Ecoplast Ltd Management Discussions.

Ecoplast Ltd 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 Company has had a major role in the development of the flexible packaging industry in India ; this industry uses multi layer 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 on April, 2021, Global prospects remain highly uncertain one year into the COVID-19 pandemic pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic- induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines—it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis.

Global growth is projected at 6 percent in 2021, moderating to 4.4 percent in 2022. The projections for 2021 and 2022 are stronger than in the October 2020 WEO. The upward revision reflects additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility. High uncertainty surrounds this outlook, related to the path of the pandemic, the effectiveness of policy support to provide a bridge to vaccine- powered normalization, and the evolution of financial conditions.

Indian economy

According to Crisil report published in April 2021,Fiscal Year 2021 has been a challenging year for the Indian economy, which was already experiencing a slowdown before the pandemic. Though there has been some pick-up in recent months, recovery is weak and uneven. The countys gross domestic product (GDP) is expected to contract 8% by end-fiscal. At the same time, monetary policy has begun normalizing and some tightness in domestic financial conditions is inevitable.

Against this backdrop, policy support remains critical, apart from action in the external environment. This fiscal, policy response to the pandemic has been more on damage control and providing support to the economy. In fiscal 2022, though, the government is expected to normalize some of the extraordinary or unconventional policy moves, while trying to ensure smooth revival in growth. Some of its biggest challenges ahead will be: broad-basing growth to services and labor-intensive manufacturing sectors and ensuring financial conditions stay supportive.

CRISIL forecasts Indias GDP growth to rebound to 11% in fiscal 2022. In reality, though the economy will end up only 2% above the fiscal 2020 level, it will be a sharp 10% lower than its trend level. Fiscal 2022 is also seen emerging as a story of two halves. The first half will be characterized by a base-effect-driven recovery amid the challenge associated with the resurgence in Covid-19 infections. But the second half should see a more broad-based growth, as vaccine rollout and herd immunity support sectors that are lagging. These include most of the services sectors, especially contact-based travel, tourism and entertainment. Also, stronger global growth should be supportive for Indias exports, to some extent.

Industry overview

Global flexible packaging market

The global flexible plastic packaging market size is projected to grow from USD 160.8 billion in 2020 to USD 200.5 billion by 2025, at a CAGR of 4.5% from 2020 to 2025. The flexible plastic packaging market is expected to witness significant growth in the future due to its increased demand in end-use industries, such as food, beverage, cosmetic & personal care, and pharmaceutical. Growth in modern retailing, high consumer income, and acceleration in e-commerce activities, especially in the emerging economies, are likely to support the growth of the flexible plastic packaging market during the forecast period.

Industrial Application of Plastics

Post COVID 19, 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

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.

Governments all over the world are encouraging the use of sustainable packaging in order to minimize waste. In 2018, the UK strode forward to become the world leader in sustainable packaging. With an investment of USD 80 million (60 million), the government called on innovators to develop packaging, which will reduce the impact that the harmful plastics are having on the environment. The Packaging and Packaging Waste Directive has been established in Europe, which has two main objectives: to help prevent obstacles to trade and reduce the impact of packaging waste on the environment. According to this directive, the EU States shall ensure that the recovery and recycling of packaging are made effectively and that the use of hazardous constituents in packaging is kept to a minimal level.

The packaging industry is a very dynamic industry that influences a lot of other industries as well. So, the

industry which was once placed at $32 billion could get a compound growth of around 15% within the last 5 years.And the rate is expected to increase by more than 13%-15%. In fact, Indias packaging industry is the worlds fifth-largest industry in the entire world.

Opportunity

• Significant increase in the food products during COVID-19 pandemic

By application, the food segment is projected to be the largest segment in the flexible plastic packaging market. People are resorting to panic-buying and bulk stocking due to the fear of lockdowns. More people are ordering daily staples, FMCG, and fresh food through e-commerce & 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 multi-layered 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.

• Glueless Films

The Company has introduced Glueless 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 & 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.

Operational Performance Review

During the year under review, sales value reduced by 22 % to Rs. 75,37,26,072 from Rs Rs.96,22,24,762/- in the previous year. The profit after tax reduced by 93% to Rs. 23,54,418/- from Rs. 3,38,84,780/- in the previous year.

The Company had closed its manufacturing plant and office with effect from March 24, 2020 following countrywide lockdown due to Covid- 19. The Company has gradually commenced operations from April 18, 2020 after obtaining necessary approvals. The Companys operations were impacted in the financial year 2020-21, due to scaling down/suspending production due to reduction in demand and supply chain constraints, drastic increase in Raw Material prices and 4 to 5 fold increase in ocean freight rates which could not be entirely passed on to the Customers because of time lag in implementing the price increase.

Due to ongoing COVID-19 pandemic, Mr. Jaymin B. Desai, Managing Director of the Company has voluntarily waiving his right to receive remuneration for the period from 1st April 2020 to 30th September 2020, The Board of Directors would like to place on record its deep appreciation towards Mr. Jaymin B. Desai, Managing Director for the kind gesture shown towards stakeholders of the Company in these testing times.

Currently major part of Companys contribution is derived from supplying Surface Protection Films which is mainly dependent upon the real estate and construction industry, which was badly effected due to the migrant issue coupled with the ability of buyers to pay in time. with each corona wave, there is a severe impact on our orders thereby affecting our operations and limping back to normal takes almost a period of six months. Further, the efforts to enter in to new customers/markets also takes a beating, as our potential customers are themselves busy in normalising their businesses and in this process, addition of a new customer takes a back seat.

The company is working on increasing sales by expanding its customers base with special focus on increasing sales of specialty products. In view of the currently prevailing second wave of Covid 19 in India, the management is unable to predict performance for the FY 2021-22.

However, the management is continuously working out ways to negate/reduce the effect of Covid 19 on its operations.

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

Key Financial Ratios

31.03.2020 31.03.2021 Change
Debtors Turnover Ratio 6.00 4.95 -18%
Inventory Turnover Ratio 8.79 6.65 -24%
Interest Coverage Ratio 9.37 3.71 -60%
Current Ratio 1.92 2.36 23%
Long Term Debt Equity Ratio 0.11 0.15 36%
Operating Profit Margin Ratio 4.03 -0.73 -118%
Net Profit Margin Ratio 3.36 0.28 -92%
Return on Net worth 11.04 0.66 -94%

• Interest Coverage Ratio has reduced because of major increase in the Interest cost and reduction in PBDIT as compared to previous year.

• Long Term Debt Equity Ratio has increased because of fresh borrowing of long term loans and vis a vis less increase in Net worth of the Company.

• Operating Profit Margin Ratio has reduced because of less operating Profits caused by Covid 19 Pandemic.

• Net Profit Margin Ratio has reduced because of less Net Profits caused by Covid 19 Pandemic.

Details of change in return on net worth as compared to the immediately previous financial year along with a detailed explanation thereof:

There has been huge decrease in return on net worth from 11.04% for the FY19- 20 to 0.66% for the FY20-21 because the net profit after tax has reduced due to Covid 19 Pandemic.

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 creditworthiness of customers to which the Company grants credit terms in the normal course of business. However post COVID 19 situation company expects increase in credit risk.

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. However in changed business scenario post COVID 19 liquidity position has become very critical. Company expects the payments getting abnormally delayed, which can result in liquidity issues for the company and pressure on working capital management.

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 optimising 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 Company holds derivative financial instruments such as foreign exchange forward contract to mitigate the risk of changes in exchange rates on foreign currency exposure. 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. 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 & 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 teamwork improved employee productivity at all levels. The Company has 140 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.

For & on behalf of the Board

Mukul B. Desai

(Chairman)

Place : Mumbai

Dated : 13th May, 2021