Vital Chemtech Ltd Management Discussions

ANNEXURE D

The Managements views on the Companys Performance and outlook are discussed below:

GLOBAL ECONOMY:

Global economic growth is anticipated to reach 3.1 percent in 2024 and 3.2 percent in 2025. The forecast for 2024 exceeds the October 2023 World Economic Outlook (WEO) by 0.2 percentage points due to stronger-than-anticipated resilience observed in the United States and several prominent emerging market and developing economies, alongside fiscal measures implemented in China. Nevertheless, the projected growth rates for 2024-2025 falls short of the 3.8 percent historical average recorded during 2000-2019. This divergence is attributed to heightened central bank policy rates aimed at combating inflation, reduction in fiscal support amidst elevated debt levels that impose constraints on economic activity, and sluggish underlying productivity gains. Notably, inflation rates are declining more swiftly than earlier projections across most regions, driven by the resolution of supply-side disruptions and the implementation of restrictive monetary policies. Global headline inflation is expected to decrease to 5.8 percent in 2024 and further to 4.4 percent in 2025, with downward revisions made to the 2025 forecast.

INDIAN ECONOMY:

India has maintained a strong economic performance despite global challenges and geopolitical concerns. This resilience can be attributed to robust domestic demand, a pickup in rural demand, strong investment levels, and sustained momentum in manufacturing. Despite global challenges, India stands out for its robust economic growth, demonstrating broad-based expansion across various sectors and reaffirming its pivotal role in supporting global economic growth.

The combined efforts of the government and the Reserve Bank of India (RBI) to tackle inflation through strategic policy rate adjustments, bolstering food reserves, and facilitating easier imports have successfully managed inflationary pressures. As a result, retail inflation in the fiscal year 2023-24 saw a notable decrease, reaching its lowest point since the onset of the Covid-19 pandemic. Core inflation specifically declined to 3.3% by March 2024. Moreover, the forecast of an above-normal monsoon in 2024 augurs well for agricultural productivity, which is expected to further alleviate concerns regarding inflation.

The backdrop of slowing global trade poses challenges for economies globally. However, India is poised to reduce its trade deficit in the upcoming years, supported by the expanded coverage of the Production Linked Incentive (PLI) scheme across multiple sectors. Strong export performance and robust remittance inflows are anticipated to contribute significantly. International agencies and the Reserve Bank of India (RBI) forecast that the Current Account Deficit (CAD) as a percentage of GDP will likely have moderated to below 1% in the fiscal year 2023-24.

India remains the fastest-growing major economy, with international organizations and the Reserve Bank of India (RBI) providing positive assessments of its growth outlook for the current financial year.

GLOBAL CHEMICAL MARKET:

Global chemical growth moderated in 2022 due to lockdowns in China, supply chain bottlenecks, and disruptions caused by the Russian invasion of Ukraine. As a result, global chemical output grew by only 2.0% in 2022. In 2023, production is expected to expand at 2.9% amid rebound in Western Europe and the Asia-Pacific. The industry is focussing on meeting the growing global demand and enhancing sustainability through carbon reduction projects and advanced recycling and recovery. The biggest risk to the outlook is persistent inflation and continued increase in interest rates that could prolong and deepen the downturn, but other risks may include escalation of wars, financial instability, and supply chain disruptions.

The US chemical industry had a strong start in 2022, with output growing by 3.9%. However, in 2023, this growth is expected to marginally decline due to deceleration in end-use markets, a stronger dollar, and lower global growth. Many manufacturers have increased inventories of raw materials and products due to supply chain issues, which resulted in higher-than-normal inventories at the end of the year. US chemicals remain advantaged due to abundant domestic production of natural gas. Capital spending grew 9.0% to US$ 33.5 billion in 2022 and is expected grow at 3.6% in 2023.

After declining by 3.2% in 2022, chemical production in Western Europe is expected to marginally grow at 0.8% in 2023. This is mainly due to an uncertain energy price outlook and depressed economic growth outlook. However, the silver lining is that natural gas prices have dropped to their pre-war levels and are expected to remain below the 2022 levels.

Chinas chemical industry is expected to recover after the lifting of COVID-19 restrictions. Sectors such as pharmaceuticals and agricultural chemicals are expected to lead the growth.

INDIAN CHEMICAL INDUSTRY:

Indias chemical sector is a vital contributor to the nations economy, significantly bolstering its GDP and ranking among the fastest-growing industries. As of 2022, the chemical industry accounts for a substantial 7% of Indias GDP, positioning the country as the sixth-largest chemical producer globally and third-largest in Asia. India is home to numerous niche specialty chemical firms that are world leaders in their respective domains. Over the past decade, Indias chemical industry has consistently outpaced global averages in terms of demand growth and shareholder value creation. With its rapid economic expansion, growing middle class, and competitive capital and operational costs, India is poised to emerge as a key player in the global chemical sector, both as a consumer and producer. However, challenges persist, including limited access to domestic raw materials, regulatory delays, and a shortage of skilled R&D professionals, which hinder the industrys full potential.

The Indian Chemicals & Petrochemicals sector is a significant contributor to the economy, with a market size of approximately $220 billion, projected to reach $300 billion by 2030. The sectors export performance has been impressive, with chemicals and chemical products (excluding pharmaceuticals and fertilizers) accounting for 11.7% of total exports in 2021-22, and 10.8% in 2022- 23 (up to September 2022). The sector has demonstrated a compound annual growth rate (CAGR) of 13.86% in exports from 2017-18 to 2021-22, outpacing the national export CAGR of 12.62%.

In terms of production, the Index of Industrial Production for Chemical & Chemical products reached a record high of 137.2 in July 2022, up from a low of 109.1 in May 2021. However, the production of major chemicals decreased to 53.54 lakh tonnes in 2023- 24 (up to August 2023), compared to 54.32 lakh tonnes in the corresponding period of the previous year.

On a positive note, production of organic chemicals and major petrochemicals has increased by 4.52% and 6.08%, respectively, in 2023-24 (up to August 2023) compared to the previous year. Additionally, production of certain petrochemicals, such as synthetic detergent intermediates, stood at 34.07 lakh tonnes in 2023-24 (up to August 2023).

Overall, the sector has shown resilience and growth, with opportunities for further expansion and development.

Opportunities: -

• Indias specialty chemicals companies are expanding their capacities to cater to rising demand from domestic and overseas.

• With global companies seeking to de-risk their supply chains, which are dependent on China, the chemical sector in India has the opportunity for a significant growth.

• The Dahej PCPIR project in Bharuch, has attracted an investment of Rs. 1 lakh crore (~US$ 12 billion) and is expected to generate 32,000jobs.

• The specialty chemical sector in India offers local manufacturers a chance to enrich and diversify their product range. Incorporating specialty chemicals such as polymer additives, lubricant additives, and water treatment chemicals can enable manufacturers to meet the rising demand for value-added products.

• Expanding into the fine and specialty chemicals sector presents a lucrative growth avenue for Indias chemical companies. This niche offers a sweet spot where firms can leverage their technical prowess and innovative capabilities to drive cost-effective solutions, unhindered by constraints such as substantial capital expenditures, limited access to hydrocarbons, or high energy costs. By venturing into this sector, Indian chemical firms can unlock new opportunities for expansion and diversification, while capitalizing on their existing strengths to drive growth and competitiveness.

• As manufacturers increasingly adopt a multi-country operational model, Indian specialty chemical companies poised for global expansion can capitalize on this strategic shift. By transitioning from a single-country manufacturing approach to a diversified, multi-country framework, businesses can cultivate a more robust and agile supply chain. This approach not only mitigates risks associated with reliance on a single market or region but also unlocks opportunities for enhanced efficiency, reduced costs, and improved competitiveness on the global stage. By embracing this model, Indian specialty chemical companies can fortify their position in the international market and drive sustainable growth.

Challenges:

• The intricate assets and equipment found in chemical plants pose inherent risks to employee safety, making rigorous compliance and meticulous maintenance essential. Ensuring adherence to stringent regulatory standards and implementing proactive maintenance protocols are crucial to mitigating hazards, preventing accidents, and safeguarding the well-being of personnel. By prioritizing these critical aspects, chemical plants can minimize risks, optimize operational efficiency, and foster a culture of safety and responsibility.

• The chemical industry, while a vital sector, has a significant environmental footprint, generating hazardous substances and waste products that pose substantial risks to ecological balance and human well-being. The release of toxic chemicals and pollutants can contaminate air, water, and soil, causing irreparable harm to ecosystems and human health. As such, it is imperative for the industry to adopt sustainable practices, invest in eco-friendly technologies, and implement stringent waste management protocols to minimize its environmental impact and ensure a healthier planet for future generations.

• Implementing rigorous quality control procedures is essential to guarantee the safety, efficacy, and excellence of products throughout the entire manufacturing process. These procedures ensure that every stage, from raw material selection to final product testing, meets stringent standards, thereby preventing defects, minimizing risks, and consistently delivering high- quality products that meet customer expectations and regulatory requirements. By integrating quality control measures, manufacturers can maintain the highest levels of product integrity, reliability, and performance.

BUSINESS OUTLOOK

Your company is on the cusp of a significant growth phase, fueled by rising demand from diverse sectors, technological innovations, and supportive government policies. Although challenges persist, including raw material availability, infrastructure constraints, and skill gaps, the industrys emphasis on innovation, collaboration, and product diversification presents a compelling narrative for its emergence as a major global player. By proactively addressing these challenges and capitalizing on opportunities, the Indian specialty chemical industry can sustain its upward growth trajectory, making substantial contributions to the nations economic prosperity and cementing its position on the global stage.

In todays turbulent and ever-evolving business environment, it is essential for an organisation to emphasize on managing enterprise-wide risks effectively to achieve its strategic business objectives. VCTL has developed a robust Enterprise Risk Management (ERM) Framework based on the fundamental elements of global risk management standards such as ISO 31000 and COSO. The framework emphasises a coordinated and an integrated approach to manage enterprise-wide risks and opportunities across VCTL, which is essential to establish a culture of proactive, independent, and systematic risk management. VCTL has defined clear roles and responsibilities, principles, consistent templates, enablers and training measures for effective and uniform implementation of ERM framework across the organisation. The goal of the ERM Framework is to strengthen VCTLs commitment to effectively manage both existing and emerging risks while capitalising on opportunities to achieve our strategic objectives and safeguard stakeholders value. To facilitate risk-informed decision-making, VCTL has defined a vigorous risk governance mechanism leveraging our fully integrated ERM Framework.

Your company remains steadfast in its commitment to delivering long-term value, driven by its world-class manufacturing capabilities, continuous process improvements, robust R&D initiatives, and unwavering dedication to innovation. The company is strategically investing in R&D to develop products tailored to emerging sectors, with a growing emphasis on sustainable and green solutions, battery chemicals, electronics chemicals, advanced materials, and high-performance polymers. With a promising roadmap in place, Aarti Industries Limited is well-positioned to capitalize on the opportunities arising from the rapid evolution of global chemical supply chains. By leveraging R&D-led product offerings and incremental gains from existing value chains, the company is poised to harness favorable industry trends, creating a compelling long-term value proposition for all stakeholders.

Risk and Concerns

The Company adopts a proactive and comprehensive approach to risk management, identifying, assessing, and mitigating potential risks through the implementation of tailored measures. To ensure the effectiveness of its risk management framework, the Company continuously develops and refines its Risk Management Policy, which is regularly presented to the Board for approval. The Risk Management Committee plays a crucial role in:

- Ensuring the establishment and maintenance of robust methodologies, processes, and systems to monitor and evaluate business-related risks

- Overseeing the implementation of the risk management policy, including assessing the adequacy of risk management systems

- Periodically reviewing and updating the risk management policy to address emerging risks and trends Annual Report 2023-24

- Keeping the Board of Directors informed about the Committees discussions, recommendations, and actions taken to address identified risks

Through this structured approach, the Company demonstrates its commitment to effective risk management, ensuring the protection of its assets, reputation, and long-term sustainability.

PRODUCTS

Our company is engaged in manufacturing of Phosphorus based products. We manufacture the products for our customers on purchase order basis.

Following are the products manufactured by our company:

Phosphorus Trichloride (PCl3)	Phosphorus Pentachloride (PCl5)	Poly Phosphoric Acid (PPA)
Phosphorus Oxychloride (POCl3)	Phosphorus Pentoxide (P2O5)	Phosphorus Pentasulfide (P2S5)

1. PhosphorusTrichloride (PCl3)

Phosphorus Trichloride is colorless or slightly yellow fuming liquid with a pungent and irritating odor resembling that of hydrochloric acid. It is used during electrodeposition of metal on rubber and for making pesticides, surfactants, gasoline additives, plasticizers, dyestuffs, textile finishing agents, germicides, medicinal products, and other chemicals.

2. Phosphorus Oxychloride (POCI3)

Phosphorus Oxychloride is a colorless fuming liquid with a pungent odor. It is toxic by inhalation and corrosive to metals and tissue. It is used in gasoline additives and hydraulic fluids.

3. Phosphorus Pentachloride (Pcl5)

Phosphorus Pentachloride is a greenish-yellow crystalline solid with an irritating odor. It is decomposed by water to form hydrochloric and phosphoric acid and heat. This heat may be sufficient to ignite surrounding combustible material. It is corrosive to metals and tissue. It is used to manufacture other chemicals, in aluminum metallurgy, and in the pharmaceutical industry.

4. Phosphorus Pentoxide (P2O5)

Phosphoric anhydride appears as a white amorphous powder. Corrosive to metals and tissue and moderately toxic. The usage of phosphorus pentoxide varies significantly in the chemical industry due to its applications as laboratory reagent, starting or reagent material in synthesis processes, and in heat-insulating glass production.

5. Poly Phosphoric Acid (PPA)

Polyphosphoric acid is a hygroscopic, clear and viscous liquid. It has been synthesized by reacting phosphoric acid with phosphorus (V) oxide. It is a moderately strong mineral acid with a wide range of applications. Polyphosphoric acid can be used in the manufacture of special supported catalysts, e. g. for use in the production of cumene from benzene. Polyphosphoric acid can be used in the descaling and brightening of metal surfaces. Polyphosphoric acid is suitable for the drying of gas streams.

6. Phosphorus Pentasulfide (P2S5)

Phosphorus pentasulfide is the inorganic compound with the formula P2S5. It is generally yellow solid in nature. It is used in the production of safety matches, lube oil additives, and pesticides.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Internal Control system and adequacy Internal Control measures and systems are established to ensure the correctness of the transactions and safe guarding of the assets. Thus, internal control is an integral component of risk management. The Internal control checks and internal audit programmers adopted by our Company plays an important role in the risk management feedback loop, in which the information generated in the internal control process is reported back to the Board and Management. The internal control systems are modified continuously to meet the dynamic change. Further the Audit Committee of the Board of Directors reviews the internal audit reports and the adequacy and effectiveness of internal controls.

FINANCIAL HIGHLIGHTS:

( Rs. in Lakhs)

Particulars	Standalone		Consolidated
	F.Y. 2023-24	F.Y. 2022-23	F.Y. 2023-24	F.Y. 2022-23
Revenue From Operations	11674.33	5761.46	11674.33	5761.46
Other Income	14.20	25.51	14.20	25.51
Total Income	11688.53	5786.97	11688.53	5786.97
Less: Total Expenses before	10195.95	4609.13	10195.95	4609.13
Depreciation, Finance Cost and
Tax
Profit /(Loss) before Depreciation, Finance Cost and Tax	1492.58	1177.84	1492.58	1177.84
Less: Depreciation	231.75	69.61	231.75	69.61
Less: Finance Cost	112.37	48.41	112.37	48.41
Profit /(Loss) BeforeTax	1148.46	1059.82	1148.46	1059.82
Less: Current Tax	300.00	270	300.00	270
Less: Deferred tax Liability (Asset)	43.33	0	43.33	0
Profit /(Loss) after Tax	805.14	789.82	805.14	789.82

HUMAN RESOURCES:

Equipping the Company with an engaged and productive workforce is essential to our success. We look for commitment, skills and innovative approach in people. In assessing capability, we consider technical skills and knowledge that have been acquired through experience and practice, along with mental processing ability, social process skills and their application.

We continue to invest in developing a pipeline of future talent and nurture them. As part of this process, we provide development and training opportunities to our workforce, which motivates and encourages them to grow in their work.

As on March 31, 2023, the Company had 70 permanent employees. The Company has been maintaining cordial and healthy Industrial Relations, which has helped to a great extent in achieving the upper growth.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS, ALONGWITH DETAILED EXPLANATIONS THEREFOR:

Ratio	As at 31st March, 2024	As at 31st March, 2023	% CHANGE FROM LASTYEAR	Explanation for Change in Ratio (for more than 25% in comparison with last year)
Current Ratio	1.91	4.54	-58%	Reason for movement is due to Increase in Trade Payable and a significant decrease in Cash and Cash equivalent
Debt-Equity Ratio	0.14	0.27	-46%	Reason for movement is due to repayment of debt
Debt Service Coverage Ratio	3.29	14.96	-78%	Due to an decrease in earnings available for debt service in Fiscal Year 2024 compared to Fiscal Year 2023.
Return on Equity Ratio	4.49%	15.5%	-71%	Return on Equity has been decreased due to significant decrease in profit for Fiscal 2024 as compared to profit earned in Fiscal 2023
Inventory turnover ratio (in times)	5.88	7.61	-23%	Reason for Movements is not Required since Movement is not more than 25%
Trade Receivables turnover ratio (in times	2.49	2.92	-15%	Reason for Movements is not Required since Movement is not more than 25%
Trade payables turnover ratio (in times)	4.20	4.43	-5%	Reason for Movements is not Required since Movement is not more than 25%
Net capital turnover ratio (in times)	0.98	2.12	-54%	The variation is due to decrease in revenue from operations for the year 2024.
Net profit ratio	3.96%	6.9%	-43%	Due to decreased in profitability & Decrease in revenue in Fiscal 2024 compared to Fiscal 2023.
Return on Capital employed	5.05%	22%	-77%	Return on Capital Employed is decreased significantly because sales is decreased & the profitably is also significantly decreased
Return on investment.	3.87%	15%	-74%	Due to decrease in profitability & decrease in sales this ratio has been significantly decreased on year on year basis.

CAUTIONARY NOTE:

Statements in this Report, describing the Companys objectives, projections, estimates and expectations may constitute forward looking statements within the meaning of applicable laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events. These statements are subject to certain risks and uncertainties. The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results may be different from those expressed or implied since the Companys operations are affected by many external and internal factors, which are beyond the control of the management. Hence the Company assumes no responsibility in respect of forward-looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.

Registered office:

B-406, Mondeal Heights, Opp. Karnavati Club, S. G. Highway, Ahmedabad 380015

For and on behalf of Board of Directors

VITAL CHEMTECH LIMITED

CIN:L24299GJ2021PLC127538

Vipul Bhatt

Chairman and Managing Director

DIN:06716658

Jay Bhatt

Whole Time Director

DIN:09363173

Date: September 03, 2024

Place: Ahmedabad