"The Company leveraged its intangibles to deliver a respectable performance in FY2020-21"

Anup Jatia Executive Director reviews the FY 2020-21 performance of the Company

Was the management pleased with the performance of the Company during the lastfinancial year?

A: Yes the management was pleased with the Company's performance. The Company reporteda profit in each quarter despite the various challenges faced during the year and infact improved its Balance Sheet through prudent procurement timing and sustainedstakeholder engagements. The Company validated the robustness of its complementarybusiness model comprising distribution and manufacture and was able to leverage its richexperience and longstanding relationships with principals and customers during the year tobe able to report its highest ever annual profit.

during the last financial year?

A: The Company was affected by sharp changes in market realities which warrantedresponsiveness. For instance during the first quarter of the last financial year demandfor the Company's products declined sharply. The Company responded to this uncertain phasewith a considerably lower overheads structure and with a focus on payment collections andalso maintained sufficient inventory for the eventual increase in demand which came inthe second quarter.

As demand picked up sharply the Company's manufacturing team faced their biggest everchallenge. The Company successfully marshalled its manufacturing and supply chainresources to respond to a large customer requirement in the third quarter allowing us torun our acrylamide merchant sales capacity at 100% during the period.

In the fourth quarter the Company's exports were affected by customers struggling toaccept the sudden increase in freight costs. Customers eventually were forced to embracethe new global reality and exports picked up again.

The point that we wish to convey is that the market scenario kept evolvingcontinuously with erstwhile stable factors turning volatile warranting a differentorganisational preparedness and responsiveness which we were successful in incorporatinginto our business.

What were some financial upsides that you would like to highlight for investors?

A: Despite the operational challenges that we encountered we achieved an EBITDA marginof 16.85%. Even during the challenging first quarter of the last year the Companydelivered an EBITDA of H3.96 Crore on a topline of H26.29 Crore and reported an interestcover of around 8x which validated our business model and liquidity. During the thirdquarter revenues peaked at H74.42 Crore and EBITDA rebounded to H13.94 Crore whileinterest outflow declined to H21 Lakh translating into an interest cover of around 63x.The Company's revenues would have been higher but for the reduced exports in the fourthquarter and delayed arrival of some distribution products due to logistical disruptionsarising out of low container availability.

What was the principal factor behind t he Company's proactive responsiveness?

A: The Company's flexibility and agility were the result of a better leverage of thepower of intangibles invested in the Company's business. The Company enjoys longstandingrelationships with its principals; during a volatile year when availability of productswas often a challenge the Company continued to access material on-time and in-fullmaking it possible to service the downstream needs of its customers. The Company did notjust access material at a time of disruptions the Company also worked closer withdownstream consumers projected demand better and the result is that it helped itsprincipals sell more in India during that challenging period. In an environment when thecapacity utilisation of a number of downstream players was affected on account of erraticmaterial supply our customers continued to protect their capacity utilisation on accountof assured supplies. The result is that we strengthened the respect of our eco-systemduring the year under review; there was a greater traction in working with organised andsystems-driven companies like ours during the year.

What else contributed to the Company's stable performance during a volatile year?

A: During the slowdown of the first quarter of the last financial year the managementstrengthened its inward focus. The Company examined every cost; it scrutinised everyprocess; it introspected and re-appraised a number of things that would earlier have beentaken for granted. The result is that individual roles became more defined; operationalstreamlining improved organisational effectiveness. The upsides of this re-tuning phasewere evident from the second quarter onwards when the Company virtually trebled itsrevenue output with a corresponding increase in margins and surplus. The result of thisrebooting and resetting perspective was that the complement between the Company'smanufacturing and distribution proved effective during FY 2020-21. Besides westrengthened our customer engagement by not just providing the requirement materialquantity on-time and in-full; we provided customers with an understanding of marketdynamics with informed advice on whether they needed to work with larger inventories. Byextending a tangible engagement to an intangible value we deepened our stakeholderrelationships that took their business ahead.

What else did the Company do to strengthen its competitiveness in a volatile period?

A: The Company took informed procurement calls during the course of the yearespecially during the volatile first quarter of FY 202021 when prices and volumesdeclined appreciably in the international markets and our international principals werefacing a difficult market situation. At this point the Company supported its principalsby procuring larger quantities of distribution products and raw materials. Our actionswere appreciated by our stakeholders when demand recovered attractively thereafter and wewere able to service our customers with reliability.

Shareholders would be keen to know whether the Company's expansion programs(acrylamide that became effective from January 2020 and polyacrylamide liquid from August2020) proved effective in FY 2020-21.

A: The acrylamide expansion could not have come into play at a better time. During thethird quarter we saw a sudden increase in demand from the oil and gas sector which wecould not have met without our augmented capacity. Besides the polyacrylamide liquid(ceramic binder) that we marketed to the ceramic tiles sector encountered growing demandfrom Morbi tile manufacturers who increased exports as a number of countries that earlierimported from China now sought alternative global suppliers. The Company continues toexplore every opportunity to add new projects to its portfolio broad- basing itsfoundation and strengthening its sustainability.

How does the Company intend to strengthen its business during the current financialyear?

A: The Company intends to begin the commercial production of two products during thecurrent financial year. The Company intends to commission its acrylamide solid plant bythe third quarter of FY 2021-22 at a cost of H8 Crore that will be funded completely fromaccruals. What makes our extension into this product exciting is that the world buys thisproduct only from China; by the virtue of our manufacturing this product in India wewould be replacing imports strengthening the Make in India emphasis and creating a strongplatform for exports.

The second product that we intend to manufacture is n-methylol acrylamide (NMA) aspeciality monomer and import substitute used globally in the coatings and adhesivessector. The capital expenditure for the product will be minimal as existing equipment canbe mostly used. The manufacture of this product is expected to commence in the thirdquarter of FY 2021-22.

The cumulative revenue from sales of these two products at full capacity utilisation isexpected to be around H100 Crore which in turn will enhance our revenues and willimprove margins across the foreseeable future with no drag on our debt or interestoutflow.

What can shareholders expect from the Company's performance during the currentfinancial year?

A: The Company expects to post higher revenues during the current financial year overthe last financial year the extent of increase being dependent on factors such as exportfreight container availability and the ever-changing COVID situation. Overall we expectto see improved revenues following a widening of the vaccination drive across countriesdecline in lockdown conditions and a revival in consumer spending.

This scenario along with the commissioning of production of two new products -acrylamide solid and n-methylol acrylamide (NMA) - from the third quarter of FY 2021-22are likely to strengthen our revenues for the current year.

The Company's business model is robust and we hope to take advantage of the larger cashcorpus available to us to grow our business across the foreseeable future.