MANAGEMENT DISCUSSION & ANALYSIS REPORT

ECONOMIC OVERVIEW

The global economy stumbled in 2015, amid weak aggregate demand, falling commodity prices and increasing financial market volatility in major economies.

World economy is projected to grow by 3.2% in 2016 and 3.5% in 2017, supported by less restrictive fiscal and accommodative monetary stances worldwide.

India continues to remain a bright spot in the otherwise bleak global economic forecast of the International Monetary Fund (IMF). Compared to most other major developing countries, India is well positioned to withstand near-term headwinds and volatility in global financial markets due to reduced external vulnerabilities, a strengthening domestic business cycle, and a supportive policy environment. India is estimated to grow at 7.5% in 2016-17, with slowing trade growth as one of the risk factors to growth.

GLOBAL FLUOROCHEMICALS INDUSTRY

Global chemical industries sector has seen strong growth in recent years and it is expected to continue growing at a significant rate in the coming years as well, outgrowing the increase in Global GDP.

While Europe had long remained a leader in the global chemical industry, the last few years witnessed Asia Pacific emerge as the new market leader. The core of the chemical industry is shifting to Asia and by 2030 at least half of the top 10 chemicals companies are expected to be Asian or Middle Eastern.

With fluorination chemistry being used in more and more applications & products ranging from pots and pans to pharmaceuticals, from toothpaste to nuclear fuel, it is becoming indispensable in today's world.

Global fluorochemicals market demand is expected to reach 5.4 million tons by 2024, growing at a CAGR of 4.3% from 2014 to 2024, with Asia Pacific region growing at the fastest rate.

Demand will be driven by robust demand for air-conditioning systems and refrigeration equipment, increasing aluminium production, expanding applications in pharmaceuticals, demand for blowing agents for plastic foaming application in the construction sector and growing adoption of high-performance fluoropolymers in automobile production.

GROWTH DRIVERS

GROWTH IN LIFE-SCIENCES, PHARMACEUTICALS AND AGROCHEMICALS INDUSTRY:

Economic development, rapid industrialization, urbanization and increased disposable income with changing demographic profile and enhanced life expectancies is creating stronger growth for agrochemicals, pharmaceuticals and life-sciences sectors.

The volume of medicines used globally will reach 4.5 trillion doses by 2020, up 24% from 2015. Global spending on medicines will reach $1.4 trillion by 2020, CAGR of 4%-7% from 2015, driven by greater use of pricier branded drugs in developed markets and expanding reach of medicines into pharmerging markets (Pharmerging markets includes nations like China, India, Brazil and Indonesia) Specialty therapies will be more significant in developed markets than in pharmerging markets.

GROWTH IN REFRIGERANT MARKETS

With strong demand for refrigeration and cooling solutions from residential and automotive usage as well as HVAC Solutions, global refrigerant demand is anticipated to grow by 5.2% to reach 1.6 million metric tons by 2018. Gains will be fuelled by economic growth of developing nations, increasing standard of living, and rising global temperatures.

Asia-Pacific countries account for the largest portion of refrigerant demand globally. The increase in regions demand is mainly due to rising demand for cooling products primarily driven by increasing middle class population in developing countries such as China and India.

GROWTH IN AUTOMOBILES

Increased usage of aluminium and high performance fluoropolymers in automobiles will drive growth in inorganic & specialty fluorochemcials.

Global automobile industry is expected to grow at a CAGR of 4% over 2014-2017, with an increase in production in China, India and Mexico.

EXPANDING POSSIBILITIES OF FLUORINE THROUGH RESEARCH & DEVELOPMENT

Globally, the spending on R&D has shown a consistent growth and this drift to invest more on R&D is likely to continue given the emphasis being placed on knowledge expansion and innovation. USA, EU and China witnessed strongest R&D investment growth rate over the last few years.

Fluorinated compounds are becoming more and more important in life-sciences products, pharmaceuticals and agrochemicals rebrsenting a class of high-value compounds. This is not only because of the biological benefits that fluorine can impart to the end product but also it helps in reducing waste streams and associated carbon footprint during drug manufacture, thus garnering a lot of attention from domestic as well as overseas players.

Many researchers, along with industrial scientists, are taking keen interest in exploring the possibilities of using fluorine chemistry in creating new organic molecules used to develop pharmaceuticals, agricultural and industrial materials.

Fluorochemicals industry continuously keeps evolving, facing environmental challenges and identifying new opportunities, in both, short term and long term.

Along with production base shifting to Asian Countries, there is rapid shift in Research & Development activities eastward, both for cost efficiencies and availability of talent.

The Management, conscious of the developments in the business scenario, keeps identifying, monitoring and evaluating opportunities and threats to business, to act in a manner that will maximize value creation.

BUSINESS WISE PERFORMANCE:

REFRIGERANTS:

Revenue in FY 2015-16: Rs. 21696 lacs

NFIL pioneered manufacturing of refrigerant gases in India in 1967, with one of the oldest refrigerant gas manufacturing facility in Asia. Its Mafron brand is a generic name for refrigerant gases in the country and a brferred choice for original equipment manufacturers, service technicians and equipment owners. It has a distribution network of about 120 strong distributors in India and overseas.

Revenue from Refrigerant business grew by 11% year on year, from Rs. 19487 lacs in FY 2014-15 to Rs. 21696 lacs in FY 2015-16. Growth was mainly on account of higher volumes in both domestic & export markets. It contributed 33% to total sales, of which 38% was derived from export markets and rest was marketed within India

Under the Montreal protocol, phase down of HCFC 22 (R22) for emissive purposes have begun from January 1, 2015 in developing countries (Article 5 parties). The next ramp down in production will be in 2020. However, as demand for refrigeration and cooling systems increase, demand for the refrigerant gas will also increase.

With usage of HCFC 22 (R22) in non-emissive purposes being allowed, Company continues to focus on these applications. Over the last few years, the Company has witnessed positive traction in non-emissive applications like feedstock in pharmaceutical companies

Outlook for this business is positive with increasing demand for air conditioners and cooling solutions, in domestic markets as well as overseas markets. This demand is augmented by our focused marketing efforts and strong distributor network sbrad across India, South East Asia and Middle East Countries.

INORGANIC FLUORIDES:

Revenue in 2015-16: Rs. 9399 lacs

This Business offers a portfolio of products that find applications in industries like stainless steel, glass, oil & gas, abrasives, electronic industries, pharmaceutical, agrochemcials etc. These products are primarily in nature of high volume, with applications in standard processes.

In 2015-16, revenue from inorganic fluorides business remained stable, in line with slowdown in domestic demand from its main customer industries and pricing brssure from cheaper imports. It contributed 15% of total sales.

As result of its focus on expanding reach to overseas markets, the export revenue grew to contribute 11% of the sales of this business in FY 2015-16, mitigating some of the domestic slowdown.

The Company continues to focus on strengthening its product portfolio by introducing new products for new applications in industries like electronics as well as reach out to newer geographies.

SPECIALTY CHEMICALS:

Revenue in 2015-16: Rs. 23875 lacs

This business is engaged in manufacturing of niche fluorine-based molecules for applications in pharmaceuticals, agrochemicals and petrochemicals industries.

During F.Y. 2015-16, Specialty Chemicals revenue grew by 11% to Rs. 23875 lacs, from Rs. 21512 Lacs in F.Y 2014-15, contributing 38% of total sales of the Company. Exports contributed 46% to Specialty Chemicals sales, growth of 39% over brvious year. During the year, the business added several new fluorinated compounds to it's product portfolio.

Growth was impacted by slower off-take among global agrochemical customers and domestic pharmaceutical companies. However, with global agrochemical inventory levels correcting, there is a visible uptrend in the demand.

With continuous support of a strong in-house R&D team, the Company continues to work closely with the customers and introduce new products to widen its customer base and geographical reach.

CONTRACT RESEARCH AND MANUFACTURING SERVICES (CRAMS) :

Revenue in F.Y. 2015-16: Rs. 8654 lacs

With the objective of rising up the value pyramid in Fluorine chemistry, Company initiated CRAMS business in 2010. Backed by knowledge of niche fluorination chemistry & rich experience of almost 5 decades in handling fluorine, the Company has made its brsence felt among the innovators across the globe.

Currently, it is a pure play research and knowledge based offering, that consist of basic research, laboratory synthesis, process developments, scale up and making small and large batch manufacturing. It caters to rapid product development needs of major global innovator companies, both in pharmaceuticals and agrochemicals business.

The Company continues to strengthen its foothold across American, European and Asia Pacific regions with strongermarketing teams across USA, Western Euorpe and Japan, in addition to brsence through Manchester Organics Ltd (MOL) in the UK.

Company's association with MOL began in 2011, when it acquired 51% stake in MOL. Since beginning, both the companies were in perfect synergy, as MOL worked directly with innovative pharma companies on milligram to multi kilo research phase while Navin Fluorine was developing its contract research and manufacturing services division with experience in multi hundred kilos to multi ton production capabilities.

During the year, the Company has acquired balance 49% stake in MOL through its 100% subsidiary NFIL UK at an aggregate price of £ 6.3 million out of, which £ 5.6 million have been paid upfront and the balance will be paid in a default manner on fulfillment of certain conditions.

Today MOL continues to bring access to not only global innovative pharmaceutical companies but also cutting-edge fluorination chemistries, which enhances the Company's overall production capabilities to value added product portfolio of CRAMS as well as in specialty chemicals.

Over the span of 6 years, the Company continued to add more customers into it's fold and also could win repeat business from existing customers.

In 2015-16, CRAMS revenue grew nearly threefold over brvious year from Rs. 3,099 lacs in FY 2014-15 to Rs. 8,654 lacs in FY 2015-16. In addition, MOL registered revenues of Rs. 4,485 lacs during the year.

Company augmented its pilot plant facility at Dewas with cGMP compliant contract manufacturing facility to deliver ton level quantities, with an investment of Rs. 6,000 lacs. The new facility underwent successful customer audits by global pharmaceutical companies and has commenced commercial production.

With the new facility ready for commercial production, the Company is poised to capitalize on all the hard work that went into building this business.

The Company believes that Innovation will continue to drive growth. It will continue to invest in research and development of new molecules, new applications and more efficient processing techniques. The Company will accordingly continue to invest financial and managerial resources on this front.

The Dahej project to develop, manufacture and sell specialty fluorochemicals for Piramal group is moving smoothly with product validation underway.

During the year, the Company entered into an agreement with Honeywell to work together on the new generation refrigerant gas HFO 1234 yf. HFO-1234yf is a next-generation hydrofluoro-olefin (HFO) refrigerant with GWP less than 1 and is a near drop-in replacement for R-134a, a

hydrofluorocarbon (HFC) , for use in vehicle air conditioning systems globally. This agreement depicts Honeywell's confidence in Company's capabilities in developing new generation Fluorointermediates.

Health, Safety & Environment :

The Company is fully committed to its responsibilities in health, safety and environmental (HSE) management and has continued to make sizable investments in HSE during the year. Bhestan and Dewas units of the Company clocked 2.73 million and 2.94 million continuous accident free man hours respectively till March, 2016. The Company is amongst very few Corporate in the country who has 'Responsible Care' accreditation from the Indian Chemical Council. 'Responsible Care' is the chemical industry's unique global initiative that drives continuous improvement in health, safety & environment performance together with open and transparent communications with stakeholders. The Surat plant of the Company has been awarded with the "Silver Trophy" and a certificate by National Safety Council of India for commendable Occupational Safety & Health performance. It is the only manufacturing unit in the catagory in Gujarat to get this award during 2015-16, which exemplifies the Company's commitment towards safety.

OPPORTUNITIES & THREATS

The Company is well poised to exploit the emerging market opportunities and is continuously driving its R&D and innovation initiatives which act as catalytic agents in realising its aspirations.

• The Company's positioning in the fluoro-specialities space; a niche business with high entry barriers provides the necessary protection from emerging competitive threats

• Strong reputation as a reliable provider of fluorinated chemicals and established brsence among major pharmaceutical and agrochemicals producers provides an additional edge

• Significant investments made in R&D, CRO and CRAMS provide the launching pad to synthesise value-added molecules, alongside innovator companies, finally migrating to full-fledged manufacture of high-potential compounds

• High capacities of HF, refrigerant gas and other organic and inorganic chemicals provide the necessary scale benefits

With host of opportunities, the Company is also exposed to internal and external risk. We aim to address these risks and threats an appropriately through our formal risk management system.

The threats that are closely monitored by the Company comprise of :

a. Currency volatility

b. Unbrdictable pricing policies of Chinese competitors in some of our products

c. Increasing urbanization around our plant at Surat

d. Continued economic uncertainties in Euro zone and US

ANALYSIS OF FINANCIAL STATEMENTS

The significant financial highlights of the Company are mentioned below:

• Increase in revenues by 17% from Rs. 54,612 lacs in 2014-15 to Rs. 63,624 lacs

• Increase in Profit Before Tax by 71% from Rs. 6,808 lacs in 2014-15 to Rs. 11,672 lacs

• Increase in Net Profit by 75% from Rs. 4,939 lacs in 2014­15 to Rs. 8,647 lacs

• EPS was higher at Rs. 88.44 in current year compared to Rs. 50.57 in the brvious year

• ROCE increased to 18% in the current year from 11% in the brvious year

• ROE increased to 14% in the current year from 9% in the brvious year

RISK MANAGEMENT

At NFIL, we realize the need to better understand, anticipate, evaluate and mitigate business risks in order to minimize its impact on business.

Our risk management programme is aligned with our business strategy, process, technology, people and culture and governance.

The Company's fundamental approach to risk management remains the same:

• Forward-looking approach to identify and measure risks

• In-depth knowledge of the business and competitors

• Flexibility in risk identification and management

The Company's structured risk management programme safeguards the organisation from various risks through adequate and timely action. The objectives of the Company's risk management framework comprise the following:

• To identify, assess, prioritise and manage existing as well asemerging risks in a planned and cohesive manner

• To increase the effectiveness of the internal and external reporting structure

• To develop a risk culture that encourages employees to identify risks and associated opportunities, responding to them with appropriate timely actions.

The Company prioritises risks and each risk is attached with a designated owner, who monitors the likelihood of occurrence, the probable impact on the business and implementation of mitigation programme. The progress is reviewed along with the regular management review process.

HUMAN RESOURCES

The Company continues its focus on Human Resource Development. It has a structured process to identify young and key talents and nurture them to take on senior and responsible positions by mentoring, coaching and advanced leadership programmes. Training and development of employees continues to be an area of prime focus with key personnel being sent for advanced training, both in-bound and out bound.

There were cordial and harmonious industrial relations during the year. The long term wage settlement with Worker's Union at Bhestan, Surat was renogiated last year.

The Company has 686 employees as on 31 March, 2016 and enjoyed full cooperation from all its employees.

INTERNAL CONTROL SYSTEM

The internal control systems of the Company are effective and adequate for business processes with regards to efficiency of the operations, compliance with applicable laws and regulations, financial reporting, etc. which commensurate with the size and complexities of the operations.

All the Company's major business processes are currently run on SAP ECC 6. An independent firm of chartered accountants carries out the internal audit across the organisation including Manchester Organics Limited, the UK based subsidiary of the Company.

The internal auditors review the adequacy of control systems and suggest improvements. The internal auditors have exbrssed their satisfaction about the adequacy of the control systems and the manner in which the Company is updating its systems and procedures to meet the challenging requirements of business needs.

The Company has established appropriate Internal Control framework in its operations & Financial Accounting & Reporting practices to ensure due adherence to the Internal Financial Control over Financial Reporting (IFCFR), under Section 143(3)(i) of the Companies Act 2013.

The internal auditors periodically interact with the Audit Committee of the Board of Directors to discuss the terms of reference and frequency of the audit, significant audit observations and their disposals and remedies, if any.

For and on behalf of the Board,

H.A. Mafatlal

Chairman

Place: Mumbai

Dated: 30th April, 2016