Asahi Songwon Colors Ltd Management Discussions

Global Economy

The global economy demonstrated resilient stabilisation in FY25, with growth projections indicating a steadying trajectory at 2.8% for 2025 and 3.0% for 2026, as highlighted by the IMF World Economic Outlook (April 2025). While persistent trade tensions and financial volatility pose challenges, multilateral efforts to bolster regional trade integration have emerged as a constructive counterbalance. UNCTADs Trade and Development Foresights 2025 notes that global trade growth, though moderating to 1.7% in 2025, reflects adaptive supply chain strategies and diversification across emerging markets. Advanced economies, including the United States and Eurozone, are navigating inflationary pressures with measured policy responses, fostering confidence in long-term stability.

India solidified its status as the worlds fastest-growing major economy in FY25, achieving GDP expansion of 6.2% (IMF, April 2025), driven by resilient private consumption, rural demand recovery, and strategic fiscal interventions. The

Deloitte India Economic Outlook (May 2025) projects growth accelerating to 6.6% in FY26, bolstered by income tax cuts in the Union Budget 2025-26, which injected Rs1 trillion annually into household disposable incomes. Landmark reforms, including enhanced infrastructure spending (Rs11.2 trillion allocated for capital expenditure) and GST streamlining, fortified despite uneven monsoons and election-related uncertainties.

A pivotal milestone was India surpassing Japan to become the fourth-largest economy globally, with a nominal GDP of $4,187 billion in FY25 (Times of India, May 2025). High-frequency indicators, such as GST collections (Rs1.8 trillion average monthly receipts in Q4 FY25) and auto sales (9.2% YoY growth), underscored robust activity. The UNCTAD report (April 2025) commended Indias resilience against global trade disruptions, attributing it to diversified export markets and import substitution in critical sectors. However, risks persist: financial market volatility, commodity price shocks, and a widening trade deficit (3.8% of GDP in Q1 FY25) necessitate vigilant policymaking. Looking ahead, India aims to overtake Germany as the third-largest economy by 2028, targeting a $5.5 trillion GDP (IMF, April 2025). Achieving this ambition hinges on sustaining reforms, attracting FDI inflows, and addressing structural bottlenecks in manufacturing and employment.

The global chemical industry entered FY25 on a stable footing, building on the gradual recovery witnessed in the previous year. According to the American Chemistry Council (March 2025), global chemical output is projected to grow by 3.5% in 2025, reflecting a cautiously optimistic outlook amidst evolving macroeconomic conditions. Demand from key end-use sectors such as automotive, construction, and packaging has remained resilient, underpinned by the ongoing shift towards sustainable solutions and circular economy practices.

The Asia-Pacific growth, with China and India playing pivotal roles in driving both production and consumption. The pigment industry, an integral part of the broader chemical sector, has demonstrated notable adaptability. China remains the dominant producer, contributing over 50% of global pigment output. However, the ongoing "China+1" strategy has resulted in a gradual realignment of supply chains, with India and Southeast Asian nations increasingly emerging as alternative manufacturing destinations.

Industry consolidation and inventory restocking have supported improved realisations and profitability across the pigment value chain. According to CARE Ratings (January 2025), the pigment industry has benefited from a more balanced supply-demand scenario, following a period of destocking and margin pressure in the preceding quarters. The integration of advanced technologies, such as AI-driven process optimisation and green chemistry initiatives, is further enhancing operational efficiencies and environmental performance.

Despite lingering uncertainties related to global trade dynamics and raw material costs, the sector remains well-positioned to capitalise on opportunities arising from increased regulatory focus on sustainability, rising demand for high-performance pigments, and the expansion of application areas in coatings, plastics, and digital printing. The industrys commitment to innovation and customer-centricity is expected to drive long-term value creation, even as it navigates a complex and dynamic global landscape.

The Indian chemical industry continues to be a catalyst for the nations economic growth, contributing significantly to diverse sectors such as agriculture, textiles, automotive, and healthcare. In FY25, the industrys market size is estimated at USD 220 billion, with projections indicating sustained double-digit growth in the coming years (FICCI, April 2025). This momentum is underpinned by favourable government policies, robust domestic demand, and increasing foreign direct investment, as well as the successful implementation of the China+1 strategy that has positioned India as a preferred manufacturing hub for global supply chains. continuesto anchor global

The specialty chemicals segment, in particular, has emerged as a key growth driver, accounting for approximately 80% of chemical exports and registering a healthy CAGR of 12% (Indian Chemical News, April 2025). Strategic reforms, such as GST rationalisation and the Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) initiative, have facilitated greater ease of doing business and attracted significant capital investments. industrys focus on The sustainability is evident, with a growing number of companies committing to emission reductions and the adoption of green technologies.

According to Invest India (March 2025), R&D investments reached H850 crore in FY25, enabling advancements in bio-based pigments, lithium-ion battery chemicals, and other high-value applications.

Domestic consumption remains robust, absorbing nearly 70% of total production, while exports have surged to USD 56 billion in FY25 (ICN Compendium 2025). The governments continued support, as reflected in the Union Budget 2025-

26s allocation of H9,200 crore to green chemistry initiatives, is expected to further strengthen the sectors global competitiveness and sustainability credentials. With a clear vision to achieve a USD 1 trillion chemical industry by 2040, India is well on its way to becoming a global leader in both chemicals and pigments, driven by innovation, operational excellence, and a steadfast commitment to responsible growth.

Company Overview

Asahi Songwon Colors Limited, established in 1990 and headquartered in Ahmedabad, Gujarat, stands as a preeminent Indian manufacturer and exporter specialising in high-quality pigments and active pharmaceutical ingredients (APIs). Over more than three decades, the Company has built a formidable reputation for its expertise in Copper Phthalocyanine (CPC) blue pigments and a comprehensive range of Azo pigments, which together form the cornerstone of its pigment portfolio. These products are integral to a wide spectrum of industries, including coatings, paints, inks, plastics, textiles, rubber, and paper, both in India and across global markets.

With state-of-the-art manufacturing facilities strategically located in Gujarat, Asahi Songwon has developed a robust production capacity of 13,800 metric tonnes per annum (MTPA) for blue pigments and 2,400 MTPA for red and yellow pigments, ensuring operational efficiency and reliability of supply to its diverse clientele. The Companys commitment to quality and innovation has enabled it to serve over 100 customers in 18 countries, including leading multinational corporations, thereby reinforcing its position as a trusted global partner in the pigment industry.

In recent years, Asahi Songwon has strategically diversified its business by entering the API segment, further strengthening its growth platform. The acquisition of Atlas Life Sciences

Private Limited has significantly enhanced the Companys capabilities in the manufacture of anti-convulsant, antipsychotic, and anti-diabetic APIs, aligning with its vision to become a key player in the pharmaceutical sector. The API business, supported by backward integration and a strong focus on regulatory compliance, has begun to contribute meaningfully to the Companys overall performance and profitability.

Guided by a clear purpose to drive innovation, sustainability, and value creation, Asahi Songwon continues to invest in research and development, process optimisation, and responsible business practices.

During FY25, Asahi Songwon Colors Limited demonstrated a resilient and progressive performance across its three principal business verticals: phthalocyanine pigments, Azo pigments, and active pharmaceutical ingredients (API). The companys operational trajectory for the year reflected a shift from the challenges of the previous period, with each segment contributing to a more robust and balanced business profile.

The phthalocyanine pigments division, which remains the cornerstone of the companys pigment portfolio, witnessed a marked improvement in plant utilisation and operational efficiency. The destocking phase that had previously weighed on industry performance was effectively navigated, enabling the business to operate at significantly higher capacity utilisation levels compared to the preceding year. This was supported by a stabilisation in demand from key end-use sectors and a disciplined focus on cost management and process optimisation. The companys leadership reaffirmed its commitment to maintaining its market share and leadership position in this segment.

In the Azo pigments business, the year was characterised by a gradual yet consistent recovery. After a period of subdued performance, the segment began to exhibit clear signs of bottoming out, with operational metrics improving quarter on quarter. Enhanced capacity utilisation and the benefits of ongoing efficiency initiatives contributed to a more favourable operating environment. The companys strategic investments in debottlenecking and process improvements are expected to yield sustained benefits, positioning the

Azo pigments business for continued growth and margin expansion in the periods ahead.

The API vertical, though relatively nascent within the companys portfolio, delivered a noteworthy performance in FY25.Thesegmentbenefitedfrom a steady ramp-up in operations and the successful implementation of backward integration measures, which improved both cost competitiveness and profitability. The companys focus on quality, regulatory compliance, and customer engagement has enabled it to strengthen its presence in the API market, while ongoing investments in technology and process innovation are expected to underpin future growth.

The long-term outlook for Asahi Songwon Colors Limited remains positive. The company is well-positioned to capitalise on emerging opportunities in the pigment and API markets. The global shift towards diversifying supply chains away from China, coupled with favourable government policies, is expected to drive growth in the Indian chemical and pigment industry. The companys focus on innovation, sustainability, and customer satisfaction will continue to strengthen its market position.

In the blue pigment segment, Asahi Songwon aims to maintain its leadership position and improve profitability margins. The Azo pigment segment is expected to benefit from increased capacity utilisation and customer additions. The API business is poised for growth, with new product launches and backward integration enhancing margins.

Overall, Asahi Songwon Colors Limited is on a path to sustained growth and profitability. The companys strategic initiatives, strong financial position, and commitment to quality and innovation will enable it to navigate challenges and seize opportunities in the evolving global market.

As Asahi Songwon Colors Limited navigates through a landscape filled with diverse challenges and opportunities, the contributions of each team member are consistently recognised. The collective skills and dedication of the team propel the organisation forward, driving the accomplishment of its objectives. The teams adaptability, resilience, and collaborative efforts serve as a continual source of inspiration.

It is essential to remember that employees constitute the core of the organisation, with their well-being being of utmost importance. The Company is committed to cultivating a nurturing environment that facilitates both personal and professional growth. As of 31 March 2025, the Company had a workforce of over 850 employees, reflecting its commitment to human capital development.

Asahi Songwon Colors Limited maintains an unwavering commitment to the implementation of internal financial control systems that are proportionate to the size and complexity of its operations. The primary objective of these systems is to provide reasonable assurance by ensuring the accuracy and reliability of financial and operational information, complying with relevant accounting standards and statutory requirements, protecting assets from unauthorised use, and ensuring proper authorisation of transactions.

To ensure the adequacy and effectiveness of these internal controls, the Company has appointed independent auditors who conduct periodic audits and make recommendations for improvements. The Audit Committee, led by a non-executive Independent Director, regularly reviews the internal control systems for their effectiveness and translates the recommended changes into the system. Furthermore, the Companys internal audit reports are subjected to thorough review and scrutiny by the Boards Audit Committee, thus providing a robust system of checks and balances.

Statements in the Management Discussion and Analysis and other parts of the report describing the Companys objectives, projections, estimates, and expectations may be forward-looking statements. Actual results may differ materially from those expressed or implied due to various risks and uncertainties. Important factors that could impact the Companys operations include economic and political conditions in India and other countries where the

Company may operate. Other factors that may influence the Companys operations include volatility in interest rates, changes in government regulations and policies, tax laws, statutes, and other incidental factors. The Company does not intend to update these statements.