yasho industries ltd Management discussions

GLOBAL ECONOMY OVERVIEW

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russias invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic.

(Source: https://www. imf.org/en/publications/weo?page=1)

Financial stability risks have increased rapidly as the resilience of the global financial system has been tested by higher inflation and fragmentation risks. The recent turmoil in the banking sector and the challenges posed by the interaction between tighter monetary and financial conditions and the build up in vulnerabilities since the global financial crisis. The emergence of stress in financial markets complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated. Smaller and riskier emerging markets continue to confront worsening debt sustainability trends. The non-bank financial intermediaries (NBFIs) and the vulnerabilities that can emerge from elevated leverage, liquidity mismatches, and high levels of interconnectedness. Tools to tackle the financial stability consequences of NBFI stress are proposed, underscoring that direct access to central bank liquidity could prove necessary in times of stress, but implementing appropriate guardrails is paramount. The effect of geopolitical tensions on financial fragmentation explores their implications for financial stability - including through potential capital flow reversals, disruptions of cross-border payments, impact on banks funding costs, profitability, and credit provision, and more limited opportunities for international risk diversification. Based on the findings, it draws policy recommendations aimed at strengthening financial oversight, building larger buffers, and enhancing international cooperation.

(Source:https://www.imf.ora/en/publications/afsr)

INDIAN ECONOMY OVERVIEW

Monetary tightening by the RBI, the widening of the CAD, and the plateauing growth of exports have essentially been the outcome of geopolitical strife in Europe. As these developments posed downside risks to the growth of the Indian economy in FY23, many agencies worldwide have been revising their growth forecast of the Indian economy downwards. These forecasts, including the advance estimates released by the NSO, now broadly lie in the range of 6.5-7%. Despite the downward revision, the growth estimate for FY23 is higher than for almost all major economies and even slightly above the average growth of the Indian economy in the decade leading up to the

pandemic. IMF estimates India to be one of the top two fast-growing significant economies in 2022. Despite strong global headwinds and tighter domestic monetary policy, if India is still expected to grow between 6.5 and 7%, and that too without the advantage of a base effect, it is a reflection of Indias underlying economic resilience of its ability to recoup, renew and re-energise the growth drivers of the economy.

The impact of the pandemic on India was seen in a significant GDP contraction in FY21. The following year, FY22, the Indian economy started to recover despite the Omicron wave of January 2022. This third wave did not affect economic activity in India as much as the previous waves of the pandemic did since its outbreak in January 2020. Mobility enabled by localised lockdowns, rapid vaccination coverage, mild symptoms and quick recovery from the virus contributed to minimising the loss of economic output in the January-March quarter of 2022. Consequently, output in FY22 went past its pre-pandemic level in FY20, with the Indian economy staging a full recovery ahead of many nations. The experience with the Omicron variant engendered a cautious optimism that it was possible to stay physically mobile and engage in economic activities despite the pandemic. FY23 thus opened with a firm belief that the pandemic was rapidly on the wane and that India was poised to grow at a fast pace and quickly ascend to the pre-pandemic growth path. weather conditions like excessive heat and unseasonal rains, which kept food prices high.

However, the conflict in Europe necessitated a revision in expectations for economic growth and inflation in FY23. The countrys retail inflation had crept above the RBIs tolerance range in January 2022. It remained above the target range for ten months before returning to below the upper end of the target range of 6% in November 2022. During those ten months, rising international commodity prices contributed to Indias retail inflation as also local. The government cut excise and customs duties and restricted exports to restrain inflation while the RBI, like other central banks, raised the repo rates and rolled back excess liquidity.

With monetary tightening, the US dollar has appreciated against several currencies, including the rupee. However, the rupee has been one of the better-performing currencies worldwide, but the modest depreciation it underwent may have added to the domestic inflationary pressures besides widening the CAD. Global commodity prices may have eased but are still higher compared to pre-conflict levels. They have further widened the CAD, already enlarged by Indias growth momentum. For FY23, India has sufficient forex reserves to finance the CAD and intervene in the forex market to manage volatility in the Indian rupee.

(Source: https://www.indiabudqet.qov.in/economicsurvey)

OVERVIEW OF THE INDIAN SPECIALTY CHEMICALS INDUSTRY

Market size of Chemicals & Petrochemicals sector in India is worth ~$178 Bn

Chemicals industry in India is highly diversified, covering more than 80,000 commercial products. It is broadly classified into Bulk chemicals, Specialty chemicals, Agrochemicals, Petrochemicals, Polymers and Fertilisers. Indias proximity to the Middle East, the worlds source of petrochemicals feedstock, makes for economies of scale.

India is a strong global dye supplier, accounting for approximately 16% of the world production of dyestuff and dye intermediates. Chemicals industry in India has been de-licensed except for few hazardous chemicals. Upcoming Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs) and Plastic parks will provide state-of-the- art infrastructure for Chemicals and Petrochemicals sector.

The Chemicals and Petrochemicals market is projected to reach $300 Bn by 2025.

FDI in Chemicals sector (excluding fertilisers) is $20.96 Bn (April 2000 to December 2022).

India ranks 11^th in the World Exports of Chemicals (excluding pharmaceutical products) and ranks 6^th in the World Imports of Chemicals (excluding pharmaceutical products).

The combined exports of Major Chemicals and Major Petrochemicals in the year 2022-23 (up to July 2022) have increased to 48.05 thousand Crore from 47.35 thousand Crore.

Demand for chemical products is expected to grow at approximately 9% p.a. during 2020-25.

Indian chemical industry employs more than 2 Mn people.

Fertilisers production (weight: 2.63%) increased by 5.4% in October 2022 over October 2021. Its cumulative index increased by 10.5% during April to October 2022-23 over the corresponding period of previous year.

100% FDI is allowed under the automatic route in the chemicals sector (except in the case of certain hazardous chemicals).

(Source: https://www.investindia.aov.in/sector/chemicals)

COMPANY PROFILE AND PERFORMANCE

Your Company is engaged in the manufacturing of varied re-engineered chemicals since two decades.

Aroma Range Chemicals - Your Company manufactures various chemicals like fatty esters and natural essential/ aroma oils which cater to a gamut of Personal Care, Cosmetics & Toiletries, Flavors & Fragrances, and Pharmaceutical segments.

Food Antioxidant Range Chemicals - Your Company manufactures TBHQ (Tertiary-butyl hydroquinone), BHA (Butylated Hydroxy Anisole), AP (Ascorbyl Palmitate) and various complementary antioxidants which are used in various food products containing oils & fats.

Rubber Chemicals - Your Company manufactures accelerators and anti-oxidants for tyre, automotive parts, industrial use and latex articles. Your Company also caters to the leading processors of rubber in the Auto Ancillary, Tyre Industry, Construction, Industrial Machinery, and White Goods sector.

Lubricant Additives - Your Company manufactures Lubricant Additives which include Aminic Antioxidants, Molybdenum-based Extreme Pressure & Antiwear Additives and Corrosion inhibitors which are required by the Petroleum

and Synthetic Lubricants industries which improve the performance of lubricants by providing critical performance parameters. They have applications in hydraulic, turbine, engine and gear oils, metal working fluids and greases.

Specialty Range Chemicals - Your Company manufactures various Specialty Chemicals used in different segments of the industry such as Electroplating chemicals, Intermediates for API/Bulk Drugs, UPR Resins/Fibre Composites Resins, Thermoplastics Urethanes (Polyurethanes), Printing Inks & Agrochemicals, etc.

Your Company markets, sells, and distributes a wide range of products to its diverse customers based in India and abroad. Over the years, your Company has established its sales network both in domestic and international markets. Its products are exported to various continents i.e., North America, South America, Europe, Australia, Africa, Asia, etc.

The following diagram depicts the breakup of revenue for the period ending March 31, 2023 on the basis of domestic sales and export sales.

Revenue Model on the basis of Domestic and Export Sales:

• Domestic Sales (33.66%)

• Export Sales (66.34%)

Your Company is focussed on consistently upgrading the technology used in the manufacture of its products through its research and development ("R&D") efforts. Your Company has a dedicated R&D centre located at the manufacturing facilities. The state-of-the-art laboratory uses modern quality control methods and sophisticated instrumentation such as AAS (Atomic Absorption Spectrophotometer), Digital Polarimeter, DSC (Differential Scanning Calorimetry), FTIR (Fourier-Transform Infrared Spectroscopy), GC (Gas Chromatography), HPLC (High-performance liquid chromatography), Refractometer UV Spectrophotometer. The R&D centre is equipped with the latest technology.

Your Company has 3 manufacturing units located in GIDC, Vapi, Gujarat, and has commenced construction of one more manufacturing unit at the Pakhajan Village, Taluka Vagra, District Bharuch. Your Company is certified by ISO 9001:2015, ISO 14001:2015, ISO 45001:2018 which is assessed and certified by Bureau Veritas Certification Holding SAS - UK Branch which conforms to the requirements of the management standard for the manufacturing of various chemicals. Your Company has registered certain products under REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) Regulation, wherein the manufacturers and importers of substances have a general obligation to submit a registration to the European Chemicals Agency for each substance manufactured or imported in quantities of 1 tonne or more per year per company. Your

Company exports its products to European countries and has registered those products under REACH Regulation. It has received various certifications confirming its products to be in line with National and International Standards i.e. HALAL Certifications, STAR KOSHER Certifications, NSF Certifications, FAMIQS Certification, FSSC Certification. AGQM Certification, RSPO Certification, FSSAI Certification.

OUTLOOK, OPPORTUNITIES, AND CHALLENGES Outlook & Opportunities

• The Indian specialty chemicals market is growing at almost twice the global average. Further, Indias large population base with lower per-capita consumption of chemicals and relatively strong GDP growth outlook suggests a vast untapped potential. Being an established supplier of specialty chemicals to leading players from various industries, your Company is well-positioned to take advantage of this growth.

• The Make in India initiative will facilitate the industry with common infrastructure and a consequent rapid flow of FDI into the sector which will accelerate growth.

• Your Company is environment conscious and stands to benefit from stricter environmental norms.

• The Indian specialty chemicals industry continues to enjoy advantages in terms of highly skilled talent and low labour costs.

• Your Company enjoys additional advantages of product development capabilities, branding and distribution, in addition to having a strong research and development centre, which can be applied to domestic products as well.

• With the introduction of the Goods and Services Tax (GST), double taxation has been pre-empted as all state and central taxes are rationalised and made consistent across the country. Consequently, future production facilities will be based more on logistical considerations, and supply to consumer industries will be market-driven.

Challenges

• Financial conditions have tightened and risks to the global economy have increased as a result of the Russia-Ukraine crisis. Soaring commodity prices pose challenging trade-offs for central banks. Central banks should act decisively to prevent inflation from becoming entrenched without jeopardising the recovery and address financial vulnerabilities. Policymakers should intensify their efforts to implement the 2021 United Nations Climate Change Conference (COP26) roadmap while taking appropriate steps to address energy security concerns.

FINANCIAL AND OPERATIONAL PERFORMANCE REVIEW

The major items of the financial statement are shown below:

( in Lakhs)

Particulars	2022-23	2021-22
Net Sales & Other Income	67,046.32	62,410.77
Profit before Interest & Depreciation	12,185.33	10,370.97
Interest	1,553.76	1,375.56
Depreciation	1,984.12	1,867.99
Profit/(Loss) before exceptional item and tax	8,647.44	7,127.42
Less: Exceptional Item	-	-
Less: Provision for Tax (Net)	2,217.62	1,854.90
Profit After Tax	6,429.83	5,272.51
Balance available for Appropriation	17,504.25	11,131.42

Your Companys total income stood at ? 67,046.32 Lakhs in FY 2022-23 as compared to 62,410.77 Lakhs in FY 2021-22, registering 9.24% growth despite challenging macro-economic conditions. Your Company witnessed healthy demand and improved performance in terms of order enquiries and leads from customers and distributors.

Given below is the analysis of major items of the financial statements:

(? in Lakhs)

Particulars	2022-23:	2021-22	Change %
Debt Equity Ratio "Company has availed substantial long-term loans for its greenfield project at Pakhajan, Gujarat which has resulted in increased debt on the Company"	1.37	1.02	34.48%
Operating & Net Profit Margin (%) "Owing to the increased sales value (by 9.24%), and synergies and efficiencies in production, the Company was able to maximise its profits"	9.43%	8.59%	9.83%
Return on Net Worth (%) "Due to increased net operating profit (9.43%), the Company was able to generate more value for its shareholders"	36.47%	30.38%	20.04%

FIVE YEARS AT A GLANCE

Year Ending March 31	2022-23	2021-22	2020-21	2019-20	2018-19
PROFITABILITY RATIOS
Gross Margin (%)	39.64	37.30	34.99	36.55	32.12
EBITDA margin (%)	18.77	16.86	16.44	14.07	11.78
PAT Margin (%)	10.11	8.53	5.98	4.04	3.50
Return on Net Worth (%)	28.52	30.21	27.21	20.75	25.96
Return on Capital Employed (%)	25.84	34.16	32.11	25.10	27.50
ASSET PRODUCTIVITY RATIOS
Fixed Asset Turnover	4.37	4.90	3.77	4.06	5.90
Total Assets Turnover	1.19	1.55	1.24	1.13	2.72
GEARING RATIOS
Debt/ Equity	1.3	1.0	2.0	2.7	3.1
Interest Coverage Ratio	6.8	6.1	2.9	2.1	2.1
Current Ratios	1.30	1.29	1.12	1.06	1.13
VALUATION RATIOS
Earning Per Share {Post Tax} (?)	59.54	45.87	18.84	10.52	10.43
Book Value Per Share (?)	208.75	151.81	69.24	50.70	40.18
Dividend Payout (%)	5%	5%	5%	5%	5%
Trailing Price/ Earning Ratio	25.20	42.86	15.25	11.88	11.54
EV EBITDA Multiple Ratio	6.38	7.86	4.10	4.56	4.35

(1) Fixed Asset Turnover : Net Sales/ Average Net Fixed Assets ( Property, Plant and Equipment)

(2) Total Asset Turnover : Net Sales/ Average Total Assets

(3) Book Value per Share : Total Equity/ Outstanding Equity Shares

(4) Dividend Payout :% of Payout

(5) Trailing Price: Closing Share Price on the last working day of March

RISKS AND CONCERNS

Your Company has a comprehensive Enterprise Risk Management (ERM) framework in place for risk assessment and mitigation across the organisation. The framework is designed to provide risk score measures for each of the potential risks as well as for its financial, reputational, and operational impact. It also provides risk improvement plans, critical success factors, and target dates to control risks.

Your Company has aligned its policy on risk assessment with the global standards and risk assessment reports are reviewed at regular intervals. It has also adopted a focussed approach towards risk management in the form of a corporate insurance program. The goal of this program is to optimise the financing of insurable risks by using a combination of risk retention and risk transfer. The program covers all potential risks relating to the business operations of your Company across all its locations.

As part of the Companys policy, the relevant parameters for all manufacturing sites are analysed to minimise the risk associated with the protection of environment, safety of operations, and health of people at work. These are monitored regularly with reference to statutory regulations prescribed by government authorities and guidelines defined by your Company. Your Company adheres to the legal requirements concerning emission, wastewater, and waste disposal. Improving workplace safety continues to be the top priority at all manufacturing sites.

Your Company continues its focus on compliance in all areas of business operations by rationalising and strengthening controls. Your Company has set in place a requisite mechanism for meeting compliance requirements and periodic monitoring to avoid any deviation. Your Company aims to set exemplary and sustainable standards, not only through products, services, and performance, but also through integrity and behaviour. As part of continuing efforts to ensure that such exemplary standards are maintained and to provide employees with a good understanding of the demands of anti-bribery and corruption laws, your Company has laid policies on the prevention of Bribery and Corruption.

The business operations of your Company are exposed to several risks such as market risk, foreign exchange risk, interest rate risk, price risk, credit risk, liquidity risk, etc. The risk management program focusses on the unpredictability of financial markets and seeks to reduce potential adverse effects on financial performance. Your Companys critical software is operated on a server with regular maintenance and backup of data and is connected to a centralised computer centre operated by your Company. The systems parallel architecture overcomes failures and breakdowns. The global communication network is managed centrally and is equipped to deal with failures and breakdowns.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has adequate internal control procedures commensurate with its size and nature of business. Your Company has clearly laid down policies, guidelines, and procedures that form a part of the internal control systems. The adequacy of the internal control systems encompasses the Companys business processes and financial reporting systems and is examined by the management as well as by its internal auditors at regular intervals.

The internal auditors conduct audits at regular intervals to identify the weaknesses and suggest improvements for better functioning. The observations and recommendations of the internal auditors are discussed by the Audit Committee to ensure timely and corrective action.

HUMAN RESOURCES

Your Company recognises that its committed and talented workforce is the key factor in driving sustainable performance and growth. As one of the most critical assets of the Company, its people are responsible for its competitive advantage. Your Company is committed to recruiting and retaining the most relevant and best industry talent. Employees are thereafter nurtured, developed, motivated, and empowered to boost their skills and performance capabilities.

Your Company continuously seeks to inculcate within its employees a strong sense of business ethics and social responsibility. Relations with the employees at all levels remained cordial during the year. Your Company had 659 permanent employees as on March 31, 2023.

For Yasho Industries Limited

Place: Mumbai	Vinod Harilal Jhaveri (Chairman & Executive Director)
Date: May 02, 2023	DIN: 01655692