Airo Lam Ltd Management Discussions.

Pursuant to Regulation 34 and Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Management Discussion and Analysis Report are as follows:

Indian economic overview:-

The Indian economy passed through one of the volatile periods in living memory in 2020-21.

At the start of 2020, India was among five largest global economies; its economic growth rate was the fastest among major economies (save China); its market size at 1.38 billion was the second largest in the world; its rural population of the under consumed was the largest in the world.

The Indian government announced a complete lockdown in public movement and economic activities from the fourth week of March 2020. As economic activities came to a grinding halt, the lockdown had a devastating impact on an already-slowing economy as 1.38 billion Indians were required to stay indoors - one of the most stringent lockdowns enforced in the world.

The outbreak of the novel coronavirus and the consequent suspension of economic activities due to the pandemic-induced lockdown, coupled with muted consumer sentiment and investments, had a severe impact on the Indian economy during the first quarter of the year under review. The Indian economy de-grew 23.90 per cent in the first quarter of 2020-21, the sharpest de-growth experienced by the country since the index was prepared.

The Indian and state governments partially lifted controls on movement, public gatherings and events from June 2020 onwards, each stage of lockdown relaxation linked to economic recovery. Interestingly, as controls relaxed what the country observed was a new normal: individuals were encouraged to work from home; inter-city business travel was replaced by virtual engagement; a greater premium was placed on the ownership of personal mobility modes (cars and two-wheelers); there was a sharp increase in home purchase following the need to accommodate an additional room for home working.

The result is that Indias relief consumption, following the lifting of social distancing controls, translated into a full-blown economic recovery. A number of sectors in India - real estate, steel, cement, home building products and consumer durables, among others - reported unprecedented growth. India de-grew at a relatively improved 7.5 per cent in the July-September quarter and reported 0.4 per cent growth in the October-December quarter and a 1.6% growth in the last quarter of the year under review.

The result is that Indias GDP contracted 7.3% during 2020-21, largely on account of the sharp depreciation of the first two quarters. This sharp Indian recovery - one of the most decisive among major economies - validated Indias robust long-term consumption potential.

Indian economic reforms and recovery:-

There were a number of positive features of the Indian economy during the year under review.

India reported improving Goods and Services Tax (GST) collections month-on-month in the second half of 2020-21 following the relaxation of the lockdown, validating the consumption-driven improvement in the economy.

The per capita income was estimated to have declined by 5% from Rs. 1.35 lakh in 2019-20 to Rs. 1.27 lakh in 2020-21, which was considered moderate in view of the extensive demand destruction in the first two quarters of 2020-21.

A slowdown in economic growth and inflation weakened the countrys currency rate nearly 2.83% in 2020 from Rs. 71.28 to Rs. 73.30 to a US dollar before recovering towards the close of the financial year.

Despite the gloomy economic scenario, foreign direct investments (FDI) in India increased 13% to US$57 billion in 2020. The gap between government expenditure and revenue was estimated at ~Rs. 12 trillion due to increased borrowing by the government in May 2020 to address the COVID-19 outbreak.

India jumped 14 places to 63 in the 2020 World Banks Ease of Doing Business ranking and was the only country in the emerging market basket that received positive FPIs of $23.6 billion in 2020; the country ranked eighth among the worlds top stock markets with a market capitalisation of $2.5 trillion in 2020.

The Indian government initiated structural reforms in agriculture, labour laws and medium-small enterprise segments. The labour reforms were intended to empower MSMEs to increase employment, enhance labour productivity and wages.

India extended the Partial Credit Guarantee Scheme by relaxing the criteria and allowing state-owned lenders more time to purchase liabilities of shadow banks. Under the Rs. 45,000-crore partial credit guarantee scheme, announced as a part of the Atmanirbhar Bharat package, three additional months were given to banks to purchase the portfolio of non-banking financial companies.

The Government relaxed foreign direct investment (FDI) norms for sectors like defence, coal mining, contract manufacturing and single-brand retail trading.

The Union Cabinet approved the production-linked incentive (PLI) scheme for 10 sectors: pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell batteries, textile, food products, solar modules, white goods and specialty steel. These incentives could attract outsized investments, catalysing Indias growth journey.

Indias foreign exchange reserves continue to be in record setting mode - FY21 saw $101.5 billion dollars accretion in reserves, the steepest rise in foreign exchange reserves in any financial year; Indias forex reserves are ranked third after Japan and China and can cover more than a years import payments.

Outlook:-

The outlook for the country appears to be improving following a sharp second surge of the pandemic in the first quarter of 2021- 22. A medium-term optimism is that three down cycles - long-term, medium-term and short-term - could well be reversing at the same time. The long-term downtrend, as a result of non performing assets, scams and overcapacity could be over; the medium-term downtrend that was caused by the ILFS crisis, select banks collapse and weakening NBFCs could well be over; the short-term downtrend on account of the pandemic has weakened following the acceleration of the vaccine.

There is a possibility of each of these downtrends having played out, which could well lead to a multiyear revival in capital investments. Besides, a change in the US leadership could result in a revival in global, trade, benefiting Indian exporters.

The Indian government kept the inflation target of, the monetary policy framework unchanged at 2-6 % for the next five years, until the fiscal year 2025-26, measured in terms of consumer price index (CPI)-based inflation.

The Indian economy is projected to grow in the high single digit percentages in FY22 as per various institutional estimates, making it one of the fastest-growing economies. Indias growth journey could be the result of a culmination of favourable tailwinds like consistent agricultural performance, flattening of the COVID-19 infection curve, increase in government spending, favourable reforms and an efficient roll-out of the vaccine, among others.

Industry Overview:-

Indian furniture market overview

The Indian furniture market size was estimated at USD 55 billion and is expected to grow at a CAGR of 12.91% during the period 2020-2024, while the global furniture market was estimated at USD 1.1 trillion in 2020. The Indian furniture market accounted for 5% of the global demand, which indicates a growth potential especially at a time when a number of global buyers look forward to India as an alternative to China as a furniture manufacturing base.

The Covid-19 induced lockdown emerged as a game-changer for furniture demand. The current situation transformed consumer preferences as the demand for multi-functional, comfortable and aesthetic furniture increased, a trend likely to extend into 2021. An increasing focus on sustainability and recycling is making customers informed in substituting plastic furniture with engineered wooden/ refurbished equivalents. A rise in e-retail, rental furniture demand and supportive logistics infrastructure is expected to drive growth as well.

The Indian furniture market is estimated to have reached a value of US$ 2.22 billion in FY21 and projected to reach US$ 3.49 billion by FY26. One of the biggest game-changers was the sudden emergence of the Indian work-from-home (WFH) industry. The outbreak of the novel coronavirus and the resulting lockdown resulted companies opting for the work-from-home model for their employees. This resulted in the immediate increase in the sales of furniture products like study table, chairs and recliners, among others. Out of these, the largest share constituted study tables and tables in 2020.

Indian plywood market overview

The Indian plywood market was estimated at Rs. 222.5 billion in 2020. Plywood is manufactured by aggregating thin layers of wood veneers using powerful adhesives. Softwood, hardwood (or a combination of both), like several varieties of maple, mahogany, oak, pine, cedar, spruce etc., are used in producing plywood for various applications. The softwood plywood sheets are designed for installation on a structures exterior, whereas, the hardwood plywood is used in manufacturing furniture and for other interior applications. In India, plywood is largely used for the manufacturing furniture, accounting for two-thirds of all the wood consumption.

On the basis of end use, the market is segmented into two parts commercial and residential. The residential sector is the largest consumer for Indian plywood, constituting over 50% share of the market.

In the last few years, the expenditure on furniture increased as a result of increasing incomes, urbanisation, real estate investments and western influence. The introduction of new designs and diverse furniture product range helped in creating demand among consumers. The expansion of distributor network and exclusive outlets of furniture manufacturers also catalysed growth. Based on this reality, the market is expected to reach a value of USD 5.7 billion by 2024.

Indian wood and laminate flooring market overview

The Indian wood and laminate flooring market was estimated USD 3.09 billion in 2020 and is anticipated to expand at a CAGR of 6.4% over the next seven years. The introduction of engineered wood and laminates floors are emerging as alternatives for hardwood flooring, expected to grow the segment. The superiority in durability and quality and its easy maintenance function are expected to

increase traction. Moreover, advancements in designing and printing technologies have enhanced the aesthetics and textures of the products, widening opportunities.

Ease of installation and requirement of less-skilled labourers of wood and laminate flooring (compared to conventional flooring materials like ceramic and stone tiles) are expected to influence product acceptance. The segment is also emerging as one of the biggest do-it-yourself flooring materials in the country.

Natural timber species like teak, maple, oak, rosewood, walnut, and bamboo are utilised in the production of wood and laminate flooring, offering high versatility. Wood and laminate flooring is resistant to stain warranting lower maintenance, favouring their use in commercial applications.

Growing population and urbanization have catalyzed construction for corporate offices, retail spaces, educational facilities, government buildings, hotels, lodging spaces, medical and healthcare units, industrial spaces and commercial utilities. This, in turn, is expected to influence the offtake of wood, laminate and flooring products.

High penetration of ceramic tiles in the Indian market is anticipated to be one of the major challenges for wood and laminates flooring acceptance. The incidence of tropical temperatures could act as a bottleneck.

Growth drivers:-

Rising population:

Indias population is anticipated to rise from 1.38 billion people in 2020 to 1.52 billion people by 2036, driving the need for homes and corresponding furniture.

Demographic dividend: The Indian populations median age is expected to reach 28 years in 2022 as against a global average of 30 years, indicating a youthful population willing to spend.

Urbanisation: Indias urban population is anticipated to rise from 34.47% in 2020 to 39% by 2036 on a larger population count, strengthening the demand for housing and furniture. Development of the real estate sector: The Indian real estate sector is expected to grow from USD 180 billion in 2020 to USD 1 trillion by 2030, catalysing the demand for furniture.

Pradhan Mantri Awas Yojana (PMAY): Under the PMAY scheme, 1.12 crore urban houses were sanctioned, creating a larger furniture demand.

Policy support: With Government initiatives like Make in India and Vocal for local, the Indian manufacturing sector has gained momentum; the Government of India aims to increase the share of the manufacturing sector from 16% to 25% by 2025.

Rental furniture: Due to increased financial uncertainty and economic contraction in the first half of FY 2020-21, the younger population opted to rent furniture from online portals instead of buying outright.

Discussion on performance, Financial Year 2020-21:-

Balance Sheet

• Total assets for FY2020-21 stood at Rs. 13033.44 Lakhs compared to Rs. 10746.83 Lakhs in FY 2019-20.

• Net worth stood at Rs. 4968.49 Lakhs as on 31st March, 2021 compared to Rs. 4422.97 Lakhs as on 31st March, 2020, an increase of 12.33%.

Profit and loss statement

• Revenues from operations increased 25.28% from Rs. 10638.53 Lakhs in FY2019-20 to Rs. 13327.75 Lakhs in FY2020-21

• EBITDA increased to Rs. 1240.55 Lakhs in FY2020-21 compared to Rs. 969.56 Lakhs in FY2019-20

• Profit after tax was witnessed at Rs. 545.52 Lakhs in FY2020-21, with an increase of 14.18%

• Depreciation and amortisation stood at Rs. 234.80 Lakhs in FY2020-21 compared to Rs. 164.49 Lakhs in FY2019-20

Risks and Concerns:-

The Company has framed a sound Risk Management Policy to identify and evaluate business risks and opportunities and the same has become integral part of Companys day to day operations. The key business risks identified by the Company are as follows viz. Industry Risk, Management and

Operations Risk, Market Risk, Government Policy risk, Liquidity risk, and Systems risk. The Company has in place adequate mitigation plans for the aforesaid risks.

Human Resources and Industrial Relations:-

The Company has created an enabling working environment where employees are selectively recruited, trained and provided with superior career growth. During the year under review, the Company organised various training programmes with a focus on enhancing functional and behaviourial competencies. The Company enjoys a harmonious relationship with factory workers; it comprises a blend of millennial and experienced employees.

Internal control systems and their adequacy:-

The Company has adequate system of internal control to safeguard and protect from loss, unauthorized use or disposition of its assets. All the transactions are properly authorised, recorded and reported to the Management. The Company is following all the applicable Accounting Standards for properly maintaining the books of accounts and reporting financial statements. The internal management of the company checks and verifies the internal control and monitors them in accordance with policy adopted by the company. The Company continues to ensure proper and adequate systems and procedures commensurate with its size and nature of its business.

Cautionary Statement:-

The statements in the management discussion and analysis section describing the Companys objectives, projections, estimates and prediction may be considered as forward looking statements. All statements that address expectations or projections about the future, including but not limited to statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statement on the basis of any subsequent developments, information or events.