Chatha Foods Ltd Management Discussions

Industry Structure and Developments Overview

Indias food processing industry is at an inflection point, driven by favourable demographics, rapid urbanisation, rising disposable incomes and evolving consumer lifestyles. Increasing workforce participation, changing household structures and growing preference for convenience-oriented food choices are reshaping consumption patterns, creating sustained demand for safe, hygienic and value- added food products. As consumer expectations continue to evolve, organised food manufacturers are increasingly becoming integral to Indias modern food ecosystem.

The organised food service sector has emerged as one of the strongest growth engines for the food processing industry. Expansion of Quick Service Restaurants (QSRs), cafes, cloud kitchens, institutional catering and organised restaurant chains, supported by the rapid adoption of food delivery and quick- commerce platforms, is transforming the way food is produced, distributed and consumed. Industry estimates project the Indian Food Service market to grow from approximately US$56 billion in 2025 to over US$138 billion by 2034, reflecting a CAGR of around 10%. This growth is expected to be supported by rising discretionary spending, increasing urbanisation, expanding tourism and continued formalisation of the restaurant industry. As organised food service operators continue to expand across the country, the need for manufacturing partners capable of delivering consistent quality, food safety, product innovation and reliable nationwide supply is expected to grow significantly.

The frozen food category continues to be one of the fastest-growing segments within the organised food industry. According to industry estimates, the Indian Frozen Foods market is expected to expand from approximately 21,659 crore in 2025 to over 64,364 crore by 2034, registering a CAGR of approximately 12.9%. Simultaneously, Ready-to-Eat (RTE) and Ready-to-Cook (RTC) products are witnessing increasing consumer acceptance as convenience, changing lifestyles and improved cold- chain infrastructure continue to accelerate category growth. Organised retail, modern trade, quick- commerce and digital commerce are further expanding accessibility of these products across metropolitan as well as Tier-II and Tier-III cities.

Another significant structural trend shaping the industry is the growing focus on protein-rich diets. Increasing health awareness, changing dietary preferences and rising consumption of poultry-based products are driving demand for value-added protein foods across both retail and food service channels. As consumers increasingly seek products that combine nutrition, convenience and quality, manufacturers with strong product development capabilities, robust food safety systems and scalable manufacturing infrastructure are expected to benefit from sustained long-term demand.

The industry is also witnessing a gradual transition from fragmented and unorganised supply chains towards organised manufacturing. Food safety regulations, traceability requirements, customer audits and standardisation have become increasingly important for national restaurant chains and institutional customers. Consequently, supplier selection today extends well beyond pricing and product availability. Manufacturing capability, operational excellence, innovation, quality assurance, regulatory compliance and supply reliability have emerged as critical differentiators for organised food manufacturers.

Collectively, these structural shifts are expanding the addressable market for organised food manufacturers and creating a favourable long-term operating environment. Companies that have invested in scalable manufacturing infrastructure, food safety systems, product innovation and long- term customer relationships are expected to be better positioned to participate in the next phase of industry growth.

Recognising these trends early, Chatha Foods has, over the past several years, pursued a disciplined strategy of investing in manufacturing capabilities, technology, product development and customer partnerships. With the Companys expanded manufacturing platform now substantially in place, its strategic focus is progressively shifting from capacity creation to commercial scale-up, capacity utilisation and sustainable value creation. The Company believes this positions it favourably to capitalise on the long-term growth opportunities emerging across Indias organised food service and value-added food ecosystem.

Global Outlook

The global food processing industry showed resilience in FY2025-26 despite geopolitical conflicts, inflation, and supply chain volatility, with manufacturers adopting agile models to manage costs and inputs. Long-term growth remains strong, driven by urbanisation, lifestyle changes, and rising demand for processed, frozen, RTE, and RTC foods that offer convenience, nutrition, and safety. Investments in automation, digital supply chains, cold-chain infrastructure, and product innovation are enhancing productivity and market access through modern retail, e-commerce, and quick-commerce. A global shift toward healthier, protein-rich diets is creating sustained opportunities in poultry and other protein- based foods, reinforcing the need for scalable, quality-driven, and innovative platforms. In India, similar trends-formalisation, organised food service expansion, and rising demand for value-added products-are opening significant long-term opportunities for organised manufacturers.

The increasing focus on protein-rich diets and growing consumption of value-added poultry products presents an additional opportunity for the Company. Its established capabilities in developing customised food solutions for organised food service customers provide a platform to participate in this growing segment. Further, increasing global demand for processed and convenience foods creates opportunities to expand exports, diversify revenue streams and improve utilisation of the Companys manufacturing infrastructure.

Strategic Outlook

Chatha Foods Limited remains well-positioned to capitalize on the growing demand for frozen, ready- to-eat (RTE), and ready-to-cook (RTC) food products in domestic markets. The Companys long-standing relationships with leading Quick Service Restaurant (QSR) brands, diversified product portfolio, robust manufacturing capabilities, and reputation as a trusted food solutions partner provide a strong foundation for sustained growth.

The Company is strategically positioned to benefit from favourable industry trends through capacity expansion, product innovation, and deeper penetration across existing and new customer segments. The commissioning of Unit-II (Vegetarian) at Mohali and the Allana Joint Venture facility at Aurangabad is expected to significantly enhance manufacturing capabilities and support the next phase of growth. With total Operational capacity expected to increase from 7,800 MT for the FY 2026 to approximately 30,800 MT by the FY 2028, the Company is well placed to achieve meaningful scale, improve capacity utilization, and unlock operating leverage, thereby supporting long-term margin expansion.

As part of its growth strategy, the Company is focused on broadening its product portfolio beyond its traditional strengths. While non-vegetarian products continue to constitute a significant share of revenues, Chatha Foods aims to expand its presence in vegetarian products, ready-to-eat offerings, snacks, gravies, flatbreads, tortillas, and other value-added food categories to cater to evolving consumer preferences and diversify its revenue streams.

The Company also intends to strengthen its export footprint and capitalize on opportunities arising from increasing global demand for processed and frozen food products. Expansion into international markets is expected to enhance revenue diversification and create additional avenues for long-term growth.

Further, the Companys continued emphasis on research and development, product innovation, quality assurance, food safety certifications, and automation are expected to reinforce its competitive positioning. Its proven ability to develop customized food solutions for leading QSR chains and institutional customers remains a key differentiator and supports long-term customer relationships.

While geopolitical uncertainties, commodity price volatility, inflationary pressures, and supply-chain disruptions may present short-term challenges, the Company believes that its strong customer franchise, expanded manufacturing footprint, diversified growth initiatives, and focus on operational excellence position it well to deliver sustainable growth and create long-term value for all stakeholders.

Opportunities

The Indian food processing industry continues to present significant opportunities, supported by rapid urbanisation, rising disposable incomes, changing consumer lifestyles and increasing preference for convenient, hygienic and value-added food products. The growing acceptance of frozen, Ready-to-Eat (RTE) and Ready-to-Cook (RTC) products, particularly among younger consumers and working professionals, is expected to support sustained demand. The expansion of Quick Service Restaurants (QSRs), institutional food service, cafes, cloud kitchens, organised retail, e-commerce and quick- commerce is further widening the addressable market for organised food manufacturers.

The Companys expanded manufacturing platform provides an opportunity to support higher production volumes, improve capacity utilisation and achieve better operating leverage. With the substantial completion of Unit II (Vegetarian) at Mohali and the Joint Venture manufacturing facility at Aurangabad, the Company has significantly enhanced its manufacturing capabilities. The increased capacity provides headroom to service existing customer programmes, onboard new customers, diversify into additional product categories and support future domestic and international expansion. There is also considerable scope for product diversification. The Company can leverage its existing manufacturing capabilities, customer relationships and product development expertise to expand further into vegetarian, plant-based, RTE, RTC, snacks, gravies, flatbreads, tortillas and other value- added food categories. Such diversification can help address evolving consumer preferences, increase wallet share from existing customers and reduce dependence on any single product category.

Structural shifts such as rising protein-rich diets, growing poultry consumption, and stricter food safety and traceability requirements are reshaping the industry, favouring organised manufacturers with scalable infrastructure, innovation, and compliance capabilities. These trends expand the addressable market and create a favourable long-term environment for players with strong customer relationships and operational excellence. Recognising this, Chatha Foods has invested in manufacturing, technology, product development, and partnerships, and with its expanded platform now in place, the company is shifting focus toward commercial scale-up, capacity utilisation, and sustainable value creation to capture emerging opportunities in Indias organised food ecosystem.

The Company also sees opportunities through greater penetration into Tier-II and Tier-III markets and through retail, digital distribution, cloud kitchens and quick-commerce channels. Increasing cold-chain infrastructure and wider consumer acceptance of frozen and convenience foods are expected to improve accessibility beyond major metropolitan markets. Together with continued investments in product innovation, automation, quality systems and supply-chain efficiency, these developments provide a favourable platform for sustainable long-term growth.

Threats

The Company operates in an industry that is subject to intense competition from both domestic and international players. Increasing competition in the frozen, RTE and convenience food segments may result in pricing pressure, higher customer acquisition costs and the need for continuous investment in product innovation, quality, technology and customer service. The Company may therefore need to continuously strengthen its competitive proposition while maintaining product quality and operating efficiency.

Inflationary pressures and changes in consumer spending patterns may also affect demand, particularly where consumers become more price-sensitive. In addition, fluctuations in the prices of meat, poultry, vegetables, edible oils, packaging materials, energy and transportation may adversely impact margins if increased costs cannot be adequately recovered through pricing or operating efficiencies.

The Companys business is also dependent on the availability and reliability of cold-chain infrastructure. Any disruption in refrigerated storage, transportation, power supply or logistics could affect product quality, increase wastage or result in additional operating costs. Rising electricity and fuel prices may further increase the cost of maintaining temperature-controlled operations and transportation.

Changes in regulatory requirements relating to food safety, quality, labelling, traceability and other applicable standards may require additional investments and operational adjustments. As the Company expands its customer base, product portfolio and geographical presence, maintaining consistent quality and compliance across manufacturing and supply-chain operations will remain critical.

Risks and Concerns

The Companys performance remains exposed to fluctuations in the prices and availability of key raw materials, including meat, poultry, vegetables, edible oils and other food ingredients, as well as packaging materials. Any significant increase in input costs, supply shortages or procurement disruptions could adversely affect production costs and operating margins. The Company seeks to mitigate these risks through supplier diversification, procurement planning, inventory management and continuous monitoring of market conditions.

Customer concentration and pricing pressure remain areas requiring continued management attention. The Companys B2B business is substantially linked to organised food service and QSR customers, and any reduction in demand, loss of a significant customer, changes in customer procurement strategies or increased pricing pressure could affect revenue and profitability. Management is therefore focused on broadening the customer base across QSRs, institutional customers, retail, cloud kitchens, quick- commerce and export markets.

The Company has significantly expanded its manufacturing capacity, and the ability to translate this increased capacity into profitable growth will depend on successful commercial scale-up and improvement in capacity utilisation. Lower-than-expected utilisation could result in under-absorption of fixed costs and affect returns on the capital invested. Accordingly, increasing production volumes, onboarding new customers and improving asset productivity remain key management priorities.

Food safety and quality represent critical operational risks for the Company. Any failure to maintain prescribed quality standards, food safety systems, traceability requirements or applicable certifications could adversely affect customer relationships, business continuity and the Companys reputation. The Company continues to maintain quality-control systems, process monitoring, audits and applicable certifications to manage these risks.

Overall, management remains focused on prudent cost management, customer diversification, operational excellence, disciplined capital allocation and strengthening supply-chain resilience. The objective is to manage these risks while ensuring that the Companys expanded manufacturing capabilities are translated into sustainable revenue growth, improved profitability and long-term value creation.

Operational Drivers of Financial Performance

FY2025-26 marked an important transition in the Companys growth journey. While the year reflected continued business growth and improved operating performance, it also represented the culmination of a multi-year investment programme undertaken to strengthen the Companys manufacturing capabilities. The financial performance for the year should therefore be viewed in the context of a business that has substantially completed a significant phase of capacity creation and is now entering the next phase focused on commercial scale-up, asset utilisation and improving returns on capital employed.

Revenue Performance

Revenue from Operations increased to 165.8 crore during FY2025-26 from 157.2 crore in the previous year, reflecting continued demand from organised food service customers, expansion of existing customer programmes and contribution from new business opportunities.

The Companys diversified customer base, focus on value-added food products and long-standing customer relationships continued to provide resilience despite a challenging operating environment characterised by commodity price volatility and inflationary pressures.

Profitability

Gross Profit increased to 46.1 crore, with Gross Margin improving to 27.8% compared with 26.2% in the previous year. The improvement was driven by a favourable product mix, procurement efficiencies, manufacturing improvements and continued focus on higher value-added product categories.

EBITDA increased to 12.7 crore, resulting in an EBITDA Margin of 7.6%, compared with 7.2% in FY2024-25. The improvement reflects disciplined cost management, operational efficiencies and the Companys continued focus on manufacturing excellence despite inflationary pressures affecting several input categories.

Profit After Tax improved to 6.7 crore, demonstrating the Companys ability to sustain earnings growth while simultaneously executing one of the largest investment programmes in its history.

Capital Investment

FY2025-26 represented the final phase of a multi-year capital investment programme aimed at strengthening the Companys long-term manufacturing capabilities.

The investments undertaken over recent years have expanded production infrastructure, strengthened food safety systems, enhanced automation and significantly increased manufacturing capacity. While a substantial portion of these investments remained classified as Capital Work-in-Progress as at 31 March 2026 due to the stage of commissioning, the expanded facilities have since been substantially completed. With the investment cycle largely complete, managements focus is progressively shifting from capital deployment towards improving utilisation of the expanded asset base and enhancing returns on the capital invested.

Working Capital & Cash Management

The Company continued to maintain a disciplined approach towards working capital management through effective inventory planning, prudent receivables management and balanced supplier relationships. Efficient working capital management remains an important component of the Companys financial strategy, supporting liquidity, operational flexibility and future growth.

Management continues to focus on improving cash generation and capital productivity as production volumes increase across the expanded manufacturing infrastructure.

Outlook for Financial Performance

FY2025-26 represents a defining transition in Chatha Foods growth journey. With the successful completion of a significant phase of strategic investments, the Company has established a stronger manufacturing and operating platform to support its long-term growth ambitions. Going forward, managements priorities are centred on disciplined execution, improving asset productivity, strengthening profitability and delivering sustainable returns on the capital invested. The Company remains committed to prudent financial management, operational excellence and creating long-term value for all its stakeholders. demonstrating the Companys ability to translate operational improvements into bottom-line growth despite continued investments in capacity expansion and business development.

During the year, the Company continued to strengthen its manufacturing infrastructure through the commissioning and ramp-up of Unit II (Vegetarian) at Mohali, Punjab, along with the establishment of a strategic joint venture manufacturing facility at Aurangabad. These initiatives are expected to significantly enhance the Companys production capabilities and operational capacity. The capacity expansion is expected to support future volume growth, improve operating leverage, strengthen the Companys ability to service existing and new customers, and create a robust platform for domestic as well as export market expansion.

The Company continued to benefit from its long-standing relationships with leading QSR brands and institutional customers, serving more than 5,000 outlets through a portfolio of over 183 products. The non-vegetarian segment remained the primary revenue contributor, accounting for approximately 96% of revenue during the year.

The management believes that the combination of expanded manufacturing capacity, improving capacity utilization, growing customer relationships, product diversification initiatives, and planned export market penetration will continue to support revenue growth, margin expansion, and enhanced profitability in the coming years.

Internal Control Systems and its Adequacy

The Company has in place proper and adequate internal control systems commensurate with the nature of its business, size and complexity of its business operations. Internal control systems comprising of policies and procedures are designed to ensure reliability of financial reporting, compliance with policies, procedures, applicable laws and regulations and that all assets and resources are acquired economically, used efficiently and adequately protected.

The Audit Committee evaluates the efficiency and adequacy of financial control system in the Company, its compliance with operating systems, accounting procedures, and strives to maintain the standards in Internal Financial Control.

Human Resources The Company recognizes its human capital as a critical driver of sustainable growth and operational excellence. During the year, the Company continued to strengthen its organizational capabilities by augmenting its workforce across manufacturing, quality assurance, research & development, supply chain, engineering, and support functions to support its ongoing capacity expansion and future growth plans under Vision 28.

As part of its commitment to building a future-ready organization, the Company appointed a Chief Human Resources Officer (CHRO during the year to further strengthen its people strategy, leadership development, talent acquisition, employee engagement, and organizational effectiveness initiatives. The appointment is aligned with the Companys long-term growth aspirations and reflects its increasing focus on developing a high-performance and people-centric culture.

The Company remains focused on attracting, developing, and retaining skilled talent through structured training programmes, leadership development initiatives, and employee engagement activities aimed at enhancing productivity, quality, and operational efficiency. Continuous efforts were undertaken to build technical competencies and reinforce a culture of food safety, quality, innovation, and customer centricity across the organization.

The Company maintained constructive engagement with employees and workers, ensuring a positive work environment and uninterrupted operations. No material industrial disputes or labour-related disruptions were reported during the year.

With the commissioning and ramp-up of additional manufacturing capacities, the Company continues to strengthen its workforce to support growing production volumes and evolving operational requirements. As on March 31, 2026, the Company had 138 employees and 237 workers on its rolls, compared to 110 employees and 330 workers as on March 31, 2025. The workforce composition reflects the Companys ongoing efforts to optimize manpower deployment, enhance operational efficiency, and align human capital resources with its growth and expansion objectives.

Net worth of the Company The Companys net worth stood at 89.24 Crore as on March 31. 2026, as compared to 82.54 Crore as on March 31. 2025, registering an increase of 6.7 Crore. or 8.11%, during the year. The growth in net worth was primarily driven by the retention of profits and the strengthening of the Companys overall financial position, reflecting its continued focus on sustainable growth and value creation for stakeholders.

Financial Ratio Variation

S No.	Ratio	As on March 31, 2026	As on March 31, 2025	% Change
1.	Current Ratio	1.34	2.44	-45.13%
2.	Debt-Equity Ratio	0.29	0.14	103.34%
3.	Debt service coverage ratio	6.38	7.08	-9.87%
4.	Return on equity ratio	7.79	8.64	-9.78%
5.	Inventory turnover ratio	12.02	12.33	-2.52%
6.	Trade receivables turnover ratio	7.46	9.22	-19.07%
7.	Trade payables turnover ratio	10.72	10.94	-1.95%
8.	Net Capital Turnover Ration	15.65	4.58	241.92%
9.	Net profit ratio	4.04	3.86	4.71%
10	Return on capital employed	8.49	9.89	-14.20%