Policies

For Significant accounting policies please refer Significant Accounting Policies, under Chapter titled “Financial Statements” beginning on page 282 of the Red Herring Prospectus.

Reservations, Qualifications and Adverse Remarks

The Examination Report issued by our Statutory Auditors has no reservations, qualifications and adverse remarks.

Revenue Recognition Method adopted by the company

i) The Company recognizes revenue from the distillation of solvents and manufacture of pharma chemicals to the extent that the economic benefits will probably flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made.

ii) The Company recognizes revenue from the distillation of solvents and manufacture of pharma chemicals on a job work basis is recognized upon the completion of the service when

a) The job work is completed and the processed solvents are delivered to the customer.

b) The significant risks and rewards of ownership of the processed solvents are transferred to the customer.

iii) Interest income is recognized on a time proportionate basis taking into account the amount of outstanding and the rate applicable.

Overview of Revenue & Expenditure

The following discussion on results of operations should be read in conjunction with the Restated Financial statements for the Financial Year 2025, 2024 & 2023. Our revenue and expenses are reported in the following manner:

Revenue Bifurcation Product wise bifurcation

Product wise bifurcation is mentioned under chapter titled ‘our business on page 208 of this Red Herring Prospectus under the head ‘Product wise revenue breakup.

Geographical bifurcation

Geographical bifurcation is mentioned under chapter titled ‘our business on page 211 of this Red Herring Prospectus under the head ‘Geographical wise revenue breakup.

Revenues

? Revenue of operations

Our Company s revenue is primarily generated from the sale of distilled products either by way of trading or by selling the excess recycled product in the market and through the job work charged by company to distill the product.

? Other Income

Other Income includes discount received, interest received and other such miscellaneous income.

Expenditure

Our total expenditure primarily consists of purchase of stock in trade, cost of material consumed, Change in inventories, Employee benefit expenses, and Other Expenses. We also have incurred financial charges and depreciation as expenditure.

? Cost of Material Consumed

It includes purchase of raw material such as mixed solvents, Toluene, Acetone etc. which are spent and is neutralized and distilled in its distilled plant. This includes stores and consumables for distillation.

? Purchase of Stock in Trade

It includes trading of Acetone, MDC, Chloroform etc. which is then further sold in open market.

? Change in Inventory

It means the difference between total of opening and closing inventories. This includes finished goods of inventory and work in progress.

? Employment Benefit Expenses

Our employee benefits expense primarily comprises of Salaries and Wages, Staff welfare expenses and Gratuity and Other Benefits etc.

? Finance Cost

It includes Interest Expense on Borrowings and other Financial Expenses.

? Depreciation and Amortization Expenses

Depreciation includes depreciation on Buildings, Plant & Equipment, Furniture & Fixtures, Computers, etc.

? Other Expenses

Other Expenses includes direct expenses such as freight inward, power and fuel charges, factory repair and maintenance expenses. It also includes administrative expenses such as rent, audit fees, office maintenance, legal charges etc.

DETAILS OF FINANCIAL YEAR 2025 COMPARED TO FINANCIAL YEAR 2024 (BASED ON RESTATED FINANCIAL STATEMENTS)

Revenues

? Total Income

Total Income for the Financial Year 2024-25, stood at Rs. 2,629.45 Lakhs whereas in Financial Year 2023-24 it stood at Rs. 2,380.31 Lakhs, representing an increase of 10.47%. This is due to increase in revenue from operations.

During this period, the company enhanced its installed capacity from 660 MT to 720 MT per month through the addition of new equipment such as a kettle and reactor, along with upgrades to existing machinery. These improvements, coupled with the commissioning of advanced quality check systems, significantly boosted operational precision and productivity. As a result, 7616 MT of solvents were successfully recycled by March 31, 2025, which is 88.15% utilization as compared to total 6,439 MT recycled i.e. 81.30% in FY 2023-24.

? Revenue from operations

Total Revenue from Operations for the Financial Year 2024-25, stood at Rs. 2,622.33 Lakhs whereas in Financial Year 2023-24 it stood at Rs. 2,371.79 Lakhs, representing an increase of 10.56%. As company increased installed capacity from 660 MT per month to 720 MT per month. This growth is a result of both the addition of new equipment that is kettle and reactor, and targeted upgrades to existing machinery. Additionally, introduction of advanced machinery i.e. Quality check machinery has greatly enhanced the ability to analyze material with precision. This led to accurate calculation of return materials from vendors, ensuring greater accuracy in material handling and further boosting operational efficiency.

As of March 31, 2025, company has successfully recycled 7,616 MT of solvents and in Financial Year 2023- 24 it recycled 6,439 MT representing an increase of 18.28% of the total recycled quantity in full financial year 2023-24.

? Other Income

Other Income for the Financial Year 2024-25, stood at Rs. 7.12 Lakhs whereas in Financial Year 2023-24 it stood at Rs. 8.53 Lakhs, representing a decrease of 16.53%. It comprises of interest and discount received from suppliers. It is lower due to lower amount lower scrap sale done in FY 2024-25.

Expenditure

? Total Expenses

Total Expenses for the Financial Year 2024-25, stood at Rs. 1,648.16 Lakh whereas in Financial Year 2023-24 it stood at Rs. 1,878.00 Lakh, representing a decrease of 12.34%, which is mainly due to increased levels of operations, resulted into better utilization of the resources.

? Cost of Material Consumed

Total cost of Material consumed for the Financial Year 2024-25, stood at Rs. 731.24 Lakh whereas in Financial Year 2023-24 it stood at Rs. 805.42 Lakh, which represents 27.81% and 33.84% of the Total Income of corresponding periods respectively and also represents decrease of 9.21%. This lower cost of material consumed, despite higher production levels and an increase in recycled solvent volumes can be attributed to following factors:

> Operational Efficiency Improvements: The enhancements made to installed capacity and the introduction of advanced quality control machinery have led to more efficient use of materials. As the same gave more negotiation power to company due to accurate calculations of material examined. These improvements have allowed company to maximize output without proportionally increasing the material consumption, thus reducing wastage and optimizing material usage.

> Increased Recycling Activity: With a significant rise in solvent recycling (from 6,439 MT in FY 2023- 24 to a 7,616 MT in FY 2024-25) with increase of 18.28% in solvent recycled in Financial Year 2024- 25, reliance on raw materials had been reduced. By recycling a larger portion of solvents, company effectively lower the need for new materials, which in turn brings down the overall cost of materials consumed.

> Boiler Steam Efficiency Improvement: The processing of higher-quality materials, made possible by the introduction of new machinery, has led to an improvement in boiler steam efficiency. With better- quality feedstock, the boiler system requires less energy to achieve optimal performance, resulting in lower energy consumption per unit of production. This reduction in energy costs further contributes to a decrease in the overall material costs.

> Process Optimization and Waste Reduction: Our focus on precision, enabled by the advanced QC machinery, has minimized errors and material losses during production. As a result, company has been able to reduce scrap and waste, which further derived down the cost of materials used.

Conclusion:

First, operational efficiency improvements, such as enhanced installed capacity and the introduction of advanced quality control machinery, have optimized material usage by reducing wastage. This has allowed the company to maximize output without a proportional increase in material consumption. Additionally, increased recycling activity has played a key role, with the company recycling 18.28% more solvents in FY 2024-25 as compared to FY 2023-24, significantly lowering the reliance on raw materials.

Further cost reductions were driven by boiler steam efficiency improvements, achieved through processing higher-quality materials, resulting in lower energy consumption. Finally, process optimization and waste reduction enabled by the advanced QC machinery have minimized scrap and material loss, directly contributing to reduced costs

? Purchase of Stock in Trade

Purchase of Stock in Trade for the Financial Year 2024-25, stood at Rs. 491.02 Lakh whereas in Financial Year 2023-24 it stood at Rs. 320.11 Lakh representing an increase of 53.39%. This growth aligns with the significant increase in direct trade business as compared to previous year. As company procured more material to increase the customer base of the Company.

? Change in Inventory

Total change in inventory for the Financial Year 2024-25, stood at Rs. (309.23) lakhs whereas in financial year 2023-24 it stood at Rs. 56.08 lakhs, which represents (11.76) % and 2.36% of the total income of corresponding periods respectively. This is primarily due to closing stock of finished goods of Rs 342.43 lakhs with the company. Considering the space constraint in factory, company has rented additional storage space in Jan23 which was later modified in April 2024 with shed to use it as additional storage space which came into operational and fully utilized in FY 24-25.

During the FY 2024-25, the company undertook several strategic initiatives that led to a notable increase in raw material inventory. One key development was the commissioning of advanced quality check machinery, which significantly enhanced the precision in testing and analysing job work materials. This allowed the company to accept and retain a higher volume of raw materials that met its improved quality standards. Simultaneously, the company achieved improved capacity utilisation, rising from 81.30% in FY 2023-24 to 88.15% during the FY 2024-25. This increase in operational efficiency, supported by better machinery and production planning, necessitated a higher intake of raw materials to support growing output levels. In anticipation of continued production demand, the company strategically built-up inventory to ensure seamless operations. Furthermore, the addition of new rented storage facilities, which became fully operational during the year, allowed for effective stockpiling. This enabled the company to capitalize on bulk purchasing opportunities and favourable market conditions to secure raw materials for upcoming orders.

? Employment Benefit Expenses

Employee benefit expenses for the FY 2024-25, stood at Rs. 214.48 Lakhs whereas in Financial Year 2023-24 it stood at Rs 149.88 Lakhs representing an increase of 43.10%. This increase was due to following key factors:

> Capacity Expansion and Operational Enhancements: With the increase in installed capacity and the introduction of advanced QC machinery, there has been a need to employ additional staff with specialized skills to operate and maintain new equipment. Additionally, higher production levels require more workforce to ensure smooth operations across all departments, including quality control, logistics, and maintenance.

> Improved Benefits and Employee Retention: To retain top talent and ensure a motivated workforce amidst the business growth, company has enhanced employee benefits, including health coverage, performance-based incentives, and other support programs.

> Scaling of Operations and Increased Workload: As company has scaled business, production volumes rise, the overall workload has increased across departments. To handle the additional responsibilities, company has made necessary adjustments in staffing levels and compensation packages to ensure the team is adequately supported, reflecting in the rise in employee benefit expenses.

? Other Expenses

The Other Expenses for the Financial Year 2024-25, stood at Rs. 345.87 Lakhs whereas in Financial Year 2023- 24 it stood at Rs. 457.20 Lakhs, representing a decrease of 24.35%. This was primarily attributed to a one-time Corporate Meet & Greet event held in the previous fiscal year in Telangana and Andhra Pradesh. This event, aimed at boosting brand image, enhancing employee morale, and ultimately driving revenue growth, incurred a cost of Rs104.70 lakhs. This event was a one-time expense and is a key reason for the higher Other Expenses in the previous year, making the comparison favorable for the current stub period.

Reason for the decrease:

The higher Other Expenses in the previous financial year were primarily due to a one-time Corporate Meet & Greet event organized for customers from Telangana and Andhra Pradesh, which incurred a cost of Rs104.70 lakhs. This event was aimed at strengthening the companys brand presence, enhancing employee morale, and fostering long-term customer relationships to support revenue growth. In comparison, the current period reflects.