sumitomo chemical india ltd share price Directors report


TO THE MEMBERS

Your Directors have pleasure in presenting the Twenty-Third Annual Report and the Audited Financial Statements, including Consolidated Financial Statements, of the Company for the year ended 31 March 2023.

1. FINANCIAL RESULTS

The salient features of the CompanyRs s working are:

(Rs in Million)

2022-23 2021-22
Gross Profit for the year 7,072.66 6,306.12
Less: Depreciation and amortisation expense 518.62 447.92
Profit before tax 6,554.04 5,858.20
Less: Tax expense (current and deferred tax) 1,519.67 1,520.87
Profit after tax 5,034.37 4,337.33
Add: Balance of Retained earnings brought forward from the previous year 1,633.67 1,418.42
Available retained earnings 6,668.04 5,755.75
Other Comprehensive Income 20.33 27.24
6,688.37 5,782.99
Dividend Paid during the year 499.15 399.32
Transfer to General Reserve 4,500.00 3,750.00
Retained earnings carried forward to the next year 1,689.22 1,633.67

2. DIVIDEND

Your Directors have recommended a dividend of Rs 1.20 (previous year Rs 1.00) per equity share on 499,145,736 shares of Rs 10 each aggregating Rs 598.97 Million (previous year Rs 499.15 Million). The Directors consider this appropriate having regard to the requirements for funds for business and future growth of the Company.

3. OPERATIONS

During the year under review, the sales increased from Rs 30,314.02 Million in the previous year to Rs 34,732.57 Million. Domestic sales turnover increased from Rs 23,654.30 Million to Rs 26,068.92 Million while the export turnover increased from Rs 6,659.72 Million to Rs 8,663.65 Million. After making provision for depreciation, interest and Tax, the Net profit during the year under report increased to Rs 5,034.37 Million as against Rs 4,337.33 Million in the previous year.

The year saw erratic monsoon in several regions of the country negatively impacting pesticides consumption. The year also saw large price increases and volatility for several raw materials, intermediates and other inputs. The Company was able to pass on most of the cost increases to the market.

4. ORDERS BY REGULATORY AUTHORITIES

In October 2022, the Central Government issued a Notification mandating that Glyphosate, a broad spectrum weedicide and an important product

for the Company, will be used only through Pest Control Operators. Industry players and associations filed petitions before the HonRs ble Delhi High Court ("HonRs ble Court") challenging the Notification. At the hearings of the petitions before the HonRs ble Court, the Government counsels stated that the Government will look into the difficulties being faced by the farmers and will revisit the matter and take a conscious decision which will be communicated to the HonRs ble Court. The counsels also stated that the Notification shall not be implemented until then. The next date of hearing is fixed for 19 July 2023.

The Central Government has issued an order in February 2023 banning three insecticides and prohibiting use of eight insecticides on some notified crops. The Company deals in some of these insecticides. The overall impact of the regulatory order, however, is not significant for the Company.

On 24 February 2023, an industrial accident took place in one of the manufacturing structures in the CompanyRs s Bhavnagar site. In view of the same, on 03 March 2023, Gujarat Pollution Control Board ("GPCB") ordered closure of operations of the Bhavnagar site. On 18 March 2023, GPCB has passed an interim order revoking its Closure Order for three months, subject to fulfillment of certain conditions and requirements. The Bhavnagar site has since resumed manufacturing and other operations.

5. NEW PRODUCTS/IMPROVEMENTS/EXPANSIONS

In the year under review, your Company continued to pursue initiatives to optimise utilisation of its manufacturing facilities, launch new products and install manufacturing capacities to supply new products in domestic and international markets. During the year, the Company obtained from the regulatory authority registrations for several new products and launched them successfully to the channel partners and farmers. The Company continues to take initiatives for introducing new technical grade products and for expanding production capacities. Your Company continues its efforts in the area of product and process improvement for optimising process and manufacturing costs for staying innovative and competitive. Your Company also continues to focus on adopting energy conservation and innovative waste management process.

The Company continues to maintain ISO 9001, ISO 14001 and ISO 45001 certifications for the manufacturing sites. The quality of products is maintained and upgraded to the applicable national and international standards through rigorous pursuit of the quality management systems. The Company continues to enjoy the reputation of a consistent and reliable quality supplier.

6. OUTLOOK

Agriculture sector is one of the important segments of Indian economy. It contributes about 18% to countryRs s GDP and provides source of livelihood to about 50% of the population. Share of agriculture in the countryRs s GDP has declined over the decades as manufacturing and service sectors have grown faster.

F.Y. 2022-23 was the first normal year of operations after two consecutive years of Covid-19 pandemic. All our activities were back to normal with employees working in full strength. However, due to geopolitical situations viz., Russia-Ukraine war, China Covid situation, depreciating local currency etc., the situation remained unpredictable for most part of the year. Further, uncertainties continued for major part of the financial year due to erratic monsoon. Logistics costs eased out during the course of the year. Southwest monsoon season rainfall for the country during June-September 2022 was normal (96-104% of Long Period Average). Though the monsoon of 2022 has been categorised as normal due to the quantum of rainfall received during the monsoon

period, the spread of rainfall was not conducive for the agricultural operations. Initial phase of monsoon was good, but was followed by a long dry spell and thereafter plenty of rains extending into October. Some parts of the country received very poor rainfall during the year. Agrochemical demand in export markets was robust and the industry capitalised on the same.

Due to restricted supply of material from China, the industry faced challenge of increasing raw material costs for several generics products. Further, increase in energy and fuel costs led to increase in overall costs exerting pressure on profitability. Despite all these odds, the Indian agrochemicals sector grew at a satisfactory rate. The raw material costs and prices of products started to ease from the second quarter of financial year.

The domestic agrochemicals market is driven by rising population, which spells the need for increasing food production. Increasing focus on quality produce continues to boost consumption of agrochemicals. Government of India has taken a number of initiatives to protect interest of farmers and improve their profitability. Providing minimum support prices for several agriculture produce, Kisan Samman Nidhi, large budgetary allocation for farming sector are some such initiatives. The Government has also extended the period for free supply of ration for the poor. These initiatives are expected to improve rural economy which in turn will help in the growth of agro-chemical industry. The commodity prices are robust and farmers are expected to continue to invest in agrochemicals to safeguard the harvest. Though there are conflicting reports and claims by different meteorology agencies regarding occurrence of El Nino phenomena and its impact on 2023 monsoon, the Indian Government is preparing district-level contingency plans to mitigate eventuality of abnormal monsoon effects. From a long term perspective, the agrochemical industry is expected to grow in a robust manner due to domestic demand and export opportunities.

7. SAFETY, HEALTH AND ENVIRONMENT

The Company continues to work on reducing environmental load, enhance safety, improve quality and reduce cost. The Company continues to play the role of a responsible corporate citizen in the fulfillment of its objectives of protecting and enriching the environment and human health and safety. The Company has also adopted Responsible Care Policy and its initiatives demonstrate its commitment towards comprehensive approach for safeguarding environment, health and safety of all stake holders and aims at achieving and sustaining high standards of performance. The Company also reviews and monitors these Quality, Environment, Health & Safety policies and sustainability activities to ensure continual improvement.

The CompanyRs s commitment to its safety management programmes follows a top-down approach towards establishing, demonstrating, sustaining and improving the safety culture and incorporating the CompanyRs s core value of safety in their daily responsibilities. Safety audit, training programmes and other safety management processes are carried out at regular intervals.

The Company has adopted plastic waste management process to minimise the amount of Rs post-use plastic wasteRs in the environment through a plastic credit platform dedicated to collection, segregation and recycling of such waste.

The green initiatives of the Company in the form of harvesting wind and solar energy and treatment of sewage water contribute to improving environment. The Company continues to work towards reduction of greenhouse gases for sustainable economic and social values. These initiatives are implemented through Rs Science Based TargetsRs .

8. EDUCATION, LEARNING AND HUMAN RESOURCES

The endeavour is to develop and enhance competency of employees by facilitating holistic development that enables personal and organisational growth. Employees are encouraged to work in collaboration with different teams and functions to enhance their overall experience and exposure. The overall objective of these learning journeys for individuals and teams is to improve their capability and help them achieve their fullest potential. The Company conducts several functional capability-building training programmes to upgrade employee-knowledge and ensure their holistic growth. In F.Y. 2022-23, around 90% of the employees have undergone these learning initiatives. The Company has built a robust framework focused around developing employees with right mind-set and skillset to enable them to excel in their work and keep on learning continuously. The employees get opportunity to board on any of the learning journeys based on their interest.

Some of the key training programmes the employees have undergone are:

• Value-based capability building programmes where the focus is on enabling the employees to build the right mind-set and skillset to effectively demonstrate the right values at the workplace

• Transition programmes for lower and middle level management cadre to build leadership capabilities for excelling in current and new roles

• Leadership development programmes for emerging leaders

• Training programmes in areas of EHS, SOP, IMS, Responsible Care, OJT etc.

• Implementation of 5S at manufacturing sites Through these learning journeys, the employees develop a sound understanding of the overall business complexities as well as build competencies to lead high level organisational positions.

9. INSURANCE

The Company continues to carry adequate insurance cover for all its assets against foreseeable perils like fire, flood, earthquake, etc. and continues to maintain the Liability Policy as per the provisions of the Public Liability Insurance Act.

10. SUBSIDIARY

Highlights of the financial performance of Excel Crop Care (Africa) Limited, Tanzania, the subsidiary company, are as follows:

Excel Crop Care (Africa) Limited, Tanzania

2021-22
Revenue 198 757
Loss 310 81
Loss after Tax 230 71

Excel Crop Care (Africa) Limited, Tanzania has declared a dividend of Tanzania Schillings 20,000 per share i.e. 20% for the year F.Y. 2022-23.

The Financial Statements and the Reports of the Board of Directors and the Auditors of Excel Crop Care (Africa) Limited are posted on the CompanyRs s website: www.sumichem.co.in.

11. DISCLOSURE UNDER THE COMPANIES ACT, 2013

Information is given below pursuant to various disclosure requirements prescribed under the Companies Act, 2013 and rules thereunder, to the extent applicable to the Company. Some of the disclosures have been included in appropriate places in the Corporate Governance Report which is part of the BoardRs s Report.

a) Energy Conservation, Technology Absorption and Foreign Exchange earnings and outgo:

The information on conservation of energy, technology absorption and foreign exchange earnings and outgo stipulated under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014, is given in Annexure I.

b) Annual Return:

Annual return as on 31 March 2022 in form MGT-7 filed with the Ministry of Corporate Affairs is available on the CompanyRs s website https://sumichem.co.in/pdf/22-23/Annual%20 Return.pdf.

Annual return as on 31 March 2023 in form MGT-7 will also be posted on the CompanyRs s website after the same is filed with the Ministry of Corporate Affairs.

c) Policy on DirectorsRs appointment, Remuneration Policy and information regarding remuneration:

Particulars of the CompanyRs s Policy on DirectorsRs appointment, Remuneration Policy and information pursuant to Rule 5(1) of the Companies (Appointment & Remuneration) Rules, 2014 are given in Annexure II.

d) Particulars of Loans, Guarantees and Investments:

The details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 are given in the notes to the Financial Statements.

e) Related Party Transactions:

All contracts/arrangements/transactions entered by the Company during the financial year with related parties were on an armRs s length basis.

All related party transactions are placed before the Audit Committee for their approval. Prior omnibus approval of the Audit Committee is obtained for the transactions which are of a repetitive nature. The transactions entered into pursuant to the omnibus and specific approvals are reviewed periodically by the Audit Committee. Pursuant to the provisions of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("the said Regulations"), all material related party transactions require approval of the members through a resolution. The said Regulations define the term Rs materialRs to mean a transaction with a related party which individually or taken together with previous transactions during a financial year exceeds ten percent of the annual consolidated turnover of the Company as per the last audited financial statement of the Company.

During the year, the Company entered into transactions with Sumitomo Chemical Company, Limited, Japan, the holding company, which are considered Rs material transactionsRs in terms of the said Regulations. These transactions were approved by the shareholders by an ordinary resolution passed at the previous annual general meeting held on 29 July 2022. The Company is seeking approval of the shareholders, through an ordinary resolution at the ensuing annual general meeting, for the transactions entered into / proposed to be entered into with the holding company during the Financial Year 2023-24 up to an amount not exceeding Rs 9,500 Million.

The Company had no transactions during F.Y. 2022-23 requiring disclosure in the Form AOC-2 under the Companies Act, 2013.

The Policy on related party transactions as approved by the Board may be accessed on the CompanyRs s website https://sumichem.co.in/ pdf/20220603121214.pdf?v=1.0.

f) Business Risk Management:

The Board has formed Risk Management Committee pursuant to the provisions of Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 to identify and monitor risks faced by the Company. The Committee deliberates on the major enterprise and business risks identified by the management, analysis of their impact and mitigation measures for addressing the risks. The major risk areas relate to risks associated with material procurement, and manufacturing operations, regulatory risks, cyber security / IT related risks, human resources related risks, currency risks, credit risks mainly relating to exports and insurance adequacy risks.

g) Evaluation of the performance of the Board, Committees of Directors and Individual Directors:

The Board has adopted a formal mechanism for evaluating its performance as well as that of its Committees and individual Directors, including performance of the Chairman of the Board. As a part of this mechanism, a structured questionnaire, approved by the CompanyRs s Nomination and Remuneration Committee, is used to carry out evaluation of performance of the Board, Committees of Directors and individual Directors. The questionnaires take into consideration various criteria and factors.

h) Material orders passed by the regulatory authorities or courts/material changes or commitments:

There are no significant material orders passed by regulators or courts which can impact the going concern status of the Company and its future operations. There are no material changes or commitments occurring after 31 March 2023 which may affect the financial position of the Company.

i) Internal Financial Controls and their adequacy:

The Company has adequate system of internal controls to safeguard and protect from loss, unauthorised use or disposition of its assets. All the transactions are properly authorised, recorded and reported to the management. The Company is following all the applicable Accounting Standards for proper maintenance of books of accounts and for financial reporting.

j) Performance of the subsidiary company:

Details of performance and financial position of Excel Crop Care (Africa) Limited, the subsidiary company, are given in Form AOC-1 in Annexure III. The Company has no associate company.

k) Corporate Social Responsibility (CSR) initiatives:

The Company has formulated its Corporate Social Responsibility Policy which has been posted on its website https://sumichem.co.in/ pdf/Corporate%20Social%20Responsibility%20 Policy.pdf

A brief outline of the Policy and the Annual Report on CSR Activities is given in Annexure IV.

l) Particulars of Employees:

The information required under Section 197 of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is given in Annexure V.

m) Secretarial Auditor and Secretarial Audit Report:

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and Rules made thereunder, M/s Saraf & Associates, Practicing Company Secretaries, Mumbai (FCS:1596; CP NO.642), were appointed Secretarial Auditors to conduct secretarial audit for the year ended 31 March 2023. The Report of the Secretarial Auditors is attached as Annexure VI.

n) Secretarial Standards:

The Company has complied with the applicable Rs Secretarial Standards on Meetings of the Board of Directors - SS 1Rs and Rs Secretarial Standards on General Meetings - SS 2Rs .

12. DIRECTORS AND KEY MANAGERIAL PERSONNEL

Mr Hiroyoshi Mukai, Director, resigned on 31 March 2023. The Board places on record its appreciation of Mr MukaiRs s contribution to the CompanyRs s business and the Board deliberations.

Mr Masanori Uzawa, Director, retires by rotation and being eligible, offers himself for re-appointment.

Mr Pravin D Desai, Vice President & Company Secretary, retired on 31 March 2023. Ms Deepika Trivedi is appointed Company Secretary and Compliance Officer with effect from 01 April 2023. The Board has appointed Dr Suresh Ramachandran as Whole-time Director with effect from 01 June 2023

and designated him Rs Whole-time Director & Chief Commercial OfficerRs . The appointment of Dr Suresh Ramachandran as Whole-time Director is subject to approval by the members in the annual general meeting through a special resolution.

The Board has reappointed Mr Chetan Shah as Managing Director and Mr Sushil Marfatia as Executive Director with effect from 01 September 2023 subject to approval by the members in the annual general meeting through special resolutions.

13. DIRECTORSRs RESPONSIBILITY STATEMENT

Pursuant to Section 134(3)(c) of the Companies Act, 2013, the Directors confirm that:

(a) in the preparation of the annual accounts, the applicable accounting standards have been followed and that no material departures have been made from the same;

(b) they 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 and of the profit of the Company for that period;

(c) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(d) they have prepared the annual accounts on a going concern basis;

(e) they have laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and are operating effectively; and

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

14. BUSINESS RESPONSIBILITY AND SUSTAINABILITY REPORT

Business Responsibility and Sustainability Report prepared in the prescribed form pursuant to

Regulation 34 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, in relation to initiatives taken from environmental, social and governance perspective, forms part of the Annual Report.

15. CORPORATE GOVERNANCE

Your Company is committed to the principles of good corporate governance and the Board of Directors lays strong emphasis on transparency, accountability and integrity. Your Company has complied with all the requirements of the Code of Corporate Governance contained in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and, pursuant thereto, Management Discussion and Analysis and the Corporate Governance Report are annexed and form part of the Annual Report.

16. AUDITORSRs REPORTS

The Independent AuditorsRs Reports on Financial Statements, including Consolidated Financial Statements, of the Company for the year ended 31 March 2023, issued by M/s SRBC & CO LLP, the Auditors, are enclosed with the Financial Statements in this Annual Report. The Independent AuditorsRs Reports are unmodified and do not contain any qualification, reservation or adverse remark.

17. COST RECORDS AND COST AUDIT REPORT

The Company prepares and maintains cost records as specified by the Central Government under Section 148(1) and rules made thereunder. The cost records for the year 2021-22 were subjected to cost audit by M/s GMVP & Associates LLP Cost Auditors. The Cost Audit Report for the financial year 2021-22 issued on 09 August 2022 by the Cost Auditors was filed with the Ministry of Corporate Affairs on 05 September 2022 vide SRN: F23723729.

18. ACKNOWLEDGEMENTS

Your Directors wish to place on record their sincere appreciation of the wholehearted co-operation received from the CompanyRs s Shareholders, Bankers, various authorities of the Governments and business associates.

For and on behalf of the Board of Directors
CHETAN SHAH SUSHIL MARFATIA
Managing Director Executive Director
DIN: 00488127 DIN: 07618601