Sumitomo Chemical India Ltd Management Discussions

1. ECONOMY AND CROP PROTECTION INDUSTRY STRUCTURE & DEVELOPMENTS:

Global economys struggle with inflationary pressure and possible slowdown in economic growth has presented a complex backdrop for the Indian agricultural sector. Despite these global headwinds, the Indian economy has demonstrated resilience, emerging as the fastest-growing major economy. Agriculture remains crucial to India, employing about 50% of the workforce and contributing approximately 15% to the GDP. The fortunes of the Indian agrochemical industry are closely linked to the performance of the agriculture sector.

Industry Overview

The Indian crop protection industry is highly diverse. It has players who are small and medium in size dealing in generic off-patent molecules. It has players who are large multinationals with high-priced new generation and patented molecules. The industry has players who manufacture only technical grade pesticides. A large number of small players is pure formulator. The industry also has some players who produce both - technical grade pesticides and formulations. There is an ancillary segment which manufactures intermediates for technical grade pesticides.

India is the fourth-largest producer of agrochemicals globally, after the USA, Japan, and China. The industry was valued at around $10.3 billion in 2025 and projected to grow to $14.5 billion by 2028. Key advantages for the Indian industry include relatively low manufacturing costs and expertise in handling hazardous products and processes. India has become a significant exporter of crop protection products, driven by factors such as technically trained manpower, seasonal domestic demand, and generic production capacities catering to overseas markets. The Indian markets growth potential has also attracted multinational companies, with increasing acceptance of new-generation molecules in the domestic segment.

Market Drivers

The Indian agrochemicals market is primarily driven by:

• rising population and food demand: The increasing population necessitates higher food production, while decreasing arable land due to urbanization drives the adoption of agrochemicals to enhance crop productivity and protect soil health.

• rising demand for nutritious food: The rising demand for nutritious food, fruits, and vegetables fuels the need for advanced crop protection solutions.

• I arge cultivated area: India has a substantial area under cultivation. In 2020-21, the total cultivated area was about 188 million hectares, with about 147 million hectares covered by chemical and bio-pesticides. However, a significant portion of this land is un-irrigated and dependent on the monsoon. Small and fragmented land holdings also hinder adoption of farm mechanization and advanced cultivation techniques.

R&D and Industry Strategies

Developing new molecules requires substantial investments. The expiration of global patents for active ingredients presents growth opportunities for the domestic industry. Key strategies adopted by industry players include:

• new product launches.

• mergers and acquisitions.

• partnerships and collaborations.

• manufacturing expansion.

• increased R&D investments.

The industry is also witnessing focus on organic farming and increasing use of biologicals to minimize use of synthetic chemicals, though its short-term impact on the agrochemicals industry is expected to be limited.

Government Initiatives

The Indian government has launched several initiatives to boost the farm sector, including:

• increasing Minimum Support Prices (MSPs) for several crops.

• launching the eNAM portal.

• direct benefit transfers through PM Kisan Samman Nidhi.

• focus on soil health and crop insurance.

• significant fund allocations in recent budgets.

These measures aim to enhance farmers income and promote adoption of high-quality agri-inputs. Policies focusing on maintaining buffer food-grain stocks and providing free rations to a large population also support sustained agricultural production.

Industry Trends

The Indian agrochemical industry is increasingly focusing on safe and environment-friendly products and promoting sustainable agricultural practices. Many companies are developing a balanced portfolio of products and expanding their market reach.

Agricultural Scenario in India in 2024-25

Monsoon was normal and generally positive, supporting agricultural production and the demand for agrochemicals. However, excess rainfall in some regions impacted key crops. Area under cropping also was generally normal for most crops leading to stable demand for agrochemicals. Reduced agrochemical prices compared to the previous year also influenced input costs and farmer affordability, boosting demand. Rabi season also turned out good and contributed to overall agricultural output and farmer income.

Sumitomo Chemical India Limited

The Company is one of the leading players which has a balanced portfolio of technical as well as formulation products along with backward integration for some molecules. The Company has strong portfolio of generics as well as specialty products and a strong marketing network and counts as a leading Indian crop protection company. The Company is one of the few entities who have both chemical and biological products in its portfolio. The Company also has plant and crop growth regulators and nutrients in its product basket.

The Company has presence in all the product segments - insecticides, weedicides, fungicides, fumigants and rodenticides, plant growth nutrition products, bio-rationals and plant growth regulators.

The Company is engaged in domestic marketing of proprietary products of its Japanese parent - Sumitomo Chemical Company, Limited - in agrochemicals and environment health business segments. The Company also distributes products manufactured by Valent Bio-Sciences, an USA based affiliate, in the domestic market.

The Company continues to identify and introduce environment-friendly products which support farm eco-systems, enhance yield and improve quality of farm produce and at the same time maintain soil health fertility in a sustainable manner. The Company undertakes extensive work at the grassroots level to showcase long term benefits of its products and sustainable cultivation practices in order to encourage the farmers to adopt new concepts.

The Company is also into public health business - currently it is comparatively small business. The Companys business engaged in catering to household insecticides players in the country is expected to grow at over 10% in the coming years. The growth of household insecticides market is driven by increasing awareness about health and hygiene, growing incidences of insect-borne diseases like malaria and dengue, growing demand for professional pest control and ‘Swatch Bharat initiative of the Government of India.

2. RISKS, THREATS AND CONCERNS:

With increasing fragmentation of farmland holdings, there is a need to improve productivity of small and marginal farmers through education, training, skill development and technology. There is need to focus on crop diversification - the existing cropping pattern is skewed towards cultivation of sugarcane, paddy and wheat, which has led to depletion of fresh groundwater resources at an alarming rate in many parts of the country. Crop diversification will promote sustainable agriculture and higher income for the farmers. Cultivation of oilseeds, pulses and horticulture needs to be given priority by addressing the core issues of irrigation, investment, credit and markets. MSP for crops like wheat, rice, soybean and cotton distort cropping pattern. Farmers tend to play safe by cultivating these products and completely ignoring market demand for other produces including vegetables and pulses. While the Central Government

and few state governments are systematically encouraging crop diversification, there is also a need for coordinated simultaneous action from the state governments to facilitate the shift to high value and low water-consuming crops, especially fruits and vegetables, which are gaining market share. This will go a long way in realising the objective of doubling farmers income in a sustainable manner.

Increasing cost of agri-inputs and farm labour and low awareness and limited adoption of technology pose crucial challenges to the Indian farmers, apart from inevitable seasonal threats like pest attack and uncertain monsoon and unstable climatic conditions.

I nadequate irrigation facilities, slow technology adoption, complexity of agri-produce marketing and low spending power are the key challenges. Farmer continues to bear the significant risk including produce price volatility and rising production costs. High volatility in produce price, rising costs of production and resource crunch affect his income. This also impacts his ability and willingness to adopt better agri-inputs, practices and technologies creating a ripple effect on the industry as a whole. The risks and the problems faced by the farming community rub on the agrochemicals industry as well.

While the union and state governments have launched several initiatives aimed at improving farmers well-being, it will take time for the benefits to become visible at the ground level. Till then, the inherent problems of Indian farming - seasonal production glut, non-remunerative produce prices, slow adoption of advanced technology and practices and skewed benefits of policy framework - continue to adversely affect the industrys growth.

Global warming and climate change are leading to erratic rain patterns and extreme weather conditions like abrupt escalation of temperatures, unseasonal rains and weather instability. These impact yields and quality of crops in a big way and have ripple effect on the industry.

China, a major supplier of raw materials and intermediates to the industry, is also the largest producer of technical grade and formulated pesticides. It continues to pose potential threat to the industry with its opaque policies on production, pricing and exports and its unpredictable legislative and environmental policies and forex moves. Indian industrys dependence on China for sourcing critical raw materials and intermediates continue to remain area of concern.

Sharp across-the-board tariff increase by the United States of America has added to complexities of international trade. The situation on tariff increase is not yet stable and its implications not fully clear.

The ‘Make in India and ‘Vocal for Local initiatives of the Government of India are prompting and helping indigenous manufacturers to come forward and increase domestic production as also initiate process for setting up facilities for producing raw materials and intermediates in India which are presently imported. The Agrochemicals industry is considered as a champion sector under ‘Make in India. However, the Government is yet to extend ‘Production Linked Incentive (PLI) scheme to the pesticides industry though there is strong case for the same.

Counterfeit, spurious, fake and illegally imported pesticides sold cheap in domestic market pose a threat for the industry. They account for a significant market value and harm not only the domestic industry but also cause immense crop losses to farmers. The recently mandated requirement for printing ‘QR Codes on pesticides packages can be expected to mitigate this threat to a significant extent over a period of time.

Continued emphasis on organic / natural farming in Government policies and by a section of policy influencers is also a cause of concern. Organically-grown food and crops do have a niche market. They, however, cannot cater to the demand of the masses that need reasonably-priced food in larger quantities. India used to produce about 51 million tons of food in 1950 on about 131 million hectare land - largely through organic farming. Presently it produces over six times as much with marginal increase in cultivable area - thanks to seed technology, improved irrigation, chemical fertilisers, pesticides and progressive farm practices and technology. One cannot feed massively increasing population through organic farming. Sri Lankas recent experiment with chemical-free agriculture is a lesson for all.

Regulatory risk remains high for this industry. Product registration process is complex, expensive and time-consuming. This, however, also shields against potential competition and acts as entry-barrier for new players. Regulatory overenthusiasm, at times prompted by vested interests, is capable of creating unfavourable situation for the industry. The Government move on Glyphosate use is a case in point. The Central Governments notification issued in 2022, mandating use of Glyphosate only through registered pest control operators, is a looming threat for the industry. Glyphosate, a broad spectrum weedicide, is being safely used by farmers for decades. The industry associations have filed petitions against this government move before the Honble Delhi High Court and its implementation is kept in abeyance till the final disposal of the petitions.

Government move to phase out / restrict use of several old generic pesticides is likely to deprive marginal farmers of the cost-effective crop protection products. As per an industry source, these products also account for a large share in the countrys pesticides exports and this move will likely hit exports significantly. Fortunately, though the Company deals in these products, their value is insignificant.

Over the years, genetically modified (GM) crops have gained acceptance across the world. The Indian regulators have restricted these crops in India citing need for additional review and studies on the suitability of these varieties in the Indian context. However, on the whole, GM crops present challenge and threat to the industry in the long run.

The industry is working-capital intensive in nature. The Indian industry has large imports as well as exports. Drastic movement in foreign exchange market affects the business dynamics of the industry and need to be managed efficiently.

3. OPPORTUNITIES AND INDUSTRY OUTLOOK:

Agriculture and the allied sectors continue to remain central to Indian economy owing to their share in the countrys GDP and more importantly, because it is a source of livelihood for almost 50% of the countrys workforce. In the recent years, farm production gained new highs though agriculture sectors growth rate remains sluggish. The agrochemical industry continues to meet growing farming needs.

Indias agriculture productivity is way below the global standards and needs big ramp-up. With increasing phenomena of urbanisation and industrialization, arable land availability has been reducing over the years. This is encouraging farmers to use more pesticides in order to improve crop yields.

India is uniquely placed in terms of proportion of area under agriculture to overall geographical area. Almost half of its geographical area is under cultivation unlike 10-25% in case of most other countries. If its agriculture productivity levels are lifted, it can become major food supplier to the world - against its current share of 2-2.5% in agri-exports.

I ndian farmer loses around 20-25% of the production to pests and diseases. The 37th Standing Committee of the Ministry of Chemicals and Fertilizers estimated that every year, Indian farmers lose nearly 900 million to pests and diseases. This is where pesticides play a vital role in a farmers life.

As per the available FAO data, consumption of agrochemicals in India is very low (0.6 kg/ha) as compared to agriculturally advanced countries like China (13.1 kg/ ha), Japan (11.8 kg/ ha), Brazil (6kg/ha) and USA (2.5 kg/ ha). This points to enormous growth opportunities available to the industry in the domestic farming.

With rising income levels, Indian spends on fruits and vegetables are increasing. Consumer is willing to pay for high dietary and nutrition products. The value of horticulture production in the country now exceeds that of cereals produced. Increasing demand for better quality and nutritious food has opened opportunity for different category of products like fungicides, plant growth promoters / regulators and nutrients. These product segments are witnessing steady rise. These are high priced and more profitable in comparison to traditional crop protection products like insecticides.

The ‘China + one procurement model adopted by several large overseas customers is working favourably for the Indian industry. Global food security concerns drive robust demand in export markets. This is expected to lead to continued exports growth. The Indian agrochemical industry is well-positioned to gain market share due to its cost advantages. The industry is also trying to engage in backward integration for manufacturing technical grade products and intermediates as it would like to shift its reliance away from China and become self-sufficient in the coming years.

Drone technology for precise agrochemical application, leading to optimizing consumption, reducing costs and improving safety, offers new opportunity to the crop protection industry. The governments approval for drone pesticide application and initiatives like ‘Drone Didi project are positive development for the industry. Use of digital technology for marketing, product demonstration and training and education of farmers is growing.

Outlook for the Indian crop protection industry continues to remain largely positive though year-to-year performance may fluctuate depending upon rainfall and other weather conditions, both within the country and globally. The agrochemical sector is likely to continue with double-digit growth in revenue due to strong exports even if the domestic demand suffers in a particular year owing to unfavourable monsoon and climatic conditions.

The Company has plans for launch of several new products for domestic as well as export markets. It has chalked out robust capex plan for a green-field project and for capacity expansion and new launches in the coming years. The Company has advantage of its parentage - its Japanese parent has several new and proprietary products which the Company can look forward to launch in the coming years. The parent company has strong presence in major markets like central and south Americas and Europe. The Company has been leveraging this strength to increase its exports.

The Company prioritized demand generation this year with its highly successful "Every Day Farmers Day" (EDFD) campaign. This initiative is strategically designed to build lasting momentum by connecting with farmers and channel partners, underscoring the Companys dedication to excellence in agriculture. The campaigns success was supported by meticulous real-time digital tracking and engagement, providing leadership with continuous updates.

In the year 2025-26, the Company is poised to enhance its product portfolio with the launch of several new products, including innovative chemistries that promise to transform disease management practices. To support these launches and future growth, the Company has outlined a strong capital expenditure plan focused on capacity expansion.

4. SEGMENT-WISE PERFORMANCE:

The Companys domestic sale increased from 22,509.79 million in 2023-24 to 23,841.91 million in 2024-25. Exports also increased from 5,553.02 million in 2023-24 to 6,766.41 million in 2024-25.

The Company continues to focus on promoting the branded business in order to increase the customer interface.

5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has proper and adequate system of internal audit and controls which ensure that all the assets are safeguarded against loss from unauthorised use or disposition and that all transactions are authorised, recorded and reported correctly.

The Company continuously strives to improve upon/evolve and implement best practices with a view to strengthen the internal control systems.

The Company has assigned internal audit function to a leading firm of Chartered Accountants. Regular internal audit and checks are carried out to ensure that the responsibilities are discharged effectively. All major findings and suggestions arising out of internal audit are reported and reviewed by the Audit Committee. The Management ensures implementation of these suggestions and reviews them periodically.

6. FINANCIAL PERFORMANCE & ANALYSIS AND MAJOR CHANGES IN RATIOS:

The sales for the year under review increased from 28,062.81 million in 2023-24 to 30,608.32 million. The profit before tax for the year under review increased from 5,033.47 million in 2023-24 to 6,739.89 million. The profit after tax increased from 3,696.74 million in 2023-24 to 5,019.48 million.

The Return on net worth increased from 15.34% in 2023-24 to 18.81% in 2024-25. In 2023-24, the sales turnover and consequently the profits were lower than normal due to adverse market conditions. In 2024-25, sales turnover is back to normal and that is the major reason for improvement in Return on net worth.

7. HUMAN RESOURCE DEVELOPMENT/INDUSTRIAL RELATIONS:

The Company considers human capital as a key pillar for its sustainable growth. The Company endeavors to make available a conducive workplace environment and people-oriented policies with focus on health, safety and responsible care. Core values, high performance, collaboration and continuous improvement guide its human resource policies. It focuses on talent acquisition, retention and on improving employee skills and competencies in line with business needs. The Company has well-documented employee-friendly policies to enhance transparency and to create a sense of teamwork, oneness and mutual trust. These policies assist in providing a positive workplace environment and play a key role in the right talent onboarding and talent retention. The Company has robust goal-setting and performance management processes which help individual goals, interests and achievements to align with functional and corporate goals. The Company is focused on investing in the welfare, safety and well-being of its people.

The Company has generally enjoyed cordial relations with its employees and unions at its factories and offices and has received support in implementation of reforms that lead to safety, quality, cost and productivity improvements. The Company believes that with diversity and inclusion at the workplace, it can leverage the multiplicity of skillsets in all its operations and business.

Employee strength of the Company stood at 1,646 as on 31 March 2025.

8. CAUTIONARY STATEMENT:

Statements in this report on Management Discussion and Analysis relating to the Companys objectives, projections, estimates, expectations or prediction may be forward looking within the meaning of applicable securities laws and regulations. These statements are based on certain assumptions and expectations of future events. Actual results might differ materially from those expressed or implied depending upon factors such as climatic conditions, global and domestic demand-supply conditions, raw materials cost, availability and prices of finished goods, foreign exchange market movements, changes in government regulations, tax structure, economic and political developments within India and the countries where the Company conducts its business and other factors such as litigation and industrial relations.

The Company assumes no responsibility in respect of forward looking statements herein which may undergo changes in future on the basis of subsequent developments, information or events.