MANAGEMENTDISCUSSION AND ANALYSIS REPORT

Caustic Soda Industry in India

At brsent, there are about 34 Caustic Soda Units in operation in the Country having a total operational installed capacity of about 34 lac M.T. per annum.

The Caustic Soda and other products being manufactured by this industry are used as basic raw materials in a wide range of industries like Paper, Aluminum, Soaps and Detergents, Rayon, Pesticides, Pharmaceuticals, Dyestuff and Water Purification, etc. The ability of the aggregate selling prices of Caustic Soda and Chlorine to generate a surplus over the aggregate cost of production, determines the profitability of a Chlor-Alkali manufacturer.

The Caustic Soda Industry's capacity utilisation has been 81% in the financial year 2014-15 as compared to 79% during the financial year 2013-14.

Performance

During the financial year 2014-15, the Company's production of Caustic Soda Lye was 91915 M.T. as against 89370 M.T. in the last financial year 2013-14. The capacity utilisation of the Company's plant at 93% in the financial year under review is higher as compared to the industry average of 81% during the financial year 2014-15. In the financial year 2014-15, the combined average realisation at Rs.34,075 per M.T. of Caustic Soda was lower as compared to Rs.34,680 per M.T. of Caustic Soda during the brceding financial year. The Financial Year 2014-15 was a tough year for Chlor-Alkali Industry as the price of Caustic Soda remained under brssure due to heavy imports at cheaper rates. The Sales Turnover during the financial year under review was Rs.303.49 crores as against Rs.301.68 crores in the brceding financial year. The Company achieved a saving of about Rs.4.22 crores in the financial year 2014-15 as a result of purchase of part of power at cheaper rates through Indian Energy Exchange under Open Access System. The overall effect of these factors resulted in a Net Loss (aftertax) of Rs.12.93 crores in the financial year 2014-15.

Opportunities

The Company has locational advantages as its Caustic Soda Plants are situated in its Complex at Naya Nangal, District Ropar, Punjab, which is close to a State Highway and about 12 Kms.from the Bhakra Left Bank Power Generating Station and about 2.5 Kms. from River Sutlej. These include the availability of uninterrupted Power a crucial input, continuous water source, skilled labour and proximity to rail/road besides the existence of various end-user Units in industries like paper, fertilizers, soaps and detergents, etc. in its natural marketing zone. The Company is also supplying Hydrogen Gas to two Hydrogen Combrssing & Bottling Units adjoining the Company's Plant Complex. The Company is also utilising Hydrogen as a fuel, resulting in gainful utilisation of this by-product. The Company has been purchasing a part of its power requirements at cheaper rates through Energy Exchanges under Open Access System since December, 2010, resulting in savings in power costs.

Threats

The Chlor-Alkali Industry is a power-intensive industry. The Company's power costs account for about 60% of its total cost of production. A hike in power tariff for the power supplied by the Punjab State Power Corporation Limited (PSPCL) and imposition of restrictions on purchase of power under Open Access System constitute threats to the Company's operations. The other possible threats are increase in other input costs and expansion of installed capacities in Indian Caustic Soda Industry. On the international front, the Chlorine is main product but in India the Caustic Soda is the driving product, resulting in heavy competition due to import of Caustic Soda at lower rates.

Outlook

The combined average realisation is expected to improve. The Government of India continued the levy of anti-dumping duty on the import of Caustic Soda from some countries in order to curb the unhealthy competition from overseas. The Chlorinated Paraffin Wax (CPW) Plant set up by M/s. Flow Tech Chemicals Pvt. Limited on B.O.O. basis in the Company's Plant Complex, with whom the Company had signed a Memorandum of Understanding, is at the stage of commissioning. With the commissioning of the same, the Company expects to increase its capacity utilisation and to reduce its requirement for additional Chlorine Tonners.

Risks and Concerns

The major concerns for the Company are increase in power tariff, power wheeling charges, restrictions imposed by PSPCL on purchase of power under Open Access System, rise in other input costs, import of Caustic Soda at cheaper rates, and expansion of installed capacities in the domestic Caustic Soda Industry.

Risks Management

Risks are probability or threat of damage, injury, liability, loss, or any other negative occurrence that is cost by external or internal vulnerabilities, and that may be avoided through bremptive action. Risk management is the identification, assessment, and prioritisation of risks followed by coordinated and economical application of resources to minimise, monitor, and control the probability and/or impact of unfortunate events or to maximise the realisation of opportunities. The Company has in place Risk Assessment and Minimization Procedures to identify, assess and mitigate business risks. Risk Assessment and Minimisation Procedures of the Company are reviewed periodically to ensure that these reflect the current potential risks to its business. The Company has identified (1) Cost of Power-Being Power Intensive Industry and being dependent for the same on Punjab State Power Corporation Limited, (2) Production of Hazardous Chemicals-Caustic Soda and Chlorine, (3) Risk of Loss of production due to breakdown of Plant & Machinery- Plant being old and (4) Locational Disadvantage- Plant at Naya Nangal being quite far off from source of major Raw Material i.e. Industrial Salt, as Major Internal Risks besides (1) Ongoing Expansion in Caustic Soda Capacity - resulting in imbalance in Demand and Supply, (2) Advancement in Technology- Company not being in a position to upgrade due to financial constraints and (3) Financial Risk - due to difficulty in payment of the last tranche of Amount payable under One Time Settlement by due date i.e. 1" April, 2015, as Major External Risks. As required under Clause 49 (VI) of the Listing Agreement, the Board of Directors of the Company has constituted a Risk Management Committee to monitor and review the Risk Management Plan of the Company.

Internal Control Systems

The Company has adequate internal control systems commensurate with its size and nature of its business. The internal control is supplemented by internal audits conducted by the Internal Auditors of the Company. The reports of the Internal Auditors are reviewed by the Management and the Audit Committee of the Board of Directors. The adequacy of the internal control systems is also examined bythe Statutory Auditors of the Company.

Human Resources

The Company attaches a great value to its human resources. Training and retraining continued to be an integral component of its Human Resources Development Plan. During the financial year under review, the industrial relations continued to be cordial. The Company had 455 employees (including 25 employees on deputation to the Punjab Small Industries and Export Corporation Limited) as on 31" March, 2015.

Cautionary Statement

The statements in this Management Discussion and Analysis Report describing the Company's objectives, projections, estimates, expectations or brdictions may be forward looking statements' within the meaning of applicable laws or regulations. These statements are based on certain assumptions and expectations of future events. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operations include economic conditions affecting global and domestic demand - supply, finished goods prices, power and raw materials costs and availability, power wheeling charges and restrictions, changes in Government regulations, tax regimes, economic developments within India and other factors such as litigation and industrial relations. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.

For and on behalf of the Board

Sd/- (ANIRUDH TEWARI)

Chairman

Date : August 17, 2015

Place : Chandigarh