Deep Polymers Ltd Management Discussions

Financial Year 2025-26

A. Overview of the Global Economy

The global chemical industry enters FY 2025-26 in a phase of gradual stabilisation rather than a sharp rebound. After growth of approximately 1.9% in 2025, global chemical production growth is projected at around 2% for 2026, as the industry continues to work through a prolonged downcycle marked by overcapacity, soft end-market demand and geopolitical and trade-related uncertainty. Industry bodies such as the American Chemistry Council and Cefic note that while commodity chemicals continue to face pressure from aggressive capacity additions (particularly out of China), specialty chemicals and segments tied to clean technology, semiconductors and artificial intelligence are expected to see a relatively stronger recovery.

Persistent overcapacity in basic chemicals continues to weigh on operating rates and margins, especially in regions with higher energy and feedstock costs such as Europe. In response, global chemical companies are prioritising cash flow, restructuring portfolios, rationalising low-return assets and shifting investment toward higher-margin specialty chemicals. North America is expected to see a modest recovery from around mid-2026, while Europe is expected to move from contraction in 2025 to marginal growth in 2026, aided by fiscal stimulus and infrastructure spending in select economies.

Geopolitical tensions, including the ongoing conflict in Europe and periodic flare-ups in West Asia, continue to inject volatility into energy and feedstock prices, and trade policy shifts (including tariff actions by major economies) remain a key swing factor for global trade flows. Even so, easing inflationary pressure across most advanced economies, resilient consumer sentiment and continuing investment in AI-linked and sustainability-linked chemistries provide a cautiously constructive backdrop for the year.

B. Overview of the Indian Economy

India remains the fastest-growing major economy in the world through FY 2025-26. Real GDP growth for FY 2025-26 has been placed in the range of 7.3%-7.7% by the Reserve Bank of India, the IMF and other multilateral agencies, supported by resilient private consumption, sustained infrastructure spending, GST reform benefits and easing inflation, which has remained comfortably within the RBIs 2%-6% tolerance band. Growth for FY 2026-27 is expected to moderate to a still-robust 6.4%-6.9% as some of the current cyclical tailwinds fade, even as India continues to outpace other large economies within the G20.

Within this backdrop, Indias chemical industry continues to be one of the standout performers. The domestic chemicals and petrochemicals sector is now estimated at roughly USD 200-240 billion and has been growing at a CAGR in the 9%-12% range over the last several years, comfortably ahead of general industrial growth. Specialty chemicals, which form a growing share of the domestic market, continue to expand faster than bulk chemicals, driven by demand from agrochemicals, pharmaceuticals, personal care, electronics and automotive end-uses, as well as global supply-chain diversification away from China. Government initiatives, including production-linked incentive schemes, planned dedicated chemical parks under the Union Budget 2026-27, and continued 100% FDI under the automatic route for most chemical categories, are expected to further support capacity addition and export competitiveness over the course of the year.

C. Outlook

The outlook for FY 2025-26 is one of steady, broad-based improvement rather than a sharp cyclical upswing. Global trade is expected to remain a key growth engine, though growth in merchandise trade volumes will continue to be shaped by tariff actions, regional realignment of supply chains and the pace of monetary easing across major economies. Central banks, including the RBI, are expected to maintain a broadly accommodative-to-neutral stance as inflation stays contained, which should support consumption and investment demand through the year.

For the Companys core markets, continuing capacity additions in Indias plastics, packaging and textile value chains, rising per-capita plastic consumption, and the increasing shift toward sustainable and bio-degradable materials are expected to sustain demand for masterbatches and compounds. The pace and effectiveness of policy support, together with the trajectory of crude-linked input costs, will remain the key variables to watch over the year.

D. Industry Structure and Developments

The Company continues to serve customers in more than 25 countries worldwide. Masterbatch comprising pigments and additives used to impart colour and specific performance characteristics to end products remains a vital input for the global plastics industry. The Company continues to be recognised as a brand and market leader in the manufacture of masterbatches, with a presence across practically every segment: White, Black, Colour, Additive and Antifab (filler) masterbatches, spanning plastics and textile applications including household goods, furniture, bulk and film packaging, roof coverings, flexible and rigid packaging (containers and pouches), non-woven bags, and PET (POY/PSF) fibre masterbatch for textile and yarn applications. The Company also continues to contribute to environmental sustainability through its range of bio-degradable raw materials aimed at helping manufacturers reduce plastic waste a differentiator that few competitors match across all these categories simultaneously.

The Companys strong application-support capability continues to enable close coordination with customers on new product development, giving it a deep understanding of evolving customer requirements. The use of masterbatches in the production process continues to offer customers cost-effectiveness, ease of use, consistent colour outcomes and a cleaner production environment.

According to the Indian Brand Equity Foundation (IBEF), Indias plastics industry remains one of the countrys most significant manufacturing sectors, with per-capita plastic consumption continuing to rise. The industry comprises over 50,000 processing units employing more than 50 lakh people, and contributes an estimated 3.5 lakh crore to the Indian economy, with 80%-90% of manufacturing units in the small and medium enterprise segment. The sector remains highly fragmented, with a large unorganised base and a smaller organised segment. Government initiatives such as Atmanirbhar Bharat, Make in India, Swachh Bharat and Digital India continue to support growth in plastics production, with industry estimates continuing to project substantial revenue expansion for the sector by 2027.

E. Opportunities and Threats

Opportunities:

Network area: The Company continues to benefit from a diverse product portfolio and a wide network for sales, marketing and distribution across fill volumes and geographies.

Management: An experienced management team and well-qualified senior executives continue to guide the Companys strategy and execution.

Alternative fuel utilisation: Regions with abundant alternative fuels such as coal can support increased chemical and petrochemical production through coal-gasification technology, helping meet rising petrochemical demand.

Market: A stable revenue base from manufacturing and institutional sales, together with a wide online and offline distribution network, continues to support the Companys push into new domestic and export markets.

Technological developments: Continuing adoption of new technologies across the chemicals value chain including growing use of blockchain for supply-chain transparency and time-specific product traceability creates both opportunities and competitive risks.

Threats:

High competition: The plastics industry remains highly competitive, with both organised and unorganised players intensifying capacity build-up, making market-share gains harder to achieve. The Company continues to respond through regular market reviews and new product development.

Manpower: Sourcing skilled and competent manpower for the plastics industry remains a common challenge, irrespective of company size or brand.

Price undercutting: Intense competition continues to result in price undercutting by competitors seeking to protect market share, pressuring industry margins.

New entrants: Continued entry of new organised players is expected to further intensify competition within the organised segment.

F. Segment-wise or Product-wise Performance

The Company continues to operate in a single reportable segment the manufacturing of Masterbatch and Polymer compounds.

Future Outlook:

For FY 2025-26, the Companys outlook is to continue expanding its product range to meet evolving requirements in both Indian and global markets, with continued emphasis on specialty and sustainable (biodegradable) product lines.

G. Risks and Concerns

The polymer industry continues to carry a specific set of risk characteristics that require careful evaluation and mitigation. The Company continues to operate a proactive Risk Management System covering the entire process from capital investment decisions to monitoring of competitor activity and new market entrants. Continual reforms and sustained emphasis on technological development are expected to further reduce the Companys exposure to these risks over the course of the year.

H. Material Developments in Human Resources / Industrial Relations

Industrial relations are expected to remain harmonious and cordial through FY 2025-26. The Company continues to regard its human resources as its most valuable asset and remains committed to attracting, developing and retaining talent through a positive, engaging work environment and systematic training programmes. Cooperation and contribution from employees at all levels continue to be recognised and supported by management.

Internal Control Systems and Their Adequacy

The Company continues to maintain an independent Internal Audit function supported by a well-established risk management framework, operating under the Internal Audit Charter approved by the Audit Committee. The Company continues to engage a reputable external firm to support the Internal Audit function in carrying out audit reviews.

The Audit Committee continues to meet quarterly to review Internal Audit reports, follow up on action plans for past significant audit issues and monitor compliance with the audit plan, with the Chairperson holding periodic one-on-one meetings with the Chief Internal Auditor on key matters.

Additional control measures continued during the year include: budgets prepared for all operational levels; approval by the Commercial Director for any material variance from budget; approval by the Managing Director for any major policy change; and review of any deficiency in achieving targets at management meetings.

Discussion on Financial Performance with Respect to Operational Performance

The financial performance of the Company for Financial Year 2025-26 is set out in the Directors Report accompanying this Annual Report.

Material Developments in Human Resources / Industrial Relations, Including Number of People Employed

The cordial employer-employee relationship has continued through the year under review, with the Company continuing to accord special attention to its human resources.

Caution Statement

Statements made in this Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or outlook may constitute "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed or implied, depending on economic conditions, changes in Government regulations, amendments to tax laws, and other internal and external factors.