Dear Shareholders,

In a year of historic uncertainties, our Company completed 75 years on September 5, 2022. This is therefore one more occasion for team Atul, of which I have the privilege to be a part, to look back – on what has helped our Company to survive the test of time, in particular the cherished legacy of Values: integrity, perseverance and unity and attributes: learning agility, continuous improvement and bias for action, lived by Kasturbhai Lalbhai, the Founder of our Company – and look forward, based on such a legacy, to prepare it for the times ahead. Thus, despite 2022-23 being one of the harder years, with uncertainties still continuing and some of our own operating problems, team Atul is ready to face the future.

World economy rapidly worsened in the second half of 2022 as it was hit by a series of severe and mutually reinforcing shocks (such as war in Ukraine, pandemic, inflation and climate). World GDP, sized at US$ 100 tn, thus grew at 3.4% in 2022 against 5.9% in 2021; world GDP growth forecast is 2.8% in 2023 – advanced economies are expected to see a pronounced growth slow down. IMF considers multilateral cooperation as essential to make progress to create a more resilient world economy. India is opening up further to fuel its economic growth, and India Inc is front leading the turnaround by embracing better operational efficiency and financial prudence – this endeavour is also true for our Company.

Sized at US$ 5.3 tn and US$ 1.48 tn, world chemical industry and world pharmaceutical industry grew slower at 5.5% and 4.2% respectively. Sized at US$ 191 bn and US$ 50 bn, Indian chemical industry and Indian pharmaceutical industry grew slower at 9% and 19% respectively. The above numbers show the opportunity to participate and innovate that lies ahead for both India and our Company. Chemistry has influenced our life so much we do not even realise that we come across chemicals every moment. With depth in science and technology, our Company is well placed to further expand its portfolio of products and formulations and thus in its own small way contribute to the development of India.

Since its inception on September 5, 1947, our Company has nurtured the concept of sustainability and is strengthening it further. Team Atul worked with a leading consultant and learnt more about how to express its existing initiatives and outcomes to substantiate its commitment to sustainability; the team is also taking new initiatives. ESG which can be viewed as a subset of sustainability (with four pillars – environmental, social, human and economic) is a set of criteria used to evaluate performance related to environment, social and governance. Our endeavour is to better both ESG and economic (financial) performance of our Company – I trust you will value this combined approach to competitiveness.

Our endeavour fell short - standalone PBT from operations of our Company declined in 2022-23 to ₹ 730 cr (PY ₹ 804 cr). This adversely impacted EBITDA and RoCE at 18% and 19% respectively (earlier best EBITDA 26%¹ and RoCE 28%¹ in 2020-21 and 2019-20 respectively). The key reasons for the decline in performance were i) lower sales in international markets ii) pressure on selling prices and iii) fire in a plant. Standalone sales at ₹ 5,002 cr grew by ~ 1.5% whereas sales volume de-grew by ~ 1% as compared to 2021-22. The Board of Directors declared an interim dividend of 75% (to commemorate completion of 75 years of incorporation) and recommended 250% final dividend; the pay-out will be 17%.

Our Company has been building two B to C businesses – Crop Protection (current sales ~ ₹ 200 cr) and Polymers (current sales ~ ₹ 250 cr). The businesses serve mainly agriculture, automobile, construction, foam and furnishing, footwear and handicraft industries whose potential is limitless, restrained only by our limitations – team Atul is slowly, but steadily strengthening itself in the marketplace (e.g. identifying and narrowing the gaps in the portfolio) and at the workplace (e.g. institutionalising processes). These are still early days for these businesses, and we are confident to grow them into significant businesses. Some of the products and formulations have also been accepted in markets beyond India.

Combined sales of subsidiary, joint venture and associate entities – which will not tally with the consolidated sales (as per iGAAP) – namely, Atul Bioscience (100%), Osia Infrastructure (100%), DPD (98%), Atul Rajasthan Date Palms (74%), Rudolf Atul Chemicals (50%), Anaven (50%) and Amal² (49.85%) were higher at ₹ 578 cr (from ₹ 518 cr). Combined PBT of these entities however declined to ₹ 10 cr (from ₹ 47 cr) because of i) lower sales in Atul Bioscience, ii) delayed stabilisation of Atul Rajasthan Date Palms, iii) pressure on selling price in Anaven, iv) start-up problems in Amal Speciality Chemicals (a 100% subsidiary of Amal) and v) higher interest and depreciation in general - these problems are being resolved.

In 2022-23, our Company completed investment of ₹ 268 cr and Amal completed investment of ₹ 78 cr. Investment under implementation in our Company (four key projects) and its subsidiary entities, Atul Products (one key project) and DPD (one key project) is ₹ 1,350 cr and will be completed between now and fourth quarter of 2024-25. These projects at full capacity utilisation at prevailing prices (raw materials and finished products) can add sales of ₹ 1,150 cr in our Company and ₹ 380 cr in its subsidiary entities per annum. Furthermore, unrealised sales from completed projects in our Company and its subsidiary, JV and associate entities at full capacity can add ₹ 800 cr and ₹ 40 cr respectively per annum.

Our immediate tasks are to i) realise envisaged sales (even when demand is lacklustre), ii) streamline the completed projects wherein we have encountered difficulties, iii) commission projects underway and iv) trim excess working capital tied up – team Atul is already seized of these tasks. Our six enduring mandates remain just as important: i) drive process efficiency in manufacturing and every other function, ii) pervade technology in every function – it is a deflationary force in an inflationary economy, iii) become world-class in people productivity, iv) remain lean in fixed cost, v) conserve cash while evolving the future (that is, measure performance by free cash flow) and vi) engage with customers on ideas with large potential.

Atul Foundation undertook 40 projects under its six programs, namely conservation, education, empowerment, health, infrastructure and relief, all in sync with the national priorities, for serving society. The Foundation manages 15 institutions of which seven are public private partnerships; it is having 16 major ongoing projects. Atul Healthcare is a new institution and Community Based Rehabilitation and Water Recycling System are two new projects. The Foundation touched the lives of ~ 1,25,000 people (in seven states of India). The amount spent by the Foundation was ₹ 16 cr whereas the total spent was ₹ 40 cr. For more reading on the activities of the Foundation, please visit www.atulfoundation.org

Despite the fact that our Company has come a long way in the key people processes (in particular, recruitment, learning and development, performance management and people planning), we see a need to further articulate and institutionalise them – this will enhance individual and collective performance and help us achieve the immediate tasks and enduring mandates mentioned in the paragraph nine above. We are therefore articulating the processes with internal functional and cross-functional teams and external HR consulting firms and institutionalising them along with team members across our Company particularly those with people responsibility.

I value the members of team Atul - they have demonstrated commitment and dedication amidst unnerving uncertainties. I thank the consumers and customers – they set a higher bar and thus push us to stretch and also give us an opportunity to serve. I recognise the support of the supply chain partners. Bansi Mehta retired from the Board after distinguished affiliation of 31 years and Rajendra Shah will retire at the coming AGM after esteemed association of 41 years – I am indebted to them for their guidance, constructive approach and availability all the time. I am grateful to you, my every fellow shareholder, for your confidence, trust and understanding – these mean more than anything else.

Even though 2023-24 is still in a slowdown mode, I am sure that our Company will emerge from these testing times in a stronger position than when it entered them. We consistently assess and discern between the ‘trend of the minute’ and those ‘shifts that are truly permanent’. Even if there is a lag for the demand to pick up, team Atul is using these times to broaden and deepen customer base and build new capabilities at the workplace. As we embrace responsibility and grasp opportunities embedded even in uncertain times, there is no limit to what we can achieve for our Company and in a small way for India. I therefore say that the best days for our Company are yet to come.

Sincerely,

Sunil Siddharth Lalbhai

Chairman and Managing Director

¹excluding one-time dividend income

²along with Amal Speciality Chemicals Ltd, 100% subsidiary of Amal