Chemfab Alkalis Ltd Management Discussions

Global Economy

The global economy carried reasonable momentum into 2026 before being tested by the outbreak of war in the Middle East at the end of February 2026. Through 2025, headwinds from higher trade barriers and elevated policy uncertainty were offset by technology-related investment, accommodative financial conditions and continued fiscal support.

According to the International Monetary Fund, global output grew at about 3.4% through 2024 and 2025, and is projected at 3.1% in 2026, recovering to

3.2% in 2027, on the assumption that the conflict remains limited in duration and scope.

(Source: IMF World Economic Outlook, April 2026.

The moderation is broad-based, though its incidence is uneven. The downgrade to 2026 growth falls mainly on emerging market and developing economies, revised down by 0.3 percentage points relative to the January 2026 update, while forecasts for advanced economies are broadly unchanged.

Global headline inflation is expected to rise to 4.4% in 2026 on higher energy prices before easing to 3.7% in 2027. Central banks have signalled readiness to look through the supply shock provided inflation expectations stay contained, and the balance of risks stays on the downside, tied to the duration of the conflict, geopolitical fragmentation and trade policy. (Source: IMF World Economic Outlook, April 2026) remain steady, with expansion forecast at 3%. The European region is expected to report modest growth of 1.2%. The United States economy is anticipated to slow further, growing by 1.7%. G20 inflation is projected to ease from 3.8% in 2025 to 3.2% in 2026.

Indian Economy

India stood out in this environment. Real GDP grew 7.7% in FY26 as per the provisional estimates of national income, improving on 7.1% in FY25, led by resilient domestic consumption, government capital expenditure and a strong services sector. Growth of this order, achieved amid global trade frictions and a late-year commodity shock, underlines the breadth of the domestic economy.

Consumer price inflation remained comfortably within the central banks target band through the year, with headline CPI at 3.4% in March 2026. The benign inflation trajectory allowed the Reserve

Bank of India to lower the benchmark repo rate to 5.25% during the year, supporting credit growth and investment while preserving macroeconomic stability.

(Source: Ministry of Statistics and Programme Implementation).

Manufacturing activity strengthened on improved capacity utilisation, public infrastructure spending and policy support for value addition, and the services sector maintained steady momentum. Goods and Services Tax collections for FY26 stood at 22.27 lakh crore, marginally higher than the 22.08 lakh crore collected in FY25, reflecting steady consumption through a year of external volatility.

(Source: Goods and Services Tax Network)

For FY27, the Reserve Bank of India projects GDP growth of 6.6%, a forecast trimmed from 6.9% on account of elevated energy prices and supply disruptions arising from the conflict in West

Asia. Indias structural strengths, favourable demographics, continuing formalisation and supply-chain diversification, are expected to support a stable growth trajectory over the medium term.

(Source: RBI Monetary Policy Statement, June 2026).

Industry Overview

Indias chemical industry remains a critical component of the manufacturing sector, contributing about 7% to gross domestic product and supplying key downstream sectors from agriculture and pharmaceuticals to textiles, automotive and construction. India is the sixth-largest chemical producer globally and ranks third in Asia.

(Source: IBEF)

The domestic chemical market was estimated at about USD 250 billion in 2024. Industry projections place the market at around USD 300 billion by 2028, with long-run potential approaching USD 1 trillion by 2040, contingent on policy continuity, feedstock security and infrastructure development. Indias share of global chemical consumption remains modest relative to this potential.

(Source: IBEF)

Policy reform continues to improve the sectors competitiveness. The Goods and Services Tax framework, liberalised foreign direct investment and the Production-Linked Incentive scheme have each supported manufacturing growth and improved the investment climate. Structural challenges nonetheless persist.

Import dependence, particularly in petrochemical intermediates and speciality chemicals, sustains a sizeable trade deficit. Limited backward integration and a concentration in commodity grades restrict value-chain advancement, while feedstock constraints and logistical inefficiencies continue to influence production costs and operational efficiency.

The domestic market remains well supported by demographic trends, rising incomes and demand from end-use sectors. With targeted investment, regulatory alignment and an emphasis on sustainability, the industry is positioned to deepen its participation in global supply chains over the long term.

Chlor Alkali Industry

The chlor alkali industry supplies inputs essential to Indias industrial base: caustic soda, chlorine and hydrogen. Caustic soda serves alumina, textiles, pulp and paper, chemicals and the soap and detergent industry, while chlorine feeds PVC and downstream derivatives such as chloromethanes and chlorinated paraffin wax. With installed annual capacity of about 6.4 million tonnes, India is the third-largest producer of caustic soda globally, after China and the United States.

(Source: Alkali Manufacturers Association of India)

Capacity continues to grow faster than domestic demand, at roughly 9% a year against about 4%, keeping the industry in structural surplus and lifting export volumes. Utilisation across the industry has held near 80% in recent years. Long-term demand remains underpinned by consumer-linked and industrial applications, favourable demographics and infrastructure-led consumption.

(Source: AMAI; Argus Media)

In FY26, domestic caustic soda prices stayed soft for much of the year as surplus supply met subdued global demand, with domestic bulk prices by mid-2025 back near their levels of a year earlier. Realisations improved gradually from the third quarter, supported by firmer chlorine offtake, and prices spiked in March 2026 as the conflict in the Middle East disrupted trade flows, before retracing by April. With capacity additions likely to outpace demand in the medium term, market diversification, technology integration and energy efficiency will determine competitiveness, and investment in green manufacturing will remain central to long-term resilience.

(Source: ChemAnalyst).

OPVC Pipes Industry

IIndias water resources remain under pressure from rising demand, continued urbanisation and industrial growth. Freshwater availability is constrained and dependence on groundwater keeps increasing, holding long-term water security at the centre of public policy.

The Government of India has responded with sustained investment in water supply and management. Jal Jeevan Mission 2.0, approved by the Union Cabinet in March 2026, carries a total outlay of 8.69 lakh crore through December 2028, and river interlinking projects worth 2.6 lakh crore are in implementation. The restructured Mission shifts emphasis from construction alone to assured, citizen-focused service delivery.

(Source: Union Cabinet decision, March 2026)

FY26 was an unusual year for the sector. The Missions extension had been announced in the February 2025 Budget, but releases awaited formal Cabinet approval, and against a budget estimate of

67,000 crore the revised estimate for the year fell to 17,000 crore and actual release was only about Rs

1560 Cr. The approval of March 2026, followed by the

FY27 allocation of 67,600 crore, restores the funding pipeline for rural water infrastructure.

AMRUT 2.0 complements this effort in urban India, targeting universal tap connections in statutory towns and complete sewerage coverage in 500 cities, with 8,000 crore allocated for FY27. Approvals under the programme span 1.26 lakh km of new and replacement water pipelines, 34,548 km of sewer networks and 178 lakh new household tap connections, sustaining demand for durable pipeline solutions.

Growing Role of OPVC Pipes

Oriented Polyvinyl Chloride, or OPVC, pipes have increased their presence in government-led water supply projects, combining high strength, superior hydraulic performance and a service life beyond conventional materials. They are corrosion-resistant and reliable across varying pressure and climatic conditions. Fifteen states have approved their use, and the market, valued at 225 crore in FY26, is projected to reach about 1,000 crore by FY29 as per management estimates, driven by flagship missions and replacement demand for legacy pipelines.

Company Overview

Chemfab Alkalis Limited operates across Indias chlor alkali and advanced polymer piping sectors.

The chlor alkali segment produces caustic soda, chlorine and associated value-added chemicals through a fully integrated value chain, supplying critical materials to aluminium, paper, soaps and detergents, textiles, pharmaceuticals and water treatment. Backward integration into captive salt and forward integration into aluminium chloride give the segment raw material security and internal chlorine offtake, supported by strong process safety standards and environmental compliance.

The OPVC pipes division serves the evolving needs of Indias water management and infrastructure sectors from its Sri City facility, producing the countrys widest range of OPVC pipes for major water supply and irrigation projects under national programmes.

Performance Review

FY26 was a subdued year for the Company. Revenue from operations stood at 288.56 crore against 322.09 crore in FY25, operational EBITDA at 36.70 crore with a margin of 12.72%, and profit after tax at 7.51 crore. In the chlor alkali segment, revenue held broadly steady at 195.69 crore and the EBIT loss narrowed to 1.17 crore from 5.20 crore, as realisations recovered through the second half and the modernised plant began contributing. The OPVC segment remained profitable, with EBIT of 19.43 crore on revenue of 93.47 crore, though both were lower than the prior year. The divisions performance was shaped almost entirely by the pause in Jal Jeevan Mission funding:

- Suspension of Fund Flows

No meaningful central funds were released under the Jal Jeevan Mission between October 2024 and March 2026, as the Missions extension awaited Cabinet approval. Against a budget estimate of 67,000 crore for the year, the actual funds released was about 1560 released in

March 2026.

- Deferred Tendering and Execution

With funding uncertain, states deferred tenders and slowed execution of sanctioned schemes.

Order inflows for OPVC pipes contracted across the industry, and conversion cycles for government procurement lengthened.

- Diversification of the Order Book

The Company used the year to broaden its base beyond the Mission, securing inclusion in multiple state-level projects. This non-Jal Jeevan Mission business is expected to support a faster and more meaningful scale-up in volumes once Mission activity resumes.

Looking ahead, the Company enters FY27 with its investment programme delivered and demand indicators improving. Jal Jeevan Mission 2.0 has been approved with an FY27 allocation of

67,600 crore, and meaningful disbursements are expected from Q2 FY27. In the chlor alkali segment, stabilising realisations, efficiencies from the modernised facility and the commencement of hybrid power supply are expected to drive a marked improvement in profitability. On a consolidated basis, management expects FY27 to be a materially stronger year than the one gone by.

Key Financial Ratios

Ratios	2025-26	2024-25	Variance %	Reason for Variance
Current Ratio (In times)				There is decrease in ratio due to
	1.12	1.65	-32%
				increase in short term borrowings.
				There is an increase in debt equity
Debt-equity Ratio (in times)	0.33	0.22	51%	ratio on account of increase in
				borrowings in the current year.
Debt Service Coverage Ratio				There is an improvement in the
(in times)	7.63	3.58	113%	ratio due to reduction in repayment
				of loan during the year.
				There is improvement in ratio due
Return on Equity Ratio (in %)	-0.91%	-1.81%	-50%	to decrease in losses during the
				year.
Inventory turnover ratio (in				There is decrease in ratio due
times)	11.72	15.48	-24%	to decrease in revenue from
				operations.
Trade Receivables turnover ratio	13.87	15.93	-13%	No major variance.
(in times)
Trade payables turnover ratio	8.94	9.77	-9%	No major variance.
(in times)
Net capital turnover ratio				There is an increase in the ratio
(in times)	22.46	7.09	217%	mainly due to increase in current
				liabilities.
Net profit ratio (in %)				There is increase in ratio due to
	-1.10%	-2.08%	-47%
				decrease in losses during the year.
Return on Capital employed				There is an increase in ratio due to
	1.56%	1.05%	49%
(in %)				increase in profitability.
Return on investment (in %)	1.59%	1.93%	-18%	Decreased due to lower realisation.

Risks and Concerns

The chlor alkali business operates in a global commodity environment where price cycles reflect international supply trends, input cost dynamics and trade flows. A material decline in global caustic soda prices, whether from oversupply or macroeconomic pressures, can directly affect segment profitability.

Energy remains the largest element of the cost structure, and escalating power costs can compress margins when external pricing is weak. The commissioning of the new-generation electrolyser plant and the imminent hybrid power supply reduce both energy intensity and cost volatility, while the integrated model, captive salt fields upstream and aluminium chloride downstream, cushions raw material risk and secures internal chlorine offtake and value realisation.

Business diversification remains the structural response to commodity exposure, with the value-added OPVC pipes segment providing an earnings stream independent of chemical price cycles.

For the OPVC segment, FY26 demonstrated the principal risk: project execution is tied closely to government funding cycles, and delays in fund release, tendering or Cabinet-level approvals can defer demand even when capacity is in place. Investment ahead of demand realisation can leave capacity underutilised in such periods and weigh on operating efficiency.

The Company addresses these risks through phased expansion, prudent capital deployment and diversification of the order book across states and beyond flagship missions. Engagement with multiple state-level stakeholders supports order visibility, and financial discipline and operational flexibility allow the Company to absorb variability while staying positioned for the sectors medium-term opportunity.

Internal Control Systems and Processes

TThe Company maintains a structured and comprehensive internal control framework appropriate to its scale of operations and complexity of activities. The systems are designed with adequate segregation of duties to provide reasonable assurance on the effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

Internal audits are conducted on a quarterly basis by qualified professionals, covering critical operational and financial processes across both business divisions and enabling timely identification and mitigation of risks. The Audit Committee of the Board, comprising Non-Executive Directors, oversees the internal control environment, monitors audit findings and ensures appropriate remedial action.

Certifications under ISO 14001 for environmental management and ISO 45001 for occupational health and safety reflect adherence to global standards across operational areas, reinforced by Process Safety Management protocols and periodic external evaluation. The migration to SAP S/4 HANA has further strengthened system-driven controls, real-time visibility and enterprise-grade data integrity, and sustainability reporting reinforces the Companys long-term commitment to responsible operations.

Disclaimer

The statements made in this Report on Management Discussion and Analysis, describing the Companys views may be forward looking statements within the meaning of the applicable security regulations and laws. These statements are based on certain expectations on demand, imports, availability, and cost of power, etc. and any change in Government laws and the economic situation in the country would have its impact on the Companys operations. The Company assumes no responsibility in respect of the forward-looking statements herein, which may undergo changes in the future for reasons beyond its control.