The Indian Wood Products Company Ltd Management Discussions

FY2024 represents the fiscal year 2023-24, from 1 April 2023 to 31 March 2024, and analogously for FY2023 and previously such labelled years.

GLOBAL OUTLOOK

The global economic recovery from the COVID-19 pandemic, Russias invasion of Ukraine, and the cost- of-living crisis is proving surprisingly resilient. Inflation is falling faster than expected from its 2022 peak, with a smaller-than-expected toll on employment and activity, reflecting favorable supply-side developments and tightening by central banks, which has kept inflation expectations anchored. At the same time, high interest rates aimed at fighting inflation and a withdrawal of fiscal support amid high debt are expected to weigh on growth in 2024.

Growth resilient in major economies - Economic growth is estimated to have been stronger than expected in the second half of 2023 in the United States, and several major emerging market and developing economies. In several cases, government and private spending contributed to the upswing, with real disposable income gains supporting consumption amid still-tight— though easing—labor markets and households drawing down on their accumulated pandemic-era savings. A supply-side expansion also took hold, with a broad- based increase in labor force participation, resolution of pandemic-era supply chain problems, and declining delivery times. The rising momentum was not felt everywhere, with notably subdued growth in the euro area, reflecting weak consumer sentiment, the lingering effects of high energy prices, and weakness in interest- rate-sensitive manufacturing and business investment. Low-income economies continue to experience large output losses compared with their prepandemic (201719) paths amid elevated borrowing costs.

Inflation subsiding faster than expected - Amid favorable global supply developments, inflation has been falling faster than expected, with recent monthly readings near the prepandemic average for both headline and underlying (core) inflation (Figure 1). Global headline inflation in the fourth quarter of 2023 is estimated to have been about 0.3 percentage point lower than predicted in the October 2023 WEO on a quarter- over-quarter seasonally adjusted basis. Diminished inflation reflects

the fading of relative price shocks— notably those to energy prices—and their associated pass-through to core inflation.1 The decline also reflects an easing in labor market tightness, with a decline in job vacancies, a modest rise in unemployment, and greater labor supply, in some cases associated with a strong inflow of immigrants. Wage growth has generally remained contained, with wage-price spirals-in which prices and wages accelerate together-not taking hold. Near-term inflation expectations have fallen in major economies, with long-term expectations remaining anchored.

Note: The figure plots the median of a sample of 57 economies that accounts for 78 percent of World Economic Outlook world GDP (in weighted purchasing- power- parity terms) in 2023. Vertical axes are cut off at -4 percent and 16 percent. The bands depict the 10th to 90th percentiles of inflation across economies. "Core inflation" is the percent change in the consumer price index for goods and services, excluding food and energy (or the closest available measure). AEs = advanced economies; EMDEs = emerging market and developing economies.

High borrowing costs cooling demand - To reduce inflation, major central banks raised policy interest rates to restrictive levels in 2023, resulting in high mortgage costs, challenges for firms refinancing their debt, tighter credit availability, and weaker business and residential investment. Commercial real estate has been especially under pressure, with higher borrowing costs compounding postpandemic structural changes. But with inflation easing, market expectations that future policy rates will decline have contributed to a reduction in longer-term interest rates and rising equity markets (Box 1). Still, long-term borrowing costs remain high in both advanced and emerging market and developing economies, partly because government debt has been rising. In addition, central banks policy rate decisions are becoming increasingly asynchronous. In some countries with falling inflation—including Brazil and Chile, where central banks tightened policy earlier than in other countries—interest rates have been declining since the second half of 2023. In China, where inflation has been near zero, the central bank has eased monetary policy. The Bank of Japan has kept short-term interest rates near zero.

The Forecast

Growth Outlook: Resilient but Slow

Global growth, estimated at 3.1 percent in 2023, is projected to remain at 3.1 percent in 2024 before rising modestly to 3.2 percent in 2025. Compared with that in the October 2023 WEO, the forecast for 2024 is about 0.2 percentage point higher, reflecting upgrades for China, the United States, and large emerging market and developing economies. Nevertheless, the projection for global growth in 2024 and 2025 is below the historical (2000-19) annual average of 3.8 percent, reflecting restrictive monetary policies and withdrawal of fiscal support, as well as low underlying productivity growth.

Advanced economies are expected to see growth decline slightly in 2024 before rising in 2025, with a recovery in the euro area from low growth in 2023 and a moderation of growth in the United States. Emerging market and developing economies are expected to experience stable growth through 2024 and 2025, with regional differences.

World trade growth is projected at 3.3 percent in 2024 and 3.6 percent in 2025, below its historical average growth rate of 4.9 percent. Rising trade distortions and geo economic fragmentation are expected to continue to weigh on the level of global trade. Countries imposed about 3,200 new restrictions on trade in 2022 and about 3,000 in 2023, up from about 1,100 in 2019, according to Global Trade Alert data.

These forecasts are based on assumptions that fuel and nonfuel commodity prices will decline in 2024 and 2025 and that interest rates will decline in major economies. Annual average oil prices are projected to fall by about 2.3 percent in 2024, whereas nonfuel commodity prices are expected to fall by 0.9 percent. IMF staff projections are for policy rates to remain at current levels for the Federal Reserve, the European Central Bank, and the Bank of England until the second half of 2024, before gradually declining as inflation moves closer to targets. The Bank of Japan is projected to maintain an overall accommodative stance.

For advanced economies, growth is projected to decline slightly from 1.6 percent in 2023 to 1.5 percent in 2024 before rising to 1.8 percent in 2025. An upward revision of 0.1 percentage point for 2024 reflects stronger-than- expected US growth, partly offset by weaker-than- expected growth in the euro area:

• In the United States, growth is projected to fall from 2.5 percent in 2023 to 2.1 percent in 2024 and 1.7 percent in 2025, with the lagged effects of monetary policy tightening, gradual fiscal tightening, and a softening in labor markets slowing aggregate demand. For 2024, an upward revision of 0.6 percentage point since the October 2023 WEO largely reflects statistical carryover effects from the stronger-than-expected growth outcome for 2023.

• Growth in the euro area is projected to recover from its low rate of an estimated 0.5 percent in 2023, which reflected relatively high exposure to the war in Ukraine, to 0.9 percent in 2024 and 1.7 percent in 2025. Stronger household consumption as the effects of the shock to energy prices subside and inflation falls, supporting real income growth, is expected to drive the recovery. Compared with the October 2023 WEO forecast, however, growth is revised downward by 0.3 percentage point for 2024, largely on account of carryover from the weaker- than-expected outcome for 2023.

• Among other advanced economies, growth in the United Kingdom is projected to rise modestly, from an estimated 0.5 percent in 2023 to 0.6 percent in 2024, as the lagged negative effects of high energy prices wane, then to 1.6 percent in 2025, as disinflation allows an easing in financial conditions and permits real incomes to recover. The markdown to growth in 2025 of 0.4 percentage point reflects reduced scope for growth to catch up in light of recent upward statistical revisions to the level of output through the pandemic period. Output in Japan is projected to remain above potential as growth decelerates from an estimated 1.9 percent in 2023 to 0.9 percent in 2024 and 0.8 percent in 2025, reflecting the fading of one-off factors that supported activity in 2023, including a depreciated yen, pent-up demand, and a recovery in business investment following earlier delays in implementing projects.

• In emerging market and developing economies, growth is expected to remain at 4.1 percent in 2024 and to rise to 4.2 percent in 2025. An upward revision of 0.1 percentage point for 2024 since October 2023 reflects upgrades for several regions.

• Growth in emerging and developing Asia is expected to decline from an estimated 5.4 percent in 2023 to 5.2 percent in 2024 and 4.8 percent in 2025, with an upgrade of 0.4 percentage point for 2024 over the October 2023 projections, attributable to Chinas economy. Growth in China is projected at 4.6 percent in 2024 and 4.1 percent in 2025, with an upward revision of 0.4 percentage point for 2024 since the October 2023 WEO. The upgrade reflects carryover from stronger-than- expected growth in 2023 and increased government spending on capacity building against natural disasters. Growth in India is projected to remain strong at 6.5 percent in both 2024 and 2025, with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand.

• Growth in emerging and developing Europe is projected to pick up from an estimated 2.7 percent in 2023 to 2.8 percent in 2024, before declining to 2.5 percent in 2025. The forecast upgrade for 2024 of 0.6 percentage point over October 2023 projections is attributable to Russias economy. Growth in Russia is projected at 2.6 percent in 2024 and 1.1 percent in 2025, with an upward revision of 1.5 percentage points over the October 2023 figure for 2024, reflecting carryover from stronger-than-expected growth in 2023 on account of high military spending and private consumption, supported by wage growth in a tight labor market.

• In Latin America and the Caribbean, growth is projected to decline from an estimated 2.5 percent in 2023 to 1.9 percent in 2024 before rising to 2.5 percent in 2025, with a downward revision for 2024 of 0.4 percentage point compared with the October 2023 WEO projection. The forecast revision for 2024 reflects negative growth in Argentina in the context of a significant policy adjustment to restore macroeconomic stability. Among other major economies in the region, there are upgrades of 0.2 percentage point for Brazil and 0.6 percentage point for Mexico, largely due to carryover effects from stronger-than-expected domestic demand and higher-than-expected growth in large trading-partner economies in 2023.

• Growth in the Middle East and Central Asia is projected to rise from an estimated 2.0 percent in 2023 to 2.9 percent in 2024 and 4.2 percent in 2025, with a downward revision of 0.5 percentage point for 2024 and an upward revision of 0.3 percentage point for 2025 from the October 2023 projections. The revisions are mainly attributable to Saudi Arabia and reflect temporarily lower oil production in 2024, including from unilateral cuts and cuts in line with an agreement through OPEC+ (the Organization of the Petroleum Exporting Countries, including Russia and other non- OPEC oil exporters), whereas non-oil growth is expected to remain robust.

• In sub-Saharan Africa, growth is projected to rise from an estimated 3.3 percent in 2023 to 3.8 percent in 2024 and 4.1 percent in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve. The downward revision for 2024 of 0.2 percentage point from October 2023 mainly reflects a weaker projection for South Africa on account of increasing logistical constraints, including those in the transportation sector, on economic activity.

The Indian Economy

IMF sources reveal that the Indian economy edged past the UK to become the fifth largest economy of the world and has been still growing at an astounding rate despite many global headwinds. Case in point, on March 1,2024, Mint, the business and financial daily, reported that the Indian economy grew by 8.4% in the third quarter of the financial year 2023-24.

Based on this data, Indias Statistical Ministry prepared a second advanced estimate of the full-year GDP growth and pegged it to 7.6% which will make it one of the fastest-growing major economies of the world. The earlier estimate was 0.3% lower than the recent one.

The trend of India outgrowing other economies is likely to continue for a long time. In fact, according to experts, India is projected to overtake Japan and Germany by 2030 to become the third largest economy of the world and is estimated to become 2nd largest economy by 2048.

Consumption in India

This stellar growth is the result of several measures taken by the governments over the years, e.g. liberalisation, abolishing license raj, an increasing focus on infrastructure investment and more. All these reforms eventually led to a heightened purchasing power for the common Indian consumers and a resultant service, manufacturing, construction and consumption boom.

This consumption boom has been particularly evident in the purchase of automobiles, electronics, and branded lifestyle products. The internet and e-commerce platforms have further democratised access to these goods, breaking geographical barriers and reaching previously untapped markets. The rise of consumer credit has also made it easier for individuals to finance their purchases.

In FY24, a strong Private Final Consumption Expenditure (PFCE) driven by sustained growth in urban demand and recovery in rural demand is supporting Indias growth. According to the NSO, the share of private final consumption expenditure (PFCE) in Indias GDP in FY24 is expected to be 60.3%. India Ratings (Ind-Ra) expects

PFCE to grow by 6.1 per cent in 2024-25 compared to 4.4% in the 2023-24 financial year.

Thus, driven by strong policy support, a growing middle class and a sizeable young population, a significant amount of investment is lowing into the country, facilitating an economic uprising and lifting more and more people out of poverty every year. That is why, experts believe that the Indian consumption story is likely to continue beyond FY24 and could last many more decades to come.

Indian Katha Industry

Katha manufacturing in India has been an important forest-based chemical industry for centuries. Katha was in use even before the Morya Dynasty as Ayurvedic medicine. However, initially, the manufacturing of Katha was carried out by an unorganized sector. Only in British ERA manufacturing of Katha with Scientific method start. However, the unorganized sector is still in operation and leads the industry with maximum shares. The overall size of the Katha Industry is about 3500 Crores p.a. which also include katha consumption in Paan etc.

Katha is prepared mainly by crystallization in cold from the water extractives of the heartwood of Acacia Catechu, commonly known as the ‘Khair Tree. Acacia Catechu is widely distributed in India from the northwest plains to eastwards in Assam and throughout the Country, particularly in drier and deciduous region. The Process of Katha making is long and arduous process which takes upto 45 days. Each step in the production process is closely monitored and proper climatic conditions are maintained for optimum colour and quality. Katha (catechu) is one of the principal ingredients used in the preparation of PAAN from betel leaves, for chewing purposes when, in combination with lime, it gives the characteristic red colorations. Katha is extracted from Khair Tree and while producing Katha Cutch is also produced as bio-product.

Katha is being produced in the country since long and it is a mass-consumption item as it is used in the preparation of paan throughout the country. It has got medicinal values as well and used in ayurvedic preparations as it cures itching, indigestion and bronchitis and is very effective in leprosy, ulcer, boils, piles, throat diseases etc. On the other hand, the cutch has various industrial applications. It is one of the important sources of vegetable tanning materials, used extensively as an additive to the drilling mud used for oil drilling and for the preservation of sailing rods, fishing nets, mail bags etc. Thus, both products are versatile with varied applications.

The demand of premium Quality Katha is growing steadily with consumers disposable income on as steady rise. Our Company continues to be the leading player in Katha Industry

Operations

Katha

We expect our market share to further increase in the coming financial year with the addition of new customers because of increased focus on better product mix. The EBITDA in the current year has increased and going forward we expect better EBITDA margins. Our company has implemented cost effective measures and better work condition for the staff.

The Catechin extraction unit set up in Indonesia through our Joint Venture Company in Singapore is operational and of the Catechin extraction is imported in India and used in the production of the Katha.

Achieving ultimate customer satisfaction is the prime outlook of the Company. To materialize this, the organization has adopted stringent quality control tests from the intermediate stages of input of raw materials till the output of finished products. To achieve this, we have a qualified team of 20 engineers & chemists who monitor the operation and the quality.

We are well equipped with laboratory facilities and modern equipment such as HPTLC, GLC, Polarimeters, TLC, Spectrophotometer, Moisture meter, Hygroscopes besides Kjeldahl extractor etc.

The Company also owns a research lab having plant & equipment for Pilot Plant scale research for improving quality & research and is investing heavily with topmost priority to stay ahead of the curve.

During the year under review, the Company has achieved a sales volume of 3337.004 MT Katha in FY2024 as compared to 3487.670 MT in FY2023. The sales of Cutch (by-product) increased from 990.275 MT in FY2023 to 1162.625 MT in FY2024. Good financial performance is the combined result of an increase in volume, average realization and operational efficiencies. The management is focused on achieving desired results coupled with sustained production levels. The trend is likely to continue and we are hopeful to have a better operational and financial performance in FY2025.

The Company has recorded a turnover of Rs 19241.53 Lakhs in FY2024, as compared with Rs. 18369.37 Lakhs in FY2023 representing an increase of 4.75% because of an increase in volume, average realization and change in product mix. The Profit Before Tax (PBT) for the year, was Rs. 325.90 lakhs as compared to Rs.180.99 lakhs for the previous year. During the financial year 202324, the Company earned a Profit After Tax of Rs 259.01 lakhs as compared to Rs. 138.01 lakhs in the previous year.

The better financial performance is the combined result of an increase in volume, average realization and operational efficiencies. The management is focused on achieving desired results coupled with sustained production levels. The trend is likely to continue and we are hopeful to have a better operational and financial performance in FY2025.

The operational performance of the Company during the period under review was good. We intend to achieve sustainable and profitable growth through our consistent efforts.

Operating Results:

Key highlights of financial performance for the Company for FY2024 on a standalone basis are tabulated below:

However, on a consolidated basis, revenue from operations for FY2023 at Rs 18369.37 Lakhs. Profit after tax ("PAT") for the year was Rs. 365.82 Lakhs.

Risks and Concern

Risk and its Management: Risk accompanies prospects. As a responsible corporate, it is the endeavor of the management to minimize the risks inherent in the business with the view to maximize returns from business situations.

The architecture: At the heart of the Companys risk mitigation strategy is a comprehensive and integrated risk management framework that comprises prudential norms, structured reporting and control. This approach ensures that the risk management discipline is centrally initiated by the senior management but prudently decentralized across the organization, percolating to managers at various organizational levels helping them mitigate risks at the transactional level.

The discipline: The Company has clearly identified and segregated its risks into separate components, namely operational, financial, strategic and growth execution. All the identified risks are inter-linked with the Annual Business Plans of the Company, so as to facilitate Company-wide reviews.

The review: A Risk Management Committee of the Board of Directors, comprising Board Members, has been constituted to review periodically updates on identified risks, implementation of mitigation plans and adequacy thereof, identification of new risk areas etc.

The Board of Directors also reviews the Risk identification process and mitigation plans regularly. A senior executive has been entrusted at all the levels of business operation in the Company whose role is not only to identify the Risk but also to educate about the identified risk and to develop Risk Management culture within the business.

Key counter measures: The Company has institutionalized certain risk mitigation procedures outline as under:

• Roles and responsibilities of the various entities in relation to risk management have been clearly laid down. A range of responsibilities, from the strategic to the operational, is specified therein. These role definitions, inter alia, are aimed at ensuring formulation of appropriate risk management policies and procedures, their effective implementation, independent monitoring and reporting by internal audit.

• Appropriate structures are in place to proactively monitor and manage the inherent risks in businesses with proper risk profiling.

• Wherever possible and necessary, appropriate insurance cover is taken for financial risk mitigation. Confirmation of compliance with applicable statutory requirements are obtained from the respective unit/ divisions and subjected to an elaborate verification process.

• Quarterly reports on statutory compliances, duly certified, are submitted to the Audit Committee as well as the Board of Directors for review.

• Status of Demand/Notices on the Company, under various Acts and Rules, as well as status of litigations are reported to the Board of Directors every quarter.

Internal Control Systems

The Company has both external and internal audit systems in place. Auditors have access to all records and information of the Company. The Board recognizes the work of the auditors as an independent check on the information received from the management on the operations and performance of the Company. The Board and the management periodically review the findings and recommendations of the statutory and internal auditors and take corrective actions whenever necessary.

The Company maintains a system of internal controls designed to provide reasonable assurance regarding:

• Effectiveness and efficiency of operations.

• Adequacy of safeguards for assets.

• Reliability of financial controls.

• Compliance with applicable laws and regulations.

Corporate Social Responsibility

The companys CSR policy covers activities in the feld of eradication of extreme hunger and poverty, promotion of education, promotion of gender equality, empowerment of women, improvement of mental health,slum area development and rural development projects, employment enhancing vocational skills, ensuring environmental sustainability, sanitation including contribution to Swachh Bharat Kosh set up by the Central Government, ensuring animal welfare, contribution to the Prime Ministers National Relief Fund or any other project set up by the Central Government.

The Company has created a trust in the name of IWP CSR Trust for undertaking CSR activities for and on behalf of the Company.

During FY2024, in compliance with Section 135 of the Act, an amount of Rs. 0.76 Lakhs is required to be spent by the Company on CSR activities. The Company has spent Rs. 40.50 Lakhs on CSR activities towards Animal Welfare, Women Empowerment and the Upliftment of People with disability through IWP CSR Trust. There is no unspent CSR amount as on 31st March 2024.

Human Resources and Industrial Relations

Our employees are our core resource and the Company has continuously evolved policies to strengthen its employee value proposition. Your Company was able to attract and retain the best talent in the market and the same can be felt in the past growth of the Company. The Company is constantly working on providing the best working environment to its Human Resources with a view to inculcate leadership and autonomy and towards this objective; your company spends large efforts on training. Your Company shall always place all necessary emphasis on the continuous development of its Human Resources. The belief "great people create a great organization" has been at the core of the Companys approach to its people.

Key Ratios

Cautionary Statement

Statements in this Management Discussion and Analysis report detailing the Companys objectives, projections, estimates, expectations or predictions may be "forwardlooking statements" within the meaning of applicable securities 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 global and Indian demand-supply conditions, raw material prices, finished goods prices, cyclical demand and pricing in the Companys products and their principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries with which the Company conducts business and other factors such as litigation and/or labor negotiations.