Chemfab Alkalis Ltd Management Discussions

Global Economy

During 2024 and 2025, the global economy entered a period of measured transition, influenced by stabilising inflation trends, prudent policy actions, continued adaptations to circumstances established in the wake of the pandemic. According to estimates issued by the International Monetary Fund, global output growth is forecast at 3.3% for 2024. Growth is projected to ease marginally to 2.8% in 2025, with a slight recovery to 3% anticipated in 2026.

The anticipated moderation in growth is a global phenomenon, affecting both advanced economies and emerging markets. In advanced economies, real

GDP growth is expected to reduce from 1.8% in 2024 to 1.4% in 2025. Emerging Markets and Developing Economies (EMDEs) are predicted to experience a similar trend, with growth softening from 4.3% in 2024 to 3.7% in 2025. Key factors influencing this outlook include evolving demand patterns, investment recalibration, and persistent headwinds in both goods and services sectors.

The world trading system has continued to evolve in response to heightened protectionism. Trade tensions intensified throughout 2024 and into

2025. This was marked by new tariffs imposed by the United States. Subsequent countermeasures were adopted by major trading partners, which introduced specific tariffs on United States exports. These developments have influenced sectoral export dynamics, particularly for economies closely integrated with the United States.

Central banks internationally have largely taken a cautious stance, opting for differentiated monetary approaches that reflect domestic circumstances. Global headline inflation is set to decline from 6.8% in

2023 to 4.5% in 2025, according to the IMF. However, core inflation rates are forecast to decrease at a slower pace, given persistent pricing pressures in services and wage-intensive industries, especially within EMDEs. Prospects for global growth in 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

Indias economy recorded a growth rate of 6.5% in

FY25, moderating from 9.2% in the previous year. This performance reflects a recalibration amid global trade uncertainties, and a slowdown in private investment activity. Despite these external pressures, the economy remained stable, supported by strong domestic consumption, improved agricultural output owing to favourable monsoons, and sustained momentum in the services sector.

Headline inflation eased significantly, with Consumer Price Index standing at 3.34% in March 2025, the lowest in five years. Food inflation declined to 2.69%, while inflation in housing and fuel also moderated. In response to the favourable inflationary environment, the Reserve Bank of India implemented two consecutive repo rate cuts, reducing the benchmark policy rate to 6.0%. These moves were intended to support growth while maintaining inflation within the target band and ensuring macroeconomic stability.

Indias manufacturing sector displayed signs of recovery, benefiting from improved capacity utilisation and a more supportive policy landscape. Although global trade challenges and margin pressures persisted, domestic demand remained a key driver of manufacturing activity. Logistics improvements, incentives for value-addition, and government-led infrastructure development contributed to improved performance, particularly in consumer-focused and light manufacturing segments. The services and infrastructure sectors continued to maintain positive momentum, guided by steady demand and supportive pricing trends.

Increased infrastructure investment and fiscal support contributed to elevated business sentiment. The resilience in both rural and urban demand is expected to provide continued impetus for growth across sectors. Goods and Services Tax collections reached 22.08 lakh crore in FY25, marking a 9.4% increase over the previous year. This reflects strong consumption patterns and improved compliance, particularly in categories with greater immunity to fluctuations in discretionary spending.

The Reserve Bank of India has retained its GDP growth forecast at 6.5% for FY26. Early projections for FY27 suggest an improvement to 6.7%, driven by an anticipated global recovery, stronger private sector investment, and continued progress in diversifying supply chains. While external risks remain, Indias core strengths, including favourable demographics, increasing formalisation, and sustained policy reforms, are expected to support a stable and balanced growth trajectory over the medium term.

Industry Overview

Indias chemical industry remains a critical component of the countrys manufacturing sector, contributing approximately 7% to the national gross domestic product. The industry operates as a foundational supplier to key downstream sectors including agriculture, pharmaceuticals, textiles, automotive and construction. India is currently the sixth-largest chemical producer globally and ranks third in Asia.

In 2023, the domestic chemical market was valued at approximately USD 220 billion. The sector is projected to grow steadily, reaching between USD 400 and 450 billion by 2030, and potentially achieving a range of USD 850 to 1,000 billion by 2040, subject to policy continuity and infrastructure development. Despite this growth outlook, Indias current share in global chemical consumption remains relatively modest at 3 to 3.5%.

The sector has benefited from broad-based policy reforms such as the introduction of the Goods and Services Tax, liberalisation of foreign direct investment, and flagship national programmes.

These efforts have improved competitiveness and facilitated manufacturing growth through initiatives including the Production-Linked Incentive scheme. However, structural challenges persist.

High dependency on imports, particularly for petrochemical intermediates and speciality chemicals, has resulted in a significant trade deficit. Limited backward integration and concentration in commodity-grade products have restricted value chain advancement. Additionally, infrastructure limitations, such as feedstock constraints and logistical inefficiencies, continue to affect production costs and operational efficiency.

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

USD 450 billion

The sector is projected to grow steadily, reaching between USD 400 and 450 billion by 2030, and potentially achieving a range of USD 850 to 1,000 billion by 2040, subject to policy continuity and infrastructure development.

Chlor Alkali Industry

The chlor alkali industry forms an integral part of Indias industrial landscape, supplying essential inputs such as caustic soda, chlorine and hydrogen. Caustic soda is widely used across key sectors including alumina, textiles, pulp and paper, chemicals and the soap and detergent industry. Chlorine is critical for the production of

PVC and other downstream derivatives such as chloromethanes and chlorinated paraffin wax. With an installed annual capacity of 5.7 million tonnes, India ranks as the third-largest producer of caustic soda globally, after China and the United States.

Over the past decade, the industry has shown steady growth, supported by increasing demand across end-use sectors. From FY23 to FY28, overall capacity in the Indian chlor alkali sector is projected to grow at a compounded annual growth rate of 9.9%, while domestic demand is expected to grow at 4.8%. This divergence has resulted in greater export volumes and a sustained trade surplus over the past three years. The industrys long-term growth outlook is supported by robust offtake in consumer-linked and industrial applications, favourable demographics and increasing infrastructure-led consumption.

In FY25, domestic caustic soda demand remained firm, with strong offtake from pulp and paper, alumina, soaps and detergents and effluent treatment segments. The textile industry witnessed a rise in consumption following rerouted export orders from Bangladesh amid regional disruptions.

Price trends during the year were influenced by regional supply disruptions and global inventory cycles. In the first quarter, oversupply and weak demand in China exerted downward pressure on pricing. However, maintenance shutdowns across Northeast Asia and curtailed exports from China led to a price rebound in the second half of the year, with peak levels reached in November 2024. Prices moderated towards the end of the year. Looking ahead, the industry faces both opportunities and challenges. With capacity additions likely to outpace demand in the medium term, companies will need to emphasise market diversification, technology integration and sustainability-led initiatives. Continued investment in green manufacturing and value chain integration will be key to enhancing long-term competitiveness and resilience in the chlor alkali industry.

OPVC Pipes Industry

Indias water resources remain under pressure from rising demand, continued urbanisation and swift industrial growth. Freshwater availability is limited, while dependence on groundwater continues to grow. Declining water tables and seasonal shortages highlight persistent risks for long-term water security.

To address these challenges, the Government of India has committed significant resources to enhance water supply and sustainable management. The current investment framework includes 1.1 Lakh Crore towards new infrastructure and modernisation projects. The focus of these initiatives extends across improving water availability, promoting conservation measures, and ensuring efficient distribution networks.

Flagship programmes such as the Jal Jeevan

Mission and AMRUT 2.0 aim to provide universal access to clean drinking water for both rural and urban populations. Major river interlinking projects including Ken Betwa and Par Tapi Narmada are designed to balance water distribution between surplus and deficit regions. The business potential generated by interlinking initiatives is substantial, with several projects worth 2.6 Lakh Crore currently in the implementation phase.

Recent budget allocations reinforce this commitment. The Department of Drinking Water and Sanitation received 74,226 Crore for FY25, while the Jal Jeevan Mission alone was allocated 67,000

Crore. Additional funding supports river rejuvenation and the AMRUT 2.0 initiative, which targets complete tap water and sewage coverage for urban areas. These programmes stimulate demand for robust and durable pipeline solutions. DI and HDPE pipes are well established, while newer materials now play a pivotal role in large infrastructure projects.

Growing Role of OPVC Pipes

Oriented Polyvinyl Chloride, or OPVC, pipes have emerged as a preferred choice in government-led water supply projects. These pipes demonstrate high strength, superior hydraulic performance and a long service life, meeting the requirements of urban and rural water transmission, drainage and sewage systems. OPVC pipes are corrosion-resistant and provide a reliable solution under varying pressure and climatic conditions. The expansion of flagship missions and rising replacement demand for legacy pipelines present a favourable environment for

OPVC market growth. OPVC pipes are increasingly specified for potable water networks, large-scale infrastructure, and advanced irrigation projects.

Company Overview

Chemfab Alkalis Limited operates as an established player in Indias chlor alkali and advanced polymer piping sectors.

The chlor alkali segment encompasses the production of caustic soda, chlorine and associated value-added chemicals. Operating with a fully integrated value chain and advanced manufacturing facilities, this division supplies critical materials to sectors including aluminium, paper, soaps and detergents, textiles, pharmaceuticals and water treatment. The Company maintains strong process safety standards and environmental compliance, leveraging backward integration for security of raw materials and a stable cost structure.

OPVC pipes division addresses the evolving needs of Indias water management and infrastructure sectors. With a state-of-the-art facility located at Sri City, the business produces a comprehensive range of OPVC pipes that are widely used in major water supply and irrigation projects under national programmes. The division remains focused on quality assurance, supporting the countrys infrastructure transformation while strengthening its position in the growing market for advanced pipeline solutions.

Performance Review

Chemfab Alkalis Limited faced a challenging operating environment in FY25, shaped by external macroeconomic pressures and muted industrial activity across key end-use sectors. In the chlor alkali segment, the Company was impacted by a global surplus in caustic soda, subdued demand in downstream markets and persistent pricing pressure. Average realisations for caustic soda remained under strain for most of the year, and the segment reported a modest EBIT loss despite stable utilisation and cost discipline. Rising power costs also weighed on overall profitability, offsetting incremental gains from operational efficiency and integrated raw material sourcing.

23,000 TPA

The commissioning of new OPVC lines, with capacity set to reach 23,000 TPA, is expected to strengthen the Companys leadership in the sector.

The performance of the OPVC pipes division was significantly influenced by developments in government-led infrastructure projects during

FY25. While long-term demand fundamentals for advanced piping solutions remain robust, the year was characterised by several headwinds:

• Slowdown in Project Execution

The rollout of major water infrastructure programmes, including those under the Jal Jeevan Mission and

AMRUT 2.0, was impeded by slower-than-expected project execution. Administrative delays and protracted approval cycles across states resulted in extended timelines for many large-scale contracts.

• Delayed Fund Releases

Funding constraints hampered project progress. The release of central and state funds to implementing agencies was slower than in the prior year. This delay affected the pace of tendering and the award of new orders for OPVC pipes, directly impacting order inflows for industry players.

• Order Flow Challenges

The combination of project slowdown and delayed funding contributed to a subdued order environment for OPVC pipes. Companies experienced gaps in demand visibility and a more protracted conversion cycle for government procurement. This, in turn, led to longer inventory holding and the need for greater flexibility in production planning

Looking forward, the Company expects a more supportive external environment and improved demand visibility in both business lines for FY26. The commissioning of new OPVC lines, with capacity set to reach 23,000 TPA, is expected to strengthen the Companys leadership in the sector. In the chlor alkali segment, planned investments in technology upgrades and hybrid power sources are targeted to enhance profitability and environmental performance. Strategic business diversification, increased process automation and a disciplined approach to capital allocation position the Company to capture opportunities arising from infrastructure investment, water management initiatives and the gradual recovery of industrial demand.

Key Financial Ratios

Ratios	2024-25	2023-24	Variance %	Reason for Variance
Current Ratio (In Times)	1.65	1.09	51%	Increased mainly due to increase in current investments under the head current assets.
Debt-Equity Ratio (In Times)	0.22	0.05	327%	There is an increase in debt equity ratio on account of increase in borrowings in the current year.
Debt Service Coverage Ratio (In Times)	-3.58	-35.10	-90%	There is an improvement in the ratio due to reduction in repayment of loan during the year.
Return On Equity Ratio (In %)	-1.81%	7.03%	-126%	There is decrease in ratio due to decrease in profitability mainly due to decrease in realisation of products.
Inventory Turnover Ratio (In Times)	15.48	19.86	-22%	No major variance.
Trade Receivables Turnover Ratio (In Times)	15.93	15.24	5%	No major variance.
Trade Payables Turnover Ratio (In Times)	9.77	9.95	-2%	No major variance.
Net Capital Turnover Ratio (In Times)	7.09	37.55	-81%	There is a decrease in the ratio mainly due to increase in current investments under the head current assets.
Net Profit Ratio (In %)	-2.08%	8.04%	-126%	There is decrease in ratio due to decrease in profitability mainly due to decrease in realisation of products.
Return On Capital Employed (In %)	1.05%	10.51%	-90%	There is decrease in ratio due to decrease in profitability mainly due to decrease in realisation of products.
Return On Investment (In %)	1.93%	8.45%	-77%	Decreased due to lower average amount invested in Current Investments during the period.

Risks and Concerns

The chlor alkali business functions within a global commodity environment where price cycles are influenced by external variables including international supply trends, input cost dynamics, and trade flows. Any material decline in global caustic soda prices, driven by oversupply or macroeconomic pressures, can directly impact segment profitability. A significant portion of cost structure in this segment is attributable to energy consumption. Escalating power costs may compress margins and adversely affect cost competitiveness, particularly when external pricing remains weak. Investments in hybrid power sourcing are underway to reduce dependency on grid-based electricity and ensure cost stability. The company also will be replacing one of its old electrolysers with a new generation INEOS Electrolyser. This will lead to better operational efficiency as well as Plant reliability. The integrated business model also provides critical support. Backward integration through captive salt fields mitigates raw material risk while forward integration into aluminium chloride ensures internal chlorine offtake and value realisation.

To address these risks, the Company is pursuing business diversification through strategic investments in the value-added OPVC pipes segment. In addition, investments in hybrid power sourcing are underway to reduce dependency on grid-based electricity and ensure cost stability. The integrated business model also provides critical support. Backward integration through captive salt fields mitigates raw material risk while forward integration into aluminium chloride ensures internal chlorine offtake and value realisation.

For the OPVC segment, project execution timelines are linked closely to government infrastructure cycles. Delays in fund release, slower-than-expected project rollout, or postponement in tender activity present near-term risks. Capacity investments ahead of demand realisation may lead to underutilisation and negatively impact operating efficiency.

These risks are being addressed through a phased expansion approach, prudent capital deployment, and strategic alignment with priority government programmes. Engagement with multiple state-level stakeholders and sustained effort toward diversified offtake streams support improved order visibility.

The Company also maintains financial discipline and operational flexibility to navigate variability while remaining focused on medium-term sectoral opportunities.

Internal Control Systems and Processes

The Company has established a structured and comprehensive internal control framework that is appropriate to its scale of operations and complexity of activities. These systems are designed with adequate segregation of duties to provide reasonable assurance regarding 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, enabling timely identification and mitigation of potential risks. These reviews are undertaken by qualified professionals and cover critical operational and financial processes across both business divisions. The Audit Committee of the Board, comprising Non-Executive Directors, provides oversight of the internal control environment, monitors audit findings, and ensures appropriate remedial action is implemented where necessary.

Chemfab Alkalis Limited is certified under ISO 14001 for environmental management and OHSAS 18001 for occupational health and safety.

These certifications reflect adherence to global standards across operational areas. In addition, the Company has implemented Process Safety

Management protocols and engages external consultants to continuously evaluate and strengthen its control mechanisms. Sustainability reporting is also undertaken to reinforce the Companys long-term commitment to responsible operations and stakeholder accountability.

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.