Barflex Polyfilms Ltd Management Discussions

The following discussion is intended to convey managements perspective on our financial condition and results of operations for the Year ended on March 31, 2022, March 31, 2023 and March 31, 2024. You should read the following discussion of our financial condition and results of operations together with our restated financial statements included in the Draft Red Herring Prospectus. You should also read the section entitled "Risk Factors" beginning on page 22 of this Draft Red Herring Prospectus, which discusses several factors, risks and contingencies that could affect our financial condition and results of operations. The following discussion relates to our Company and is based on our restated financial statements, which have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI ICDR Regulations. Portions of the following discussion are also based on internally prepared statistical information and on other sources. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year ("Fiscal Year") are to the twelve-month period ended March 31 of that year.

In this section, unless the context otherwise requires, any reference to "we", "us" or "our" refers to Barflex Polyfilm Limited, our Company. Unless otherwise indicated, financial information included herein are based on our "Restated Financial Statements" for Financial Year ended on March 31, 2022, March 31, 2023 and March 31, 2024 included in this Draft Red Herring Prospectus beginning on page 151 of this Draft Red Herring Prospectus.

BUSINESS OVERVIEW

Our Company was incorporated as a private limited company on January 24, 2005, with the business to manufacture flexible packaging material at our first manufacturing unit situated at Plot No-17, Industrial Area Barortiwala, Baddi, Distt- Solan, Himachal Pradesh-174103, India ("Unit -I"). Unit -I manufactures barrier COEX films, laminates and PVC (poly vinyl chloride) labels. The installed capacity of Unit -I is to manufacture 2400 MT per annum of co-extruded multilayer plastic films and pouches.

In the year 2008, our Company expanded its business operations with intent to increase customer base with the following strategies: (a) set up a manufacturing unit adjacent to Unit-I ("Unit II"). The installed capacity of Unit -II was to manufacture PVC shrink sleeves 950 MT per annum in the year 2008; and (b) set up an additional manufacturing unit at Plot No-15 ("Unit -III"). The objective of Unit -III is to manufacture PVC stretch and plastic films and pouches at 865 MT per annum. In the year 2011 and 2012, our Company further enhanced the installed capacity of Unit-II. The current capacity of Unit II to manufacture pouches, plastic film, laminates, PVC shrink sleeves is 3000 MT per annum.

We are engaged in manufacturing of COEX films, laminates and labels; thus, in a position to offer a range of packaging options to all end user industries. We manufacture flexible packaging material suitable for packaging products in FMCG, processed foods, adhesive, engineering, pharmaceutical, cosmetics, construction and other industries. Our key customers are known brands in their respective sector/geographies. Our Company commenced its export operations since inception only. Presently, our Company has limited export business of our finished products to Ivory Coast, a country in western African region.

At present, we manufacture 3-layer poly films, 5-layer poly films, laminates, vacuum pouches, 5-layer bulk liners and PVC shrink labels. We are planning to start manufacturing 7-layer films as well, post expansion. This will help us to become the packaging material manufacturer covering different range of products possibly required by any specific customer and thus could be one of their preferred vendors.

Product wise revenue break up for the Financial Year ended March 31, 2024, 2023 and 2022 is mentioned below:

(Rs. in lakhs)

Products***	FY 2024		FY 2023		FY2022
	Revenue	%	Revenue	%	Revenue	%
5-layer barrier films	2,933.91	26.55%	2,778.95	25.41%	2,335.64	24.95%
Poly Pouches	847.51	7.67%	934.89	8.55%	800.19	8.55%
3 ply laminates	3,220.70	29.15%	3,377.08	30.87%	2,859.51	30.55%
Laminate pouches	2,048.53	18.54%	2,236.78	20.45%	2,161.74	23.09%
BOPP labels/PVC	909.39	8.23%	857.99	7.84%	694.07	7.41%
Design and development	177.56	1.61%	187.02	1.71%	134.46	1.44%
Miscellaneous sale*	911.38	8.25%	565.71	5.17%	375.19	4.01%
Revenue from Operations	11,048.98	100%	10,938.42	100%	9,360.80	100%
Less: Discount**	25.62		21.35		11.08
Total revenue from	11,023.36		10,917.07		9,349.72
Operations

* Miscellaneous sale includes sale of scrap and trading of granules;

**Discount includes cash and quantity discount provided to our customers;

***As certified by KRA & Co., Chartered Accountants, Statutory Auditor by way of their certificate dated July 11, 2024.

SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO THE LAST FINANCIAL YEAR:

In the opinion of the Board of Directors of our Company, there have not arisen, since the date of March 31, 2024, as disclosed in this Draft Red Herring Prospectus, any significant developments or any circumstance that materially or adversely affect or are likely to affect the profitability of our Company or the value of its assets or its ability to pay its material liabilities within the next twelve months.

OUR SIGNIFICANT ACCOUNTING POLICIES

For Significant accounting policies please refer Significant Accounting Policies, "Annexure 1" beginning under Chapter titled "Financial Information of our Company" beginning on page 158 of the Draft Red Herring Prospectus.

FINANCIAL SNAPSHOT

For the year ended March 31, 2024 our total revenue as per Restated Financial Statement was 11,609.58 lakhs. Further, our profit after tax for the year ended March 31, 2024 as per Restated Financial Statements was 1,643.04 lakhs.

The following table sets forth a breakdown of our revenue from operations, as well as other key performance indicators, for the periods indicated:

(Rs. in lakhs)

Particulars	2023-24	2022-23	2021-22
Revenue from Operations1	11,023.36	10,917.07	9,349.72
Other Income2	586.22	123.69	60.42
Total Revenue3	11,609.58	11,040.76	9,410.15
EBITDA4	1,799.64	1,206.76	1,000.61
EBITDA Margin (%)5	16.33%	11.05%	10.70%
Profit After Tax6	1,643.04**	1,013.07	793.98
PAT Margin (%)7	14.91%	9.28%	8.49%
Total Equity8	6,403.19	4,760.15	3,747.08
Return on Equity Ratio9	25.66%	21.28%	21.19%
Total Debt10	13.58	16.50	25.87
Debt / Equity Ratio (in times)11	0.002	0.003	0.007
EPS (Basic and Diluted)12	7.24	4.46	3.50

** Reason for significant increase in Profit After Tax for the year ended March 31, 2024 was (a) decrease in raw material prices and (b) increase of other income.

Note:

1. Revenue from Operations refers to revenue from sale of products and other operating revenues, as recognized in the Restated financials;

2. Other Income includes profit on sale of investments, interest income, dividend income, provisions no longer required written back, profit on sale of fixed assets, foreign exchange fluctuations and Miscellaneous income;

3. Total Income is sum of operating income and other income;

4. EBITDA refers to earnings before interest, taxes, depreciation & amortization excluding other income;

5. EBITDA Margin refers to EBITDA during a given period as a percentage of revenue from operations during that period;

6. PAT is calculated as Profit before tax Tax Expenses;

7. PAT Margin is calculated as PAT for the year divided by revenue from operations;

8. Total Equity is defined as the aggregate of share capital and other equity;

9. Return on equity (RoE) is equal to profit for the year divided by the total equity and is expressed as a percentage.

10. Total Debt include Current and Non Current borrowings (As per management there is no CC and Working limit with the bank, the only borrowing is related to vehicle (Bus for factory employees use) finance only i.e. loan outstanding and current year maturities from banks & financial institution);

11. Debt to equity ratio is calculated by dividing the total debt (current and non-current)) by total equity (which includes issued capital and other equity reserves).

12. Earnings Per share Net Profit after tax, as restated, attributable to equity shareholders divided by weighted average no. of equity shares outstanding during the year/ period.

STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

For details in respect of Statement of Significant Accounting Policies, please refer to Annexure 1 of Restated Financial Statements beginning on page no. 158 of this Draft Red Herring Prospectus.

Factors Affecting our Results of Operations

Our business is subjected to various risks and uncertainties, including those discussed in the section titled "Risk Factors" beginning on page no. 22 of this Draft Red Herring Prospectus. Our results of operations and financial conditions are affected by numerous factors including the following:

• General economic and business conditions in the markets in which we operate and in the local, regional, national and international economies;

• Failure to successfully upgrade our product portfolio, from time to time;

• Any change in government policies resulting in increases in taxes payable by us;

• Increased competition in the industry in which we operate;

• Our ability to grow our business;

• Factors affecting polyfilms and packaging industry;

• Our ability to retain our key managements persons and other employees;

• Changes in laws and regulations that apply to the industries in which we operate;

• Companys ability to successfully implement its growth strategy and expansion plans;

• Our failure to keep pace with rapid changes in technology;

• Our ability to maintain our relationships with domestic as well as foreign vendors and their inability to meet our products specifications and supply our products in timely manner;

• Failure to comply with regulations prescribed by authorities of the jurisdictions in which we operate;

• Inability to successfully obtain registrations in a timely manner or at all;

• General economic, political and other risks that are out of our control;

• Inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices;

• Conflicts of interest with affiliated companies, the promoter group and other related parties;

• Any adverse outcome in the legal proceedings in which we are involved;

• Concentration of ownership among our Promoters.

• The performance of the financial markets in India and globally.

Result of Operations

The following table sets forth certain information with respect to our results of operations, on a Restated Financial basis as indicated below: (Rs. in lakhs)

Particulars	For the year ended 31-Mar-24	% of total revenue	For the year ended 31-Mar-23	% of total revenue	For the year ended 31-Mar-22	% of total revenue
Revenue from Operation (I)	11,023.36	94.95%	10,917.07	98.88%	9,349.72	99.36%
Other income (II)	586.22	5.05%	123.69	1.12%	60.42	0.64%
Total Revenue (I + II)	11,609.58		11,040.76		9,410.15
Raw material Consumption	7,527.83	64.84%	7,876.46	71.34%	6,894.11	73.26%
Changes in Inventories	(77.53)	(0.67%)	77.56	0.70%	(3.27)	(0.03%)
Employee benefits	653.55	5.63%	653.11	5.92%	551.37	5.86%
Expense
Finance costs	21.52	0.19%	18.09	0.16%	3.23	0.03%
Depreciation and Amortization expenses	52.97	0.46%	76.45	0.69%	79.81	0.85%
Other Expenses	1,119.87	9.65%	1,103.19	9.99%	906.90	9.64%
Total Expenses	9,298.20	80.09%	9,804.85	88.81%	8,432.15	89.61%
Profit / (Loss) before Tax	2,311.38	19.91%	1,235.91	11.19%	978.00	10.39%
Tax Expenses	668.33	5.76%	222.84	2.02%	184.01	1.96%
Net Profit after tax	1,643.04	14.15%	1,013.07	9.18%	793.98	8.44%

Main components of our Profit and Loss Account Revenue from operations:

Revenue from operations consists of revenue from sales of products and other operating revenue i.e. Job work charges, Design and development charges.

Other Income:

Our other income primarily comprises of profit on sale of investments, interest income, dividend income, provisions no longer required written back, profit on sale of fixed assets, foreign exchange fluctuation and miscellaneous income.

Expenses:

Our total expenditure primarily consists of cost raw material consumed, changes in inventories of finished goods, work-in-progress and stock-in-trade, employee benefit expenses, finance costs, depreciation and amortization expenses and other expenses. Other expenses include printing cylinder amortization which at the time of placing order, agreed by the customer to be the cost of procuring printing cylinders, on an understanding that the same cost will be reimbursed after completion of the pre-agreed minimum order quantities.

Changes in inventories:

Our change in comprises of difference between opening and closing stock of work finished goods and work-in-progress

Employee benefits expense:

Our employee benefits expense comprises of salaries and wages, director remuneration, contribution to provident and other funds, production incentives, medical expenses, staff welfare expenses and provision of gratuity.

Finance costs:

Our finance cost comprises of Interest expense on term loan (vehicle finance), margin trading and other interest expenses.

Depreciation and amortization expenses:

Tangible assets are depreciated over periods corresponding to their estimated useful lives. Depreciation includes depreciation on property, plant & equipment, motor vehicles and other assets.

Other Expenses:

Other expenses are the general and administrative expenses of our Company. It includes power cost, audit fees, insurance, rent paid, power & fuel cost, rates & taxes and miscellaneous expenses etc.

RESULTS OF OPERATIONS FOR FISCAL 2024 COMPARED WITH FISCAL 2023

(A)-Income

Revenue from Operations

During the period, the revenue from operation of our Company was increased from 10,917.07 lakhs to 11,023.36 lakhs. There was a marginal increase in revenue since we are operating at optimum capacity utilization.

Other Income:

During the period, the other income of our Company stood at 586.22 lakhs during FY24 as compared to 123.69 lakhs during FY23. This increase of 373.94% was majorly on account of profit on sale of investment to the extent of 504.74 lakhs.

(B)-Expenditure

Cost of Raw Material Consumed

Cost of raw material consumed during FY24 was 7,527.83 lakhs as compared to 7,876.46 lakhs during FY23. The decrease in raw material is on account of decrease in raw material prices.

Change in Inventories of work in progress, finished goods and stock in trade

Change in Inventories of work in progress, finished goods and stock in trade for FY24 was (77.53) lakhs as against 77.56 lakhs during FY23. This decrease in inventories is primarily due to maintenance of low levels of inventory as prices of raw material kept on decreasing.

Employee benefits expense:

During the period, our employee benefits expense was 653.55 lakhs during FY24 as compared to 653.11 lakhs in FY23. There was no change in employee benefit cost.

Finance costs:

Our finance costs were 21.52 lakhs during FY4 as compared to 18.09 lakhs during FY23 on account of marginal increase in interest cost.

Depreciation and Amortization Expenses:

Depreciation and amortization expense during FY24 was 52.97 lakhs as compared to 76.45 lakhs during FY23. The decrease in depreciation was on account of decrease in value of tangible assets.

Other Expenses:

Our other expenses during FY24 were 1119.87 lakhs as compared to 1103.19 lakhs during FY23. This increase is primarily on account of increase in power, repairs & maintenance and rent charges.

Profit after tax:

Our profit after tax increased from 1013.07 lakhs in FY23 to 1643.04 lakhs in FY24. This increase of 62.19% was mainly on account of decrease in raw material prices. The total consumption of raw material during FY24 was 7527.83 lakhs as against 7876.46 lakhs during FY23. The other major reason was increase in profit on sale of investment to the extent of 504.74 lakhs.

FISCAL 2023 COMPARED WITH FISCAL 2022

Set forth below is a discussion of our results of operations for financial year ended March 31, 2023 over March 31, 2022

(A)-Income

Revenue from Operations

Our revenue from operations increased by 16.76 % to 10,917.07 lakhs during Fiscal 2023 from 9,349.72 lakhs during Fiscal 2022. The increase in revenue from operations was primarily on account of increase in our sales by 440 tonnes of packing material. The primary factor contributing to this increase was the rising demand for plastic packaging materials, particularly in the food packaging sector, following the COVID-19 pandemic.

Other Income:

Other Income increased from 60.42 lakhs during financial year 2022 to 123.69 lakhs during FY 2023 representing 104.72% increase. This amount of 123.69 lakhs include profit from sale of investment to the extent of 32.36 lakhs; writing back of liabilities aggregating 50.65 lakhs (a non-recurring event), and increase in interest income received on fixed deposits.

(B)-Expenditure

Cost of Raw Material Consumed

Our raw material consumption increased by 14.25% i.e. from 6,894.11 lakhs in FY 2022 to 7,876.46 lakhs in FY 2023. This increase in purchase was on account of steep increase in purchase of raw material prices i.e. of largely LLDPE and nylon plastic granules.

Change in Inventories of work in progress, finished goods and stock in trade

Our change in inventories increased by (2,471.87)% to 77.56 lakhs for Fiscal 2023 from (3.27) lakhs for Fiscal 2022. This change in inventory was mainly on account of purchase of additional stock of plastic granules, prices of which were continuously increasing. Since the company had surplus funds they took advantage of buying the plastic granules whenever an opportunity came to buy some quantities at discounted rates.

Employee benefits expense:

Employee Benefit Expenses increased from 551.37 lakhs in year ended March 31, 2022 to 653.11 lakhs in year ended March 31, 2023 with a resultant increase of 18.45% in year ended March 31, 2023 mainly due to increase in salary & wages.

Finance costs:

Finance cost increased from 3.23 lakhs in year ended March 31, 2022 to 18.09 lakhs in year ended March 31, 2023 with a resultant increase of 460.06% in year ended March 31, 2023 due to increase in interest expense.

Depreciation and Amortization Expenses:

Depreciation and amortization decreased from 79.81 lakhs in year ended March 31, 2022 to 76.45 lakhs in year ended March 31, 2023 with a resultant decrease of 4.20% in year ended March 31, 2023. The decrease in depreciation was on account of decrease in value of tangible assets.

Other Expenses:

Other expenses increased from 906.90 lakhs in FY 2022 to 1,103.19 lakhs in FY 2023 representing an increase of 21.64%. This increase was on account of an increase in power cost, cylinder amortization, freight charges, travelling and conveyance charges.

Profit after tax:

Net Profit after tax increased from 793.98 lakhs in FY 2022 to 1,010.71 lakhs in year ended March 31, 2023 with a resultant increase of 27.59% in year ended March 31, 2023. The profit after tax was increased on account of increase in other income and reduction in raw material cost of mLLDPE granules and PET films.

Cash Flow Statement

The following table sets forth certain information relating to our cash flows in the periods indicated:

(Rs. in lakhs)

Particulars	FY 23-24	FY 22-23	FY 21-22
Net Cash flow from/ (used in) operating activities	1,357.37	1,540.25	693.44
Net cash flow from/ (used in) investing activities	(1,391.06)	(273.41)	(890.84)
Net cash flow from/ (used in) financing activities	(24.67)	(13.87)	(19.73)
Cash and cash equivalents at the beginning of the year	1,518.18	265.22	482.34
Cash and cash equivalents at the closing of the year	1,459.82	1,518.18	265.22

Cash flows from/(used in) operating activities

For the year ended March 31, 2024, net cash from operating activities was 1,357.37 lakhs as compared to profit before tax of 2,311.38 lakhs for the same period. This difference is primarily on account of change in working capital, depreciation, finance cost & taxation.

For the year ended March 31, 2023, net cash from operating activities was 1,540.25 lakhs as compared to profit before tax of 1,235.91 lakhs for the same period. This difference is primarily on account of change in working capital, depreciation, finance cost & taxation.

For the year ended March 31, 2022, net cash from operating activities was 693.44 lakhs as compared to profit before tax of 978.00 lakhs for the same period. This difference is primarily on account of change in working capital, depreciation, finance cost & taxation.

Cash Flows from/(used in) investing activities

In FY 2024, net cash generated from investing activities was (1391.06) lakhs. The reason for cash outflow was investment in securities and purchase of fixed assets and capital advances.

During FY 2023, net cash from investing activities was (273.41) lakhs. This cash outflow was on account of investment in securities and purchase of fixed assets and capital advances.

During FY 2022, net cash from investing activities was (890.84) lakhs. The reason for cash outflow was on account of investment in securities and purchase of fixed assets and capital advances.

Cash Flows from/(used in) financing activities

For fiscal 2024, net cash used in financing activities was (24.67) lakhs on account of payment of finance cost and repayment of borrowings.

During FY2023, net cash used in financing activities was (13.87) lakhs on account of repayment of borrowing and payment of finance cost.

During FY2022, net cash used in financing activities was (19.73) lakhs on account of payment of finance cost.

Information required as per Item 11 (II) (C) (iv) of Part A of Schedule VI to the SEBI Regulations:

Unusual or infrequent events or transactions

To our knowledge there have been no unusual or infrequent events or transactions that have taken place during the last three years other than shut down of business due to COVID-19 for few days.

Significant economic changes that materially affected or are likely to affect income from continuing operations.

Our business has been subject, and we expect it to continue to be subject to significant economic changes arising from the trends identified above in ‘Factors Affecting our Results of Operations and the uncertainties described in the section entitled "Risk Factors" beginning on page 22 of this Draft Red Herring Prospectus. To our knowledge, except as we have described in this Draft Red Herring Prospectus, there are no known factors which we expect to bring about significant economic changes.

Income and Sales on account of major product/main activities

Income and sales of our Company consists of sale of products COEX Barrier films, laminates and PVC shrinks etc.

Whether the company has followed any unorthodox procedure for recording sales and revenues

Our Company has not followed any unorthodox procedure for recording sales and revenues.

Future relationship between cost and revenue

Other than as described in "Risk Factors", "Our Business" and "Managements Discussion and Analysis of Financial

Condition and Results of Operations" on pages 22, 97 and 177, respectively, to our knowledge there are no known factors that may adversely affect our business prospects, results of operations and financial condition.

Known trends or uncertainties that have had or are expected to have a material adverse impact on sales, revenue or income from continuing operations.

Apart from the risks as disclosed under Section titled "Risk Factors" beginning on page 22 in this Draft Red Herring Prospectus, in our opinion there are no other known trends or uncertainties that have had or are expected to have a material adverse impact on revenue or income from continuing operations.

Extent to which material increases in net sales or revenue are due to increased sales volume, introduction of new products or services or increased sales prices.

The addition of new machinery and new products/segments will increase the volume of business.

Total turnover of each major industry services in which the issuer company operated.

The Company is in the business of, the relevant industry data, as available, has been included in the chapter titled "Industry Overview" beginning on page 88 of this Draft Red Herring Prospectus.

Status of any publicly announced new products or business services.

Our Company has not announced any new services or business services.

The extent to which business is seasonal.

Our Companys business is not seasonal.

Any significant dependence on a single or few customers:

We believe that we are not significantly dependent on any single or few customers.

Competitive conditions.

Competitive conditions are as described under the Chapters titled "Industry Overview" and "Our Business" beginning on pages 88 and 97 respectively of this Draft Red Herring Prospectus.

Details of material developments after the date of last balance sheet i.e., March 31, 2024.

After the date of last Balance sheet i.e., March 31, 2024, there has been no material event occurred which the following material events have occurred: (a) We have redesignated Mr. Anil Kumar Gupta as Chief Financial Officer of our Company with effect from May 9, 2024 (b) We have appointed Mr. Anil Kumar Mittal, Mr. Aditya Rungta and Mrs. Simran Sabharwal as Independent Directors of our Company with effect from May 9, 2024 (c) Regularisation of appointment of Mr. Krishan Mohan Pandey as Whole Time Director with effect from May 9, 2024 (d) Increase in borrowing power of our Company to the extent of 2500 lakhs in the Extra Ordinary General Meeting held on May 9, 2024 (e) We have passed a Board resolution in the meeting of Board of Director dated May 3, 2024 authorizing the Board of Directors to raise funds by making an Initial Public Offering. (f) We have passed a special resolution in the meeting of shareholders dated May 9, 2024 authorizing the Board of Directors to raise funds by making an Initial Public Offering.