Alufluoride Ltd Management Discussions

INDUSTRY STRUCTURE AND DEVELOPMENT

Your Company manufactures aluminium fluoride (AIF3), a specialty fluorine chemical used by primary aluminium smelters as a flux in the electrolytic reduction of alumina.

Between 14 and 20 kilograms of AlF3 is consumed in the production of every ton of aluminium. The Indian market for AlF3 is supplied by a small number of qualified domestic manufacturers, supplemented by imports. Qualification by a smelter is a slow and exacting process. An off-specification consignment can damage potlines that are expensive and time-consuming to restart. Established supplier relationships, consistency of quality, and reliability of delivery, rather than price alone, determine the winning and retention of business in this industry.

Your Company is the only manufacturer of AlF3 in Andhra Pradesh, and one of the few domestic producers qualified to serve every major primary aluminium smelter in India, including Hindalco Industries Ltd, Vedanta Ltd, and National Aluminium Company Ltd (NALCO).

Fewer than five companies manufacture AlF3 in India; only a small number of these are qualified to supply high-purity, low-bulk-density material to the major smelters. The Hindalco Resilient Supply Chain Award conferred on the Company in November 2024, and the NALCO Best Customer (Chemical Division) Award received in March 2025, are external confirmations of the Companys standing with its principal customers.

The manufacturing process converts Hydro-fluosilicic Acid (FSA), which is a byproduct of the manufacture of phosphatic fertiliser, into high-purity AlF3. This conversion delivers a fourfold benefit: it abates a difficult-to-dispose fluorine effluent at the fertiliser complex; substitutes imported aluminium fluoride at the smelter; conserves finite natural resources such as fluorspar and sulphur; and lowers the carbon footprint of primary aluminium production.

The Companys plant at Visakhapatnam is located within manageable freight range of every major Indian smelter and on the same coast as both of its principal FSA suppliers. The plants coastal location keeps outbound logistics to the smelters efficient. A portion of the Companys FSA requirement is, however, moved over a longer distance from Odisha, and the associated freight is a cost the Company absorbs.

SEGMENT-WISE PERFORMANCE

Your Company is engaged in the manufacture of a single line of product, namely Aluminium Fluoride; accordingly, no separate segment reporting under Ind AS 108 is applicable. A small solar power generation activity is carried on alongside, principally for captive consumption with surplus units sold to the grid. This activity remains an immaterial proportion of total revenue and serves primarily to reduce the carbon footprint of the Companys operations rather than to be a separate revenue stream in its own right.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Standalone revenue from operations for FY 2025-26 was Rs. 208.76 crore against Rs. 188.52 crore in the previous year, up 10.7% year-on-year. Total income, including other income, was Rs. 210.10 crore against Rs. 190.53 crore. Profit after tax for the year was Rs. 24.29 crore against Rs. 18.31 crore, up 32.7%. EBITDA for the year was Rs. 46.40 crore, with the EBITDA margin improving to 22.1% from 20.2% in the previous year.

The FY 2024-25 and FY 2025-26 profit was affected by a one-time exceptional loss of Rs. 2.61 crore and Rs. 0.96 crore, respectively arising from the disinvestment of the Jordan subsidiary. On a like-for-like basis, the underlying profit growth in FY 2025-26 is 20.8%, which compares favourably with revenue growth and reflects the operating leverage that comes with running closer to nameplate capacity, together with improvements to the manufacturing process and operating efficiencies realised during the year. Earnings per share for the year stood at Rs. 31.06 against Rs. 23.42 in FY 2024-25.

The fourth quarter of FY 2025-26 was, however, materially weaker than the nine-month run-rate. Standalone profit after tax of Rs. 3.76 crore in Q4 FY 2025-26 compared with an average of approximately Rs. 6.84 crore per quarter in the first three quarters. This deceleration is attributable principally to lower production volumes in the quarter, following the early shutdown of two FSA suppliers for annual maintenance in March, and to a lower average price realisation arising from the mix of products sold to different customers during the quarter.

Working-capital intensity rose during the year. Trade receivables and inventories were higher both in absolute terms and in days outstanding. This reflected in part the prudential build-up of Alumina Hydrate and finished- goods inventory (to a lesser extent), the Alumina Hydrate having been built up while it was available at favourable prices and as a precaution against any disruption to its supply, and in part the natural expansion of working capital that accompanies higher operating volumes. The Companys net debt remains modest in relation to operating cash flow generation, the debt-to-equity ratio is well within prudent norms, and the Company has adequate sanctioned but unutilised lines of credit to meet any near-term working-capital requirement.

Having regard to the FY 2025-26 results and the continued strong underlying cash generation of the business, the Board has recommended a final dividend of Rs. 4 per equity share (face value Rs. 10), against Rs. 3 per equity share for FY 2024-25, a 33% increase. The recommended payout absorbs approximately 12.9% of standalone profit after tax for the year; it also reflects the Boards continued policy of progressively returning surplus cash to shareholders while retaining sufficient resources for capacity expansion, backward-integration initiatives, and the strengthening of the Companys working-capital position.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

In accordance with the requirements of Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the details of significant changes (i.e., change of 25% or more as compared to the immediately preceding financial year) in the key financial ratios are set out below:

S.No.	Ratio	For the year ended 31 March 2026	For the year ended 31 March 2025	Change %	Reasons for variance above 25 %
1	Debtors turnover ratio	13.7	11.7	17	---
2	Inventory turnover ratio	6.5	8.3	(22)	---
3	Current ratio	2.1	3.1	(32)	Decrease in the current liability during the year over the previous year.
4	Operating Profit ratio	18.5 %	14 %	32	Higher production and sales volumes during the first nine months, combined with lower aluminium hydroxide input cost.
5	Net Profit ratio	12.3 %	9.9 %	24	Higher production and sales, lower aluminium hydroxide cost. One-time exceptional losses of Rs. 2.61 crore and Rs. 0.96 crore, respectively, from the disinvestment of Jordan subsidiary.

Variances in the debtors turnover ratio and the inventory turnover ratio remain within the 25% threshold but reflect the working-capital trends discussed above, namely a stretching of collection days and a precautionary inventory build-up ahead of possible Alumina Hydrate price increases.

RETURN ON NET WORTH

Return on net worth (calculated as profit after tax for the year as a proportion of average shareholders funds) for FY 2025-26 was approximately 20%, broadly in line with the previous financial year and above the Companys three-year average. The Companys capital structure remains conservative, with a low debt-to-equity ratio, and the Boards policy continues to be to deploy retained earnings primarily towards capacity expansion, backward integration, and the strengthening of the Companys working-capital position, with a progressively growing distribution to shareholders. The increase in the recommended final dividend from Rs. 3 to Rs. 4 per equity share for FY 2025-26 is consistent with that policy.

OPPORTUNITIES, THREATS, RISKS AND CONCERNS

Capacity build-out and demand environment

The structural demand outlook for AlF3 remains favourable. Indian primary aluminium smelting capacity continues to expand, with each of the Companys principal customers having announced material capacity additions over the medium term. Your Company has matched this trajectory through a phased capacity build at Visakhapatnam: 4,000 TPA at commissioning;

8.000 TPA by debottlenecking over the years; 12,000 TPA in the second phase; 18,000 TPA in a subsequent debottlenecking, and 24,000 TPA on completion of the final phase in June 2026.

AlF3 production grew at a compound annual rate of approximately 9% between FY 2022-23 and FY 2024-25, with FY 2024-25 recording 16,377 MT of production and 15,831 MT of dispatches. Both are all-time highs. FY 2025-26 has carried that revenue trajectory forward. The 24,000 TPA figure represents installed capacity; the volume actually produced in any year remains contingent on the availability of FSA, and the throughput constraint arising from the FSA shortage in the early part of FY 2026-27 is expected to keep production in that year below nameplate.

Raw-material supply: the immediate risk

The principal risk facing the Company in the immediate term is the availability of FSA, its key raw material. The Company has a long-term supply arrangement with IFFCO Paradeep (originally for 7,000 TPA, currently scaled to over 17,500 TPA with potential to expand to 19.000 TPA), and it supplements this with FSA procured from Paradeep Phosphates Ltd. as and when it is available and meets the Companys quality requirements, and from Coromandel International Ltd.s phosphoric acid plant at Visakhapatnam and, from April 2026, its new phosphoric acid plant at Kakinada. From these two plants combined the Company expects to draw approximately 4,500 TPA, if taken together, the contracted volume from IFFCO Paradeep and the additional quantities available from the other sources are sufficient, in normal conditions, to support the Companys installed AlF3 capacity. However, all the suppliers are dependent on imported raw materials, namely rock phosphate, sulphur, and ammonia. Sulphur and ammonia are sourced largely through the Strait of Hormuz, while rock phosphate reaches India mainly via the Red Sea and other routes; the sulphur and ammonia supply chains were the more disrupted of the two during the recent conflict.

The intensification of hostilities in West Asia and the continuing tension around the Strait of Hormuz have, since the latter part of FY 2025-26, affected the upstream sulphur and ammonia supply chain on which Indian phosphatic-fertiliser producers depend. This has, in turn, constrained the downstream FSA byproduct that your

Company consumes. Accordingly, on 23 May 2026, the Company filed a disclosure with the stock exchanges intimating that FSA supply had reduced, that on-site stocks of the raw material were expected to be constrained through June 2026, and that operations were being scaled back commensurately.

The financial impact of this disruption is not presently determinable; it is dependent on the trajectory of events in West Asia. The fourth quarter of FY 2025-26, in which standalone profit after tax of Rs. 3.76 crore was materially below the average of Rs. 6.84 crore per quarter recorded in the preceding nine months, reflected lower production volumes following the early maintenance shutdown of two FSA suppliers in March, together with a weaker average price realisation on the quarters product mix. The Company has, however, been able to mitigate part of this exposure. By deferring the finalisation of its latest sales contracts until May 2026, it secured terms that have afforded a measure of protection against the cost increases seen earlier in the period.

A substantial part of the Companys FSA requirement is met from Odisha. Over the years the Company has adapted its sourcing and logistics to draw reliably on that supply base. The commissioning of Coromandel Internationals phosphoric acid plant at Kakinada and the commencement of FSA supplies from that location from April 2026 is a useful diversification of the supplier base, although it does not eliminate the underlying common dependency of all the suppliers on imported raw materials.

Customer concentration

Primary aluminium smelting capacity has consolidated in the hands of a smaller number of larger operators. In FY 2024-25, the largest customer accounted for 69.27% of AlF3 revenue, up from 52.51% in FY 2023-24, while the share of customers contributing more than 10% individually (excluding the top two) declined from 20.40% to nil. The Companys small solar power business has been entirely dependent on captive consumption. The underlying pattern is not expected to have shifted materially during the year.

The Boards view is that the prevailing concentration reflects the consolidation of demand in the Indian primary aluminium industry rather than any weakening of the Companys commercial position; the receipt of two customer-conferred performance awards in the recent past supports this reading. The Company is actively pursuing the qualification of additional buyers and the development of overseas markets, including through its wholly owned subsidiary Alufluoride International Pte. Ltd., Singapore.

Strategic response: backward integration and diversification

Since FY 2024-25, the Company has been exploring the establishment of a green field Alumina Hydrate manufacturing facility. Alumina Hydrate is the second principal input into AlF3 manufacture. In-house production would reduce the Companys exposure to procurement-cost volatility on that input, while also extending the Companys presence further upstream in the aluminium value chain as a separate vertical.

The shareholders approval for an alteration of the Objects Clause to permit this activity was obtained by postal ballot on 20 April 2025. The Company is also evaluating other domestic and overseas opportunities, including potential second-site AlF3 capacity and adjacent fluorine- derivative chemistries. These initiatives are at the assessment stage; a formal commitment will follow once project specifications, capital cost, financing structure, and revenue economics are determined to the Boards satisfaction.

The Companys withdrawal in FY 2024-25 from the AlF3 joint venture in Jordan, in response to the deterioration of the political environment in West Asia and the requirement of a parent-company corporate guarantee from the Jordanian banks, was completed during FY 2025-26; the corresponding write-down of Rs. 2.61 crore, has been recognised in the FY 2024-25 consolidated financial statements.

Other risks

The other recurring risks to which the Company is exposed are: increases in inland freight cost on FSA sourced from Odisha; increases in the cost of fuel, power, and consumables; cyclicality in the primary aluminium industry transmitted through customers offtake patterns; foreign-exchange volatility on the limited proportion of imported inputs and capital goods; and the customary risks of fire, environmental incident, and industrial accident, against which the Company maintains the appropriate insurance cover. The captive solar plant commissioned in 2021 and expanded by a further 1.1 MW to 4.1 MW in May 2026, continues to contribute meaningfully to keeping the conversion cost low and the Companys carbon footprint contained.

OUTLOOK

The medium-term outlook for your Company remains favourable: Indian primary aluminium production capacity continues to expand, the Companys qualification status with its principal customers is current and active, its FSA supply arrangements are, in normal conditions, sufficient to support its installed AlF3 capacity, and the captive solar plant continues to lower the cost of conversion. The capacity ramp to 24,000 TPA completed in June 2026 positions the Company to participate fully in the demand growth expected to be generated by the Indian aluminium industry over the medium term.

In the immediate term, the outlook is materially affected by the FSA supply disruption disclosed in May 2026. The volume impact of the throughput constraint is expected to be concentrated in the first quarter of FY 2026-27, with the second quarter expected to recover towards the production level of the corresponding quarter of the previous year as FSA availability improves. The Board expects the first half of the year, taken as a whole, to reflect some reduction in AlF3 volumes relative to a normal period.

The Company has, however, limited its input-cost exposure by finalising its procurement contracts only after the onset of the disruption, which has afforded a degree of protection on pricing. The duration of the disruption is dependent on the geopolitical situation in West Asia, which is beyond the Companys control. Once normal FSA supply resumes, the Company expects its operating economics to revert to the pre-disruption pattern. In light of this near-term uncertainty, the Board has refrained from issuing a quantitative revenue or profit guidance for FY 2026-27. Shareholders are requested to read the discussion in this section in conjunction with the Companys exchange disclosure dated 23 May 2026.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Your Company has an internal control system commensurate with the size of its operations and the nature of its business, which provides for:

• the efficient use and safeguarding of resources;

• the accurate recording and custody of assets;

• compliance with prevailing statutes, policies, procedures, listing requirements, management guidelines, and circulars;

• the accurate recording, cross-verification, and prompt reporting of transactions;

• adherence to applicable accounting standards and policies; and

• the operation of information-technology systems that facilitate the above.

The internal control system is supported by well- documented policies, guidelines, authorisations, and approval procedures. Internal audit reports are placed before the Audit Committee, and significant findings are reviewed on a periodic basis. Observations from the internal audit and the status of action thereon are reviewed by the Audit Committee on a regular basis for any further appropriate action that may be deemed necessary. The Enterprise Resource Planning (ERP) system implemented earlier continues to be augmented and fine-tuned; it remains a useful management- information tool for the Companys decision-makers.

HUMAN RESOURCE DEVELOPMENT

The continued certification of your Companys Quality, Environmental, and Occupational Health and Safety Management Systems to ISO 9001, ISO 14001 and ISO 45001, respectively, reflects the commitment of all employees to excellence in operations. Committed human resources are a principal core strength of your Company, and the cordial industrial-relations atmosphere prevailing at the Visakhapatnam plant is an attribute that has long underpinned the consistency of production and the quality of dispatches. The total number of employees was 118 as on 31 March 2026. The Company continues to invest in training, in safety, and in skill development across its workforce.

CAUTIONARY STATEMENT

Statements in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, and expectations may constitute "forward- looking statements" within the meaning of applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand and supply, and the price conditions in the domestic and international markets in which the Company operates, changes in government regulations, tax laws, and other statutes, and incidental factors. The Company assumes no responsibility, in respect of forward-looking statements herein, to amend, modify, or revise any forward-looking statements on the basis of any subsequent developments, information, or events.