Ecoplast Ltd Management Discussions

Ecoplast Limited is one of Indias reputed suppliers of multilayer co-extruded polyethylene and co-polymer films to the flexible packaging industry as well as a variety of other Industrial Applications around the world. The major focus now is high value added products and films for Specialty Applications for flexible packaging applications.

The Company has had a major role in the development of the flexible packaging industry in India; this industry uses multilayer polyethylene and co-polymer films for laminating to one or more substrates, such as polyester film, Biaxially Oriented Polypropylene film, often in combinations with aluminum foil and/or paper, depending upon the packaging system and the product to be packed. The multilayer film forms the inner most layer- the heat seal layer- of the laminate, which is in contact with the packed product and is a critical part of the laminate for ensuring shelf life of the packed product.

Since over three decades, the Company has been setting standards on high quality and innovation of multilayer film structures to provide the required film properties critical to pack, preserve and display a wide range of products world over.

Currently we serve following applications: -

> Film for Aluminum Composite Panel.

> Films for Surface Protection.

> FMCG and Pharma Packaging.

Currently, we also export products to developing and developed countries.

Key strengths:

• Designing capabilities that create and sustain market differentiation.

• State-of-the-art and integrated manufacturing capabilities.

• Consistent quality focus to deliver safe, convenient and secure consumer packaging.

• An engaged and experienced team.

Global economic overview:

According to the World Economic Outlook by the International Monetary Fund (IMF) published in April, 2024, Global growth, estimated at 3.2 percent in 2023, is projected to continue at the same pace in 2024 and 2025. The pace of expansion is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the COVID-19 pandemic and Russias invasion of Ukraine; weak growth in productivity; and increasing geoeconomic fragmentation. Global headline inflation is expected to fall from an annual average of 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. The latest forecast for global growth five years from now at 3.1 percent is at its lowest in decades. The pace of convergence toward higher living standards for middle and lower-income countries has slowed, implying a persistence in global economic disparities.

Risks to the global outlook are now broadly balanced. On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labor markets are still tight, raise interest rate expectations and reduce asset prices. A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure. High interest rates could have greater cooling effects than envisaged as fixed-rate mortgages reset and households contend with high debt, causing financial stress.

In China, without a comprehensive response to the troubled property sector, growth could falter, hurting trading partners. Amid high government debt in many economies, a disruptive turn to tax hikes and spending cuts could weaken activity, erode confidence, and sap support for reform and spending to reduce risks from climate change. Geoeconomic fragmentation could intensify, with higher barriers to the flow of goods, capital, and people implying a supply-side slowdown.

On the upside, looser fiscal policy than necessary and assumed in projections could raise economic activity in the short term, although risking more costly policy adjustment later on. Inflation could fall faster than expected amid further gains in labor force participation, allowing central banks to bring easing plans forward. Artificial intelligence and stronger structural reforms than anticipated could spur productivity.

Indian economy:

India, a South Asian nation, is the seventh-largest country by area, the second-most populous country with over 1.38 billion people, and the most populous democracy in the world. India boasts of an immensely rich cultural heritage including numerous

languages, traditions, and people. The country holds its uniqueness in its diversity, and hence has adapted itself to international changes with poise and comfort. While the economy has welcomed international companies to invest in it with open arms since liberalization in the 1990s, Indians have been prudent and pro-active in adopting global approach and skills. Indian villagers have proudly taken up farming, advanced agriculture and unique handicrafts as their profession on one hand, while modern industries and professional services sectors are coming up in a big way on the other.

Thus, the country is attracting many global majors for strategic investments owing to the presence of vast range of industries, investment avenues and a supportive Government. Huge population, mostly comprising the youth, is a strong driver for demand and an ample source of manpower.

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships.

Amidst global challenges, the Indian economy has stayed resilient. Buoyed by strong domestic demand and backed by robust macroeconomic fundamentals, India has emerged as the fastest growing major economy of the world in 2023-24. The upturn in the investment cycle, broad-based revival in manufacturing and services sectors, governments capex push, upbeat business and consumer sentiments and strong corporate and bank balance sheets provide impetus to the growth momentum going forward. Volatile food prices, however, interrupt the path of disinflation and cloud the inflation outlook. The continuing effect of monetary policy action and stance is keeping core inflation muted. Spillovers from geopolitical hostilities, volatile global financial markets and climate shocks are the key risks to the growth and inflation outlook.

Industry overview:

Global flexible packaging market

Flexible packaging is one of the rapidly growing segments of the packaging industry, combining the highest qualities of film, paper, and aluminum foil to provide a wide range of protective characteristics. These flexible packages can acquire the shape of a pouch, liner, bag or overwrap and it can resonate with any type of packaging.

The global packaging industry is bifurcated on the basis of primary material types which are paper, plastic (rigid and flexible), metal and glass packaging. The global packaging industry has witnessed rapid growth with the industrialization and the boom in consumerism in the global economy and has undertaken large scale production growth and research efforts during the last three decades.

Indian Plastic Packaging Industry

Plastic packaging plays a key role in ensuring consumer products cost effectively transition through the value chain towards the end consumers with an enhanced product safety and appeal. We foresee strong drivers that are realigning the packaging industry demand towards plastic packaging solutions which revolve around the light weighting of products, cost efficiency, product safety and usage convenience.

The demand for nutritional drinks and healthy food increased exponentially. The majority of these products are packaged with single-use plastic. The orders were so huge on a global level that the manufacturers and packaging companies in the field even expanded their facilities, which was also supported by most of the governments. Owing to the increasing population, rising income levels, changing lifestyles, and growing economy, the demand for e-commerce packaging is increasing in India.

Industrial Application of Plastics

Demand of plastic for industrial applications especially for aluminum composite panel and surface Protection Film, will largely depend upon the revival of infrastructure projects as well as reality sector, where the consumption is large. The Government has declared various fiscal and non-fiscal packages for revival of these sectors.

Sustainable and new flexible plastic packaging solutions

The global packaging industry is developing and expanding day by day and Indian packaging industry is also growing rapidly. The growth in the flexible packaging industry in India is mainly driven by the food and the pharmaceutical packaging sectors. The large and growing Indian middle class, along with the growth in organized retailing in the country are fueling growth in the flexible packaging industry. Another factor, which has provided substantial stimulus to the packaging industry is the rapid growth of exports, which requires superior packaging standards for the international market. The Indian packaging industry is dominated by plastic flexible packaging. The traditional rigid packaging users have also been seen to shift to flexible packaging in recent times. The main reason for this is that flexible packages are found aesthetically attractive, cost-effective and sturdy. Consumer preference for the use of convenient packaging and packaged products in affordable quantities in laminates is also one of the main reasons that have contributed to the growth of flexible packaging in India.

Dynamic industry changes, such as the introduction of new regulatory initiatives, have encouraged manufacturers to develop new packaging options. Growing concerns regarding the use of bio-degradable plastics for flexible packaging and its impact on the environment have also driven manufacturers to develop sustainable packaging options that are safe and secure. In order to reduce the cost pressure and maintain the

integrity of product packages, manufacturers are considering sustainable packaging solutions that require fewer materials and energy to manufacture a package, reduce transportation expenses, and offer extended shelf-life to the product.

Due to stringent government regulations, changing consumer preferences, and environmental pressures, manufacturers are steering their strategies toward circularity and leveraged new plastic technologies to develop recyclable and sustainable solutions that include specific properties such as oxygen, moisture, light, puncture, and chemical resistance, and easy-tear propagation. While, key focus areas for manufacturers include the development of alternative bioplastics solutions such as polybutylene succinate and biopolyproplyene, along with the price and disposal of bioplastics, which will need to be examined to ensure successful usage.

Opportunity:

• Significant increase in the food products

By application, the food segment is projected to be the largest segment in the flexible plastic packaging market. More people are ordering daily staples, FMCG, and fresh food through e-commerce and online channels, which leads to an increase in the demand for flexible plastic packaging solutions. This in turn, boost the demand for flexible plastic packaging market for food application.

• E-Commerce

As consumers increasingly prefer e-commerce is given its efficiencies and the ease of comparison shopping, it has created many opportunities for flexible packaging. Flexible packaging is a lightweight alternative that can be used to eradicate handling and shipping costs, making it a perfect solution for e-commerce companies. Besides, high-barrier flexible packaging solutions add an extra layer of safety and use of multilayered films can provide enhanced protection against air, moisture and sunlight.

• Importance of Surface Protection Films

The Company is a well-known manufacturer of surface protection films and over the years importance of Surface Protection Films is increasing because it can withstand the stress of manufacturing processes like cutting, bending, deep drawing as well as the effect of mechanical handling during manufacturing and transportation.

• Glue-less Films

The Company has introduced Glue-less Films in the market in which adhesives are not used. However, it will take some time to educate the Customers regarding its benefits and stabilize its customer base.

Threat:

• Recycling and environmental concerns associated with flexible plastic packaging

Recycling of plastic packaging waste is a process that requires state-of-the-art infrastructural facilities. It is a time-consuming process that needs personnel expertise. However, some parts of the world lack these facilities for recycling. Even in developed countries such as the US, the problem of sub-standard infrastructure for recycling persists. Every year, in the US itself, recyclable containers worth more than USD 11 billion are thrown away due to a lack of recycling facilities. According to the UN Environment Programme, the world produces around 330 million tons of plastic waste each year. To date, only 9% of the plastic waste ever generated has been recycled, and only 14% is collected for recycling now.

As most recycling facilities are outdated, they are incapable of handling changes in waste streams. For instance, even though the amount of paper waste has declined, and plastic waste has increased, the existing machinery is ill-equipped to handle such changes in the trends of packaging waste.

According to the World Economic Forum, every year, at least 8 million tons of plastic leaks into the ocean, which is equivalent to dumping the contents of one garbage truck into the ocean every minute. This is expected to increase to two per minute by 2030 and four per minute by 2050, which can destroy the ecosystem. About 90% of all the trash in the oceans is from plastic. Estimates suggest that flexible plastic packaging represents the major share. Hence, recycling becomes a major challenge in the flexible plastic packaging industry, which provides re-use value, and results in lower wastage.

• Rising input costs

Resins, films and adhesives are some of the common raw materials used by the packaging companies. In recent times, the packaging industry was hit by increasing prices of such raw materials and the industry remains exposed to volatility in crude oil prices.

• Domestic Competition

Many domestic players have entered in the market of manufacturing Surface Protection Films which has reduced the selling price and has also put pressure on the profit margins.

In view of this, increased focus is now on for increasing export sales of surface protection films, it will help in increasing sales and maintain/ increase margins.

Operational Performance Review

During the year under review (FY 2023-24), the sales value showed an increase of 18% (from 9,601.38 lacs in 2022-23 to Rs 11,344.14 lacs in 2023-24). The PBDIT increased by 60% (from 954.58 lacs in 2022-23 to Rs 1,524.80 lacs in 2023-24) and company net profit almost doubled (from Rs 444.54 lacs to 946.70 lacs).

The total exports sales increased, in terms of value, export sales grew by 73% (from 1,343 lacs in 2022-23 to 2,318 lacs in 2023-24. In terms of volumes, export sales grew by 47% (from 562 MT in 2022-23 to 828 MT in 2023-24).

The increase in sales and profit was a due to various steps taken by the management, namely

> Exiting lamination business which helped the company to use the existing resources more effectively.

> Concentrated efforts on increasing sales of specialty products, adhesive films and surface protection films in the domestic market.

> Focus on increasing our export sales of surface protection films,

> Streamlining supply chain activities resulting in to reduced inventory

> Focus on reducing raw material costs by reviewing technical and concentrated buying efforts

The above two also drastically helped in streamlining our working capital, thereby reducing finance costs

> Focus on developing products for new applications of surface protection films

> Converting increased volumes by outsourcing to overcome capacity constraints

The Synergy Films Private Limited, wholly owned subsidiary of the Company has shut down its operations w.e.f. 7^th December 2019 for being economically unviable.

Key Financial Ratios:

Note:

a) Negligible interest cost, Company is effectively operating at zero debt.

b) Repayment of loans and non-utilization of Cash Credit.

c) Improvement in business operations, ultimately increase in net profits.

Segment information:

The Companys sole business segment is Plastic Films and all activities are incidental to this sole business segment. The Company services its domestic and export markets from India only.

Risks and Concern:

The Companys risk management is an integral part of how to plan and execute its business strategies. The Companys business activities are exposed to a variety of risks, namely liquidity risk, market risks, commodity risk and credit risk. The Companys senior management has the overall responsibility for establishing and governing the Companys risk management framework. The Companys risk management policies are established to identify and analyze the risks faced by the Company, to set and monitor appropriate risk limits and controls, periodically review the changes in market conditions and reflect the changes in the policy accordingly. The key risks and mitigating actions are also placed before the Audit Committee of the Company.

i. Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counter-party fails to meet its contractual obligations. The Companys exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the customer and including the default risk of the industry, also has an influence on credit risk assessment. Credit risk is managed through credit approvals, establishing credit limits and continuously monitoring the credit-worthiness of customers to which the Company grants credit terms in the normal course of business.

ii. Liquidity risk:

Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time, or at a reasonable price. Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Companys short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.

iii. Market risk:

Market risk is the risk that changes in market prices- such as foreign exchange rates, interest rates and equity prices- will affect the Companys income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Company operates internationally and portion of the business is transacted in several currencies. Consequently, the Company is exposed to foreign exchange risk through its sales and services in overseas and purchases from overseas suppliers in various foreign currencies. Exports of the company are

significantly lower in comparison to its imports. The exchange rate between rupee and foreign currency has changed substantially in recent years and may fluctuate substantially in future. Consequently, the results of the Companys operation are adversely affected as the rupee appreciates/ depreciates against these currencies.

iv. Commodity Risk:

Principal Raw Material for Companys products is variety of plastic polymers which are Derivatives of Crude Oil. Company sources its raw material requirement primarily from US Middle East and Europe. Domestic market prices are also generally remains in sync with international market price scenario. Volatility in Crude Oil prices, Currency fluctuation of Rupee vis-a-vis other prominent currencies coupled with demand-supply scenario in the world market affect the effective price and availability of polymers for the Company. The Company effectively manages with availability of material as well as price volatility through:

1. Widening its sourcing base.

2. Appropriate contracts and commitments.

3. Well planned procurement and inventory strategy.

Internal Financial Control Systems:

The Companys internal financial control systems are commensurate with the nature of its business and the size and complexities of its operations. These systems are designed to ensure that all assets of the Company are safeguarded and protected against any loss and that all transactions are properly authorized, recorded and reported.

Human Resources

It is your Companys belief that people are at the heart of corporate purpose and constitute the primary source of sustainable competitive advantage. Your Companys belief in trust, transparency and team work improved employee productivity at all levels. The Company has 132 employees on its payroll.

Cautionary Statement:

Certain statements made in the Management Discussion and Analysis Report relating to the Companys objectives, projections, outlook, expectations, estimates and others may constitute forward looking statements within the meaning of applicable laws and regulations. Actual results may differ from such expectations, projections and so on whether express or implied. Several factors could make significant difference to the Companys operations. These include climatic conditions and economic conditions affecting demand and supply, government regulations and taxation, natural calamities and so on over which the Company does not have any direct control.