Sonal Adhesives Ltd Management Discussions

(a) Industry structure and Outlook

The India adhesives and sealants market was valued at more than USD 1,100 million in 2021, and it is expected to register an estimated CAGR of over 8% over the forecast period (2022-2027).

Packaging has registered as the fifth-largest sector in the countrys economy over the past few years. The usage of packaging products has increased by over 200% in the past decade, which has registered consumption from 4.3 Kg per person per annum to 8.6 Kg per person per annum by the end of 2020. Owing to rising applications in agriculture production and the FMCG sector, India is likely to gain significant growth in the near future. The rising demand for clean water, clean and fresh food, and pharmaceuticals, along with the rapid adoption of advanced technologies driving the packaging industry. Packaging industries has evolved and working on design and technology for protecting and enhancing products safety and longevity.

Growth in the packaging, construction & woodworking, and transportation end-use industries, as well as technological advancements, have all contributed to the expansion of the industrial adhesives market over the years. The demand for packaging is growing due to the rising population, increasing income levels, changing lifestyles, increased media penetration through the internet, television, and growing economy. This increases the demand for adhesives in the packaging industry with the growing number of end-user application.

We are shaping our future based on our purpose, our values, and our strategic agenda for purposeful growth. Despite the difficult macroeconomic and geopolitical environment, we continued to consistently implement our strategy in 2023.

(b) Threats, Opportunities, Risks and concerns

Despite a largely positive trajectory for the industrial adhesives market, the industry is facing few challenges

• Fluctuating raw material prices (VAM), which move in tandem with crude oil prices, high setup costs and high R&D expenditure required in the adhesives market affects production costs and pricing which is posing as a challenge to the adhesives industry in India.

• Strict regulations by governments towards the production and use of industrial adhesives to minimize health and environmental risks could potentially slow the application of these products in the near future.

Deterioration in supply chain and demand due to pandemic such as COVID-19 have emerged as a significant business risk. The world market is evaluating Indian companies as an alternative to other Asian countries. Having a large manufacturing base, gives an opportunity to capture the export market.

The continued co-operation and support of its loyal customers has enabled the Company to make every effort in understanding their unique needs and deliver maximum customer satisfaction. Our employees at all levels, have been core to our existence and their hard work, co-operation and support is helping us as a company face all challenges.

The Company has also put in place number of measures to mitigate the impact of uncertain macro environment through appropriate pricing and cost control measures without disrupting market share. The Company is confident to navigate the current uncertain operating environment.

The Company is taking proactive steps in implementing management principles well adapted to the demands of the changing environment. The company has the policy of assessing the risk and manages the business. The company is operating on a well defined plan and strategy and hence is well equipped to face any change in regulatory risk.

(c) Segment-wise or product-wise performance

Biaxially Oriented Polypropylene (BOPP) carton sealing tape and Speciality Adhesives and Emulsions are the two major segments where our company operates. The Companys products are marketed under the brand name SONAL & ADICRYL and are appreciated across India and worldwide. We can proudly say that our products are exported globally including countries like Spain, Nigeria, Germany, and Middle East countries and the African continent.

In both business segments, there are a few medium to large companies with national presence and a large number of small companies which are active regionally.

While there are near term concerns around heightened inflation and its consequent impact on market growth, the Company is confident that due to increasing demand for paper, board, packaging segment in India and demand for acrylic-based adhesives, we shall deliver consistent and profitable growth under both the segments.

(d) Internal Control Systems and their adequacy

The Companys operating and business control procedures have been framed in order that they ensure efficient use of resources and comply with the procedures and regulatory requirements. The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that transaction are authorized, recorded and reported correctly. The Board has also appointed Internal Auditors to more strengthen the internal control system.

(e) Financial Performance with respect to Operational Performance

The Companys financial risk management is an integral part of how to plan and execute its business strategies. The Company is exposed to market risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks.

The Total Turnover of the Company is Rs. 8332.98 lakhs in current year compared to Rs. 5867.25 lakhs in previous year indicating increment by 42.03% . The Company has incurred a Net Profit of Rs. 226.58 lakhs against net profit of Rs 560.75 lakhs in the previous year.

The Company has achieved a satisfactory turnover in the first Quarter of the FY 2023-24 the quarter wise comparison is as under:

(f) Human Resources / Industrial Relations front, including number of people employed

The Company focuses on the wellbeing of its employees. The Company takes pride in the fact that several positions today are occupied by those who have built their entire career with Sonal Adhesives. We believe in having a long term relations with our employees and provide them limitless opportunities to grow. The company believes that the Human Resources Management of the Company must be developed in terms of the current and emergent strategic orientation of the Company. The mission of Human Resources Management is to support the goal and challenges of the Company and is dedicated to partnering with Company business units to maximize the potential of our greatest assets - our employees. We embrace change and the opportunity it brings. The Company and its employees are focused on delivering quality customer service and are committed to recruiting, developing, rewarding and retaining our workforce.

The total numbers of personnel employed as on 31st March 2023 were 22 (staff plus workers).

(g) Details of significant changes in key financial ratios

In accordance with the amended SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, the Company is required to give details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations thereof:

The Company has identified following ratios as key financial ratios:

(h) Accounting Treatment

All Accounting Standards mandatory required have been followed in preparation of financial statements and no deviation has been made in following the same.