Esprit Stones Ltd Management Discussions

Please note statement in this Managements Discussion and Analysis detailing the Companys objectives, projections, estimates, expectations or predictions are "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include global and Indian demand -supply conditions, finished goods prices, feedstock availability and prices, cyclical demand and pricing in the Companys principal markets, changes in Government regulations, tax regimes, economic developments within India and the countries within which the Company conducts business and other factors such as litigation and labour negotiations.

I. ECONOMIC OVERVIEW

Global Economy and Outlook

The global economy in FY 2024-25 entered a phase of heightened uncertainty, shaped by evolving policy priorities, intensifying trade frictions, and an uneven recovery from past disruptions. According to the International Monetary Funds April 2025 World Economic Outlook ("A Critical Juncture amid Policy Shifts"), global growth is projected to moderate to 2.8%, significantly below the long-term average of 3.7% recorded during 2000-2019.This deceleration is primarily attributable to the rising incidence of trade barriers, including new tariff measures introduced by the United States and reciprocal actions from its trading partners. Such developments have disrupted global trade and investment flows, adding to prevailing policy uncertainty.

Growth in advanced economies remains subdued, with the United States expected to expand by 1.8% and the euro area by only 0.8%, constrained by tighter financial conditions and weakening demand. Emerging markets and developing economies are projected to grow at a relatively stronger pace of 3.7%, although they continue to contend with capital outflows and limited access to credit.

Global inflationary pressures are easing, with headline inflation forecast at 4.3% in 2025. However, the disinflation process is proceeding more slowly than anticipated. The balance of risks remains tilted to the downside, stemming from persistent geopolitical tensions, financial market volatility, and waning international development support - challenges that weigh more heavily on credit-dependent emerging economies.

Against this backdrop, the IMF underscores the importance of coordinated global responses to safeguard macroeconomic stability. For India, this environment reinforces the need to strengthen economic resilience through prudent fiscal management, deepening of inclusive financial systems, and adaptive policy frameworks. (Source: IMF World Economic Outlook - April 2025)

Indian Economy and Outlook

The Indian economy remained resilient through FY 2024-25 despite global headwinds and geopolitical uncertainties. Strong domestic demand, policy support, and structural reforms underpinned steady macroeconomic performance.

GDP growth is estimated at 6.5%, led by broad-based momentum across consumption, investment, and government spending. Construction, trade, and financial services were key contributors, supported by infrastructure expansion and credit growth. Inflationary pressures eased, with headline CPI falling to 3.6% in February 2025, while core inflation at 4.1% reflected lingering cost factors. The Reserve Bank of Indias balanced monetary stance ensured stability, complemented by fiscal measures.

The external sector remained stable, though persistent FPI outflows pressured the rupee, partially offset by strong domestic investor participation. Labour markets strengthened, with robust employment growth in manufacturing and services, and urban unemployment declining to 6.4%.

Indias GDP reached USD 4.3 trillion by the end of FY 2024-25, positioning the nation to overtake Japan and become the worlds fourth-largest economy. Looking ahead, the RBI projects growth of 6.5% in FY 2025-26, with inflation expected to remain within target. Strong fundamentals and proactive policies continue to support a favorable medium-term outlook.

(Source: Ministry of Statistics and Programme Implementation (MOSPI), RBI Issues April 2025 Policy Update)

II. INDUSTRY STRUCTURE AND DEVELOPMENTS

Esprit Stones Limited is primarily engaged in the manufacturing of Engineered Stones such as: (i) engineered quartz surfaces; and (ii) engineered marble surfaces. Our Company majorly manufactures engineered quartz surfaces and through our Subsidiary, Haique Stones Private Limited, we manufacture engineered marble surfaces.

Engineered Stones are composite material formed out of crushed stone that is held together by an adhesive. Engineered Stones non-porous characteristics, offer superior scratch, stain and heat resistance, making them extremely durable and therefore get an edge over competing products such as natural stones, laminate and other manufactured solid surfaces The strength, consistency, durability and appearance of our Engineered Stones, as well as their low maintenance makes it ideal for its application for vanities & bathroom surfaces, kitchen countertops, floors and wall cladding furniture, and other interior surfaces that are used in a variety of residential and nonresidential applications.

Global Engineered Stone Industry

The global engineered stone market more specifically global engineered quartz stone industry has developed into one of the fastest-growing segments within the construction and design materials space, reflecting both resilience and strong market potential. In 2024, the industry was valued at approximately USD 27.6 billion, representing an annual growth of around 6.2% compared to USD 25.9 billion in 2023. This consistent upward trajectory highlights engineered quartz as a leading material category, supported by its superior functional properties and rising preference among consumers and professionals alike.

Engineered quartz stone is produced using nearly 90% finely ground natural quartz blended with resins and pigments, resulting in a material that combines strength with visual versatility. Its non-porous surface delivers excellent resistance to scratches, heat, and staining, making it especially suited for areas exposed to intensive use. The material is widely recognized for its long-lasting appearance, low-maintenance requirements, and hygienic qualities, offering a clear advantage over many natural stone alternatives that demand periodic sealing or treatment.

Market demand for quartz stone is well distributed across applications, with kitchen and bathroom countertops accounting for the largest share due to their extensive use in residential interiors. At the same time, adoption is expanding across high-end commercial environments such as hotels, healthcare facilities, and corporate spaces, where durability, ease of upkeep, and refined aesthetics are critical. This diversified application base underscores engineered quartz stones growing relevance across both residential and institutional segments of the market.

Global Engineered Marble Market was valued at USD 1.74 billion in 2023 and is anticipated to project robust growth in the forecast period with a CAGR of 6.19% through 2029 (Source: Link). Engineered marble, also known as cultured marble or synthetic marble, is a composite material made from natural marble stone chips and polyester resin. This engineered stone offers numerous advantages, making it a preferred choice in various construction applications. Engineered marble is known for its durability. It is more resistant to stains, scratches, and impact compared to natural marble. This makes it a practical choice for high-traffic areas and surfaces prone to wear and tear. As consumers and businesses prioritize long-term cost savings and reduced maintenance, the demand for engineered marble has risen, propelling the markets growth.

Engineered marbles versatility is another factor contributing to its increasing popularity. It is available in a wide range of colors and patterns, allowing for customization to suit specific design preferences. This flexibility attracts both residential and commercial customers looking to achieve unique and distinctive interior spaces.

Regionally, North America remains the largest market, anchored by the United States, which alone accounts for nearly USD 25 billion in market size as of 2024. Demand is particularly strong in premium residential developments and the hospitality sector. Europe holds the second-largest share, benefitting from renovation activity and regulatory emphasis on eco-friendly construction practices.

Asia-Pacific, however, is emerging as the key growth engine. Valued at close to USD 3.5 billion in 2024, the regional market is forecast to expand at a CAGR of around 8.5% through 2033. Rising urban populations in China, India, and Southeast Asia are fueling higher consumption of engineered quartz in residential housing, commercial complexes, and public infrastructure. Current estimates suggest that countertops, flooring, and wall cladding collectively represent more than 40% of end-use demand in the region. Notably, Asia-Pacific already contributed about 38% of global engineered stone revenues in 2023, underscoring its strategic importance.

Beyond these established markets, emerging economies in the Middle East, Africa, and Latin America·though still modest in size at under USD 400 million each·offer significant long-term opportunities. Growth in these regions will likely be supported by investments in large-scale infrastructure, tourism, and luxury real estate.

Indian Engineered Stone Industry

Indias countertop market was valued at around USD 11.86 billion in 2024 and is expected to reach USD 19.39 billion by 2030, growing at an average annual rate of about 8.5%. Granite is currently the most commonly used material for countertops in India, but engineered quartz and composite marble is quickly gaining popularity and is projected to be the fastest growing segment in the coming years. (Source: Link)

India accounts for approximately 7.8% of global countertop market revenues, making it the fastest-growing market in the Asia-Pacific region. This growth is being driven by a rise in residential and commercial construction, increasing home renovation activities and a shift in consumer preference toward modern, durable and low maintenance surface materials.

Overall, the Indian countertop market is expanding steadily, with demand rising for both traditional options like granite and newer materials like quartz, especially among consumers who want stylish and long-lasting interior finishes.

III. OPPORTUNITIES AND THREATS

Opportunities for Engineered Stones Industry

Domestic Growth Momentum: Indias rapid urbanization, real estate development, and smart city initiatives are fueling demand for engineered stone in residential and commercial projects. The hospitality, retail, and healthcare sectors are also expanding at pace, with thousands of hotels, malls, and hospitals under construction ·each requiring durable and visually appealing surfaces. As buyers shift preference from natural stone to engineered quartz and marble for their uniform quality, lower porosity, and modern designs, manufacturers have a significant opportunity to capture the domestic market.

Export Opportunities: International markets are opening new doors for Indian manufacturers. Continued US antidumping duties on Chinese quartz are creating supply gaps. India, with its abundant quartz reserves in Rajasthan and southern states, is well-placed to fill this gap by ramping up production and offering competitive pricing. By focusing on compliance-friendly products such as low-silica or hybrid quartz, Indian suppliers can strengthen their foothold in the US, EU, UK, and Middle Eastern markets.

Diversified Applications: Beyond kitchens, engineered stone is finding growing applications in bathrooms, affordable housing, and institutional projects. Engineered and cultured marble are especially attractive for vanities, shower panels, and integrated sinks where cost efficiency and ease of installation matter. Airports, metro stations, schools, and hospitals are also specifying engineered stone for high-traffic areas due to its durability, low maintenance, and design flexibility. These diversified applications present manufacturers with multiple avenues for revenue growth.

Innovation & Sustainability Edge: As global buyers emphasize sustainability, Indian manufacturers can gain a competitive advantage by adopting eco-friendly practices. Incorporating recycled content, bio-resins, and ESG- compliant production processes not only meets international demand but also strengthens brand value. Additionally, innovation in design·such as thin slabs, textured finishes, and large formats·helps engineered quartz compete effectively against porcelain and sintered stone. Companies that invest in low-silica technology and sustainable innovation are best positioned to capture long-term domestic and export growth.

Threats for Engineered Stones Industry

International trade restrictions specifically in the USA is major challenge. The US maintains anti-dumping and countervailing duties on Chinese quartz, and there is increasing scrutiny on transshipment from other countries. India could face similar investigations if export volumes rise sharply. Protectionist policies, sudden tariff changes, or anti-circumvention probes can disrupt supply chains and squeeze margins for Indian manufacturers that rely heavily on exports.

The engineered stone industry is undergoing rapid technological change, with global leaders investing in advanced production methods such as low-silica formulations, hybrid mineral surfaces, digital vein-matching, and automated slab fabrication. For Indian manufacturers, the threat lies in falling behind these innovations, as outdated technology may limit their ability to meet stricter international health, safety, and design standards. Upgrading plants requires significant capital investment in R&D, machinery, and skilled labor, and those who delay may struggle with declining competitiveness, reduced export opportunities, and shrinking market share against technologically advanced global rivals.

IV. RISK AND CONCERNS

Our manufacturing activity is subject to availability of raw material such as quartz grit and powder, marble grit, calcite powder, resin, other chemicals and pigments and the costs of the raw materials. Any shortage in availability or fluctuations in raw material prices, may have effect on our business. While, we have not experienced any significant disruption in supply or fluctuation in the prices of raw material in the past, there can be no assurance that we will not face such situation in future.

The industry operates under stringent environmental and mining regulations. Compliance with land restoration norms, pollution control requirements, and sustainable mining practices entails significant investment. In addition, the availability of high-quality quartz deposits is becoming increasingly limited, pushing exploration into more remote and cost-intensive regions. Delays in approvals and procedural complexities can further affect operational efficiency and project timelines.

V. OUTLOOK

The future outlook of the Indian engineered stone industry, comprising quartz, composite marble, and terrazzo, remains positive over the next one to two years. Growth will be driven by continued urbanization, rising disposable incomes, expansion in real estate and infrastructure projects, and increasing consumer preference for durable, low- maintenance, and aesthetically appealing surfaces.

Export prospects are encouraging as Indian manufacturers continue to emerge as competitive suppliers to global markets; however, the imposition of tariffs and trade barriers in certain countries specifically the USA poses a potential risk to export margins and growth. However, countries other than the USA like UAE, Egypt, Saudi Arabia looks promising and positive for Indian Engineered Stone manufacturers.

On the domestic front, steady demand, coupled with technological advancements, product innovation, and emphasis on sustainable manufacturing, is expected to support the industrys long-term competitiveness.

VI. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

The Company has in place a well-structured internal control framework commensurate with the size and nature of its operations. These controls are designed to ensure orderly and efficient conduct of business, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, and timely preparation of reliable financial information. The internal control systems are regularly reviewed by management and tested by independent internal and external auditors, with their findings and recommendations placed before the Audit Committee. Based on the review, the Board confirms that the internal control systems are adequate and operating effectively, providing reasonable assurance regarding the integrity of financial reporting and compliance with applicable laws and regulations. Further, the management team also undertakes continuous evaluation of business processes to enhance fiscal prudence, operational efficiency, and statutory compliance. This proactive approach enables the company to optimize resource utilization, minimize operational risks, and uphold the highest standards of corporate governance.

VII. MATERIAL DEVELOPMENT IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS:

The Company recognizes that its employees are its most valuable asset and continues to invest in their growth and well-being. During the year, the Company maintained cordial industrial relations across all levels, with no instances of disruption reported. Focus remained on employee engagement, skill development, and fostering a performance- driven culture through regular training programs and transparent communication. The Company also introduced initiatives to strengthen workplace safety, employee welfare, and talent retention. The Board places on record its appreciation for the commitment and contribution of all employees towards the Companys performance and growth.

VIII. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE:

Consolidated Financial Performance

(R Lakhs)

Particulars	FY24-25	FY23-24	Change	Change in %
Sale of products	31,840.25	27,009.90	4,830.35	17.9%
Other operating revenue	307.83	279.12	28.71	10.3%
Revenue from operations	32,148.08	27,289.02	4,859.06	17.8%
Operating Expenses	-28,436.05	-24,157.74	4,278.31	17.7%
EBITDA	3,712.03	3,131.28	580.75	18.5%
Finance costs	799.25	997.11	-197.86	-19.8%
Depreciation and amortisation expenses	954.37	913.29	41.08	4.5%
Other income	249.92	188.8	61.12	32.4%
Profit / (Loss) before tax	2,208.33	1,409.68	798.65	56.7%
Tax expense:
(a) Current tax expense for current year	372.66	386.11	-13.45	-3.5%
(b) Deferred tax expenses	118.56	-10.62	129.18	-
(c) Prior year(s)	-2.96	2.46	-5.42	-
Profit / (Loss) for the year	1,720.07	1,031.73	688.34	66.7%
Profit attributable to shareholders	1,566.39	1,015.77	550.62	54.2%
Profit attributable to minority	153.68	15.96	137.72	862.9%

IX. SEGMENT-WISE PERFORMANCE

Business Segment-wise break-up of consolidated revenue from operations

Particulars	FY24-25	FY23-24	Change	Change in %
Engineered Stones	23,676.61	19,138.51	4,538.10	23.7%
Unsaturated Polyester Resin	8,471.47	8,113.87	357.60	4.4%
Other operations	-	36.64	-36.64	-100%
Total revenue from operations	32,148.08	27,289.02	4,859.06	17.8%

Geographical Segment-wise break-up of consolidated revenue from operations

Particulars	FY24-25	FY23-24	Change	Change in %
From customers in India	14,435.32	11,425.64	3,009.68	26.3%
From customers outside India	17,712.76	15,863.38	1,849.38	11.7%
Total revenue from operations	32,148.08	27,289.02	4,859.06	17.8%

X. DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS:

Ratios	FY24-25	FY23-24	% Change
Debtors Turnover (times)	3.87	4.79	-19%
Inventory Turnover (times)	4.95	4.77	-4%
Debt Service Coverage Ratio (times)	0.98	1.64	-40%
Current Ratio (times)	1.31	1.05	+25%
Debt Equity Ratio (times)	0.74	1.73	-57%
Operating Profit Margin % (excluding other income)	11.55%	11.47%	0.63%
Net Profit Margin %	5.33%	3.78%	42%
Return on Capital Employed % (calculated on closing capital employed)	12.58%	11.87%	6%

Notes on significant changes (>25%) in financial ratios:

(a) The Debt Service Coverage Ratio is decreased by 40%, as during the current year, the group has preclosed one of its term loan from proceeds from issue of share capital through Initial Public Offer. Hence the repayment of principal is much higher in current year and accordingly the ratio is very low for current year and decreased as compare to previous year.

(b) Current ratio has increased by 25% as the Company has raised funds through Initial Public Offer in current year and utilised part amount of it in its working capital requirement due to which current liabilities are reduced.

(c) The Debt-Equity ratio has decreased, as Shareholders fund has increased due to profits and issue of shares in the current year, further the debt is also reduced due to repayment of term loans and working capital loans remain in line with previous year. Accordingly, the gap between shareholders fund and borrowings has increased which has reduced the debt-equity ratio.

(d) The Net Profit Margin % is increased as net profit is increased due to decrease in the finance cost for current year. Further, The Company has achieved growth in its revenue as compare to last year.