Swiss Glascoat Equipments Ltd Management Discussions.

Forming part of the Board Report

Economic Overview

The year 2017-18 was marked by a number of key structural regulatory and governmental initiatives to build strength across macro-economic parameters for sustainable growth in the future. India has emerged as the fastest growing major economy in the world as per the Central Statistics Organisation (CSO) and the International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 1 0-15 years, backed by its strong democracy and partnerships. Indias GDP is expected to grow 7.3 per cent in the Financial Year 2018-19.

India is currently the worlds sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). This growth has been achieved in a scenario of lower inflation, improved current account balance and reduction in the fiscal deficit to GDP ratio. In addition to the introduction of GST, the year also witnessed significant steps being undertaken towards resolution of problems associated with non-performing assets of the banks, further liberalization of FDI, etc., thus strengthening the overall momentum of reforms. After remaining in negative territory for a couple of years, the growth of exports has rebounded during 2016-17 and has strengthened further in 2017-18.

Economic Outlook

On the fiscal front, the position is expected to be better with the Government meeting its fiscal deficit target at 3.5 per cent of GDP. Indias Index of Industrial Production (IIP) rose 4.3 per cent year-on-year in March, 2018, while retail inflation reached a low of 4.28per cent in March, 2018.

A) Industry Structure and Development and Outlook

Your Company is engaged in the business of manufacturing/ fabrication of specialized engineered Glass-lined Reactors and Vessels, which are predominantly used by the Pharmaceutical and Chemical (including Agrochemical) manufacturers.

Performance of the Engineering Sector

Growth in Indias overall manufacturing sector has provided a stimulus for the Engineering Industry to develop capabilities in product development and advanced manufacturing technology. India manufactures the entire range of industrial machinery. Apart from demand from user industries, the availability of technical education infrastructure, that provides an increased number of technically trained human resources each year, has been another key factor aiding the Engineering Industry in India. India exports transport equipment, capital goods, other machinery/ equipment and light engineering products such as castings, forgings and fasteners to various countries. India exports its engineering goods mostly to the US and Europe, which accounts for over 60 per cent of the total exports. Recently, Indias engineering exports to Japan and South Korea have also increased with shipments to these two countries rising by 16 and 60 per cent respectively. Sri Lanka, Nepal and Bangladesh have also emerged as the major destinations for Indias engineering exports. Investments in the engineering sector in India attracts immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing costs, technology and innovation. The above factors, coupled with favorable regulatory policies and growth in the manufacturing sector, has encouraged several foreign players to invest in India. The long-term future of the Indian engineering sector remains promising.

Performance of the Pharmaceutical Sector

The Indian Pharmaceutical sector is estimated to account for 3.1 – 3.6 per cent of the global pharmaceutical industry in value terms and 10 per cent in volume terms. It is expected to grow to US$ 100 billion by 2025. The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size. Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in terms of revenues). The Indian pharmaceuticals market witnessed growth at a CAGR of 5.64 per cent during FY 2011-2016, with the market increasing from US$ 20.95 billion in FY 2011-12 to US$ 27.57 billion in FY 2015-16. The industrys revenues have correspondingly grown by 7.4 per cent in FY 2016-17. Indian pharmaceutical market grew 5.5 per cent in FY 2016-2017 in terms of moving annual turnover. In March 2018, the domestic market grew at 9.5 per cent year-on-year with sales of Rs 10,029 crore (US$ 1.56 billion). Increase in the size of middle class households coupled with the improvement in medical infrastructure and increase in the penetration of health insurance in the country will also positively influence the growth of the Pharmaceutical sector.

Performance of the Chemical Industry

The Chemical Industry is not only one of the oldest industries in India but also one of the fastest growing sectors in the economy. For years, this industry has played the role of a driving engine for the manufacturing sector in the country. India is the sixth largest producer of chemicals in the world and third largest producer in Asia in terms of output. The Indian chemical sector is currently worth USD 150-155 billion, and it is expected to double by 2025 if it continues to grow at the current rate of 8 to 10%. Cumulative FDI in the industry from April, 2000 to June, 2017 stood at US$ 13.972 billion and the export of chemicals stood at US$ 12.15 billion during the year 2016-17.

The Indian Chemical Industry has always been a multi-product, multi-faceted industry, based on the principle of diversification. The chemicals cover an array of more than 70,000 commercial products. The industry is diversified into a variety of sectors such as inorganic chemicals, drugs and pharmaceuticals, plastics and petrochemicals, pesticides, fertilizers and other agrochemicals, speciality and fine chemicals like dyes and paints, and many more. Speciality chemicals and agrochemicals are the two fastest growing sectors among them.

Glass Lining Industry

Glass-lining is a specialized coating of glass, which is applied on the chemical reactor vessels/ equipment. Glass-lined equipment are used for preventing corrosion caused by reactions of corrosive chemicals by the Pharmaceuticals, Agrochemical and other Chemical Industries. The Glass Lining Industry has gone through tremendous changes during the last two decades. The core element of the Glass Lining Industry lies in the technology used for manufacturing of glass frit and its applications/ lining on the vessels/ equipment.

Company Overview

Swiss Glascoat Equipments Limited was formed 27 years ago with an objective to serve Indian customers who were exploited by the multinational companies for Glass-lined Equipment. Your Company is engaged in the business of manufacture and sale of glass-lined equipment and spares in India and abroad. In a very short span of time, your Company embarked upon the technological drive to synthesize the best of engineering practices and technological advancements to come up with superior quality solutions in glass-lined products and services and has emerged as a front-runner in the domestic glass lining fraternity by catering to diverse industries and applications ranging from dyes to pigments; from pharmaceutical to food processing; from chemicals to pesticides; from intermediates to resins and other conceivable corrosion-prone areas in the chemical processing industry. By consolidating quality, performance, engineering design, service and much more, Swiss Glascoat has established itself as One-Point Solution-Provider for glass-lined products of any type, size, output including a complete range of accessories. Today, with the support of its customers, your Company is ahead of the curve in terms of technology, processes and people in this exciting segment.

B) Opportunities and Threats

The various Government and Reserve Bank initiatives like 100% FDI in the Pharmaceuticals sector under automatic route, reduction in the interest rates, etc. is already providing opportunities to expand your Companys business. In the last few months, your Company has witnessed lot of activity to participate in the capex program of many of its existing and potential customers, from the pharma and agrochemical/ specialty chemical sectors, which had earlier slowed down. Your Companys philosophy to provide the best quality at a competitive price, continuously innovating its existing processes and introducing new technologies (automation and process improvement) will give lot of thrust and impetus to your Companys operations and order book. The new management also bring with them new ideas and new relationships, which will help your Company in its endeavours to grow faster and achieve newer heights. Your Companys equipment has a high brand recall amongst its existing customers as well as generally in the Industry. Almost all the major Indian glass lined equipment end users have used and are satisfied with your Companys products. Now, your Company has intensified its marketing efforts and service network to strengthen its domestic and global presence and is receiving positive, encouraging response.

The threats to your Company are mostly associated with the cyclical industry trend, rising inflation, non-availability of adequate skilled manpower, continuous increase in electricity/ fuel costs, cost of wages and salaries and finance cost. Presently, inflation is under control due to active measures undertaken by the Government and the Reserve Bank of India and this will ensure that the interest rates will remain reasonably low for the next few quarters. Your Companys human resource department is continuously searching for talented manpower at various levels to obviate the challenge of non-availability of requisite talent when needed. Your management is quite confident that they will overcome the internal threats and ensure that your Company achieves better performance in the current year.

C) Risks and Concerns

While Indias retail inflation has eased this year and hit a five-month low in March, it remained above the Reserve Bank of Indias medium-term target of 4 percent. Inflation is forecast to average 4.7 percent in the fiscal year ending next March, and 4.9 percent the following year. The impact of GST on prices is likely to become clearer in the coming year as the teething problems related to its implementation ease out. Further, the GST Councils decision to cut tax rates on 177 items is also expected to partially ease the inflationary pressure, as the companies start passing the benefits of lower prices to consumers. A contraction in export growth pushed the merchandise trade deficit to a near 3-year high in October 2017, which was forcefully reversed in November with a positive growth rate of over 30%. With the streamlining of GST related issues and some changes in GST rules by the Government as well as firming of global recovery, export growth is expected to emerge as a powerful growth driver in 2018. Healthy foreign fund inflows caused the rupee to strengthen during the latter half of the year. The recent Moodys upgrade is also likely to encourage further inflows.

D) Internal Control Systems and their adequacy

Your Company is committed to ensuring an effective internal control environment that provides reasonable assurance regarding the effectiveness and efficiency of operations, adequacy of safeguards for assets, reliability of financial controls and compliance with applicable laws and regulations. Towards this end, your Company has laid down standard operating procedures and policies to guide the various business operations. To further strengthen the internal control systems, an independent external agency has been appointed as the internal auditor of your Company. The internal audit processes, both at the business and corporate levels provide reasonable assurance on the adequacy and effectiveness of such internal controls and compliances, through the reviews of the functions and processes, as per the annual audit plan agreed with the Audit Committee. The CEO and CFO Certification provided elsewhere in this Annual Report discusses the adequacy of our internal control systems and procedures.

E) Financial performance vis--vis Operational performance

The competitive environment of Indias Glass Lining Industry and the growing competition in the business segment pose challenges to your Company. There is a trend towards a strong growth pursuant to your Companys commitment to quality and sustainability. Your Company believes in a philosophy of continuous efforts to perform better operationally, which is expected to translate into better financial performance. Your Company also utilizes internal accruals instead of depending heavily on external borrowings to the extent possible and your Companys Balance Sheet is quite robust and relatively insulated from financial risks. By actively managing utility and other operational costs, payment terms and working capital requirements, your management has influenced the financial performance and achieved significant cost savings. Your

Companys revenue from operations for the year 2017-18 was Rs. 98.76 crores compared to Rs. 89.49 crores during the previous year. Your Company earned profit after tax during the year of Rs. 5.36 crores compared to Rs. 3.12 crores during the previous year. Operating Profit/ Earnings before Interest Depreciation and Tax for the year stood at Rs. 11.22 crores compared to Rs. 9.56 crores. There has been a significant rise in the EBIDTA from 10.65% for the financial year ended 31st March, 2017 to 11.24% for the financial year under review.

F) Material Developments on Human Resources/ industrial relations, including number of people employed

People management is the backbone of your Company and it is regarded as one of the important resources for the success at Swiss Glascoat. Over the years, your Company has strengthened its HR processes to ensure continual development and growth of its employees. HR processes are fine-tuned and upgraded to attract, recruit and retain talent in your Company. We have been receiving active co-operation and support from the entire hierarchy of personnel, resulting in improvement in productivity and overall growth of your Company. Our staff and workers are the most important assets. The personnel of your Company are efficient and committed to the growth of your Companys business. Your Company has well documented and updated policies in place to prevent any kind of discrimination and harassment, including sexual harassment. The Whistle Blower Policy plays an important role as a watchdog. The total permanent employee strength of your Company as on 31st March, 2018 stands at 95 (excluding trainees). Your Company believes in focusing on development of its existing staff and workers and provides constant training to them so as to make them ready for growth and better positions in your Company. The training is provided internally, and training programmes are also organized by inviting external faculty. Our continuous training programmes have emphasis not only on increasing production of your Company but also on imbibing qualities of commitment and integrity in the attitude of the personnel.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations, if any, may be "forward looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include among others, raw material pricing, climatic conditions, economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.

By the Order of the Board of
Swiss Glascoat Equipments Ltd
Date : 19th May, 2018 Mr. Himanshu Patel
Place : Vitthal Udyognagar Chairperson and Managing Director