Aarti Surfactants Ltd Management Discussions

FY 2025-2026

About the Company

Aarti Surfactants Limited was established through the strategic demerger of the home and personal care division of Aarti Industries Limited. It specialises in the manufacture of high-performance ionic, non-ionic, and specialty surfactants, with a defined strategic focus on expanding its presence into the high-margin skin care market. The Companys operational infrastructure is anchored by two manufacturing units in Madhya Pradesh and Silvassa operating alongside a premier Research and Development (R&D) centre in Navi Mumbai dedicated to process optimisation, asset utilisation, and sustainability-driven product innovation. The Company has its export presence across countries in Asia, Europe, Africa and the Americas. It has consistently mitigated operational risks by ensuring a culture of safety, talent cultivation and collaborative excellence across its workforce that drive sustainable, long-term stakeholder value as directed by a skilled management team with deep technical and regulatory expertise across the chemical manufacturing value chain. Environmental stewardship remains an integral driver of the Companys operational planning and capital allocation decisions. It also maintains a structured focus on enhancing resource efficiency, optimising water usage, minimising waste generation, and reducing energy consumption across its manufacturing facilities. Strategic investments in renewable energy adoption, sustainable manufacturing

practices, and cleaner technologies reinforce the Companys commitment to balancing business growth with environmental responsibility. By systematically embedding environmental considerations into its core investment strategy, the Company continues to advance toward its long-term sustainability aspirations while fostering responsible corporate growth.

I. Operating Environment

During FY2026, Aarti Surfactants operations were influenced by changes in the broader economic environment and developments within the personal care and surfactants industry. In this operating context, the Company continued to manage the evolving business environment while maintaining its focus on business performance and adapting to market developments.

Economy Review

Global Economy¹

Despite ongoing trade disruptions and geopolitical tensions, the global economy demonstrated notable resilience in CY 2025, recording an expansion of 3.5%. This stable performance was substantially driven by Emerging Market and Developing Economies (EMDEs), surging by 4.5%, whereas advanced economies registered a modest uptick of 1.9%. The momentum was largely sustained by technology-driven exports, which offset underperforming sectors and significantly bolstered international trade in driving cross-border income convergence. Global inflation stabilised at 4.1% in CY 2025, maintaining a steady trajectory relative to the previous year. Advanced economies secured a gradual inflation rate of 2.5%, while EMDEs recorded a higher rate of 5.2%. Global expansion is projected at 3.0% in CY 2026, with its upward trajectory anticipated for energyexporting countries and nations firmly embedded within global technology supply networks, while commodityimporting economies with inadequate AI-driven sectors face downward adjustments. For advanced economies, growth is forecasted at 1.7% in CY 2026, with net energy exporters cushioned by favourable terms of trade, while net importers face headwinds from elevated energy expenditure. The United States demonstrates resilience, with growth projected at 2.3% in CY 2026 and 2.2% in CY 2027, backed by favourable fiscal policies, accommodative financial conditions and robust technology investments.

Indian Economy²

Indias economy recorded notable resilience in FY2026, fortified by healthy domestic demand, stable macro-economic fundamentals and sustained public investment. In FY 2026, Real Gross Domestic Product (GDP) growth for the year stood at 7.7%³, reinforcing Indias position among the fastest-growing major economies worldwide. Yearly expansion was driven by consistent momentum in consumption and investment activity. Steady domestic demand, improving urban consumption and sustained government capital expenditure supported economic expansion across sectors. Stable banking and corporate balance sheets, resilient service activity and ongoing policy reforms further strengthened the macroeconomic environment. Inflation remained moderate through the majority of the fiscal year despite volatility in food and energy prices. Consumer Price Index (CPI) inflation was recorded at 3.40% in March 2026, backed by substantially benchmarked economic indicators by the Reserve Bank of India (RBI), thereby, easing supply-side constraints and rebounding to stable demand conditions. Optimal reservoir levels reinforce a favourable rural economic outlook. Business confidence remains high, with leading indicators undergoing sustained resilience across manufacturing and services. The governments proactive focus on scaling up domestic manufacturing in several strategic and frontier sectors underpin Indias ensuing growth trajectory. These advancements further strengthen the nations industrial momentum, thereby, building a resilient foundation for sustained macroeconomic expansion in the upcoming periods. Indias chemical manufacturing sector is registering a macroeconomic shift from a fragmented network of localised factories to a highly sophisticated, globally competitive industry. Contributing 7% to national GDP and expanding at a stable 2.8% CAGR, the market constitutes the core infrastructure driving progress across segments such as pharmaceuticals and automotive, while radically restructuring their operational landscape through integration⁴.

Indias growth outlook has improved, with growth estimates revised upwards following stronger-than- anticipated economic activity during the second and third quarters of the fiscal year and continued momentum in the fourth quarter. Real GDP growth for FY 2026-27 is projected at approximately 6.6%⁵, supported by healthy domestic demand, an improving

rural recovery and sustained public capital expenditure. Private consumption is expected to remain healthy, aided by stable inflation, enhancing income levels and supportive fiscal measures. Investment activity is also expected to maintain its momentum, supported by high-capacity utilisation, strong credit growth and continued infrastructure spending. CPI inflation for FY 2026-27 is projected at 5.1%.⁶ Geopolitical developments and volatility in global energy prices continue to remain key risks for India, particularly given its dependence on imported energy and its significant trade, investment and remittance relationships with the West Asia region. The escalation of tensions in West Asia has led to a sharp increase in global crude oil prices, which could place pressure on Indias merchandise trade balance. Crude oil imports account for nearly one-fourth of Indias total imports, making the economy sensitive to movements in international oil prices. During the conflict, average crude oil prices increased, raising the possibility of a wider merchandise trade deficit due to higher import costs.

Nevertheless, sound macroeconomic fundamentals and continued policy measures provide a strong foundation for the economy to withstand external pressures. Although the near-term economic environment remains uncertain and external disruptions could affect growth through higher input costs and supply constraints, healthy domestic demand is expected to provide support. Government initiatives aimed at diversifying energy sources, strengthening agricultural preparedness, maintaining price stability, improving external-sector resilience and implementing appropriate policy measures are expected to enhance Indias ability to manage and absorb short-term disruptions arising from global developments.

Industry Review

Global Surfactants Industry⁷

Surfactants are specialised and curated chemical compounds designed to minimise surface tension between liquids and solids or between immiscible liquids. Due to their versatile properties, these agents serve as vital components across a multitude of downstream applications, including detergents, soaps, emulsifiers, dispersants, agriculture, pharmaceuticals, and specialised industrial processes. The global surfactants market demonstrates steady growth, driven by expanding applications across diverse end-use sectors and evolving consumer preferences towards sustainable practices. The global surfactants market size is valued at USD 47.4 billion in CY 2025. From a geographic perspective, the Asia-Pacific region maintains a dominant position, driving leading revenue share in CY 2025, led primarily by large-scale demand in China and expanding consumer markets in India and Southeast Asia.

The surfactants market is projected to grow at 5.4% CAGR between CY 2026 and CY 2033. The estimated market value is expected to be USD 71.7 billion in CY 2027. The global surfactants industry is predicted to maintain its steady growth trajectory, supported by long-term industrial demand and heightening corporate environmental accountability. Demand for bio-based surfactants derived from renewable, agricultural resources is projected to outpace legacy synthetic alternatives. Geographically, emerging economies within the Asia-Pacific region, particularly India and China, are anticipated to lead global volume growth. Rapid urbanisation, augmenting disposable income, and growing organised retail sectors in these locations provide a favourable environment for regional capacity expansions.

Indian Surfactants Market⁸

Indias surfactants market is one of the fastest-growing regional segments in Asia-Pacific. The domestic market is valued at USD 3,186.5 million in CY 2025, which accounted for approximately 6.7% of the global surfactants industry. Rising urbanisation and structured retail chains have escalated volume requirements across homecare and personal care channels, where surfactants provide necessary emulsification and cleansing properties. Consumption remains robust across critical industrial verticals. The large-scale domestic textile sector heavily utilises processing surfactants for wetting and dyeing operations, while the agricultural surfactants sub-segment depends on non-ionic and anionic combinations to optimise crop-protection deliveries. The Indian surfactants industry is poised for robust expansion over the next decade, with market revenue projected to reach USD 5,156.8 million by 2027, registering a CAGR of 6.2%. India is positioned as one of the fastest-growing regional markets within the Asia Pacific region. While traditional synthetic surfactants heavily dominated the landscape, biobased surfactants have emerged as the most lucrative and fastest-growing segment over the period. This resilient market trajectory is actively shaped by both global chemical conglomerates and leading domestic players.

Supply Dependencies

Supply-side conditions remained structurally tight and volatile during the year, with fatty alcohol prices staying elevated due to a combination of feedstock constraints, capacity dynamics and geopolitical disruptions. While availability improved during the early part of the year, oleochemical prices remained firm despite the harvest season, as PKO production fell short of expectations, keeping feedstock costs elevated. A brief correction in Q3, supported by record palm oil output and inventory build-up, proved short-lived as market participants

adopted a cautious stance amid expectations of further price declines and the gradual absorption of new fatty alcohol capacities. Prices subsequently firmed up again, supported by seasonal supply tightness in Southeast Asia, front-loaded restocking and geopolitical tensions in the Middle East, which increased freight, insurance and logistics costs and further constrained effective supply.

Crude oil and petrochemical feedstocks also remained important drivers of the overall raw material environment. While petrochemical feedstocks were relatively stable for most of the year, they came under sharper cost pressure towards the end of the period amid supply disruptions, availability constraints in key inputs and elevated crude oil prices. Looking ahead, crude oil markets are expected to remain volatile and relatively elevated in 2026, with

geopolitical tensions and potential disruptions to supply and shipping continuing to pose risks. The IMFs April 2026 World Economic Outlook projects an average crude oil price of around $82 per barrel under its base-case scenario, while the World Banks April 2026 Commodity Markets Outlook projects an average of approximately $86 per barrel. Both institutions highlight significant upside risks in the event of prolonged or severe supply disruptions, while expecting prices to moderate over the medium term as supply conditions normalise and global supply-demand balances stabilise. Overall, the raw material supply environment is expected to remain dynamic, with feedstock availability, crude oil prices, logistics constraints and geopolitical developments continuing to influence input costs and pricing.

II. Performance of the Company Financial Performance in FY 2026

Financial Performance with Respect to Operational Performance

Correspondingly, the Company has been rated as Credit Analysis and Research (CARE) BBB+; Stable and CARE BBB; Stable for its Long-Term Banking Facilities and Long-Term Instruments, i.e., Redeemable Preference shares from CARE Ratings Limited.

Business Performance

During FY 2026, the Company recorded strong business growth, with healthy demand across its diversified portfolio of surfactants and specialty products. Revenue from operations rose by 30.4% to f859.13 crores, compared with f659.09 crores in the previous year. The operating environment during the year remained dynamic, with Aarti Surfactants witnessing evolving customer requirements, changing demand patterns and external market uncertainties. Changes in GST-related pricing dynamics also influenced pricing alignment and purchasing patterns across certain end-use industries. As customers responded to these changes, their procurement and inventory decisions resulted in variations in buying behaviour and order patterns during parts of the year.

Fatty Alcohol and Fatty Acids continued to account for the majority of the Companys raw material purchases. In parallel, global trade developments, including changes in U.S. tariff policies, added to uncertainty in international markets and affected the pace and visibility of customer procurement.

Geopolitical developments and disruptions across global supply chains further placed pressure on input costs, logistics and demand conditions in select markets. Against this backdrop, the Company remained focused on maintaining supply reliability, improving operational efficiencies and strengthening its product portfolio, while continuing to respond to changing customer requirements and market conditions.

III. Opportunities and Threats

Opportunities

The Indian surfactants industry is entering a phase characterised by broader applications and increasing product sophistication, positioning the Company to benefit significantly from these developments. Rising consumption, expanding urbanisation, greater awareness of hygiene and personal care, and the growth of end-use industries are contributing to a wider demand base for surfactant-based formulations. Alongside this, customers are increasingly looking for products that offer performance, functionality, consistency and responsible formulation. The opportunity is also expanding beyond conventional cleansing applications. These developments provide the Company with opportunities to participate in the evolving industry through its diversified portfolio of surfactants and specialty products, supported by its manufacturing capabilities and application- focused approach. The Companys product portfolio comprises surfactants, mild surfactants, pearlizing agents, blends, preservatives and sun-care products. These product groups enable the organisation to address a range of formulation requirements.

Growth opportunities

• Growing Personal and Home Care Consumption

The increasing consumption of personal and home Care products is leading to a broader range of formulations requiring functional ingredients. This is creating opportunities for the Company to address market demand across varied application requirements

• Shift Towards Higher-Value Formulations

Formulators are increasingly looking beyond basic functionality and placing greater emphasis on efficacy, mildness, sensory properties, stability and formulation compatibility. This shift is creating scope for differentiated and higher-value ingredient solutions

• Rising Awareness of Hygiene and Cleanliness

Greater awareness of personal hygiene and household cleanliness is supporting sustained demand across several surfactant-consuming categories. The growth of these everyday- use applications provides the Company with opportunities to capitalise on increasing

demand across personal care, home care and other surfactant-consuming categories

• Increasing Focus on Sustainable Formulations

The industry is witnessing growing interest in environmentally responsible formulations and ingredients. This is encouraging innovation towards products that provide the required functionality while addressing evolving sustainability expectations

• Expanding Indian Manufacturing Ecosystem

Indias expanding manufacturing ecosystem and competitive production capabilities are creating opportunities for domestic manufacturers to serve both Indian and international customers. This provides scope for the Company to strengthen its domestic presence, expand its international footprint and develop longer-term customer relationships

• Advances in Artificial Intelligence

Rapid advances in artificial intelligence are changing how organisations drive performance, make decisions and create competitive advantage. The adoption of AI presents an opportunity for the Company to enhance productivity, improve agility and unlock value across the value chain. In addition, stronger data foundations, governance and capability build-out are expected to support faster execution, sharper consumer responsiveness and a more future-ready operating model in a rapidly evolving business environment

Threats

Strict environmental and regulatory compliance

The specialty chemicals and surfactants industry is subject to stringent regulatory requirements relating to environmental protection, product safety, manufacturing, and operations. Any noncompliance or regulatory changes may result in penalties, legal proceedings, operational disruptions, reputational damage, and increased compliance costs, which could adversely affect the Companys business and financial performance

Intensifying Competitive Landscape

The Company operates in a competitive business environment that faces competition from both domestic manufacturers and international

suppliers. Capacity additions in key manufacturing regions, particularly across Asia and the Middle East, along with evolving customer expectations, may result in pricing pressure and heightened competition. To strengthen its competitive position, the Company remains focused on product quality, customer engagement, operational efficiency, innovation, and the development of differentiated value-added solutions

IV. Functional Review of the Company

Research and Development (R&D)

During FY 2025-2026, the Companys R&D strategy remained centred on expanding its specialty surfactants portfolio, accelerating value-added product innovation, and developing sustainable, high-performance solutions for domestic and international markets. R&D efforts focused on formulation optimization, process improvements, and green chemistry initiatives to enhance product efficiency while promoting responsible manufacturing practices. To address shifting consumer preferences and regulatory expectations, the team prioritized differentiated formulations tailored specifically for the Home Care and Personal Care segments, delivering customized, high-application solutions aligned with client requirements. To reinforce its innovation infrastructure, the Company continuously invested in advanced analytical equipment, testing infrastructure, and specialized technical expertise. A key strategic milestone during the year was the successful operationalization of the dedicated R&D facility at Navi Mumbai. This facility significantly enhances the Companys product development, application testing, and process optimization capabilities. The integrated center is expected to accelerate product validation cycles, improve analytical precision, foster deeper customer collaboration, and shorten time-to-market for new product commercialization. The Company will continue directing strategic investments toward application development, operational excellence, and sustainable technology platforms to drive longterm competitive advantage.

Human Resources

The Companys workforce remains the foundation of its operational strength, with ongoing investments in targeted capability-building programmes, transparent communication, and employee engagement initiatives reinforcing a performance- driven and ethical culture. Guided by shared values

and accountability, the organisation actively fosters workforce empowerment to support sustainable business growth. As of March 31, 2026, the Company had a total workforce of 350+ employees. The Company also maintains an unwavering commitment to Environment, Health and Safety (EHS) across all its manufacturing facilities. Through systematic safety audits, preventive maintenance protocols, emergency preparedness measures, and strict adherence to statutory requirements, the Company continues to foster a proactive safety culture while upholding the highest standards of process safety and employee well-being across its operations.

Information Technology

Information Technology is an integral part of the Companys operations, enabling efficient business processes, secure information management, and operational resilience. The Company has implemented an Information Security Management System (ISMS) supported by robust cybersecurity policies, data protection measures, and defined governance frameworks to safeguard critical business information and digital assets. Appropriate access controls, continuous monitoring, and security protocols help mitigate cyber risks while ensuring the confidentiality, integrity, and availability of information. The Company also follows sound data governance practices to support effective decision-making and regulatory compliance. In addition, a well-defined Business Continuity and Disaster Recovery (BCDR) framework is in place to facilitate the timely restoration of critical systems and minimise operational disruptions arising from unforeseen events, thereby ensuring continuity of business operations.

Quality Assurance

Quality serves as a fundamental pillar of the Companys operational philosophy, embedded across all stages of manufacturing, procurement, research and development, and customer engagement. The Company continuously enhances its quality management architecture through stringent process controls, comprehensive testing protocols, and ongoing product validation to consistently surpass regulatory standards and customer expectations. By systematically integrating quality parameters into product development and strategic decision-making, the organisation maintains its commitment to operational excellence and product reliability across its business portfolio.

Business Outlook

Looking ahead to FY 2027, the Company remains cautiously optimistic, with early indicators pointing towards a gradual recovery in India, supported by resilient consumption trends and improving momentum across specialty and premium segments. FY 2026 was characterised by significant external challenges, including geopolitical conflicts, logistics disruptions, elevated petrochemical raw material prices and supply constraints. Despite these conditions, the Company remains confident in the underlying resilience of its business. Its strong customer relationships, diversified geographic footprint, robust India franchise and disciplined operating approach provide a sound foundation to navigate the changing business environment.

Going forward, the Company will continue to focus on maintaining operational agility and ensuring continuity of supply. It will also seek to leverage emerging opportunities to support sustainable growth across its key markets.

Risk and Mitigation Strategy

Risk Management Framework (ERM)

The Company maintains an integrated Enterprise Risk Management (ERM) framework overseen by the Board of Directors through the Risk Management Committee (RMC), designed to systematically identify, evaluate, and mitigate both internal and external risks across financial, operational, sectoral, sustainability (ESG), information technology, and cybersecurity domains.

Mitigation Strategy

• Aarti Surfactants undertakes proactive monitoring and optimisation of working capital cycles, including receivables, payables and inventory, to support liquidity.

• The Company has secured short-term credit and funding facilities to address capital requirements during project phases that do not generate revenue.

Mitigation Strategy

• The Company periodically reviews plant throughput and workforce deployment to strengthen productivity.

• Enhanced coordination across functions has enabled the Company to align its resources more effectively.

Mitigation Strategy

• Aarti Surfactants continuously monitors macroeconomic and political developments across key international jurisdictions.

• Secure trade finance mechanisms, including letters of credit and advance payment terms, are utilised to protect foreign receivables.

Mitigation Strategy

• The Company invests in R&D to develop bio-based, mild and readily biodegradable surfactants derived from sustainable palm or plant-based sources.

• Renewable energy sources, including solar and biomass boilers, are being adopted, along with round-the-clock compliance auditing to anticipate changes in legislation.

Enhancing Long-Term Shareholder Value

Aarti Surfactants Limited remains focused on building sustainable long-term value through responsible business growth, operational efficiency, and continuous improvement across its operations. The Company strives to strengthen its market position by offering a diversified portfolio of surfactants and specialty products that cater to the evolving requirements of customers across home and personal care, industrial, and institutional applications. Emphasis on product quality, process optimisation, innovation, and customer relationships continues to support business resilience and long-term profitability. The Companys investment strategy is guided by a disciplined approach to capital allocation, with a focus on strengthening manufacturing capabilities, enhancing operational efficiencies, and supporting future growth opportunities. Investments are prioritised towards capacity enhancement, technology upgradation, process improvements, and product development, while maintaining financial flexibility and a prudent capital structure. The Company remains committed to preserving a strong financial position and delivering sustainable returns to shareholders through balanced growth and sound financial management.

Internal Control Systems and Adequacy

The Company has a well-structured internal control system ensuring strict adherence to established policies and procedures, compliance with applicable laws and regulations, accuracy and reliability of management information and financial reporting, timely detection and prevention of fraud, and safeguarding of assets against unauthorised use or disposition. The internal control framework is commensurate with the size, scale and nature of the Companys operations. It promotes

ethical business practices, supports sound corporate governance, facilitating effective risk management. The Company has appointed internal auditors to monitor and verify compliance with internal policies, procedures and legal requirements. The Audit Committee of the Board provides oversight of the internal audit function, reviews the adequacy and effectiveness of internal controls, evaluates audit findings and monitors implementation of recommendations. The Committee ensures that identified control gaps are addressed promptly and effectively. Any deviations are promptly reported to management, allowing for swift Statutory Reports Financial Statements Annual General Meeting corrective action to ensure business continuity and maintain risk at manageable levels. Internal audits are conducted in accordance with an annual audit plan approved by the Audit Committee. The Company follows a risk-based internal audit approach covering both manufacturing facilities and head office processes, ensuring that the audit focus remains aligned with the Companys operational priorities and risk profile. The Audit Committee receives detailed reports on audit observations and recommendations, along with periodic updates on the status of corrective actions until their closure.

Cautionary Statement

The Management Discussion and Analysiss statements about the Companys goals, forecasts, estimates and expectations can qualify as "forward-looking statements" under the relevant securities laws and regulations. A number of factors may cause assumptions, actual future outcomes and events to differ considerably from those stated in the forward-looking statements, so readers are advised not to rely on them too much. The Company is not obligated to update any forward-looking statements based on new information. -