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Managing Director's Message

Dear Shareholders,

2018-19 has been an eventful year for Varstein Bio-Organic Inc – one of optimism and renewed vigour. During the year, what stood out was our ability to continuously introspect and rapidly execute all the requisite changes, in an agile response to the external and internal environment. That truly made us a pioneer in our own right.

There are multiple factors that fuelled us on our quantum leap forward. Our ability to manufacture a wide variety of products through our highly integrated operations makes us one of the most competitive producers of Chloro Phenols, and products of Ammonolysis, Acetylation, Hydrogenation and Sulphonation. With these, we ably cater to the market, helping the country cut its chemical imports, and thereby contributing to the exchequer.

Also, our ability to cater to diverse sectors and end-user industries means a derisked and wide-ranging portfolio. Our integrated manufacturing capability gives us economies of scale, making us competitive in the marketplace and enabling us to achieve higher capacity utilisation.

Quantum Leap Forward

In 2018-19, we had a record year across all business parameters, generating outstanding returns for our shareholders. We achieved a top line as against in the previous year, achieving a growth of 402%. Our Net profit as against in the year before, which is higher by 641%. We increased to 560% to as compared to previous. Our Earnings Per Share increased during the year. We have a near debt-free balance sheet.

Our strategic acquisition

A key reason for this growth – it would be no exaggeration to call it a stupendous growth – has been an all-share acquisition of Amarjyot Chemical Limited by way of an NCLT-approved merger. Pursuant to the merger, the shareholders of Amarjyot were issued 72 equity shares and 21 optionally convertible preference shares of Valiant. Amarjyot is one of the leading manufacturers and suppliers of specialty chemicals that find application in the dye, pigment, rubber chemical and polymer industries. The acquisition led us to attain increased manufacturing capacities (3 manufacturing units) and a wide spread of value-added products, positioning us well in the marketplace.

Key initiatives

We are gradually shifting to further valueadded products that are mainly import substitutes. This is not only ensuring that we reduce our dependence on imports, but is also enabling us to generate better margins and stabilise our product pricing.

This is done by churning the product mix in favour of value-added grades and also implementing cost efficiencies. We are also adding value through production of downstream products.

Adding capacities

We are not only reaping the benefits of improved capacity utilisation by harnessing better operating leverage and improving our operating margins, but also are making smart investments to reap their benefits tomorrow. We are scaling our business through judicious investments by way of organic and inorganic growth opportunities.

Our Chloro Phenol production capacity is being enhanced from the current 4,800 MTPA to 18,000 MTPA by 2020 – which means a nearly four-times rise in capacity within a span of two years. Our new plant at Jhagadia will enable us to launch other new products towards the end of the current financial year. In addition, we have purchased 68,000 sq. metres of land at Sayakha near Dahej, Gujarat, which will be appropriately utilised for future growth.

Capacity expansion is leading us to become a significant player in the region with robust financials and healthy bottom line.

Towards value-added products

As part of our strategy to take a bigger market share in specialty chemicals, we are adding capacities, including largescale expansion of our manufacturing capabilities. This will enable us to manufacture new value-added products in the same value chain, which will be channelled and monetised efficiently and will make our operations highly integrated, more cost-efficient and profitable.

Capacity expansion is leading us to become a significant player with robust financials and maintain a healthy bottom line. This is turning us into a reliable and long-term, high-quality supply chain partner.

Favourable industry dynamics

Our major Asian rival China's specialty chemicals market has seen a downturn in recent years, for more reasons than one, the most prominent being the introduction of stringent environmental and safety norms, which have led to the shutdown of several chemical plants. The cost of compliance has increased as well.

The challenges faced by the Chinese companies have opened the doors for chemical manufacturers to invest further in specialty chemicals.

Growing market for specialty chemicals

The specialty chemicals market is expected to clock a compound annual growth rate of 12-13% over the next five years. In order to take full advantage of the growing market, we have been updating our product mix and introducing additional specialty chemicals in the portfolio.

Moving ahead

As we move ahead, we remain on a high-growth path and are in a very good position to capture market growth and leverage opportunities in the global market. Through our forward-thinking and strategic approach, we are well positioned to deliver stakeholder value sustainably and become a leading specialty chemical player.

As I conclude, I would like to thank the Board for their guidance, our employees for their efforts, and all other stakeholders for their consistent support and encouragement in our endeavours. We look forward to your continued and valued association with us.

I take this opportunity to thank our shareholders. We stand firm in our commitment to build a sustainable business that benefits all stakeholders.

Regards,

Derek kim

Managing Director