MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENTS:

The global sales volume of the chemical industry has more than doubled over the last decade, hitting a record US$5.2 trillion in 2013. The emerging economies drove a large share of these gains, most notably in China, where chemicals sales grew at an average compound annual growth rate (CAGR) of 26 percent over that period. Growth in basic chemicals, which account for nearly two-thirds of industry sales, benefited from the general uplift in oil and gas prices.

The future growth of the chemicals industry will be driven by the developing markets, where growth is likely to range between 6 and 10 percent, compared to 2 to 3 brsent in the developed economies. On account of local competition and the brvailing supply and demand conditions, global players are finding it hard to tap into the higher growth markets.

OPPORTUNITIES AND THREATS

In recent years, the markets and the requirements for success have changed dramatically as many companies in the chemicals sector continue to falter under the weight of antiquated business models and go-to-market approaches. The problem is manifested in the over investments seen in specialty chemicals businesses that have offered differentiation and higher margins in the past, but are now rapidly commoditizing. Chemical companies need to adjust their business models by keeping pace with the changing requirements of the different sub-sectors.

Responding to the current industry trends, the Company will focus on identifying the distinct sub-sectors where to compete, and avoiding a "one size fits all" approach. We are working to develop local sales and market support, in order to ensure that customer brferences and requirements are captured appropriately and translated into market-specific product development. The Company is also working to keep manufacturing costs low, tailoring supply chains to gain agility and efficiency, and redesigning the operating model to optimize both global and regional objectives. The Company is also leveraging on the knowledge and experience obtained in developed markets.

OVERVIEW

The Company's sales were maintained at last year's level, despite a continued downward trend in demand for HF in the domestic market post withdrawal of CDM benefits on R22, a downturn in end-user segments and stiff competition from China in the Aluminium Fluoride segment. The Company achieved profit after tax during the fourth quarter ended 31st March, 2015, despite continued losses in the brvious quarters. The Company has taken the following steps to improve its operational performance.

(a) Continuous focus on cost reduction.

(b) Resumed dispatch of Aluminium Fluoride to major sourcing customer.

(c) Developing alternate sources for its main raw material, Fluorspar

(d) Stabilising the purchase price of Sulphur.

(e) Improving the customer and product mix.

(f) Engaging with suppliers of other raw materials for reduction in rates.

(g) Expanding the market for HF in Asia Pacific and Europe.

(h) Effective utilisation of working capital limits.

SEGMENT-WISE OR PRODUCT-WISE PERFORMANCE:

The Company operates in a single segment i.e., Fluoro-chemicals in India and all other activities revolve around the same. Hence, segment-wise or product-wise performance is not applicable.

SALES VOLUME AND REVENUE:

Sales Turnover was marginally higher by 1 %, at Rs. 117.91 crores, against Rs. 116.32 crores in the brvious year on account of sluggish demand.

Export turnover was Rs.18.63 crores, against Rs. 17.13 crores in the brvious year, registering an increase of 9%.

OTHER INCOME:

Other income, including operating income, was Rs. 2.29 crores, compared to Rs. 1.23 crores in the brvious year.

PROFIT BEFORE DEbrCIATION, INTEREST AND TAXATION:

Profit before debrciation, interest and taxation was Rs. 7.83 crores during the year, compared to Rs.11.1 2 crores in the corresponding period of the brvious year.

However, factors such as debrciation of the Indian Rupee against the US Dollar, currency volatility and higher interest costs due to poor credit rating, impacted cash profits.

DEbrCIATION/IMPAIRMENT/AMORTISATION:

Debrciation during the year was Rs. 5.63 crores (Amortisation Rs. NIL), as against Rs. 6.93 crores (including Amortisation Rs. 1.09 crores) in the brvious year. There was no impairment provision during the current year and the brvious year.

FINANCE COST:

During the year the Company was adversely affected by an increase in interest rate on account of poor credit rating due to continued losses. However, effective control on working capital has helped in marginally reducing the finance cost.

Finance cost including cover charges on foreign exchange borrowings, was Rs. 9.29 crores against Rs. 9.71 crores in the brvious year.

INCOME TAX

There is no provision for current income tax. Deferred tax provision was reversed by Rs. 1.32 crores, against Rs. 2.48 crores in the brvious year.

RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM :

The Company has already laid down the procedure for risk assessment and minimization. The risk assessment and mitigation plans were reviewed by the Board on a quarterly basis.

Pursuant to Clause 49(VI) of the revised listing agreement, effective from 1st October, 2014, the Company has constituted a Risk Management Committee, defined its roles apd responsibilities, and laid down the procedure to assess the risk and risk minimization. Risk management includes identifying types of risks, assessing the risks, risk handling and monitoring, and reporting. The Board shall be responsible for framing, implementing and monitoring the risk management plan for the company. The details of the risk and mitigation plan would be reviewed by the Committee and forwarded to the Board with their recommendations, if any.

The Company's Enterprise Risk Management framework has been designed to assess and identify the risk and mitigation plan to maximise the business outcomes, and to protect customers, employees, shareholders and other stakeholders to achieve business objectives on a sustainable basis,  and to build long-term competitive advantage. The identified risks are being reviewed by the Board every quarter in their Board Meetings. The Board provides suggestions, wherever necessary, to ensure effective management of risk.

The Company's internal control systems are commensurate with the nature of its business and the size and complexity of its operations. The Company has ERP solution for online control of all transactions which includes finance, materials, marketing etc. This provides reasonable assurance with regard to the Company's financial and operating functions.

OPERATIONAL RISK:

Your Company's most significant exposure relates to the US Dollar, since the key raw material, Fluorspar is imported. China is a major producer of Acid Grade Fluorspar and it continues to determine the international prices of Fluorspar. Similarly, the demand-supply position of sulphur determines the sulphur price.

Mitigation: The Company propose to source raw materials from other countries to optimise prices. The Company also continues to hedge its imports through forward contracts, in line with its hedging policy.

PRICE REALISATION FOR FINISHED PRODUCTS:

The selling price of your Company's key products like Aluminium Fluoride (AIF3) and HF Acid are determined by global market dynamics, international prices, and also the exchange rate of the Indian Rupee against the US dollar.

Mitigation: The Company is diversifying its product line to produce value added products for high-growth sectors, in domestic and global markets. It is also expanding in Asia Pacific, Europe, and in countries where it can secure a good market for its products.

FOREIGN EXCHANGE RISK:

The prices of key raw materials are influenced significantly by fluctuating global economic conditions and this significantly impacts the Company's margins and cash flows.

Mitigation: The Company hedges its net foreign exchange risk adequately as per its hedging policy.

CREDIT RISK:

Excess credit limit facility to customers and higher inventory may affect the Company's over all performance.

Mitigation: By reviewing the credit policy and credit limits of customers, the credit limit facility is managed prudently. Inventory and advances are maintained at the budgeted level.

WORKING CAPITAL:

Higher interest rate on working capital borrowings, on account of the Company's high debt-equity ratio, may affect the Company's day-to-day operations.

Mitigation: Tight control on working capital may reduce the interest burden. The Company is also evaluating alternate strategies to reduce debt and bring interest costs under control.

OUTLOOK:

The Company is considering moving to new-generation products, using the existing  infrastructure, in order to ensure its future growth. Your Company will continue to focus on moving up the value chain in specialty products where it can build a competitive advantage, and grow sales volumes and margins.

Your Board of Directors is optimistic about the turnaround of the Company in the coming years.

EXPORTS:

Your Company endeavors continuously to increase export revenues by expanding its customer base in new countries. We are optimistic about the outlook for exports in the coming years.

DOMESTIC MARKET:

The Company continued to witness a slowdown in demand in the domestic market in 2014-15. Your Company is hopeful of an improvement in demand in 201 5-1 6.

HUMAN RESOURCES

Your Company believes in creating an environment where individuals can achieve their goals, both professional and personal. Developing the competencies of our employees continues to be a strategic focus area for us. Your Company continues to make investments for training and developing its employees. The Company continues to maintain a cordial and harmonious industrial relationship with its employees