Sumitomo Chemical India Ltd Directors Report.

TO THE MEMBERS

Your Directors have pleasure in presenting the Twenty-First Annual Report and the Audited Financial Statements of the Company for the year ended 31st March, 2021.

1. FINANCIAL RESULTS

The salient features of the Companys working are:

( Rs in Million)
2020-21 2019-20
Gross Profit for the year 4,996.80 3,082.04
Less: Depreciation and amortization expense 465.56 409.23
Profit before tax 4,531.24 2,672.81
Less: Tax expense (current and deferred tax) 1,078.27 616.55
Profit after tax 3,452.97 2,056.26
Add: Balance of Retained earnings brought forward from the
previous year 977.09 2,493.24
Available retained earnings 4,430.06 4,549.50
Other Comprehensive Income 12.89 (60.19)
4,442.95 4,489.31
Dividend Paid during the year 274.53 215.28
Tax on Dividend 46.94
Transfer to General Reserve 2,750.00 3,250.00
Retained earnings carried forward to the next year 1,418.42 977.09

2. DIVIDEND

Your Directors have recommended a dividend of Rs 0.80 (previous year Rs 0.55) per equity share on 499,145,736 shares of

Rs10 each aggregating Rs 399.32 million (previous year Rs 274.53 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 23,898.24 million in the previous year to Rs 26,210.17 million. Domestic sales turnover increased to Rs 21,814.53 million from Rs 19,231.05 million in the previous year. Export turnover decreased from Rs 4,667.19 million in the previous year to Rs 4,395.64 million in the year under review. The reduction in export sales was mainly due to improved demand and attractive price realization in the domestic market as also the challenges in production and logistics posed by the pandemic and restrictions imposed in its wake in the first few months in 2020-21. After making provision for depreciation, interest and Tax, the Net profit during the year under report amounts to Rs 3,452.97 million as against Rs 2,056.26 million in the previous year.

4. COVID – 19

In the first half of the financial year 2020-21, Covid-19 pandemic caused severe impact globally and in India. India announced country-wide strict lock-down in the last week of March, 2020. The unlocking process was undertaken in a gradual manner in the next few months. Though the Companys operations were classified as ‘essential, the Company had to operate under the lock-down guidelines. Due to the Companys emphasis on safety and due to several difficulties faced at operational level, the Companys manufacturing operations were impacted initially. The Company put in the best possible efforts to minimize the negative impact on the operations. Overall production in the financial year 2020-21 is marginally lower due to safety precautions taken in line with restrictions imposed on account of Covid-19. The level of operations improved gradually over the period during the financial year. The demand side factors remained largely positive during the year.By the second half of the year, all the functions, including sales and distribution, procurement, supply chain, logistics and corporate functions, became near-normal duly following safety guidelines and without any material adverse impact. Unfortunately, the financial year 2021-22 has begun with outbreak of second wave of Covid-19 which engulfed almost the entire country in the first two months of the year. Covid-19 and its several variants, including B .1.617 (double mutant variant first identified in India), are turning out more contagious, spreading faster and leading to medical emergencies and casualties. Unfortunately, unlike the first wave of Covid-19 last year, the second wave has spread to rural and semi-rural areas in addition to large cities and towns. Several Company employees across categories and locations, their family members and the Companys business partners / their employees were infected by the virus and some fatalities reported. Various state governments have imposed lockdown-like restrictions to restrict spread of the virus. These restrictions have adversely impacted economic and commercial activities in the country. The Companys manufacturing operations, though categorized as ‘essential, have also been impacted, but not materially. In view of virus spread in rural and semi-rural areas close to the upcoming monsoon season from June, which is one of the key factors for the industry, one has to watch out for its overall impact on the industry and the Company in the next few days, though at present the impact for Company is not material. The Company continues to make efforts to minimise adverse impact on its operations and performance.

5. DIGITAL TRANSFORMATION – INTEGRATED SAP S4 HANA

During the financial year 2020-21, as a part of the initiatives for digital transformation, the Company started and completed integration of different legacy SAP versions in use. Accordingly, effective 2021-22, all the operations of the Company across all locations in the country have migrated to the newly configured latest version of SAP SH4 HANA, including its various advanced modules. The integrated system is expected to facilitate seamless operations, smooth realigned processes and integrated reporting and information management system. In view of changing technological landscape across the globe and the industry and to be future-ready technologically, the Company plans to continue the digital transformation journey during the financial year 2021-22 by implementing additional modules including SAP Integrated Business Planning, SAP Advanced Analytics Cloud, Integrated PMS modules, Spend Management modules and dealer portal.

6. NEW PRODUCTS/IMPROVEMENTS/EXPANSIONS

In the year under review, your Company continued to pursue initiatives to optimize utilization of its manufacturing facilities and also expand manufacturing capacities to meet demand. During the year, your Company expanded manufacturing capacities for its one technical grade product, introduced a new formulation product and commercialized one new formulated product. Your Company continues its efforts in the area of product and process improvement for enhancing yields and reducing manufacturing costs for staying innovative and competitive. Your Company also continues to focus on reducing effluent load and adopting innovative effluent treatment processes as well as on energy conservation and energy cost reduction.

The Company continues to maintain ISO:9001:2015, ISO14001:2015 and OHSAS18001:2007 certifications for the manufacturing sites at Bhavnagar, Gajod and Silvassa for continual improvement in quality, health, safety and environment. The Companys Tarapur and Vapi plants hold ISO:9001:2015, ISO14001:2015 and ISO 45001:2018 certifications. 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.

7. OUTLOOK

Though the International Monetary Fund raised growth forecast for India to 12.5%, resurgent Covid-19 spread threatens to undermine the countrys economic recovery. Various measures of the Government under Make in India and other initiatives have begun to show positive results. Use of agrochemicals, including pest-control products, continues to grow. India is the second biggest consumer of agrochemical products in the world after China.

Due to outbreak of the second wave of Covid-19, in the financial year 2021-22, the Industry is likely to witness situation similar to the first-half of preceding financial year like lockdown, restrictions on people movements and economic activities, logistics issues, increase in cost of raw materials, transportation and inputs, at least for a few months. In 2020-21, despite all the odds, the agrochemicals sector grew and agricultural activities remained largely unaffected. The Companys business and products fall under ‘essential commodities hence it expects to produce and deliver products and services to the market and the farmers without material interruption. Last year, the Industry was able to pass on the cost increases to the market. In spite of the pandemic, which is likely to affect the normal life for at least few months, domestic demand for agrochemicals is expected to remain elevated with favourable agronomical conditions in Agriculture sector like normal monsoon forecast by Indian Meteorological Department, good farm-production in the previous year, and good output prices which will translate in to increase in area under-cultivation for crops like cotton, soybean, paddy and groundnut, which are major agrochemicals consuming crops.

Your Companys efforts in devising and implementing business growth strategies and improving productivity across the resources and assets, and presence of strong product brands should serve it well in the times to come. With new product launches planned for the year and for the future years, regular revenue growth is expected to continue in the coming years. During the year, the Central Government has issued a notification expressing its intention that Glyphosate, a weedicide and an important product for the Company, will be allowed to be used only through ‘pest control operators. The Company, other industry players and the industry associations have filed appeals before the appellate authority against the proposal as the proposal is not feasible and not implementable owing to ground realities. Hearing in the matter is pending. The proposal, if implemented, will have impact only on domestic use of Glyphosate. It will not impact exports.

8. SAFETY, HEALTH AND ENVIRONMENT

The Company continues to play the role of a responsible corporate citizen in the fulfillment of its aims of protecting and enriching the environment and human health and safety. In the Covid-19 situation the Company followed and adopted recommended measures and protocols to safeguard health of its personnel (including contract and contractors employees) and other people and stakeholders connected with its operations.

The Company has adopted Responsible Care Policy and its initiatives demonstrate its commitment towards comprehensive environment, health and safety of all stake holders and aims at achieving and sustaining high standards of performance. The Company continues to hold and maintain ISO-14001:2015 and OHSAS18001:2007 certifications which help in continuous improvement in the field of safety, health and environment. Safety audit, training programmes and other safety management processes and programmes are carried out at regular intervals. The Company has also decided to make positive contribution to the society by working for reduction of greenhouse gases and create sustainable economic and social values. This initiative is being implemented through ‘Science Based Targets under the guidance of the parent company.

9. EDUCATION, LEARNING AND HUMAN RESOURCES

Learning and development is one of the top priorities for the Company. The Company focuses on enhancing knowledge, skills and capabilities at all levels, strengthening the leadership talent, effective succession planning and fostering employee engagement. Your Company has taken systematic and detailed development initiatives to build right skills and competencies as well as reskilling of its existing and new employees to meet the present and future needs of its business. Your Company endeavors to ensure that it has requisite competencies to meet the new challenges in the ever changing business environment. The employee relations in the Company continued to remain healthy, cordial and progressive in the year under review. Your Directors wish to record their appreciation of the continued support, efforts and cooperation of the employees at all levels especially their contribution in the face of Covid-19 pandemic and restrictions imposed on movement of people and materials.

Your Company is making continuous and intensive efforts to educate farmers with various aspects of farming, latest technology and also ensuring to educate the efficient use of crop protection chemicals for improving/ increasing crop productivity.

10. 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.

11. SUBSIDIARIES

Highlights of the financial performance of Excel Crop Care (Africa) Limited, Tanzania and Excel Crop Care (Europe) NV, Belgium, the subsidiary companies, are as follows:

Excel Crop Care (Africa) Limited, Tanzania

(Tanzania Schillings in million)

2020-21 2019-20
Revenue 2,433 2,571
Profit before Tax 314 138
Profit after Tax 202 78
Excel Crop Care (Europe) NV, Belgium
(Euros in thousand)
2020-21 2019-20
Operating Loss 98 99
Loss 111 101

Excel Crop Care (Africa) Limited, Tanzania has declared a dividend of Tanzania Schillings 100,000 per share i.e. 100% for the year 2020-21.

Excel Crop Care (Europe) NV, Belgium, did not have sales turnover during FY 2020-21. During the year 2020-21, Excel Crop Care (Europe) NV, Belgium, distributed intermediary dividend aggregating Euro 31,500 at the rate of Euro 315 per share i. e 50%. The intermediary dividend was paid out of past retained profits.

The Financial Statements and the Reports of the Board of Directors and the Auditors of the Companys subsidiaries are posted on the Companys website: www.sumichem.co.in.

12. 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 Boards 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 31st March, 2020 in form MGT-7 filed with the Ministry of Corporate Affairs is available on the Companys website www.sumichem.co.in Annual return as on 31st March, 2021 in form MGT-7 will also be posted on the Companys website after the same is filed with the Ministry of Corporate Affairs.

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

Particulars of the Companys Policy on Directors 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 arms 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 ‘material 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 ‘material transactions in terms of the said Regulations. At the annual general meeting held on 27th December, 2019, the shareholders have given approval, by an Ordinary Resolution passed pursuant to the provisions of Regulation 23 of the Regulations, for the Companys transactions with its holding company entered into during the Financial Year 2020-21.

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 2021-22 up to an amount not exceeding Rs 7,000 million.

The Company had no transactions during F.Y.2020-21 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 Companys website www.sumichem.co.in

f) Business Risk Management:

During the financial year, 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 deliberated 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, which has been approved by the Companys 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:

On 21st June, 2019, Gujarat Pollution Control Board ("GPCB") issued a notice to Excel Crop Care Limited (ECCL), which amalgamated with the Company in FY 2019-20, instructing it to close manufacturing operations of its Bhavnagar Plant. The notice was caused as GPCB had found waste which was associated to a product which had been discontinued over 20 years back. ECCL submitted an action plan to GPCB for scientific disposal of waste and agreed to undertake other remedial measures. Based on the action taken by ECCL and the Company, in January, 2021, GPCB has withdrawn its Closure Order.

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 Subsidiaries:

Details of performance and financial position of the Subsidiaries 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 www.sumichem.co.in 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, Mr. Prashant Diwan, Practicing Company Secretary (FCS:1403; CP NO.1979), Mumbai, was appointed Secretarial Auditor to conduct secretarial audit for the year ended 31st March, 2021. The Report of the Secretarial Auditor is attached as Annexure VI. As regards the compliance matter pointed out in the Secretarial Audit Report, it may be noted that the affirmation to the effect that ‘the director appointed is not debarred or disqualified from holding directorship by SEBI, MCA or any such other authority was missed out inadvertently in the intimation letter sent to the stock exchanges.

n) Secretarial Standards:

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

13. DIRECTORS AND KEY MANAGERIAL PERSONNEL

The Board appointed Mr. Masanori Uzawa as Additional Non-Executive Non Independent Director at its meeting held on 10th July, 2020. At the annual general meeting held on 10th September, 2020, the members have appointed Mr. Masanori Uzawa as a Director whose office is liable to retire by rotation.

Mr. Sushil Marfatia and Mr. Tadashi Katayama, Directors, retire by rotation and being eligible, offer themselves for re-appointment.

14. DIRECTORS 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.

15. BUSINESS RESPONSIBILITY REPORT

Business Responsibility Report prepared in the prescribed form pursuant to Regulation 24 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 and is given in Annexure VII.

16. 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.

17. SHAREHOLDING OF PROMOTERS AND PROMOTER GROUP

Sumitomo Chemical Company, Limited, the holding company and its Japan based subsidiary, were holding about 80.3% of the share capital of the Company. During the year, the holding company sold about 5 .3% of the share capital pursuant to the requirements of Securities Contracts (Regulation) Rules, 1957, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and circulars issued thereunder. The sale of shares was undertaken through ‘offer for sale process through the stock exchanges. The shareholding of the promoters and the promoter group now stands at 75% of the Companys share capital ensuring 25% shareholding by public.

18. COST AUDIT REPORT

The Cost Audit Report of M/s. Kishore Bhatia & Associates, Cost Auditors, for the financial year 2019-20, which was required to be filed with the Ministry of Corporate Affairs on or before 31st December, 2020 was filed on 29th June, 2020 vide SRN: R43725811.

19. ACKNOWLEDGEMENTS

Your Directors wish to place on record their sincere appreciation of the wholehearted co-operation received from the Companys 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
Mumbai, 28th May, 2021