Waterbase Ltd Management Discussions

ECONOMIC SCENARIO

GLOBAL ECONOMIC OVERVIEW

The external environment continued to remain challenging as the geopolitical conflict between Russia and Ukraine further accentuated the pressure on the global economy which was gradually recovering from pandemic related challenges. While supply chains globally continue to remain under duress, inflation related challenges are posing a new threat to the world economy.

Global growth is predicted to slow from 6.1% in 2021 to 3.6% in 2022. While growth in advanced economies is projected to decelerate sharply to 3.3% in 2022 and 2.4% in 2023 after hitting 5.2% in 2021; Emerging market and developing economies are projected to achieve growth of 3.8% in 2022, down from 6.8% in 2021 (Source: IMF). The international agency expects the growth rate to prevail at similar levels over 2023-2024, given that the near-term challenges following the Russia - Ukraine War will continue to linger i.e. slowing down of investment plans, waning of pent-up demand and phasing out of accommodative fiscal and monetary policies. The level of per capita income in developing economies this year will be around 5% below its pre-epidemic trend owing to challenges pertaining to the conflict and pandemic.

Outlook

Recent global outlook by the World Bank projects that the Russian invasion of Ukraine which has magnified the slowdown in the global economy, could further dent the recovery process and result in an elevated inflationary environment across the globe. Subdued growth will likely persist throughout the decade because of weak investment sentiments across major economies. With inflation now running at multi-decade highs in many countries and supply related challenges, there is a risk that inflation will remain higher for a longer duration. Global measures to counter the spike in oil and food prices, step-up of debt relief of smaller economies, strengthening efforts to contain COVID-19 and speeding up the transition to a low-carbon economy, may reduce the risk of a global recession.

INDIAN ECONOMIC REVIEW

The quick roll-out of vaccination program with Governments support and parallel pursuit of economic recovery helped India contain the effects of the COVID-19 third wave. The investment cycle is gradually picking up, as reflected in announcements by the private players, the Governments high budget allocation for capital spending and strong credit growth.

The Indian economy grew by a strong 8.7% in the fiscal year 2021-22, against a contraction of 6.6% in financial year 2020-21.

Outlook

Indias growth outlook appears to have been somewhat clouded by the persistent uncertainties associated with the COVID-19 pandemic and its resurgence, as well as the challenges brought about due to the Russia- Ukraine war. Higher prices of Crude oil, which is hovering above US$100 per barrel, and soft commodities namely wheat and cereals which have seen their prices go up several times, given the pivotal role played by Russia and Ukraine in the commodities market. To add, India also partly meets its fertilizer needs from the region. For India, which has been battling inflation for a while now, this situation is making matters worse. Higher fuel and fertilizer prices will reduce Government revenues and increase subsidy costs. Furthermore, capital outflows and rising import bills will weigh on the current account balance and currency valuation.

Despite the external shocks, Indias underlying economic fundamentals remain strong and the overall impact of such

GLOBAL SEAFOOD MARKET

The Global Seafood Market is expected to reach a value of US$ 195 Billion by 2027, from USD 165.51 Billion in 2021, at CAGR of 2.70% (Source: Skyquest Report). The emergence of the seafood industry can be attributed to consumer lifestyle changes and more understanding of the health advantages of seafood. Consumers who are not vegetarians are gradually adopting a much more pescetarian diet that includes seafood but excludes meat.

The US Seafood Market: The Unites States, largest economy in the world, offers a great degree of opportunity for the seafood industry. The countrys seafood consumption pattern has changed significantly over the years and is now increasingly dominated by prawn and shrimps and other small species, most of which are imported and come from aquaculture. The U.S. seafood market totalled USD 28.5 Billion in 2022 which is approximately 25.9% of the global seafood market (Souce: Future Market Insights).

Driving factors of Seafood in American Markets: From restaurants to homes, seafood consumption is becoming more adventurous. Seafood is frequently used in trendy cuisines such as Japanese, Hawaiian, and Cajun, and remain highly popular. Successful packaged seafood releases, inspired by these restaurant trends, have brought more exotic flavours, diversified species, and formats into American households. challenges in the long-term is expected to be marginal. The economic impact of the subsequent infection waves is also expected to remain marginal, thanks to the improved vaccination coverage. The Indian Government and the RBI are also working with agility toward balancing growth amidst rising inflation concerns.

The important positive factor for India is its large and fastgrowing middle class, which is helping to drive consumer spending and the countrys consumption expenditure is expected to double from $1.5 trillion in 2020 to $3 trillion by 2030. The Governments production-linked incentive (PLI) scheme is expected to provide a thrust to the manufacturing sector in FY2023.

Global Seafood Market Regional Insight: In terms of revenue, Asia Pacific held the largest market share of seafood markets in 2021. The presence of a high number of seafood service restaurants and the growing opportunities in large economies like China and India had enabled the sector to flourish in the region. The increasing online penetration and promotion of aquaculture in the region by various administrative bodies has also contributed to the growth of the industry. The huge coastline of India and China enables them to develop a large seafood industry and huge export opportunity of fresh seafood which will drive the growth of the industry.

Impact of COVID-19 pandemic on Seafood Market: The subsequent waves of the COVID-19 pandemic from Q1 of FY 21-22 led to a decline in operational efficiencies and disturbed supply chains in various regions. Disruptions in supply chains restricted the movement of goods, which, in turn, hindered the distribution and manufacturing of various seafood products. All these factors negatively affected the seafood market. However, improved vaccination rates and the return of normalcy at major economies are expected to aid the recovery of the seafood market in the FY 2022-23.

GLOBAL SHRIMP MARKET

Aquaculture is one of the fastest growing form of food production in the world. Shrimp dominates aquaculture production by value. The global Shrimp market is estimated to be worth US$ 56.5 billion in 2022 is forecasted to grow to US$ 75 billion by 2028 growing at a CAGR of 4.8% during the review period 2022-28 (Source: Industry Research).

Global shrimp production has continued to trend upward and is expected to exceed 5.01 million metric tons (MT) in 2022, a significant increase over the 4.57 million MT grown in 2021, which itself was an increase over the 4.09 million MT produced in 2020, showing consistent growth (Source: Seafoodsource.com). In US, 275 million pounds of shrimp was sold to foodservice channels in 2021, up by 50 million pounds from 2020 (Source: Seafoodsource.com & National Fisheries Institute Global Seafood Market Conference, US, January 2022).

Globally, Asian countries produce the most shrimp - roughly 65% of the worlds shrimp comes from the region. Thats followed by the Americas, which produce around 30%. However, the real acceleration in the Americas, is primarily on account of Ecuador which produced more than 1 million MT in 2021.

The International shrimp trade remained steady despite, sharp surge in freight costs from Asia to North America for 20-foot and 40-foot containers (shot up by 500-700% (at USD 13,000 and USD 20,000 respectively) owing to persistent shortages of frozen food containers given increased imports, particularly in the western markets (Source: FAO).

Growth Drivers:

• The global market has been witnessing positive growth as manufacturers are adding several value-added products to their product lines. These products are gaining popularity in several countries such as the United States, Europe and Japan which has helped in expanding the consumer base.

• Many U.S. restaurant operators are choosing shrimp to be the starter of their summer menus due to its steady pricing and availability, compared to other seafood species.

• Shrimp consumption has been growing continuously, especially in countries like India and China, on account of rising organized retail chains across the region. In addition, since the demand for seafood products is income elastic, a continuous increase in the number of consumers with higher disposable incomes, is expected to have a positive impact on the growth of the market.

INDIAN SEAFOOD MARKET

India is the 4^th biggest seafood exporter in the world, with exports of marine products worth close to US$ 7.7 billion in FY 22. The country currently exports to over 121 nations, and the Government has prioritized the goal of making

India the worlds top seafood exporter (Source: MPEDA). US and China have remained the top two destinations for seafood export for several years. Exports to these countries contributed ~58% of our marine exports in US$ value terms. Although, the outburst of the coronavirus impacted the industry negatively but with gradual ease of lockdowns and resumption of trade and tourism the aquaculture industry has rebounded.

Over the past year, India has faced headwinds including stricter food import inspections by Chinese authorities, the spread of the omicron variant impacting global demand, and an ongoing shortage of containers and freight rate, but the rising demand domestically is expected to boost the seafood industry in the long-term. (Source: Seafoodsource.com)

INDIAN SHRIMP INDUSTRY

The Indian shrimp market reached a value of US$ 5.8 billion in FY 2022. Looking forward, the market is projected to reach ~US$ 12 Billion by FY 2028, exhibiting a CAGR of 11.5% during 2022-2028 (Source: Research and Markets).

Several initiatives by the Centre and various State Governments are now playing a crucial role in the growth of shrimp farming aquaculture in India. Pradhan Mantri Matsya Sampada Yojana (PMMSY) which aims at enhancing shrimp production and achieving an ambitious target of producing 1.4 million tonnes by 2024 (Source: The Hindu Businessline). Further State Governments are also promoting the use latest technologies to drive market growth by improving productivity.

Andhra Pradesh continues to be the largest shrimp producing state apart from states like West Bengal, Odisha, Gujrat and Tamil Nadu also contributing the Shrimp Growth story of India. The resurgence of the Tiger variant is also to be noted, going forward. Russia-Ukraine war has been a dampener for the domestic Shrimp industry. It has also resulted in a sharp decline in the prices of shrimps. But this is expected to ease after the end of current cropping season where prospects of pre-covid demand level is expected to boost the entire shrimp farming value chain.

Growth drivers:

• The Government bodies in India, such as MPEDA (Marine Products Exports Development Authority), are supporting shrimp culture through cluster farming approach which are expected to attract new investors to the industry.

• India has traditionally been an export-oriented market with only a small share of the total production consumed domestically. Over the last few years, however, the domestic market consumption has started flourishing. The demand, which was primarily focused in big cities until a few years ago, is now spreading to tier-II and tier- III cities and the domestic consumption is expected to increase continuously over the next few years.

INDIAN AQUAFEED INDUSTRY

Increase in consumption of seafood and rising per capita income are the factors driving the growth of the aquafeed market. The use of good quality feed helps in improving the shrimp production, profits, and minimising the environmental pollution generated from shrimp farming. The Indian shrimp feed market reached a value of US$ 1.2 Billion in 2021. Going forward, it is expected to reach US$ 3.5 Billion by 2027, exhibiting a CAGR of 19.5% during 20222027 (Source: Imarcgroup). Andhra Pradesh is the largest shrimp feed-consuming state in the country.

Growth Drivers:

• There are over 30 feed plants in India which manufacture shrimp feeds, with a total installed capacity of 3.5 million MT. The countrys shrimp farming area is around 160,000 hectares. A sizable potential area of 1.2 million hectares of brackish water is available in India, however, only 10% is being utilised. These vast resources are one of the key drivers catalysing the expansion of the Indian shrimp farming and feed business.

• The domestic market is influenced by the commercialisation of Vannamei shrimp, supported by a sustained demand from both the developed and developing countries.

• The availability of improved product varieties and a shift towards the usage of commercially produced shrimp feed have further contributed towards the growth of this industry.

(Source: Feedandadditive.com)

BUSINESS AND FINANCIAL OVERVIEW

Incorporated more than three decades ago, The Waterbase Limited is a pioneer in the domestic shrimp aquaculture segment with strong financial backing and being promoted by one of the oldest business families in India i.e. The Karam Chand Thapar Group, who have diversified interests in Aquaculture, Coal Logistics and Real Estate. The Business of Waterbase encompasses - Hatchery, Shrimp Feed, Farm Care products, Farming and Processing & Exports. The Company has an installed capacity of 1,10,000 MT to manufacture Shrimp Feed. The Company extended its focus on the processing & exports division in FY 22. Upgradation of its existing processing plant is ongoing which will start contributing to the topline from FY 2022-23.

The Companys financial statements were prepared in accordance with Indian Accounting Standards (hereinafter referred to as the Ind AS) as notified by Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act, 2013 (Act) read with of the Companies (Indian Accounting Standards) Rules, 2015 as amended and other relevant provisions of the Act.

The Companys credit facilities has been affirmed with: Long-term rating of CARE A- and Short-term rating of CARE A2+. The outlook on the long-term rating remains stable.

Its brief financial performance for 2021-22 is given below:

(Amount in Rs. Lakhs)

Particulars	For year ended March 31, 2022	For year ended March 31, 2021
Revenue from Operations	29,872.95	21,151.41
EBITDA	966.26	1,686.55
Depreciation and Finance cost	930.22	877.07
Profit before tax	36.04	809.48
Tax expenses	26.28	216.50
Net Profit	9.76	592.98

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in Key Financial Ratios, alongwith detailed explanations thereof including:

Ratios	2021-22	2020-21	% Change	Reason (if more than 25% change)
Debtors Turnover	6.63	3.39	96%	Revenue growth and efficient collection during the year resulted in decrease in trade receivables and there by trade receivables turnover ratio has been improved.
Inventory Turnover	4.89	3.42	43%	Revenue growth and efficient inventory operations during the year resulted in higher Inventory Turnover ratio.
Net capital turnover ratio (in times)	2.59	1.73	50%	Due to growth in revenue along with decrease in current assets and liabilities resulted in higher Net capital turnover ratio.
Current Ratio	3.91	3.40	15%
Debt-Equity Ratio	0.01	0.01	23%	Company is a debt-free for current year and last year but due to classification of lease liabilities as debt as per Ind-AS resulted in a marginal debt-equity ratio.
Return on Net Worth	0.10%	3.10%	-97%	Reduction in net profit after tax due to higher raw material cost despite increase in revenue from operations has resulted in lower Return on Net worth
Operating profit Margin	2.90%	7.60%	-62%	Reduction in EBITDA due to higher raw material cost despite increase in revenue from operations has resulted in lower Operating Profit Margin.
Net Profit Margin (%)	0.03%	2.87%	-99%	Reduction in net profit after tax due to higher raw material cost despite increase in revenue from operations resulted in lower Net profit ratio.

RISK MANAGEMENT

The Company is an integrated player with a presence across the value chain of shrimp production and has four divisions, each of which has its own set of risks and which are managed through risk management architecture as well as thorough policies and processes approved by the Board of Directors. The Company has formulated risk management policies and processes to identify, evaluate and manage the risks that are encountered during conduct of business activities in an effective manner. A team of experienced and competent professionals, at business levels, identify and monitor these risks on an on-going basis and evolve processes/systems to monitor and control the same to keep the risks to minimum levels.

Key Risk	Risk Mitigation
Financial risk: Elevated input prices and increasing competition.	The Companys approach towards its business through vertical and horizontal integration mitigates the risk of dependence on a single product / vertical. Modernisation and expansion of its processing plant would help the Company to become more competitive and increase its market share in the processing business.
Credit Risk: Loss of crop (shrimp) may lead to non-payment of dues by customers.	The company is focusing on increasing cash sales through attractive cash and early payment discounts.
Disease risk: Occurrence of various disease - viral, bacterial and fungal can adversely impact the shrimp farming.	The industry is governed by MPEDA and CAA and the SOPs laid down by them acts as a key factor helping us to avert severe/ major disease outbreaks. Disease surveillance, diagnostics, good farm management practices will help to mitigate the disease risk. The Company has also effectively advocated use of its farm care and animal healthcare range of products to lower the impact of diseases.
Quality risk: Inability to service the customers with quality products which includes any microbiological contamination in the processed shrimps or chemicals in feeds could affect the demand for the Companys products.	The Company emphasises on quality products and has a stringent quality control process in place to ensure monitoring of products. The shrimps processed by the Company are free from antibiotics and banned substances to ensure food safety. The processing unit is EIA, USFDA, HACCP, FSSAI compliant.
Regulatory and Trade risks: Any modifications in the governmental policies related to aquaculture, export incentives, will impact the Companys business. Import Restrictions by way of higher duties and other non-tariff barriers may impact the companys exports.	The Company continuously monitors and adapts to the changes in Law. It is abrest with changes in policies and quickly responds to the same. In order to mitigate the risk of sudden or abrupt Import restrictions by any one country / region, the company plans to export to various other countries.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has adequate and commensurate systems of internal control that match with the best in the industry. The Company has SOPs covering all aspects of its business which ensure that every transaction is duly authorised, recorded and reported. The Company follows a strict and an uncompromising adherence to all rules, policies, statues and laws. All legal and statutory compliances are duly followed and complied with. M/s Ernst & Young LLP, has been appointed for conducting the Internal Audit of the Company and any observation, note or recommendation suggested by the Internal Auditor are reviewed by the Audit Committee of the Board, and suitable and corrective measures are immediately taken.

The Company also strictly adheres to environment conservation norms. The Company has a strict Code of Conduct for its employees, who are all trained to strictly follow these while conducting business of the Company.

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES

The Waterbase Ltd. is a Company that is in the aquaculture space, working with aqua farmers across the country. To engage with farmers at the rural level requires a special skill that needs to be upgraded time and again with the latest advances in technology and the personnel should have a strong techno-commercial orientation. The HR department of the Company is continuously striving towards this end, by ensuring that all the field level / marketing & sales personnel have the best-in-class training.

At the Waterbase Ltd., the culture reflects the larger purpose of the Company - to improve lives of the aqua farmers, and all its employees have this purpose deeply ingrained in them. The Company encourages personal skill development, and supports its employees during all such efforts.

The Company has 273 employees on its rolls as on 31^st March, 2022 as compared to 257 as on 31^st March, 2021.

CAUTIONARY STATEMENT

This statements made in this section describes the Companys objectives, projections, expectation and estimations which may be forward looking statements within the meaning of applicable securities laws and regulations. Forwardlooking statements are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised by the Company. Actual result could differ materially from those expressed in the statement or implied due to the influence of external factors which are beyond the control of the Company. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent developments.